Manufacturing companies in Indonesia are very great. Recently, Indonesia became the tenth-biggest manufacturing nation in the world. Indonesia’s large manufacturing sector accounts for about ¼ of the nation’s total GDP. Besides that, its large manufacturing sector employs more than 1/5 of the nation’s working age population (about 25 million employees). So, we can say that Indonesia’s manufacturing sector is larger than the UK, Mexico, and Russian’s manufacturing sectors now. A few years ago, the services sector belongs to the most prominent employer. In Indonesia, this sector accounts for 45% of local workers. Then, there are agriculture and industry sectors following it.
We can estimate that Indonesia’s labor pool is at about 120 million people. Annually, it is growing by approximately 2.4 million. Because the economy has significantly progressed beyond the agriculture base to a mixed composition, there are more workers that are employed in service-related professional industries and manufacturing. With its competitive workforce and fast-growing middle class, more foreign investors take advantage of manufacturing companies in Indonesia. But the sector faces significant challenges such as intense international competition, various levels of transparency & clarity in regulations, difficulties getting credit, high transportation & logistics costs, as well as increasing labor costs.
Now, manufacturing companies in Indonesia is an increasingly interesting destination for foreign investors, thanks to their cost-effective & abundant labor. So, if you want to set up manufacture products or a manufacturing company in Indonesia, there are 3 potential ways you can do. For your information, many Australian manufacturers are established in Indonesia as a partnership or joint venture by hiring sub-contractors or with an Indonesian party. Generally, these options involve the Indonesia parties that have already established factories with staff & equipment. Because of that, make sure that you perform due diligence on your local business partners.
How to Establish Wholly Foreign-Owned Manufacturing Companies in Indonesia
Another option is to start up a wholly foreign-owned manufacturer company. Generally, it is a PMA. But it can bring more challenges compared to the other 2 options because you start the business from the scratch. To establish wholly foreign-owned manufacturing companies in Indonesia, you have to select a location first. You can use a designated industrial area because they have good infrastructure. Besides that, the licenses are easier to get. Second, apply for an exemption that (a material facility) to avoid factory equipment import taxes. Last, you must get a Permanent Business License. You can get it from BKPM.
Recently, Indonesia has introduced a designated special economic zones (SEZ) system that offers different administrative incentives such as advanced infrastructure, tax concessions, and easier licensing processes to encourage the establishment of industries and businesses. Prioritized industries in manufacturing companies in Indonesia include tourism, banking, transportation, maritime, as well as manufacturing. Free-trade zones also provide business advantages and incentives that relate to quotas, tariffs, trade barriers & bureaucratic requirements. For your information, manufacturing companies in Batam exempt from value added tax, luxury tax, and import duties because they are in free trade zone.
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