Sourcing from Indonesia: Benefits, Challenges, and Best Practices

Indonesia is an archipelago that offers a wide range of options when it comes to product sourcing. This is due to its abundance of raw materials such as crude palm oil.

In this blog post, you’ll learn more about Indonesia’s manufacturing scene and what makes it appealing for product sourcing. You'll also learn best practices for finding reliable supplies in the archipelago.

Should Your Business Choose Indonesia for Sourcing?

Indonesia might not be the first place you think of for product sourcing, but there are many reasons to consider it.

• Diversity across islands - As the world’s largest archipelago, Indonesia is made up of more than 17,000 islands. As such, the country is home to a lot of diversity, and manufacturing specialties vary. There are heavy machinery belts in Java to agro-processing zones in Sumatra. Not to mention the organic coffee.
• Competitive labor costs - In Indonesia, labor costs are lower than many other sourcing countries. This makes it a cost-effective solution if you’re looking to scale up manufacturing.
• Government incentives - As outlined in the “Making Indonesia 4.0” roadmap, a government-driven initiative, there are priority sectors which receive tax holidays, duty exemptions on capital goods, and streamlined licensing through the OSS portal.
• **Strategic trade partnerships - **Indonesia is an ASEAN member, which means the country has access to zero-duty ASEAN markets. Plus, potential CEPA deals with EU, Australia, and Gulf states could reduce the landed costs for exporting.
• Raw material wealth - Indonesia has a lot of raw materials spread across the archipelago. From palm oil to nickel, these make it a good choice for chemicals, plastics, and other components.

Key Industries and Products in Indonesia

Indonesia has a variety of industrial clusters and hubs scattered across the archipelago. If you know where to look, you can likely find what you’re looking for.

Here’s a brief overview of industries and popular products:

Industry	Popular Products	Regional Hubs
Food & beverage	Palm-oil derivatives, coffee, cocoa, spices	Sumatra and Java
Textiles	Batik fabrics, technical textiles	West and Central Java
Furniture	Rattan and teak furniture	Jepara, Surabaya, Bali
Auto parts	Engines, transmissions	Bekasi, Karawan, Jakarta
Electronics	PCBs, cables, and consumer electronics assemblies	Batam, Jakarta, Surabaya
Chemicals	Refined nickel, fertilizers	Sulawesi, Riau
Leather	Shoes, sandals, belts	Bandung, Yogyakarta

Indonesia is most well-known for its food & beverage production, which alone accounts for around 33.9% of their total manufacturing output. This is partly because the archipelago is rich with palm-oil, and produces millions of tons every year.

Cost and Quality Considerations

Indonesia is generally considered to be a cost-effective country for product sourcing. They have an average hourly wage of around IDR 43,323/hr. This equates to roughly $2.63 USD per hour at the time of writing. Indonesia can compete with other popular countries for sourcing like China, on value for money.

Access to an abundance of raw materials such as palm oil and minerals is another reason why sourcing from Indonesia is a more cost-effective solution. Since the country doesn’t have to rely on long-haul raw imports for manufacturing as much as other countries, costs can be lower.

As for quality, Indonesia has taken various strides to bolster its reputation as a strong option for sourcing. Leading factories in Indonesia often maintain ISO 9001, ISO 14001, and OHSAS 18001 certifications. These state quality and environmental factors, as well as safety systems.

With the “Making Indonesia 4.0” initiative, there has been a significant surge of activity towards Industry 4.0 investments. These include robotics and IoT (Internet of Things). As such, Indonesia is rising up as a good sourcing location for automotive and electronic parts.

Any other concerns you might have surrounding quality, you can address using accredited labs. These are for example, SGS, Intertek, and TÜV. They will carry out thorough audits of factories in Indonesia and report back to you with the findings.

How to Find and Verify Suppliers from Indonesia

There are various ways to find and verify suppliers based in Indonesia, which should help streamline the sourcing process.

Using Local Directories and Trade Shows

One of the best ways to track down Indonesian suppliers is to use local directories and trade shows.

Online directories will offer a catalogue of suppliers spanning various sectors. On the other hand, trade shows will give you the opportunity to have face-to-face interactions with suppliers. You can ask any questions you might have in person.

Online directories

• IndoTrading.com - IndoTrading.com is Indonesia’s largest B2B platform, which catalogues a wide range of suppliers serving all sectors. The platform is host to more than 50,000 suppliers, making it one of the best online hubs for finding Indonesian suppliers.
• ITPC (Indonesian Trade Promotion Center) - The ITPC is a government portal that displays exporter profiles. This allows you to browse potential verified suppliers.
• BKPM OSS System - The Online Single Submission portal in Indonesia lists licensed companies and suppliers according to their sector.

