Anyone who wishes to invest in Indonesia should know it’s not easy as putting up a production facility or getting a business and work permit. Here are a few things to consider:
- Indonesia maintains a Negative Investment List, which highlights how much percentage a foreign company can own in a particular business sector. Although the regulations have eased over the years, they can still be restrictive.
- There are only a few ways for foreign companies to do a company registration. One of the most well-known options is a PT PMA, where foreigners become shareholders. Another is a representative office, but this one is non-income-generating.
- One cannot set up a business automatically even if they marry an Indonesian citizen.
Despite the challenges, foreigners cannot ignore or bypass the Indonesian market. With a population of more than 261 million, it’s a young and thriving economy. It is one of the rising tiger economies in the world.
To gain entry into its market, you can consider looking for a local partner who can be the special purpose vehicle, distributor, or company agent. But before you hire somebody, make sure you can perform a due diligence.
WHAT IS DUE DILIGENCE?
“Due diligence” has many definitions, but that of Merriam-Webster Online sums it up perfectly. It is “the care that a reasonable person exercises to avoid harm to other persons or their property” or “research and analysis of a company or organization done in preparation for a business transaction [such as a corporate merger or purchase of securities].”
In summary, due diligence is:
- An investigation
- A research and analysis
- A process undertaken as part of reasonable care
- A procedure that minimizes, prevents, or removes risks from doing a potential action
Due diligence, therefore, is necessary to stop the harm against you or your property including investments. One of the important steps in conducting due diligence is a background check.
WHY SHOULD YOU CONDUCT A BACKGROUND CHECK?
Cekindo enumerates some of the best reasons why a background check is the one thing you should not miss out when doing due diligence:
1. Mitigate the business risks and failures.
A business can fail in so many ways. Profits may not be enough to compensate for the expenses. There’s no market for the products or services. But it’s also possible for an enterprise to fail mainly because of their choices of people they want to associate or work with.
For example, do you know that one of the biggest cybercrime threats is an inside job? It can be as simple as having a disgruntled employee stealing your personal information as a form of revenge.
When it comes to business, you can meet potential business partners who are not only incompetent or unreliable but also completely fraudulent.
For instance, most foreigners would want to take a shortcut in setting up a business by using a special purpose vehicle. In the traditional sense, they choose an Indonesian citizen to be the “owner” of their business. The point here is they are owners on paper. The control should still be on the investor.
In many cases, however, that’s not what’s happening. Foreigners, thus, end up losing not only the control but all of their investments to their local partners.
2. Uncover any form of concealment.
It’s not uncommon to hear people to downplay their failures and boost their accomplishments. In some situations, some experiences or errors are not necessary to reveal anymore since they don’t have any significant impact to the partnership.
However, it also means some potential partners may decide to hide important facts that could have affected your decision.
3. Understand your potential local partners more.
For a business relationship to work, it requires a strong sense of understanding of each other’s cultures. For example, Indonesians are known to be more lenient when it comes to appointment schedules. They also prefer to get to know their partners better before they decide to jump on any agreement. In other words, the process of a partner selection in Indonesia is long and even arduous.
THE PROCESS OF DOING A BACKGROUND CHECK
Everybody can do a background check. The question is whether it is done comprehensively and correctly. If you want to perform due diligence, then you should go beyond what’s in the resume. This is because these red flags can be found elsewhere:
- Tax Issues – This can range from a tax lien on the property or pending legal cases including tax evasion. This crime is very common in the country, and while it may grant amnesty, it will also not let anyone go so easily. Recently, it has partnered with Hong Kong, which is a known tax haven for wealthy Indonesians, to be able to share and access financial data.
- Business Failures – While it’s an immediate deal killer, a failure can provide a better insight on the work ethic and professionalism of a potential business partner. It may indicate their level of commitment, focus, and interest, as well as their leadership skills and business acumen.
- Concealment in Academic Performance – One of the areas where these local partners can lie is in their academic track record. It’s understandable. Some foreign investors may opt to put a very small emphasis on academics and give more on expertise and experience. But an act of concealment can also speak a lot about the person’s character, such as honesty. Moreover, the academics can provide one of the basic foundations to make one more suitable to co-run a business.
- Bankruptcy – This is actually a personal and emotional experience. But while many circumstances can lead to it, it sometimes tells about a person’s ability to manage finances.
Note, though, these red flags are basically what they are – that, is, they are just warning signs. It’s what you do with the information that matters the most. Again, in some cases, they don’t matter. In other instances, they don’t have as much weight as other criteria you have. But unless you perform your due diligence in Indonesia such as a background check, you can never make the right decision.
START ASKING THE RIGHT QUESTIONS
To further help you determine if you’ve found the right partner for your business, Cekindo has come up with a few questions you need to ask yourself:
1. Do you and your partner have the same vision for the business?
One of the most common reasons for conflict and, ultimately, the dissolution of the partnership is irreconcilable differences. You just don’t agree on many things, including the direction you want to take the business.
2. Is the person trustworthy?
This is a loaded and a difficult question. Trust is a big word that’s only reserved for people with integrity, and yet, you’ll never know the realness of a person in a short amount of time. In the end, you can use the information you’ve gathered in doing an Indonesian background check to help you evaluate a person’s trustworthiness. Usually, the implied rule is if a person can lie on the small things, you can expect him to do the same for big things.
3. Do you establish a connection with your partner?
Business relationships are actually no different from your personal ones. Compatibility still plays a very huge role in the success of your business. A basic idea as not liking your partner is enough to create the feelings of animosity and resentment. It can occupy your mind with the ways to get rid of the partnership as soon as possible.
HOW CAN CEKINDO HELP YOU WITH DOING DUE DILIGENCE
Here’s the truth: many people are actually aware they have to do due diligence, so why do they still fail? There are two possible reasons:
- It turns out what they did wasn’t enough. They rely too much on resumes and portfolios that may not present very important facts for decision making.
- They don’t have enough time. You cannot get a comprehensive picture of your potential partner overnight. In fact, it can take days to perform a correct due diligence in Indonesia. It becomes even more time-consuming when you’re considering many partners.
Working with Cekindo can help you get rid of the reasons for failing in due diligence. We have an amazing team of business consultants, lawyers, and other professionals who can perform an in-depth investigation.
We have a broad network we can exhaust to make sure we can gather as much information and facts as possible about your potential partner. Moreover, with our more than 10 years of experience handling business-to-business solutions, we can use our expertise to spot possible fraud, concealment, and other serious issues.
Our Indonesian background check service takes only 6 to 12 working days. Thus, the sooner you get the report, the sooner you can make the right decisions for your business. Moreover, with the report, you can get the following information:
- Risk assessment
- Business highlights
- Company reputation
- Past and present partners, suppliers, vendors, etc.
- Management structure
- Board of directors in the business
- Legal issues
- Financial information
Cekindo is the partner you’re looking for to make sure your entry in the country is smooth, hassle-free, fast, and easy. Call +62 80 660 900 today.