Executive Summary

The purpose of this report is to evaluate business opportunities and also to establish a wholly

owned subsidiary in Indonesia. Not only that, another purpose of this report to address the

unfavorable and favorable national business environment in Indonesia.

There are also several studies that have been implemented such as about politics, law,

environmental, economic and social. First, politics in Indonesia using trias politica, it is a theory

that divides the power of state government into three types of power, namely legislative,

executive and judiciary. Despite having three kinds of power, but legislative and judiciary have

greater influence than executives. Besides Indonesia implements civil law system and also runs

customary law and roman Dutch law as their law. In the economic section, Indonesia has

increased their GDP by 0.1 to 5.1% in first quarter of 2017 and this figure exceeds the average

GDP in Southeast Asia of only 4.8%. Indonesian uses Bahasa Indonesian as their mother tongue.

But in some cities, they are using their own language such as Java language and Indonesian

people are weak against other languages such as English.

In addition, comparisons across cultural practices between the two countries have been evaluated

using two frameworks. First Kluckhohn-Strodbeck framework consisting of 6 different

dimensions which are time orientation, trust and control, responsibilities to other, view of

personal space, relationship to nature, and Material and spiritual. The second framework is

Hofstede framework consisting of five different dimensions which are Power Distance,

Individualism vs. Collectivism, Long-Term Orientation, Masculinity vs Femininity, and

Uncertainty Avoidance.
1.0 Introduction

The purpose of this report is to analyze the business in a multi-national company that was in

Indonesia with a view of the national factors, political, cultural, legal and economic. These

factors are very important and can influence a business whether a business will use a joint

venture or wholly owned subsidiary.

Indonesia is the largest in the world, situated between the Australia and Southeast Asia plains

and also located below Malaysia. With more than 260 million people, Indonesia is listed as the 5

most populous countries with the highest cultural riches in the world. Indonesia has more than

300 ethnicities and about 250 languages nationwide (Bertrand 2004). Bahasa Indonesia is the

national language and also the language of unity that hamoir spoken by the entire population of

Indonesia. After experiencing the economic crisis in 1997, Indonesian government realizes that,

the important role of foreign investment for economic reconstruction in Indonesia (Aspinall

2015). Indonesia has increased its investment and domestic consumption in 2008 by 6.4%,

which was 6.3% in 2003 (PKF). It continues to attract foreign investment to help and improve

the climate of inventiveness. The Government of Indonesia recognizes the importance of foreign

investment to foster sustainable economic development and can increase export transfers to

Indonesian society (Kahin & Kahin 1995).

1.1 Method entry

The joint venture is a combination of two or more firms that are creating new business by

conducting mutually beneficial activities such as creating a new product or market development

(Terjesen 2010). One of the advantages of joint ventures is the partner firms can receive benefits

such as gain access to new resources market, including technology, distribution and network.

However, Joint venture also have a risk, both companies would have difficulty merging their

culture and how to run the company as a way of thinking and acting in taking decisions.

Beside that wholly owned subsidiary is the company that built separately by the parent company

and 100% wholly owned by the parent company itself (Williams & McWilliams 2010). The

main advantages in wholly owned subsidiary is the parent company have experienced employees

and resources that are ready to given to subsidiary so subsidiary just use it. However, wholly

owned subsidiary also have a risk, the parent company must pay the full cost of capital

subsidiary in full and not helped by other firms. Example of industries that have built their

companies in Indonesia by using wholly owned subsidiary method is Chevron (Indonesia Fact

Sheet 2012).

Conclusion and Recommendation

In conclusion, the right recommendation for entry into Indonesia is a wholly-owned subsidiary

business. Although the political problems that will be a nuisance for potential investors, but with

the rapidly growing economic growth in Indonesia and also the increase in GDP in Indonesia

continues to rise each year, it can provide an opportunity for potential investors or foreign

companies to establish their company in Indonesia. Beside that, Indonesia has some religions

that they believe and Islam is the largest religion in Indonesia which is recorded 87.2%. The

similarities between Indonesia and Malaysia in terms of cultural practices can allow Malaysian

companies to work together and can appropriately cope with preferences and lifestyles at the

community level (Clark &Pietsch 2014). However, in terms of language used, where most of

the population in Indonesia is weak to English. In this case the company should consider in

applying labor etiquette so that there is no misunderstanding and can be minimized

appropriately. By using a wholly-owned subsidiary, the company can further save the cost of

developing and distributing the product.

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