At a Glance
The tech and health industries in Indonesia are heavily regulated by local content policies known as Tingkat Komponen Dalam Negeri, or TKDN. These policies require businesses to use a certain percentage of local components and materials to be eligible for the Indonesian market. Despite the obstacles, these industries present enticing prospects for growth within the country.
Complying with the TKDN policies offers substantial benefits for the respective industry players in Indonesia. These include greater access to government incentives, strategic positioning for government contracts and tenders, and the expansion of domestic manufacturing leading to sustainable industrial development.
Strategic moves are needed to leverage the benefit of TKDN policies. To successfully enter the Indonesian market, the assistance of trusted advisory services with extensive knowledge of the local situation and regulations is instrumental. This article aims to shed light on the market opportunities within Indonesia’s tech and health industries and provide valuable insights for potential industry players seeking to establish successful ventures in Indonesia while adhering to the TKDN policy.
TKDN Policies Alongside the Thriving Tech and Health Industries
The concept of local content requirements has gained significant global recognition, with countries including China, the United States, Russia, and India implementing regulations to support their national agendas. Similarly, Indonesia has performed its own set of policies on the local content level: Tingkat Komponen Dalam Negeri, or TKDN. These policies aim to stimulate the growth of domestic industries and promote economic self-reliance, serving as a measurement system to determine the percentage of local components and materials used in the manufacturing or production of goods and services.
The tech and health Industries are subject to significant TKDN regulations in Indonesia. According to a 2022 study by the Center for Strategic and International Studies (CSIS), the tech sector accounts for 19% of the total TKDN regulations, making it the most heavily regulated sector. Comparably, the health industry has garnered considerable attention from the government, as evidenced by the President Instruction Number 6/2016, which recognizes its importance in the country’s development agenda. Given these factors, it is foreseeable that both the tech and health industries will continue to experience a substantial amount of TKDN regulation in the future.
By nature, both industries heavily rely on advanced technology and innovation, which make them inseparable from one another. The Ministry of Finance and the Asian Development Bank predict a substantial $2.8 trillion growth by 2040 in the tech industries. This growth extends beyond traditional tech industries like hardware and PCs, incorporating digital sectors such as digital finance, e-commerce, digital infrastructure development, cloud computing, and AI. Likewise, the health industry in Indonesia offers promising opportunities in a lucrative market. It is projected to reach a value of $68 billion by 2030, encompassing various segments such as pharmaceutical businesses, health insurance, healthcare supplies and equipment, and other related services.
This article aims to shed light on the market opportunities within Indonesia’s tech and health industries and provide valuable insights for potential industry players seeking to establish successful ventures in Indonesia while adhering to the TKDN policy.
Benefits of TKDN Compliance for Tech and Health Industries
Businesses that embrace TKDN regulations position themselves as the market’s key players while contributing to the nation's economic growth and technological advancement. Here are three key benefits that businesses should consider:
Leveraging the Government’s Incentives and Assistance Programs
By complying with TKDN, businesses in the tech and health sectors can benefit from the government’s projects and incentives. Take domestic vocational studies, for example. Businesses are entitled to 300% super deductible tax incentives. This implies that a portion of the businesses’ expenses can be deducted from their taxable income, resulting in potential tax savings and increased profitability.
Strategic Positioning for Government Contracts and Tenders
When competing for government contracts and tenders, the Ministry of Industry stated that government agencies prioritize companies that meet or exceed local content thresholds, meaning compliant businesses stand out as preferred choices with a higher chance to participate in services whose budget is sourced from the State Revenue and Expenditure Budget (APBN) or any other patterns of cooperation with the government. These partnerships can lead to recurring business opportunities, continued collaboration, and a stable revenue stream.
Expansion of Domestic Manufacturing leading to Sustainable Industrial Development
By establishing production facilities within Indonesia and engaging with domestic partners, tech and health businesses can build resilient supply chains that support local industries. Additionally, domestic manufacturing aligns with sustainability goals by reducing carbon emissions associated with long-distance transportation. If implemented correctly, this encourages long-lasting sustainable sourcing practices.
Strategies for Maximizing the Benefits of TKDN Compliance
Industries face various challenges in complying with the TKDN policies. Navigating complex regulations, engaging multiple stakeholders, bureaucratic intricacies, and addressing the availability of skilled human resources are among these obstacles. Therefore, businesses should adopt a range of strategies to not only meet the policy requirements but also flourish in the Indonesian market. These strategies will be categorized into three stages: Phase I (regulatory acknowledgment), Phase II (implementation), and Phase III (continuation)
Phase I: Regulatory Acknowledgement
TKDN policies are complex and unique, yet scattered and prone to spark confusion. Here is a concise regulatory guide for the tech and health sectors:
- The Threshhold:
- Government Regulation Number 29/2018: Industrial Empowerment
- Tech Industries:
- Regulation of the Minister of Industry Number 29/2017: Calculation of TKDN Cell Phones, Handheld Computers, and Tablet Computers
- Regulation of the Minister of Industry Number 22/2020: Calculation of TKDN Electronic and Telematic Products
- Health Industries:
- Regulation of the Minister of Industry Number 16/2020: Calculation of TKDN Pharmaceutical Products
Phase II: Implementation
While implementing the TKDN policies, it is essential to invest in high-quality partnerships, seek collaborative behaviors, and prioritize research and development. By doing so, businesses can maintain a positive brand image and ensure that the quality of their products or services remains uncompromised, as ultimately, everyone should benefit from products or services that maintain a certain standard.
In parallel, businesses should be able to advance their brand image through active campaigns and socialization. This includes developing a robust branding and marketing strategy, participating in industry events, fostering customer engagement, and monitoring online reputation. By combining these strategies, businesses can effectively comply with TKDN regulations while reinforcing their brand's integrity, visibility, and customer trust.
Phase III: Continuation
The TKDN policies are dynamic and subject to ongoing changes, requiring industries to demonstrate continual commitment and adaptability. Therefore, it is essential for businesses to establish effective and reliable communication channels that facilitate timely access to relevant government agencies.
Moreover, by maintaining compliance with TKDN regulations, businesses can consistently leverage the benefits provided by the Indonesian government. These benefits may include preferential treatment, access to government projects and incentives, and potential tax incentives. By staying up-to-date with the latest regulatory developments, businesses can position themselves to capitalize on these opportunities and enhance their competitive advantage.
What's Next?
Businesses would effectively harness the advantages of TKDN compliance by adopting these strategies in a cohesive manner. Knowledgeable and experienced advisors can provide valuable insights, guidance, and practical support to navigate the intricacies of TKDN compliance, helping businesses understand specific requirements, develop tailored strategies, and ensure ongoing adherence to regulations. Contact EGA Indonesia for more information.
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