Indonesia still has plenty of room to grow

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A market with a lot of potential, but at the same time many imponderables - this is how Indonesia, the partner country of this year's Hanover Fair, presents itself to the mechanical engineering companies from Germany.

  • VDMA: Partner country of the Hannover Messe is a difficult market, but has clear potential
  • Exports in 2019 reach around 800 million euros
  • Mechanical engineering companies from Germany have comparatively few local branches

Since 2015, the Asian country has ranked between 40th and 43rd place in the export statistics for the mechanical engineering industry, with the annual export volume for machinery and equipment from Germany in this period ranging between 700 and 800 million euros. Last year an estimated 800 million euros were achieved. "However, Indonesia imports significantly more machinery and equipment overall than other markets of this size. As a result, there is still plenty of room for improvement for companies from Germany and Europe. The possible annual volume for German machinery exports is likely to be between 1 and 1.5 billion euros," says Klaus Friedrich, Indonesia expert of VDMA Foreign Trade. 

Economically Indonesia has great potential. A market with more than 200 million inhabitants theoretically offers the chance to develop the country into one of the largest economies in the world. In view of the dynamic economic development in South East Asia (Asean), Indonesia can also benefit from regional growth, as well as from the efforts of international companies to diversify their activities in Asia.

Germany is the largest European supplier of machinery to Indonesia

Many administrative obstacles on the ground

At the same time, however, the Indonesian market is considered to be intransparent. Investment projects are often negatively influenced by administrative and other framework conditions (e.g. deficiencies in the infrastructure). "For companies, it is essential to have local representatives who are familiar with local conditions," explains Friedrich. According to market experts, Indonesia requires above-average local support and assistance in order to ensure a structured market development that is not primarily characterized by coincidences and opportunities. This is hardly possible for companies that do not have a regional office in Singapore or Thailand, for example. 

Moreover, for some years now reports of visa problems have been increasing. "Even companies with many years of experience in Indonesia do not manage to obtain reliable information on visa practices," the VDMA expert complains. "They report more and more often about difficulties of their customers to obtain the necessary work permits from Indonesian authorities". Furthermore, problems with "Visa-on-Arrival" for simple business trips are reported more frequently.

China dominates the local machine market

Germany is the largest European supplier of machinery to Indonesia, with a share of around 6 percent of all imported equipment, and is thus also ahead of the United States. However, the Indonesian machinery market is dominated by China (around 32 percent) and Japan (around 19 percent). The machinery and plant deliveries from Germany cover all branches of industry. Most recently, the most important branches of industry have been conveyor technology, food and packaging machinery and general ventilation technology.

The number of branches or subsidiaries of German machinery and plant manufacturers is significantly lower than in Thailand, Malaysia or Vietnam. For example, the VDMA found a high double-digit number for Malaysia, while Indonesia is only in the lower double-digit range. "This cannot possibly have economic reasons, as the other markets are smaller than Indonesia," says Friedrich. "Either the general conditions for subsidiaries in Indonesia are more difficult, or the companies do not want to enter into their own direct involvement on site for business policy reasons," he analyses.

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