Understanding Indonesia

Cultural intelligence is key to achieving sustainable business outcomes. Being able to read cultural clues and respond appropriately helps develop relationships, communicate effectively and build trust. While cultural and communication norms are changing as virtual modes of engagement increase, core cultural values remain an important factor in international business. Not understanding the particularities of doing business in Indonesia can lead to missed opportunities, delays and lost engagements.

Communication

As is common throughout Southeast Asia, communication styles in Indonesia can often be indirect. ‘No’ is often replaced by ‘not yet’. Australian businesses need to be mindful of the impact of conflict avoidance in engaging with suppliers, distributors and clients.

Indonesia is often referred to as a ‘high context’ culture, in that what is not said can be as important as what is. It is also important to be aware of geographical variation – communication styles in some parts of the archipelago are known to be more direct, even than those in Australia.

Staying connected with Indonesian stakeholders through multiple communication channels is key to building relationships and understanding cultural context. Other than relying on email, the use of instant messaging apps, particularly WhatsApp, is widespread in Indonesia.

Relationships

A fundamental element of doing business in Indonesia is securing strong relationships with suppliers, distributors, clients and other stakeholders. The strength of business relationships can determine many aspects of commercial life, including gaining credit, procurement and contracting, and the timeliness of bureaucratic processes. Investing in business relationships often involves large amounts of face-to-face interaction, with a strong emphasis on loyalty and trustworthiness, and may take a long time to develop.

Hierarchy

Hierarchy is an important part of Indonesian business culture and seniority often determines responsibility for decision making. Despite being across the detail of a business plan, junior staff members would often not be expected to speak openly or contradict senior staff members. Age, status and position within an organisation can determine who interacts with whom, so these details should be considered when engaging in business or administration.

Business loyalties are often personal and revolve around the ‘boss’, rather than the organisation itself. In this context, the patron/client relationship takes on particular significance, whereby those with influence provide for those less well placed in return for professional and personal loyalty. Australian businesses should understand the prevalence of these relationships, and how they might impact the probity and integrity of business processes.

The importance of partnerships

Successfully navigating the Indonesian business landscape often requires local talent, knowledge and expertise, and partnerships. Identifying a potential partnership requires having relationships in place that can facilitate introductions. After a potential partner has been identified, it is essential to conduct due diligence. This includes understanding their customers and clients, reach across Indonesia, support for product localisation and in-market reputation. It is essential to undertake reference checks and risk assessments before formalising any local partnerships.

The concept of group welfare is influential in Indonesian culture and an effective way to build trusted partnerships. Foreign businesses that seek to contribute to the wellbeing of those living and working in their immediate neighbourhood not only enhance their licence to operate but can gain commercial advantage.

For a more detailed understanding of business culture, business etiquette and building long term and sustainable partnerships to deliver strong business outcomes visit the Asialink Business Academy.

Navigating culture in business - the importance of core cultural values 

While Indonesia offers opportunities for informed and well-prepared Australian businesses, doing business overseas can involve a range of new risks. These should be identified and mitigated as much as practicable – and managed carefully once business operations are established.

Economic - including the potential for government default (sovereign risk), fiscal, monetary and exchange rate risk.

Indonesia’s economic outlook is stable, with a BBB rating from both Standard & Poor’s and Fitch. This balances the country’s solid growth outlook, low government debt and low inflation with weak government revenue and lagging government indicators. The Indonesian Rupiah (IDR) has depreciated moderately over the past decade.

Potential mitigations for foreign exchange risk include forward contracts, foreign currency options and utilising foreign bank accounts and loans to manage currency inflows and outflows. Seek advice on your level of risk and potential mitigations.

Political - including the potential for political instability and restrictive government policies.

Indonesia is considered politically stable. The new government elected in 2024 has continued to maintain investment friendly policies. Politically motivated demonstrations occasionally occur, but not to the extent that it impacts foreign investment. Easing inflation, employment growth and a clear election result will reduce the likelihood of major public protests.

For significant investments, you may wish to explore political risk insurance as a potential mitigation.

Corruption - including the potential for bribery, embezzlement and conflicts of interest.

Indonesia’s corruption rankings have declined in recent years. It ranks 101st of 180 countries in Transparency International’s 2025 International Corruption Index. Graft remains pervasive despite the prosecution of a number of highlevel officials.

You should familiarise yourself with Australia’s foreign corruption and bribery legislation and ensure you have a robust anti-corruption strategy.

Regulatory - including the potential for regulations that increase the cost of doing business, reduce the attractiveness of an investment or change the competitive landscape.

While Indonesia has undertaken wide-ranging reforms to improve the regulatory landscape, regulatory efficiency remains relatively weak. The government’s so-called Omnibus Law has improved the business environment by reforming labour laws and reducing regulatory barriers to trade and investment. However, regulations can be opaque and amended at short notice. According to the Heritage Foundation’s 2024 Index of Economic Freedom, Indonesia’s score for property right, judicial effectiveness and government integrity is below the world average.

IA-CEPA provides some protection against sudden regulatory changes, particularly around data localisation, financial services and telecommunications. A trusted local partner can help you understand and navigate complex regulatory processes.

Intellectual property (IP) - including the potential for weak or underdeveloped IP protections and enforcement mechanisms.

Indonesia’s IP protection and enforcement is underdeveloped. It has limited participation in international IP treaties, barriers exist for licencing and commercialisation of IP assets and the copyright environment is challenging with high levels of piracy and counterfeiting. The 2025 Global Innovation Policy Centre International IP Index scored Indonesia 50th out of 55 countries. So-called ‘squatters’ register trademarks with no intention of using them, and distributors have been known to register a foreign brand’s IP to secure ‘insurance’ in contract renegotiations.

Registration for patents, trademarks and copyright is an important step in IP risk mitigation. Conducting due diligence on potential distributors and partners and ensuring contracts and distribution agreements have an IP protection clause can also help mitigate risk. Continual product development can deter counterfeiting and technology solutions such as RFID tags and QR codes can add an extra layer of protection.

Geopolitical - including the potential for trade relationships, security partnerships and territorial disputes to impact business activities.

While Indonesia will be affected by intensified geopolitical competition between the US and China, its economic weight, policy of nonalignment and regional leadership role will reduce the impacts of geopolitical risk.

Boards and leadership teams should familiarise themselves with geopolitical issues that may impact your business and, if relevant, develop plans in response to potential scenarios. You may also wish to seek external advice.

Supply chain - including the quality of infrastructure, levels of corruption, corporate governance, supply chain visibility and timeliness.

Supply chain risk is moderate given the varying quality of Indonesia’s infrastructure and logistics networks, prevalence of corruption and relatively low levels of supply chain visibility. FM Global’s 2025 Global Resilience Index ranked Indonesia 78th out of 130 countries for supply chain resilience.

Potential mitigations include supplier diversification, holding additional inventory, and implementing new operating models and processes. Technology is also providing improved analytics, sensors and automation.

Climate - including the potential for extreme weather events and rising sea levels to impact trade routes, supply chains and infrastructure.

Indonesia’s geographic and climatic position make it vulnerable to the impacts of climate change. More severe tropical cyclones and heavier rainfall will have major impacts on economic development and labour productivity.

Identifying and mitigating climate change risks should be embedded in all elements of your strategy and operating model.

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