International Business in Indonesia

International Business in Indonesia

Bertha Brown

MGMT 4437 International Business

Dr. Yue Zhao

August 12, 2018

International Business in Indonesia

        International business in Indonesia is built on lasting relationships. Indonesia has a diverse group of people, and three branches of government. Unfortunately, corruption and fraud are a major concern for the citizens. This research is about the conditions in Indonesia; it will explain the politics, and relationships being built through trade, and international business.

Indonesia is in Southeast Asia and has the largest Muslim majority population, and the fourth largest country after China, India, and the United States. It has over three hundred linguistic dialects, and most Indonesian descended from the Austronesian speaking natives. According to worldpopulationrevie.com, other ethnic groups that cover the Indonesian state population are Sundanese (15.5%), Malay (2.27%), Madurese (3.03%), Batak (3.58%), and Minangkabau (2.73%)” (Indonesian Population, p. 1). However, Chinese culture accounts for a low percentage of the population, and they are influential controlling most of the country’s capital and business.

        Indonesia has a secular point of view on politics that are not an injunction from religious practices. Indonesians are obliged to opt for any religion selected, which are officially recognized by the government such as Islam, Protestantism, Roman Catholicism, Buddhism, Hinduism, and Confucianism. However, Muslim principles play a crucial role in political decision making and decentralizing of political power in post – Suharto era. Therefore, it would make it impossible to elect a non- muslim president. Moreover, Indonesian muslims are characterized as moderate as a majority of Indonesia muslims are nominal. For example, Indonesia muslims will not accept the implementation of Islamic law (sharia). Likewise, Indonesia has three political branches of government which are the Executive, Legislative, and Judicial branch.

        In the executive branch, it is a democratic republic which has the characteristics of an authoritarian democratic system. It consists of the president, vice president and the cabinet but unlike the United States it is only kept for five years. The critical matters that influence the candidacy include ethnic, religious backgrounds, and social status.

        In the Legislative Branch, it has both central government and People Representative Council and the Regional Representative Council.  According to the Embassy of the Republic of Indonesia, “Together these groups have the power to pass laws, amend the constitution, and conduct investigations, oversee the state’s budget and can dismiss the president and vice president in accordance in the  constitution” (Embassy of the Republic of Indonesia Washington, p. 1).  Lastly, in the Judicial Branch, the Supreme court is the final court of appeals and oversees all lower court rulings which include general court, religious, military, and administrative. Thus, to safeguard its independence, it is free of the other branches to control of the government.

        Indonesia is one of many countries facing a presence of corruption.  It has been noted by the Indonesian citizens, and the authorities are not solving the issues promptly. According to the Indonesia corruption Report, bribes are taken as well. “One in every ten surveyed Indonesians reported paying bribes to the courts in the past twelve months” (GCB, 2017).  Also, political unrest has been unstable, and their policies are subpar. Thus, it is causing the citizens to be enraged because of the changes made. Likewise, fraud has skyrocketed and is very common in Indonesia. Unfortunately, people who live outside Indonesia are often tricked, become targets and victims of fraud. Therefore, it affects political standards and crime increases.

        Indonesia’s trading environment is the largest economy in Southeast Asia. It is ranked fourth as the largest nation, and tenth to the economy in regarding of purchasing power. According to Daniel Workman, “Indonesia’s five leading trading partners are China $23.Billion (13.7 percent of total Indonesian exports), the United States $17.8 billion (10.6 percent), Japan $17.8 billion (10.5 percent), India $14.1 billion (8.3 percent), and Singapore $12.6 billion (7.6

percent)” (Workman, 2018). Moreover, on worldstopexports.com, Indonesia’s top five  exporting goods are palm oil ($14.4B), coal briquettes ($11.98B),petroleum gas ($6.22B), copper ore ($3.48B), and gold (1.37B)” (Workman, 2018).

        However, in each category palm oil is the prominent exporter with fifty -four percent market share, and annual export market worth of twenty- six billion dollars. In other countries such as Malaysia has a market share of thirty- four percent followed by Germany at 4.1 percent. Furthermore, Indonesia’s palm oil plantations have expanded due to the increase of requests for biofuel production. Also, the increased request for coal briquettes for the country is the second largest exporter with an output of over 11.9 billion dollars and eighteen percent market share value.

        In Indonesia, regional economic integration is a regional entity as Indonesia is one of the founding members of the Association of Southeast Asian Nations (ASEAN). Regional economic integration defined as a phenomenon through which the neighboring countries agree with the member countries to upgrade cooperation is through common rules and policies. Hence, it is the only country to join the G-20 because of its larger size regarding GDP.  However, Indonesia position in the ASEAN has expanded economic change from trade to investment. Therefore, business opportunities in Indonesia can be addressed effectively and efficiently.

 Indonesia is a member of the Association of Southeast Asian Nations since 1967, (ASEAN) which develops free trade and improve cooperation in economic, social, cultural, educational and technical development.  In 1984, the founding countries of the ASEAN merged with Brunei Darussalam, and later from 1995-1999 the countries Vietnam, Laos, Myanmar, and Cambodia joined the ASEAN and formed the ASEAN Free Trade Area (AFTA).

However, Indonesia has specific standards while exporting specific goods from other countries and these may pose a trade barrier for individual businesses. For example; shipment of “beef, or beef products must be certified as halal” (Commission, 2018). Also, trade barriers could be tariff based or non- tariff base. Hence, goods such as food, agricultural, and livestock must be certified; from the government of Indonesia to sell their products in that country. However, goods such as alcohol beverages have an additional tax and tariff, and meat from horticultural products need a letter of recommendation from the government.