In Indonesia most effective & popular market entry strategy is via agents or distributors.

• An agent would be an Indonesian national trading company acting as mediator to act for and on behalf of the principal on the basis of agreeing to undertake marketing without transferring rights to physical goods and/or services owned/controlled by the appointing principal. The principal may be a manufacturer or supplier, and may be located offshore or onshore. The agent never acquires any rights to the goods and services.
• A distributor is a national trading company acting for and on behalf of the company on the basis of an agreement to purchase, store, sell as well as market goods and/or services owned or controlled.

The Indonesian Investment Coordinating Board (BKPM) provides for certain types of direct investment approvals from both domestic and foreign investors. A Foreign Company must establish itself as a legal entity in Indonesia, often called a Foreign Investment Company, or “PT. Penanaman Modal Asing (PT. PMA).” A Foreign Company that wishes to access the Indonesian market may also establish itself as a Representative Office and not a branch office. Some business sectors require a foreign company to establish a local partner in which the foreign company is allowed up to a certain percentage of ownership depending on the sector. The companies that are interested in establishing a legal entity in Indonesia should first check the latest Negative Investment List, which was released May 24, 2016 as Government Regulation No. 44/2016.

Indonesia continues to maintain a Negative Investment List which includes some sectors that are closed entirely and some open with conditions. Apart from the Negative Investment List industries, 100 percent foreign ownership is allowed. As a practical matter, a local joint venture partner is often essential for success in this market, for the same reason that an active Indonesian agent or distributor has advantages over a foreign trade representative office. The choice of an Indonesian joint venture partner is critical for many reasons, especially for knowledge of the local environment and contacts. A few firms provide background and credit-type reports on Indonesian entrepreneurs and firms.

Franchises facilitate the transfer of know-how and managerial expertise to the franchisee companies while simultaneously allowing the franchiser to quickly establish a presence in the country. Under a typical franchising agreement, the franchiser receives royalties and fees as stipulated in the contract. In exchange, the franchisee has the right to use and manufacture copyrighted, patented or service marked materials identifying the enterprise. The franchiser typically provides training and organizational guidance in return for a guarantee that the franchisee will follow these operational directions.

Although it may be possible in some cases to sell directly to the government, there is good reason to use the services of an agent or distributor for the early stages of project development, delivery, installation and service needs. Traditionally, most government procurement decisions have been based on long-established relationships and may exclude those participants who are not well known in the market. New-to-market firms need the careful advice of local representatives to avoid wasting time and money participating in a tender. Firms also need to be aware of the cultural differences of communicating in Indonesia. An agent may find it difficult to share bad news with a partner or may not be completely candid about the company’s chances of winning a tender. A close relationship with one’s agent is the best way to ensure open communication.