A Foreign Business Deal in Indonesia: Understanding Business Culture for International Negotiations

by | Sep 29, 2020 | Study Insight | 0 comments

It is already a well-known fact that being the fourth most populous country in the world, Indonesia is a hot target for foreign businesses to grow. In 2019, the country is the 16th-largest economy in the world according to the World Bank. It is predicted to be the fifth-biggest by 2024, and although the COVID-19 pandemic may slow the process down, the country’s emerging middle class and high population would get the economy back on track. As with the case in Wuhan, once the pandemic died down.

The latest data from Indonesia’s Investment Coordinating Board suggests that there are over 25 thousand foreign companies in Indonesia. Even during the pandemic, it was announced last July by the same board that 143 foreign companies wish to relocate to Indonesia. The question in mind is what is the success rate of those foreign entities in making it in Indonesia? Because not only is the country known for its market potential, but it is also vastly known for its diverse culture and ethnicity. How can a foreign enterprise cope with its different business culture?

To understand Indonesia’s business culture, one needs to zoom out on the picture and really dive into Indonesian cultural values. Before we proceed in discussing these, however, it is important to note that our analysis occurs on the national level. While in reality, subcultures exist and there are subtle differences in culture between different regions in Indonesia.

A Collectivist, Face-Saving, and Hierarchical Culture

Using the old-school Hofstede cultural framework, individualism in Indonesia is measured and analyzed. Indonesia scores 14 out of 100 in individualism, making it a collectivist society where having a sense of belonging to a group, conforming to its norms, and maintaining harmony are far more important than claiming individual preferences. Therefore, building a trusting personal relationship is critical prior to making any deals. This is important because Indonesians usually only do business with people they know and like. Also note that these business relationships exist between people, not companies. Hence, although you might have won the trust of your local partners, this does not mean that they would trust someone else from your organization.

An interesting aspect of Indonesia’s culture is the prominence of ‘saving-face’, or the need to avoid humiliation to preserve reputation and social standing. Causing one to lose face is harmful in business negotiations. To maintain reputation and social standing, we must show respect at all times, control emotions and remain friendly. This is why we often see Indonesians using emotional appeal to gain a favourable bargaining position, and using indirect confrontation style by either suppressing their true opinions or smile even when in disagreement. Both can be misleading for Westerners who tend to be more direct. The face-saving culture also makes it important to show status, for example through wealth, rankings, or admired personal traits, to make people take you more seriously.

Lastly, it is important to consider the Hofstede cultural dimension of power distance. Indonesia scores 78 out of 100 in this dimension; indicating that the distribution of power is highly centralized. The hierarchical culture implies that decision-making is often concentrated by the top management with little input from lower levels. Also, this means that verbal and non-verbal communication such as slight bows and handshakes should be adjusted according to one’s rank and age, probably more so than our Western counterparts.

Source: Veem

The Art of Business Negotiation in Indonesia

Now that we have understood the general picture of Indonesian culture, how do we apply this for a successful business negotiation? Let us now cover the negotiation process, style, pacing, and decision making.

Be mindful of culture during the process

Meetings should be scheduled at least two weeks in advance because Indonesian partners would want to know details on who they are meeting (such as titles, positions, and responsibilities) ahead of time. But, also expect last-minute changes to occur. The meeting date should also not clash with national holidays, especially Ramadan, an important month in this Muslim-majority country. The first week of Ramadan is unlikely to be a suitable time for long negotiations with Muslim Indonesian partners since they have just started fasting which can be draining. Furthermore, working hours during Ramadan end earlier to adjust with the time for breaking fast. However, be mindful that other religions are more prominent in certain regions such as Hindu in Bali and Christianity in Nusa Tenggara Timur or Papua.

Considering Indonesia’s face-saving culture, the venue and transportation for the meeting should carefully be selected to show the right status and impression. Showcasing admired traits such as patience, good listening skills, and experience would be favourable. It is also best to politely ask how you should address the local attendees correctly, and do the same for your own name. Incorrectly pronouncing your counterpart’s name creates a poor first impression that can negatively affect the negotiation outcome.

