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An Investor’s Guide: How to Minimize Risk in Indonesia

For global investors, there is a whole host of issues that make Indonesia seem like a risky bet. The country has a growing but still fragile economy, infused with a dose of political uncertainty and an amorphous regulatory environment, where mandates are ever-changing and the rule of law is often a smoke screen. 

In other words, Indonesia’s business landscape lacks transparency and the legal system is more corrupt than most other places in the world. This makes it a less than ideal place to invest if you are a foreign business or individual.

According to local law firm Loys & Co, the important rules can be either scattered in diverse regulations or not yet regulated. Further, new laws introduced are most often not being subsequently complemented with the publication of the proper details in a timely fashion.

This time gap makes it difficult to enforce laws with efficiency. The absence of clear rules creates the practice of applying unwritten policies and administrative discretion by authorities. From a conservative investor’s perspective, this likely makes Indonesia tainted goods. The issues add up and potential risks skyrocket.

With this in mind, there are still undaunted global investors looking to follow the road less travelled in Indonesia. Those looking to enter and do business in the archipelago need to mitigate pitfalls by implementing a proper strategy, positioning themselves to effectively manage a crisis and making sure their assets are not open to regulatory dangers.

Protect your people

First things first. Your company’s employees need to be protected. If you want them to focus on the all-important task of running the business, you’ll need to make sure that they aren’t instead concerning themselves with the legality of working for you or other security-related risks.

For both foreign and local employees, business owners need to ensure the company is looking after their interests, including their dependants.

When employing expats, these assurances will come in the form of permits and visas for the employees and their families. It can also include providing housing and transport accommodations. Make sure your office is okay for commercial use and leased legally for that purpose. Also make sure your team members are aware of your policy in the event of a ‘wild card’ incident such as Immigration raiding your office in search of a payoff.

Make sure your team can produce their legal documents if asked. For locals, it’s always best to carry out background checks as well. This may be able to help you spot potential conflicts of interest and perhaps even reveal the intent to commit corporate espionage on behalf of a competitor.

Working with a third party agency or consultant may be advised for companies doing business for the first time in Indonesia.

Secure your tech and information

Your company’s information will need to be protected and only shared with parties who need to know. The odds are that you will be on a first-name basis with your competitors in the local market. Due to the dynamics of Indonesia’s business culture, information about companies is sometimes bought and sold illegally. This is something that may happen back home, but which is likely not as pervasive as it is in Southeast Asia.

Clerks may accept cash or incentives from third parties in exchange for your company’s trade secrets or inside information. Often this is in digital form, with information being passed via email or other web sharing tools. Have a system in place to make sure that your data won’t be leaked. In the event that it does get leaked, make sure you are able to easily identify the source of the problem.

Make sure your IT department can monitor what’s going on within your network and make sure sensitive information can’t be accessed easily. Also make sure your network is not vulnerable to being hacked from the outside, as in recent years, much of the world’s cyber attacks have originated in Indonesia.

Guard your property and get insurance

“Companies involved in the storage, distribution or manufacturing of product are also faced with ongoing theft of product from their facilities. In some cases, particularly where the company may experience labour related disputes, the threat may then arise in the form of criminal damage, sabotage or arson,” writes Nick Duder of risk management firm Hill & Associates in Jakarta.

He added, “Dissatisfied employees or managers with a more entrepreneurial approach may undertake to compete with their existing employer and decide to set up or support a parallel operation and as such steal or divert raw materials or compete through producing an imitation or counterfeit product.

Duder advises investors and company owners to make sure you’ve got the right insurance coverage. This may include site-specific threat assessments at the locations where the company intends to set up shop.

Vet your partners and vendors thoroughly

In sometimes unreliable and hostile markets like Indonesia, the importance of choosing local partners and vendors wisely cannot be overstated.

Choosing an unsuitable business partner may be a recipe for disaster in places like Indonesia. Incoming foreign investors and business owners need to take the due diligence process seriously when it comes to things like background checks, insisting on financial standings disclosures, understanding the reputation of the potential partner and more.

This is true in most markets, but in Indonesia, carrying out due diligence properly may end up being one of the most important things a foreign-owned company can do.

Loys & Co advises studying up on how the laws operate in Indonesia (relevant to your business) by performing a pre-investment investigation on the legal structure. The intention of this exercise is to get accurate information about the local legal environment and become acquainted with it so that investors are able to put in place an optimal legal structure for investment protection.

The best way to do this is by retaining professional support from consulting firms (legal and accounting) with deep local insights and experience.

Additionally, a local Indonesian partner can assist in navigating the complex and tangled bureaucratic web of rules and also deal with the Indonesian government directly. They can also provide investor insights into Indonesia’s business culture that you’ll ultimately find invaluable.

 

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Leighton Cosseboom is Indonesia Expat's editor and CEO of Content Collision (C2) in Southeast Asia. He covers a variety of topics related to news, business, and technology in the region. See his portfolio at leighton.c2live.com and build your own for free! For more information, visit www.contentcollision.co