Indonesia - Country Commercial Guide
Market Challenges
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Challenges abound for small and medium size enterprises seeking to access the Indonesian market.  Trade restrictions, such as local content mandates, can make it difficult for firms, including those new-to-market.  The Government of Indonesia has touted the Omnibus Regulation of 2020 for reducing bureaucratic red tape and facilitating investment. Major challenges include labor relations, intellectual property protections, transparent rule setting and opaque implementation, divergent standards and certification, and pricing sensitivities. 

U.S. companies continue to identify Local Content Requirements (LCR) or TKDN in Indonesian as one of the most significant challenges they face in Indonesia. LCRs were originally focused exclusively on the oil and gas sector but have more recently been applied to a broad range of economic sectors. Indonesia’s oil and gas regulator also maintains stringent rules relating to how local content is measured for oil and gas projects, which are intended to achieve an average of 91% local content by 2025.  Goods and services supplied by companies without a majority Indonesian shareholding cannot qualify as local content, which disadvantages foreign energy service companies. Opportunities in the pharmaceutical, medical device, renewable energy and aerospace sectors are held back by overly stringent local content requirements.

Protection of intellectual property is a key concern, with Indonesia remaining on the Priority Watch List in the 2021 Special 301 Report. U.S. exporters and businesses planning to establish a significant presence in Indonesia should be aware of widespread copywrite piracy and trademark counterfeiting, both online and in physical markets.

Indonesia’s 2016 Patent Law continues to raise concerns, including with respect to the patentability criteria for incremental innovations, local manufacturing and use requirements, the grounds and procedures for issuing compulsory licenses and disclosure requirements for inventions related to traditional knowledge and genetic resources. See the U.S. Trade Representative National Trade Estimate Report on Foreign Trade Barriers 2023 for additional information.

U.S. firms should be mindful of additional requirements for testing and certification imposed on a wide range of products. In many cases, the U.S. exporter will need to pay for an Indonesian laboratory or certification body to conduct testing for individual shipments, adding to the overall cost of bringing goods to market.

Exporters targeting public tenders will find an opaque pricing environment, and local content requirements. For example, medical device manufacturers have expressed the need for greater clarity in how pricing and reimbursement are set within the Indonesian National Formulary. Authorities enforce local manufacturing requirements to varying degrees in key industry sectors, including those considered best prospect sectors.

Manufacturers selling goods or services through e-commerce platforms, who are deemed to have a significant presence in Indonesia, will be assessed a ten percent value added tax on all transactions in Indonesia. Determination of a “significant presence” is currently based on gross sales in Indonesian Rupiah (50 million in any given month, or 600 million per year) or number of customer transactions (1,000 in any given month, or 12,000 per year).