Asia is truly a treasure when it comes to the outsourcing industry. The continent boasts numerous outsourcing destinations that can cater to a wide range of business needs — one of which is the country of Indonesia. The country is considered a “young” country with more than 138.63 million working individuals.  

Indonesia has proven to be a global player in the midst of the challenging conditions that the pandemic brought on. While it is not immune from risks, the country continues to grow through responsive monetary and fiscal policies to boost its economy. It maintains its status as an attractive outsourcing destination for many foreign businesses. 

Are you interested in outsourcing to Indonesia? Read more about the outsourcing factors you must know before conducting business in Indonesia below.  

Outsourcing Factors in Indonesia You Need to Consider 

1. Low Labor Cost 

As with most outsourcing destinations, Indonesia offers inexpensive services without compromising the quality of work. The country’s median salary is around IDR 12 million or 800 USD but the salaries of fresh graduates can start from only IDR 4 million or 266 USD.  

Companies looking to outsource many business functions to their Indonesian partners would find the deal economical and cost-efficient. Foreign companies could gain a chance to make a bigger profit margin because of the low labor cost. With other popular outsourcing destinations increasing their labor costs, businesses may find more inexpensive outsourcing opportunities in Indonesia. 

2. Digital Technology 

Indonesia’s level of digital transformation makes the country more attractive as an outsourcing destination. It can readily provide services within the industries of information technology (IT), business princess outsourcing (BPO), and more. 

Indonesia is also a country with an ever-growing digital economy. The rise of e-commerce and fintech in Indonesia reflects the country’s strong digital and technological infrastructure. Naturally, Indonesia’s digital transformation comes with a workforce with high digital capabilities and a familiarity for automation and cybersecurity.  

3. Business-Friendly Policies 

As an emerging market economy, the government is focused on how to boost Indonesia’s economy. One way to do this is by having business-friendly policies to create numerous business opportunities in Indonesia.  

Their government has issued a provision of one-stop services in able for business licenses to be processed for a maximum of 15 days (about 2 weeks). In addition to this, amendments were also made to the Investment Law of 2007 to guarantee equal treatment of foreign and domestic investors. The Indonesian government also established sectors where 100% foreign ownership is allowed (E-Commerce, Pharmaceuticals, Film, Manufacturing, and Cold Storage) and sectors where ownership thresholds are set (Insurance, Banking, Raw Commodity Production, and Export). 

4. Political and Economic Stability 

Indonesia is one of the best places to outsource because of its stability in the context of the political and economic landscape. The country is enjoying steady economic growth at 4.9% even with World Bank’s projected global economic slowdown. 

The inflation rate also dropped to a 14-month low of 3.52% in June of 2023. Economic growth as well as political stability creates an environment where business is easy to conduct as there are no volatile risks in the present moment.    

5. Young and Talented Workforce 

With a median age of 29 years, the Indonesian workforce is young. This creates a large, diverse, and talented workforce of 138.63 million which is increasing by about 2.5 million new workers annually.  

The Indonesian workforce has a high literacy rate due to free public schools. The compulsory 12 years of education (up to high school) already produces many young workers, but an increasing number of Indonesian students are choosing to go to universities. Most workers are also equipped with digital capabilities and software development skills to support the ever-changing digital landscape that any company may find themselves in. 

Notable Industries in Indonesia 

Indonesia was dubbed Southeast Asia’s fastest-growing economy and is considered a newly industrialized country. Manufacturing is one of its notable industries that plays a crucial role in the country’s economy. There is also a heavy focus on textiles, electronics, and automotive manufacturing.  

Like many countries, Indonesia is also focused on the digital and IT sector. Various digital services such as media streaming and cloud services are seeing massive growth each year. The country’s financial technology (fintech) industry is also booming after emerging more resilient after the pandemic.  

Indonesia’s fintech markets were crucial in the country’s national economic recovery program (PEN). The increasing popularity of e-commerce and fintech among Indonesian internet users was the driving force for Indonesia’s digital transformation. The country’s fintech industry has attracted the second-largest funding in ASEAN and is expected to reach even greater heights in the years to come.    

Aside from those mentioned above, the major industries in Indonesia are: 

• Automotive 
• Textiles and Apparel 
• Mining 
• Petroleum and Natural Gas 
• Agriculture 

Outsourcing Challenges in Indonesia 

Outsourcing in Indonesia may prove to be challenging because it lacks a strong legal framework that could be utilized for data protection. This breach can lead to misuse of data and easy access to data on various digital platforms. In addition, foreign companies looking to outsource should look out for the country’s labor practices because they could often be unfair to their employees or outsourced partners. 

Job growth is also a problem that the Indonesian government is consistently solving. There is a lack of employees with higher levels of educational attainment because there is a large number of Indonesians that immediately joins the workforce after high school. Without the necessary skills taught in universities, the workforce may not have enough individuals that can meet the basic requirements of employers.   

Outsourcing in Indonesia 

For all its challenges, Indonesia is still an attractive outsourcing destination for most businesses. The country has a big potential to be a significant global player because of its business-friendly policies, low labor costs, and dedication to digital transformation. 

If you are looking to outsource to Indonesia, it is important to consider what your company’s day-to-day needs are. You must also be open to communicating with your Indonesian partners to achieve your shared goals.  

Do you have any questions? We would love to help you out! Book a FREE appointment with Outsource Asia experts today.