During the process, one must also consider the importance of collectivism in the culture. It is advised to not change team members because this would require the relationship-building process to start over again. Meetings should begin with small talks for participants to be personally acquainted. This can be quite extensive and usually last longer than meetings with people from individualistic countries. Keep in mind that most of the time the main purpose of the first meeting is to become acquainted, not to directly talk business.

Carefully consider style, pacing, and how decisions are made

As previously mentioned, emotional appeal and an indirect confrontation style are preferred. An accommodating strategy should be used when conflict arises to maintain relationships. In general, Indonesian communication style itself is very indirect. For example, Indonesians might answer “yes” only to signal that they heard you, not necessarily to agree. Ambiguous answers such as “we will think about it” are also often heard. It is beneficial to respond to this indirect communication style by being indirect as well since being overly direct can be perceived as rude or aggressive.

Indonesian partners expect long-term commitments and will focus on benefits for the long-run. While the primary negotiation style is competitive, the culture promotes a win-win approach to maintain harmony. According to the German philosopher Habermas, a communicative discourse can be adopted by using language to create mutual understanding instead of manipulation and to reach an agreement based on voluntary consent.

The pace of the negotiation is slow and lengthy mainly due to the need for relationship building. Thus, be prepared to attend several meetings. Be patient and neatly control emotions throughout the process, especially if there are delays. Usually, Indonesians have a polychronic work style where they do multiple tasks and try to reach multiple goals at the same time. It is therefore advised to address topics holistically by jumping back and forth rather than in a sequence which is done in monochronic cultures.

Finally, because of the hierarchical culture, decision making is a slow-paced deliberate process in Indonesia. Although superiors tend to be paternalistic, they still seek a group consensus. It is better if you negotiate with someone with sufficient decision-making authority for a smoother final stage. A few other things to note for decision making: Indonesians usually consider specific situations rather than applying universal principles, are moderate risk-takers, and weigh personal feelings and experiences as strongly as facts.

An Ancillary Note On Subcultures

While the points above apply for Indonesians in general, in practice we should also consider the existence of subcultures. For example, the role of Chinese and Indian descents who play prominent roles as entrepreneurs in Indonesia’s economic landscape. In dealing with Chinese-Indonesian businessmen, Confucianism should be brought to attention although most Chinese-Indonesians do not speak Mandarin or other Chinese dialects. Most Chinese-Indonesians are Christians with a touch of Chinese culture influences, making them distinct compared to their overseas Chinese counterparts in Singapore or Malaysia. Although fewer in numbers, Indian-Indonesians have important roles in the textile, FMCG, and entertainment industry. This group also has a unique cultural variation, where the extent to which the national culture applies to them also varies to a certain degree.

BRIGHT Indonesia as a Perfect Local Partner

Therefore, international business people who plan to enter Indonesia must consider the diversity of Indonesian culture in business. A method that works in Jakarta might not work in Medan; a successful product in Makassar might be unsuccessful in Pontianak. To ensure a smooth landing in Indonesia, it is recommended to have a background understanding of the national culture and have assistance from someone who understands the playing field. Having the right local partner can be really helpful and so important.

BRIGHT Indonesia is a perfect partner for your company. BRIGHT Indonesia will assist you on the ground, including virtual assistant during the mission, logistic arrangement, and communication of every detail. It can make your company focus on developing partnership cooperation without thinking further about the hassle during the business trip.

BRIGHT Indonesia provides several services such as Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment Promotion services that can help you in expanding and developing your business by Identification of Potential Partners. At the same time, the domain of our strategy consulting services focuses on supporting private sector clients with the development of corporate / business unit strategies and helping public sector organizations with public policy and also train and assist our clients entering FDI source countries to gather investment for our client’s local markets.

BRIGHT Indonesia always strives to give excellent services designed to fulfill your company’s needs with experiences in assisting multiple global clients in entering Indonesia and Southeast Asia Market. These collaborations are proof of our unrivaled service.

For more information, email info@brightindonesia.net.


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