PESTLE ANALYSIS OF

INDONESIA

Assignment of International Business

Name: Ankita Gaikwad

Roll No. 2021023
INTRODUCTION

Indonesia is a country in Southeast Asia and Oceania between the Indian and Pacific
oceans. It is officially known as the Republic of Indonesia. It is made up of more than
17,000 islands, including Sumatra, Java, Sulawesi, and a few Borneo and New Guinea
islands. Indonesia is the world's biggest archipelagic state and the fourteenth biggest
country by region, at 1,904,569 square kilometres (735,358 square miles). Indonesia is
the most populous Muslim-majority nation and the fourth most populous nation in the
world, with over 275 million people. More than half of the country's inhabitants reside
on Java, the world's most populous island. In the Asia-Pacific region, Indonesia is one of
the emerging market economies. The population is large and has a high purchasing
power. In addition, the government has placed a strong emphasis on implementing
economic reforms in order to attract capital from abroad.

Location of Indonesia on Map

 Flag of Indonesia

OFFICIAL NAME: the Republic of Indonesia

CAPITAL: Jakarta

MAIN TOWNS: Jakarta, Surabaya, Bandung, and Bekasi

POPULATION: 280,426,686

MONEY: The Indonesian Rupiah

AREA: 1,904,569 square kilometres

 POLITICAL
Indonesia's political system has changed several times since it gained independence from
Japan in 1945. The Reform Era, which began in 1998 following the authoritarian leader
Suharto's resignation due to a massive popular uprising, is the most recent period. Since
that time, there has been an ever-evolving democratic process, which is far from perfect
but continues to this day. According to Indonesia's 1945 Constitution, the president and
vice president are directly elected by the people and can only serve for two five-year
terms each. Joko Widodo, or "Jokowi," is the current president, head of state, and
government of the Republic of Indonesia. He was first elected in October 2014, and he
was re-elected in April 2019 for his final presidential term.68 During this second period,
Jowoki set up a coalition government known as the "Onward Indonesia Cabinet" with
the goal of achieving political stability and passing significant resolutions.

• Government and Administration

Indonesia follows the constitutional and presidential democratic system of government.
The president has the complete power of being the head of the government, head of the
state, and commander-in-chief of the armed forces. Indonesian politics have got many
political parties. Prosperous Justice Party, Indonesian Democratic Party of Struggle,
Democratic Party, and Great Indonesia Movement Party are some of the tops. Her
constitution does not allow the president to serve the country for more than two terms of
5 years each.

• Judiciary System:
According to Indonesia's constitution, the judiciary is made up of the Supreme Court, the
Constitutional Court, and the lower courts that fall under the Supreme Court. The public
courts, religious courts, state administrative courts, and military courts are the four main
types of lesser courts.

• Main Political Parties:

Act No. 2/2008 on Political Parties governs the political party system in Indonesia. “A
national organization founded by like-minded Indonesian citizens with common goals to
fulfil common interests and to defend the unity of the Unitary State of the Republic of
Indonesia as based on Pancasila and the 1945 State Constitution of the Republic of
 Indonesia," is how the law defines a political party. To be recognized by the authority,
political parties must register with the Ministry of Law and Human Rights. A notarial act
that recognizes the party establishment and party constitution must be one of the
registration criteria, as mandated by the law. A document that explains party emblems;
address of the party's headquarters and evidence of how the party's local offices are
distributed across provinces, cities, and regions; and evidence of the party's bank account.
In addition, the law mandates a minimum of 50 members for new political parties, with
a minimum of 30 percent representation of women in office and membership.

• Foreign Relations
Instead of having antagonistic relationships with its neighbours, Indonesia has developed
friendly ones. She is a member of the WTO, the Organization of Islamic Cooperation,
the East Asia Summit, the Association of Southeast Asian Nations (ASEAN), the Non-
Aligned Movement, and the G20, among other trading organizations. Indonesia, on the
other hand, turned down her application to join OPEC, or the Organization of Petroleum
Exporting Countries.

• Safe and Secure

The people of Indonesia have faith in the nation's law enforcement, and the country is
safe and secure.69% of Indonesians trust the local police, according to a report from
Global Law and Order, a US research organization.68% of respondents reported feeling
secure while alone walking at night. It is one of the country's greatest assets for attracting
tourists.

