Indonesia contract law & how to negotiate with your distributor?

What do you need to know about Indonesian business culture?

One thing that foreign business persons need to get used to in Indonesia is the slow pace of business decision making when it comes to negotiations. As with most nations in Asia, hierarchy plays an important role in the business dealings in Indonesia. It pays to observe who the top-executive is and pay due respect to that person. However, group consultations are common before arriving at a decision making each person in the customer negotiating team important.

What are negotiation tactics in Indonesia?

  • Greetings have to formal with a handshake
  • Pay attention to the eldest persons first when meeting a group
  • Business cards are important and should display your title; one side printed in Bahasa shows respect for your Indonesian counterparts
  • Focus more on Long-term propositions and permanent benefits
  • Relationship building with your prospective business partners is very important
  • Expect some bargaining on the overall deal as Indonesians like to haggle a little

How much is the contract worth in Indonesia?

Relationships in transacting business entities is of primary importance to business dealings in Indonesia. Agreements may not capture all the minute details but generally record the high level understandings and discussions. You should be prepared for a few changes to the original draft before the agreement is finally signed.

Given its low transparency business environment, enforcing contracts in Indonesia can be a long and difficult process. Recoveries in case of disputes are lower than average in more developed countries. However, since agreements are well-thought about before formalisation, the incidence of disputes is low.

International contracts are governed by the Indonesian Civil Code.

What are pricing policy, pressure and restraints in Indonesia?

Indonesia has a system of tariffs on imported goods, with a 10% VAT loading. Recent reports suggest that import tariffs on several classes of imported commodities have been increased. With increasing inflation and a slowing economy, the Indonesian government has increased import duties to help local industries thrive. In certain areas though, imports continue to grow and only the latest market information can assist you in arriving at the right decision in a fluid market.

What is Indonesian legal system?

The Indonesian legal system is based on a civil code with its roots in the European legal frame work owing to its former Dutch colonialists.

What is the arbitration and litigation in Indonesia?

The law no.30 of 1999 governs out of court arbitrations in Indonesia. Arbitrators are either elected by parties in dispute or appointed by a competent court of Indonesia. The arbitration proceedings are confidential. The arbitration expenses are often borne by both parties, but can be entirely charged to the unsuccessful party in some situations. Certain foreign arbitral awards are enforceable in Indonesia as the country is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign arbitral awards.

While Indonesian courts are largely impartial, litigations including the appeals process can take up to 5 years to conclude.

Anywhere in the business world, an ounce of prevention is worth a pound of cure; export to Indonesia is no different. With a knowledgeable local partner, you can focus on core business needs instead of being bogged by legalities and administrative risks to make your Indonesian business deal profitable.

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