Trade shows

• Trade Expo Indonesia (TEI) - The TEI, or Trade Expo Indonesia, is the biggest trade show featuring more than 1,500 exhibitors annually. As an international trade exhibition, you can expect to find suppliers across a range of sectors. These include agro-commodities, textiles, electronics, and automotive parts. The TEI usually takes place in Jakarta. If you’d like to explore the possibility of sourcing with an Indonesian supplier, it could be worth organizing a business trip.
• Manufacturing Indonesia - Another huge trade show, Manufacturing Indonesia, is an annual event that also takes place in Jakarta. This trade show features more than 1,400 exhibitors from 35 countries. You can find information on and suppliers of everything from precision tools to processing equipment.
• Indo Water, Indofarm & IFEX (Indonesia Furniture Expo) - There are several other smaller sector-specific trade shows in Indonesia in case you’re looking for something specific. For example agritech (Indofarm), water treatment (Indo Water) or furniture (IFEX).

With any of these online directories or trade shows, you’ll have the chance to vet the capabilities of suppliers. You can get several quotes to compare prices, and the opportunity to build rapport and personal connections before you place any orders.

How Do I Verify an Indonesian Supplier?

Before placing an order with an Indonesian supplier, it’s important to run some key checks to make sure they’re a legitimate entity and qualified to deliver the level of products you expect.

There are a series of checks you (or a third party) can run to verify suppliers in Indonesia:

Legal registration

There are several steps you can take to verify that an Indonesian supplier is allowed to operate legally.

To verify each of these elements necessary for a company to operate legally in the country, you can visit the Ministry of Law and Human Rights’ website. On the website you’ll be able to search for individual registered companies and find all the information you’ll need to verify the business.

• NPWP (Tax Identification Number) - The NPWP is a company’s tax ID number, similar to a Social Security number in the U.S.
• TDP (Tanda Daftar Perusahaan) - The TDP is a business registration certificate which is mandatory for any company, and shows that they’ve been registered in Indonesia.
• SIUP (Trade Business License) - The SIUP is a license which allows businesses in Indonesia to carry out specific commercial activities such as trading, and importing or exporting.

Certificate checks

Certificates can indicate whether a supplier meets certain industry standards for quality, environment, and safety.

Here are some to look out for with Indonesian companies you’re looking to place an order with:

• SNI (Indonesia National Standard) - This is a certificate that verifies domestic compliance within Indonesia, and confirms that the company meets regulations around quality, safety, and performance of its products or services.
• International standards - To verify that a supplier falls in line with international standards for quality across various areas, you can request copies of ISO, CE, IATF 16949, FDA certificates, and others, which you can then verify with issuing bodies.

Factory audits

One of the most common practices for ascertaining the quality of a supplier is to contract a quality assurance provider to carry out an in-depth factory audit. Companies like SGS, Intertek, and TÜV offer initial factory evaluations which will give you detailed reports on:

• Capacity
• QA systems
• Staffing
• On-site sampling

Reference calls & site visits

If you want to avoid dealing with a third party and you’re planning on making a large order, you can also arrange an in-person visit for you or one of your colleagues to assess the factory in person. Alternatively, you can ask for a video tour of the facility.

It’s also worth asking for two international buyer references. This way you can find out firsthand from others who’ve used the supplier’s services what their experience has been.

Sample orders

Placing sample orders is one of the most reliable ways to know what level of quality and service to expect when you place an order with a supplier from Indonesia.

By placing a small order for samples, you can test the materials, workmanship. You can also check the quality of the packaging to see if everything meets your standards.

Contractual safeguards

If you get to the point at which you’re comfortable placing an order with a supplier, then there’s one more action you can take to make sure you protect your interests.

By inserting safeguards into your digital Purchase Order, you can make sure there’s no room for misinterpretation. This could include:

• Clear product specifications
• Packaging requirements
• Delivery milestones

Logistics and Shipping Considerations When Sourcing from Indonesia

Logistically, there are a few responsibilities that land on your plate when sourcing from Indonesia. You’ll need to do due diligence before placing an order. This is to make sure you’re preparing for any additional expenses that might come in the form of regulations and tariffs.

Import Regulations and Tariffs

There are a few important regulations and tariffs to consider whenever you place an order with an Indonesian supplier from the U.S, though it’s possible that not all of them will apply to your specific situation.

• Average MFN (Most-Favored Nation) duty - There’s an average applied MFN duty on goods of around 8.1%.
• VAT (Value-Added Tax) - Indonesia has an 11% VAT on any dutiable imports, which is payable at customs release. For luxury goods, there’s a 12% VAT fee.
• HS-code restrictions - It’s important to check for any anti-dumping duties before placing an order as some materials will face additional duty fees.
• Pre-shipment inspection - For some shipments from Indonesia, there’ll be mandatory inspections before transport. This applies to specific sectors such as pharmaceuticals and food and beverage under PGSC (Pre-Export Good Safety Compliance).