• Corruption
Corruption is a major problem in Indonesia. It has infiltrated every business, political,
and government organization in the nation. It’s important to note that many Indonesian
provinces want to be their own countries. The nation is being led toward political
instability as a result.
 ECONOMIC

Indonesia's economy is one of the emerging markets and the largest in Southeast Asia.
Indonesia is considered a newly industrialized nation because it is a member of the G20
and a middle-income country. Numerous Indonesian businesses are owned by the
Indonesian government. But her economy is still dominated by private businesses and
foreign investors. Some of Indonesia's most important industries are oil and gas,
agriculture, hydrocarbons, automotive, hospitality, mining, and hydrocarbons. She
imports a lot of her goods from Thailand, Malaysia, Japan, Singapore, and China, in
addition to exporting them to Singapore, India, Japan, the United States, and China.

• GDP
The Gross Domestic Product (GDP) in Indonesia was worth 1186.09 billion US dollars
in 2021, according to official data from the World Bank. The GDP value of Indonesia
represents 0.08 percent of the world economy.

• Tax
Corporate Tax Rate in Indonesia is expected to reach 22.00 percent by the end of 2022,
according to Trading Economics global macro models and analysts expectations. In the
long-term, the Indonesia Corporate Tax Rate is projected to trend around 22.00 percent
in 2023

• Inflation
During the observation period from 1960 to 2021, the average inflation rate was 43.9%
per year. Overall, the price increase was 78,664,025.83%. An item that cost 100 rupiahs
in 1960 costs 78,664,125.83 rupiahs at the beginning of 2022. For October 2022, the
year-over-year inflation rate was 5.7%.

Indonesia is in trade deficit.

Income Classification - per capita income
Indonesia belongs to Lower Middle-Income Countries.
 SOCIO-CULTURAL
Indonesia is the largest Muslim-majority country in the world. It is also the biggest
archipelago, consisting of over 17,500 islands. The dispersion of the islands means that
distinct microcultures have developed to be regionally specific. Furthermore, over
300 ethnic groups are spread across Indonesia. The largest is the Javanese population
(41%) that mostly occupies the island of Java. Others include, but are not limited to, the
Sundanese, Malay, Batak, Madurese and Betawi people. Most ethnicities have
languages, histories and cultures that pertain specifically to them. Hence, Indonesians
tend to identify themselves locally foremost (according to their ethnicity, family or
birthplace) before defining themselves nationally.

● Language

The primary lingua franca is Indonesian, also known as Bahasa Indonesia on the local
level. Over 94% of Indonesians speak the language, but only 20% of them use it as their
primary language. Over 30% of the population speaks Javanese, or Jawa, which is the
primary language.

● Religion

In Indonesia, there are more than 200 million adherents to Islam, with 99.99 percent
being Sunnis. The government recognizes Islam, Protestantism, Catholicism, Hinduism,
Buddhism, and Confucianism as the six official religions. Minor religions like Sikhism
and ancient indigenous belief systems are also present.

● Festivals

The Important festivals celebrated in Indonesia are:

1. Rambu Solo Ceremony

2. Nyepi
3. Jember Fashion Carnival
4. Baliem Valley Festival
5. Sekaten
 6. Pasola
7. Waisak
8. Galungan
9. Independence Day
10. Mappanretasi
11. Bau Nyale
12. Dieng Culture Festival
13. Lampung Krakatau Festival
14. Yadnya Kasada
15. Eid-Ul-Fitr
16. Bidar Boat Race
17. Cap Goh Meh
18. Tomohon International Flower Festival

● Local cuisine
Nasi Goreng, which literally translates to "fried rice," is an Indonesian dish that has its
roots in Southern Chinese culture and is a highly adaptable dish. It mostly consists of
meat and vegetable pieces stir-fried with seasoned rice. People’s worries about what to
do with leftover rice led to the creation of this dish. Although the exact date when
Indonesians adopted the Chinese fried rice recipe and added their own traditional
"twist" to Nasi Goreng is unknown, some believe it occurred around the 10th century,
during Srivijaya’s reign, when trade between Indonesia and China flourished.

