Economic Overview of Indonesia
Executive Summary
Executive Summary
This paper examines the economic environment of doing business in Indonesia. It takes into account several dimensions such as political, legal, economics, social and technology factors. However, economics and political factors are covered in depth as they have a greater impact on establishing advantages and challenges when a firm might decide to set up a business in Indonesia. The results show that not only legal origins have an impact on corporate finance, ownership and structure, but also politics. The poor quality of the judiciary and legal system and the bureaucracy is much more a legacy of the Soeharto government than of the Dutch colonial system (and French civil law). From the analysis of economics trends emerged that from 2002 to 2004, Indonesia’s economic has suffered as a result of a loss of policy credibility, which weakened its currency and caused high level of inflation. In such circumstances, monetary and competition set of policies have been issued to remediate the downward trends. Reductions on tariffs and interest rates decline have contributed to a rapid increase in credit expansion and new competitiveness. This paper also finds that Indonesia offers a great deal of resources such as rubber and mineral resources along with skilled labour. Although an automotive component firm might benefit from those resources, there are few implications such as weak infrastructure and corruption which would constrain foreign investors to discard investments in Indonesia. In conclusion, challenges are higher than potential advantages with regards to the automotive component industry. However, this paper outlines in its conclusion a recommendation in the circumstance whereby foreign investors will not discard investments. In order to overcome potential problems concerned with the excessive red tape and corruption, this paper suggest a joint venture entry mode with a business group such as the Salim Group.
INDONESIA
Executive Summary
This paper examines the economic environment of doing business in Indonesia. It takes into account several dimensions such as political, legal, economics, social and technology factors. However, economics and political factors are covered in depth as they have a greater impact on establishing advantages and challenges when a firm might decide to set up a business in Indonesia. The results show that not only legal origins have an impact on corporate finance, ownership and structure, but also politics. The poor quality of the judiciary and legal system and the bureaucracy is much more a legacy of the Soeharto government than of the Dutch colonial system (and French civil law). From the analysis of economics trends emerged that from 2002 to 2004, Indonesia’s economic has suffered as a result of a loss of policy credibility, which weakened its currency and caused high level of inflation. In such circumstances, monetary and competition set of policies have been issued to remediate the downward trends. Reductions on tariffs and interest rates decline have contributed to a rapid increase in credit expansion and new competitiveness. This paper also finds that Indonesia offers a great deal of resources such as rubber and mineral resources along with skilled labour. Although an automotive component firm might benefit from those resources, there are few implications such as weak infrastructure and corruption which would constrain foreign investors to discard investments in Indonesia. In conclusion, challenges are higher than potential advantages with regards to the automotive component industry. However, this paper outlines in its conclusion a recommendation in the circumstance whereby foreign investors will not discard investments. In order to overcome potential problems concerned with the excessive red tape and corruption, this paper suggest a joint venture entry mode with a business group such as the Salim Group.
INDONESIA
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