If you want to avoid the headache of figuring out what duties you’ll need to pay with your order, you can work with a local customs broker or integrated services to get your documents in order which can include:

• Commercial invoice
• Bill of Lading (B/L)
• Certificate of Origin (CO)

What Are the Top Products to Source From Indonesia?

Indonesia has a diverse range of exports largely because of the abundance of raw materials found all over the archipelago, as well as access to sophisticated processing techniques.

Here are some of the top products to source from Indonesia, and why you might consider Indonesia over other sourcing options:

Palm-Oil Derivatives

Indonesia is a top producer of crude palm oil, but also the world’s largest producer of oleochemicals such as fatty acids, glycerine, and esters. Oleochemicals are frequently used in various industries to create products such as:

• Soaps
• Cosmetics
• Lubricants

The country’s biodiesel feedstocks meet EU RED II standards, which makes them a great solution for European blends. If you travel out to Sumatra and Kalimantan, you’ll find vertically integrated mills and all kinds of plantations and refineries. These have helped make Indonesia a top producer of oleochemicals and palm oil.

Rubber Products

Indonesia has a reputation for producing rubber, ranking second globally for natural rubber output.

Some of the most important export items to come out of Indonesia include vulcanized rubber sheets, industrial hoses, and medical-grade gloves. Since there are many ISO 13485-certified factories in Java, it’s relatively straightforward to source FDA-approved surgical gloves or automotive hoses.

Furniture & Home Decor

Jepara, a coastal town in Indonesia, is known as a popular location for hand-carved teak and rattan furniture.

Artisans work in the town to produce everything from intricate indoor furniture, such as cabinet,s to large outdoor lounge sets. Head to Bali or Yogyakarta, and you’ll also find an abundance of stone-carved and bamboo decor. In many cases, they will come with Fair Trade certifications.

Coffee & Cocoa

Both Sumatra and Java produce single-origin Arabica and Robusta beans, which are some of the most sought-after beans by specialty roasters around the world. While it’s not as well-known as Indonesian coffee beans, the country also exports cocoa liquor and butter, which is used in premium chocolate.

Managing Shipping Costs from Indonesia

Managing shipping costs is an important part of the product sourcing process. You’ll want to make sure you keep your profit margins healthy and don’t get stung by unexpected fees.

The freight rates you’ll need to pay will vary according to how you want the goods to be transported and where you want to export them.

There are various factors to consider when figuring out shipping costs:

• FCL (Full-Container Load) - Full containers are best for volumes of more than 10 TEU (Twenty-Foot Equivalent Unit), and for these loads, you’ll typically pay a flat rate per container.
• LCL (Less-than-Container Load) - An LCL is best for smaller batches of products, but there’ll be more handling days and they’re billed by cubic meter.
• Air freight - This is a fast option which offers door-to-door delivery, but comes at a greater cost and is charged by the kg.
• Express couriers - Express couriers such as DHL and FedEx offer the fastest option if you need to assess samples quickly or need high-value parts in a pinch.

It’s also important to consider the monsoon season and holiday peaks when you place an order.

If you’re not careful, hidden FX mark-ups and wire fees can take an additional 2 or 3% from your shipping budget.

With Wise Business, you can forego unfavorable exchange rates and avoid unexpected fees by paying freight forwards at the mid-market rate and setting rate alerts on USD and IDR to get the most favorable rate before sending over a large deposit.

Wise Business: The Easy Way to Pay for International Shipping

Wise Business is a smart solution for handling international shipping, as it can save you money on hidden fees and make sure you’re guaranteed the mid-market rate for any transfers you need to make. Fast payment also helps to keep up good relationships with suppliers, so your business can flourish.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in 40+ currencies. You can get major currency account details for a one-off fee to receive overseas payments like a local. You can also send money to 140+ countries.

Register with Wise Business 🚀

⭐️ Trustpilot: Excellent 4.3 out of 5 stars

Some key benefits of Wise Business include:

Major local account details to receive international payments with ease No monthly account fees just a simple one-off fee for account details Receive payments from e-commerce platforms such as Amazon or via Stripe. Free invoicing tool to generate and send invoices. Create invoices using the Wise invoice generator or invoice templates. Accounting integrations, including a QuickBooks Bill Pay connection. Bill payments will be synced, matched, and categorized in QuickBooks for simple reconciliation. Access to BatchTransfer. Fast payment of up to 1,000 people.

Read the guide on how to open a Wise Business account

	Editor & Business Expert:
	Panna is an expert in US business finance, covering topics from invoicing to international expansion. She creates guides and reviews to help businesses save time and make informed decisions. You can read more useful business articles on her author profile.

	Author:
	Sam is a UK-based copywriter with 4+ years of experience writing for SaaS and eCommerce brands. He creates comparison guides, informative blog posts, and covers other finance-based topics.