● Family Values

Indonesians place a strong emphasis on family. In Indonesian culture, family holds the
most significant significance. The connection between every individual from the family
is close, in spite of the fact that it's uncommon to see relatives showing their sentiments
and friendship straightforwardly.
● Business Culture
People in Indonesian business culture think that good relationships and harmony are the
most important parts of running a successful business. The idea that "time is money"
doesn't work in different cultures. As they work, people try to maintain a pleasant and
enjoyable atmosphere rather than being overly productive.

● Language and Communication

The national and official language of Indonesia is Bahasa Indonesia, which is spoken
everywhere. It is the official language that is taught in schools and broadcast in digital
and electronic media. Most Indonesians communicate in an indirect manner. To convey
meaning, they use fewer words and pay greater attention to their posture, expression, and
voice tone. Speech is ambiguous, frequently understating the point or making polite
corrections.

● Body Language

Individuals don't generally utilize motions while talking. Additionally, hurried

movement is less prevalent than in many other nations. Instead, Indonesians frequently
cross their hands behind their backs or place their palms in front of one another to prevent
their arms from dangling uncontrollably from the sides of their bodies.

● Meals and Dining Etiquette

When eating Indonesian food, the right hand holds the spoon and the left hand holds the
fork to push the food onto the spoon. The majority of the ingredients, including meat and
vegetables, are already cut into bite-sized pieces prior to cooking because there is no
knife on the dining table.

● Clothing

The majority of Indonesians dress in "western" attire for everyday wear. Men wear pants,
shirts, and occasionally ties. Typically, women wear blouses and dresses. Due to the hot
and humid climate, Indonesian clothing is light. Jeans and T-shirts are common casual
clothing among young people.

Man's sarongs: Sarongs with a check red pattern were typically worn by Indonesian men
at home. The sarong is only worn to the mosque on Fridays for public prayer. Men wear
batik shirts with trousers or teluk beskap, a Javanese jacket and sarong, for formal
national events.

A female kebaya: Indonesian women wear the kebaya for formal events. A bright-
coloured batik sarong and an embroidered blouse are the components of a kebaya. A long
piece of cloth known as a selendang may be draped over one shoulder. A head shawl can
be made of this fabric. Women are not required to wear traditional Muslim attire, but due
to the large Muslim population, they tend to dress conservatively. Only the beaches allow
people to wear very light clothing.
TECHNOLOGICAL

The primary means of mass communication is television; However, it is also noteworthy

to make use of online platforms. Indonesians are among the most prolific Twitter users
worldwide. YouTube, WhatsApp, Facebook, Pinterest, and Instagram are all other
networks that are doing extremely well in the nation. Indonesia quickly grasped and
accepted technology. To make it easier for her people to learn and adapt, even the
government has launched a number of tech projects and changed the language to local
dialects. Chemicals, electronics, textile, automotive, and food and beverage are the three
primary focus areas of her industrial project.

Over the years, Indonesia's adoption of technology has progressed well. The government
has unveiled a plan called "Making Indonesia 4.0" to use technology more to boost
growth and increase industrial capacity in five key industries: chemicals, automotive,
electronics, food and beverage, and textiles. In the future, Indonesia has the potential to
lead the world in these five areas. The Internet, artificial intelligence, human-machine
interface, 3D printing, and robot and sensor technology are the specific tech areas that
the government has focused on.

It is important to note that the availability of skilled labour, which Indonesia lacks, is a
crucial factor in technological advancement. Data security, protectionist regulations, and
a lack of infrastructure for payments and deliveries are additional issues the nation faces.
However, it is important to note that the Indonesian government intends to make it easier
for start-ups to hire foreign workers in order to address the skill gap in the burgeoning
tech industry.

You will need the tech workforce to share knowledge and expertise when we discuss
technological development. Indonesia, on the other hand, has a low tech workforce. She
also lacks the payment and delivery system's infrastructure, data security, and privacy
concerns.

