One might ask this question when they are considering Indonesia as a potential market to enter for e-commerce businesses. However, not many businesses have the right resources, advise or tools readily available for them to make the right decisions. Everyone talks about the benefits and/or advantages of entering the Indonesian market, no one has talked about the drawbacks of it.
Most markets in Southeast-Asia has its own quirks, culture and way of doing business. Indonesia is no different. Having experience around the region, we’ve seen many difficulties for import and we think that you should be well informed of some pitfalls that you may encounter running your products to Indonesia.
1. Warlike Import Market
Okay, let me explain. With how the market is now, there are a lot of politics and power plays involved in the space. This makes it very difficult for new players into the market and survive. The friends at MW published a Chinese article recently explaining this landscape.
First off, kudos to the man who wrote it. It was informative and quite frankly, it is pretty revealing. However, being in the same market, that article sheds truth on something that no one wants to acknowledge, there is market control. With that market control, comes barriers for entry.
As a merchant in foreign lands looking to capitalise on the growing market that is Indonesia, this can prove to be a very challenging roadblock to manoeuvre. How do you pick the right agent/partner to move with? How do you overcome problems that occur if you make the wrong choice?
Many have tried alternatives for a multitude of reason (price, service levels, etc.), many eventually started moving with the two big agents, or engage smaller agents who function under the big agents in the market. This results in a few problems, namely, the price and the service quality that you get with your imports. With someone who’s moving hundreds of tonnes, you will be sure to be sidelined if you are not contributing at least 10% of their volumes. Potentially leading to slower services, inconsistency or generally a subpar experience for your consumers.
Don’t get me wrong, I am not saying that they are performing badly or will perform badly. I am saying that all the above can be a possibility, one that can affect your business to varying degrees.
2. High Import Duty and Tax
Every country has duties and taxes that are due when importing most things. Unlike first world nations like the United States, anyone in Europe or even Singapore, Indonesia like many others have very loose or unclear rules surrounding duties and taxes for imported products.
However, with the introduction of a new regulation to control the importation of e-commerce goods, this import duty and tax are standardised across all sorts of commodities. This is great news as it simplifies the import process and also makes import duties and taxes predictable prior to selling the product. So, let’s get down to the basics:
Parcels above USD 75 in value is subjected to duties and taxes
Duties: 7.5%
VAT: 10%
Income Tax: 10%
VAT and Income tax is compounded on the value of the parcel plus the duties incurred. This results in duties and taxes to roughly amount to 29% of the value of the parcel. This duty and tax rate is considerably high compared to the likes of Singapore or Australia with 7% and 10% respectively for GST only.
This means a few things, namely, Indonesia is primed for low-value goods. Anything that is below the USD 75 limit is great for the market. However, if your product value exceeds that, then you have to consider the fact that your product is now effectively 29% more expensive excluding shipping to the end consumer.
You as a business are the only one that is able to determine where a 29% increase in price is something that consumers would be happy to pay for. Ultimately, if there’s no demand for your supply at 29% more, then Indonesia is not a market you’d want to enter unless you’re willing to give your margins a squeeze.
3. Restrictions and Complications
My favourite topic of importing into Indonesia is always the restrictions and complications that you may have when importing into Indonesia. The reason for this is because everyone will say they can import anything, or they will say they can’t, but no one actually takes the trouble and time to explain to merchants why.
The problem with restrictions is that a lot of different agents will tell you different things. Most will be able to tell you that you can import just about anything, while others will say it is taboo in the country. Obvious dangerous goods and the usual weapons, drugs, etc. aside, here are some things that you really shouldn’t import into Indonesia:
- Propaganda materials
- Pornographic materials
- Sex toys
- Religious materials (books, etc. regardless of content)
- Any form of raw materials
Cosmetics, supplements and medicine used to be a big no for e-commerce shipments, however, over the recent year, the Indonesian government has started allowing imports of these products in small quantity so long as they are for personal use only.
However, the complication is that you need to prove to the customs inspection officer that the product is in fact for personal use and not for redistribution or resale (which is what most of the ‘consumers’ usually import for). The current requirement is for the consumer to sign a statement letter that declares the use to be personal and would then be tied to his or her personal identification details.
This then creates even more complication as you will need to collect the data as well as a signature from the consumer. Not only is this task time-consuming, but the authorities are also very particular on how the statement letter is acquired. They will not accept a checkbox acknowledgement during a checkout process, which results in agents to have to collect these signatures manually.