U.S. jeans and clothing maker Levi Strauss & Co. has big ambitions for Indonesia. The nation of 250 million is the company\u2019s
\nfastest-growing market in Asia, and Levi\u2019s wants to invest and expand aggressively.<\/p>\n
But it is stymied by everything from mounting tariffs and sudden shifts in policy to regulations that prohibit foreign retailers
\nfrom operating their own stores, says Sumesh Wadhwa, head of the Levi\u2019s Indonesia unit. In July, regulators raised duties to 25%
\nfrom 15%; Levi\u2019s got only one day\u2019s notice, and its goods were stalled at customs until it paid the balance, he says.<\/p>\n
The Indonesian government is rolling out measures to smooth the way for global investors\u2014the first batch earlier this month\u2014but
\nthey have yet to produce concrete results.<\/p>\n
\u201cSo far,\u201d said Mr. Wadhwa, the government has shown \u201cgreat intentions, very little visible action to us.\u201d<\/p>\n
The frustrations at Levi\u2019s underscore the challenges many foreign companies are facing as they try to expand in one of the
\nregion\u2019s biggest economies.<\/p>\n
Indonesia is the third-most-populous country in Asia after China and India, and its economy\u2014also the third-largest\u2014has been
\ngrowing at 5% to 6% for most of the past decade as it rode a global commodities boom. Increasing urbanization and rising incomes
\nhave boosted Indonesians\u2019 spending power. Household spending grew 20% over the past five years, and last year totaled almost
\n$500 billion, double that of Thailand.<\/p>\n
Foreign investment also climbed, to $28.5 billion in 2014 from $16.4 billion in 2010, though growth has stalled over the past
\nyear, according to Indonesia\u2019s Investment Coordinating Board.<\/p>\n
Now economic growth is sputtering, sinking to a six-year low of 4.67% in the second quarter, in part because of a plummeting
\nrupiah and China\u2019s weaker-than-expected appetite for exports such as coal and palm oil.<\/p>\n
That has left many multinationals increasingly impatient with a host of obstacles to doing business in the country, including
\nhigh tariffs, curbs on foreign investment, long-neglected infrastructure and rules that shift often and without warning.<\/p>\n
Some companies say barriers are growing instead of shrinking: Indonesia has asked smartphone makers to source more parts locally
\nstarting in 2017, tightened restrictions on foreign labor, and added e-commerce as well as some oil-and-gas and
\nelectricity-installation services to the list of sectors closed to foreign investment.<\/p>\n
President Joko Widodo has pledged to help. On Sept. 9, he said the government was revising 89 regulations that hinder business,
\neasing licensing requirements for exports and imports, doing away with several overlapping rules and making it easier for
\ntourists to get visas. He also promised more deregulation this month and in October.<\/p>\n
One regulation the government has said it plans to relax is a surprise January decree that banned the sale of beer in
\nconvenience stores, cutting profits nearly in half for the country\u2019s brewers.<\/p>\n
Michael Chin, president director of Indonesia\u2019s biggest beer producer, PT Multi Bintang, which is majority-owned by Heineken
\nHolding NV of the Netherlands, said the move \u201csounds positive,\u201d but the details\u2014which might include letting local governments
\ndecide where alcohol can be sold\u2014remain unclear.<\/p>\n
Jakob Friis Sorensen, the head of shipping company Maersk Line Indonesia, says high import tariffs that depress trade, and a ban
\non using foreign currencies in domestic transactions, top his list. The currency rule in particular has forced multinationals
\nthat once settled accounts in dollars to hedge themselves against swings in the rupiah, a costly step that pushes up prices for
\ntheir goods, Mr. Sorensen says.<\/p>\n
Heavy-equipment providers say they have been hit by a ban on the export of raw ores, aimed at pushing mining companies to
\nprocess more metal domestically.<\/p>\n
Indonesia should streamline the process for setting up companies, says Willson Cuaca, managing partner at East Ventures, a
\nSingapore-based venture-capital firm that has invested about $15 million in early-stage startups since 2010, mostly in
\nIndonesia. In Singapore, entrepreneurs can set up a company in less than two hours, he says, while in Indonesia it takes at
\nleast a month to get the documentation needed to open a bank account.<\/p>\n
The biggest challenge for Levi\u2019s, says Mr. Wadhwa, is a rule that requires single-brand foreign retailers to operate through
\nfranchisees. Levi\u2019s now has about 60 shops in Indonesia, and sales have been growing at a double-digit rate for the past five
\nyears, he says. The company would like to open 15 new stores a year, but the franchisees are willing to open less than half that
\nnumber, Mr. Wadhwa says.<\/p>\n
The rule also makes it hard to retain and develop staff, he says, because training and salaries are determined by franchisees.<\/p>\n
Levi\u2019s has also been hurt by the higher import tariffs implemented in July, in a bid to aid domestic producers. Those apply to
\nmore than 1,000 goods, including apparel.<\/p>\n
Indonesia\u2019s new administration is more transparent than previous regimes, and its officials are willing to listen to companies\u2019
\nsuggestions for improving regulations, says Mr. Wadhwa. \u201cBut it\u2019s taking a long time,\u201d he says.<\/p>",
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"sponsor": "Okusi Associates",
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