Opportunities: The Industrial Revolution 4.0 shifts the world away from manual
processes and toward digital ones. As Indonesia's digitalized economy is relatively new,
it opens up new investment and economic opportunities. In Indonesia, numerous start-
ups and unicorns operate in a variety of ways to respond to this new phenomenon.
Challenge: If you do not know how this open and transparent digitalized social life
works, it can be dangerous for some people. When it comes to the internet, privacy and
security are the most common concerns. Individuals present their own character to a site
or online entertainment eagerly and if web-based entertainment does not get their client's
information quite well, it very well may be utilized to risky plan for instance dark mission
or can't stand discourse.

Additionally, there is the threat posed by cryptocurrencies, a system that creates a digital
currency. The money can be truly shaky that could influence genuine cash which will
prompt temperamental economy. There is likewise a tax collection framework that is
difficult to follow because the cash is in digitalized structure. That makes it simple for
some people to get around this and avoid paying taxes on their business.

The government is obligated to educate its citizens about the system and protect their
online identities. A government initiative is required to establish a platform through
which individuals can comprehend the dangers and consequences of internet use.
 LEGAL

Civil law serves as the foundation for Indonesia's legal system. Indonesia does not have
a federal government because it is a republic. However, there is a certain amount of
autonomy within each region, and regional governments do have the authority to enact
specific regional regulations.

Poor contract enforcement is one of Indonesia's biggest legal risks. Particularly, access
to justice is restricted by corruption in the legal system. According to Wells (2007), when
businesses form joint ventures with private companies or the government, they frequently
lose investments in capital-intensive industries. Excessive control over foreign direct
investment poses another legal threat to the nation. For instance, only 49 percent of FDI
can be invested in land and air transportation. According to Otsuka, Thomsen, &
Goldstein (2011), this indicates that foreign investors in Indonesia are more likely to hold
minority stakes in businesses that operate in sectors where FDI is restricted. Being a
minority investor is a gamble since it limits cooperation in dynamic cycles.

Employees' rights are protected by Indonesian law. Social security, religious holiday
allowances, specific working hours, overtime pay, and paid leave must all be provided to
employees by businesses. However, it is challenging for foreign businesses to
successfully establish themselves in Indonesia.

• Categories of Property Rights in Indonesia

Types of land titles that can be acquired in Indonesia and the parties that are permitted to
acquire each of the specific titles:
1. Right of Ownership (Hak Milik, or HM) – Indonesian individuals and specific Indonesian
institutions;
2. Right to Build (Hak Guna Bangunan, or HGB) – Indonesian individuals and Indonesian
companies;
3. Right to Cultivate (Hak Guna Usaha, or HGU) – Indonesian individuals and Indonesian
companies;
4. Right to Use (Hak Pakai) – Indonesian individuals, Indonesian companies, governmental
institutions, religious and social agencies, diplomatic offices, international agencies,
foreign representative offices and foreign citizens;
5. Right to Manage (Hak Pengelolaan) – government institutions (including regional
governments, state-owned business entities, regional government-owned business
entities, PT Persero, authority bodies (badan otorita) and other government legal entities
designated by the government);
6. Right of Ownership over Stacked Units (Hak Milik Atas Satuan Rumah Susun, or
HMSRS) – parties who are entitled to hold the land title on which the building is erected;
and
7. Lease (Hak Sewa) – Indonesian individuals, Indonesian companies and foreign parties.

• Free Trade Agreement

Since Indonesia is a signatory to 14 Free Trade Agreements (FTAs), U.S. agricultural
exports face stiff competition. The major FTA partners of Indonesia (such as China,
Australia, and New Zealand) also profit from being close. Nevertheless, despite
increasing tariffs and decreasing tariff rate quotas, five agricultural products produced in
the United States that are impacted by these FTAs remain competitive. In 2021, the
United States exported tree nuts, processed vegetables, corn, beef, and dairy for a total
of more than $516 million.

• Tax System in Indonesia

In Indonesia, individuals, investors, and businesses all have to pay a variety of taxes.
Withholding taxes, international tax agreements, value-added tax (VAT), luxury goods
sales tax, customs and excise, tax breaks, and the land and building tax are all included
in this. Our tax section aims to provide comprehensive information about current taxes
that investors should keep in mind when making investments in Indonesia. In Indonesia,
new progressive income tax rates go into effect in January 2022.The changes include an
increase in the upper threshold for the 5% rate from IDR 50 million to IDR 60 million
and a new top individual income tax rate of 35% on income above IDR 5 billion.

• Foreign Exchange Regulation

Indonesia's capital account is open, but there are some restrictions on transactions.
Foreign trade-related exchange operations can only be carried out by authorized banks.
To support the purchase of a foreign currency against the Rupiah through banks
exceeding $25,000 per month, BI requires the submission of evidence of underlying
 transactions (regulation 17/49/DPM).BI rule number The prohibitions and restrictions on
conducting foreign exchange transactions with foreign counterparts are outlined in
7/14/PBI/2005, which was published on June 14, 2005.

In 2015, Bank Indonesia issued a regulation (17/3/PBI/2015) requiring all domestic

financial transactions to be conducted in Rupiah as part of a series of measures intended
to strengthen the Indonesian Rupiah and assist in reducing the current account deficit.
While this was anticipated to truly affect U.S. organizations working in Indonesia, the
guideline's exceptions have assisted with directing the degree to which unfamiliar firms
are impacted.

• ESG related regulation

Environmental

The fundamental guidelines that must be followed by everyone in order to safeguard the
environment are outlined in Section 32 of the Environmental Protection and Management
Act of 2009 and its amendments. It controls the commitment to oversee ecological
maintainability and precludes anybody to dirty the climate, discard poisonous risky waste
into the climate, and direct land clearing by copying.

Social

Social issues are governed by a variety of regulations, each tailored to the particular
social issue at hand.

The employment sector is governed by Law No. 13 of 2003, as amended, on Human

Resources11 of 2020 on Creating Jobs. It ensures that employees receive work safety,
timely payment, and other rights to which they are entitled in accordance with the laws
and regulations, as well as shields employees from employer discrimination.

Customers are also protected in Indonesia. Law No. 2 specifically regulates consumer
protection.8 of 1999 pertaining to consumer protection. It regulates consumer rights,
including, but not limited to, the right to: i) Select products or services; and (ii) be heard
if they have comments or complaints about these products or services.
Governance

The main corporate law, Law No. 40 of 2007 on Limited Liability Companies (the
"Company Law"), governs governance issues such as the responsibilities of the Board of
Directors (BOD) and Board of Commissioners (BoC), annual general meeting
shareholders, and the company's obligation to notify the Ministry of Law and Human
Rights of any changes to the company's Articles of Association and obtain their approval.
 ENVIRONMENTAL

The environment and development are constantly at odds in Indonesia. Indonesia is the
fourth most populous nation on the planet, a rising economic superpower, home to the
largest Muslim population in the world, and the location of numerous diverse natural
resources. For many years, the country has struggled to strike a delicate balance between
environmental preservation and ensuring social justice for those who live in the
landscapes that surround it.

Indonesia is at the centre of two significant narratives about its place in the climate
change era, making it difficult to strike a balance. On the one hand, Indonesia is
frequently referred to as a location with an abundance of biodiversity and unspoiled
wilderness. On the other hand, it is viewed as a location where colonial and postcolonial
social tragedies and neoliberal development facilitated environmental degradation.

• Natural Disasters
Tsunamis and earthquakes are two of the worst natural disasters that Indonesia has
experienced. Indonesia’s infrastructure was largely destroyed and thousands of people
died as a result of the tsunami in 2004.The country faces a number of major challenges,
including water pollution, traffic congestion, air pollution, the exploitation of marine
resources, rapid urbanization, and deforestation.

• Tourism Industry

Between Asia and Australia, thousands of islands make up Indonesia. They promote her
tourism industry and draw tourists from all over the world. From 2010 to 2020,
Indonesia's annual revenue was estimated to be 2655.81 million dollars on average.
CONCLUSION
After a careful study of the pestle analysis of Indonesia, I have concluded that Indonesia
is the world’s leading economy and a populous country. Natural disasters, limited tech
professionals, and political corruption are some of the country’s main issues. Indonesia
should address them. Whereas, Indonesia’s economy will keep expanding along with its
GDP and its stable inflation rate. The archipelago is prioritizing economic growth;
however, the achievement of its full potential is dependent on the ability to move away
from protectionist policies.
 REFERENCES

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in-indonesia
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