Things You Should Know About Foreign Direct Investment (FDI) in Indonesia – In the economic world, the term Foreign Direct Investment (FDI) is common. This kind of investment can be done by a firm or individual. The main purpose of FDI is to establish a new company in a foreign country. Therefore, the investor should be active in the process of establishment of the company. Some people may have a misconception about FDI and portfolio investment. FDI requires the active role of the investor to build the subsidiary or associate company in a foreign country. However, the portfolio investment will focus on the investment from the investor in a well-established company.
FDI can give a lot of benefits through the business company and host or destination country. The benefits of the FDI for business operations are market diversification, lower labor costs, tax incentives, subsidies, and preferential tariffs. Meanwhile, the benefits of FDI for the host country are economic stimulation, an increase in employment, development of human capital, and access for learning the technology, skills, and other expertise. The FDI can be differentiated into three types that are vertical FDI, horizontal FDI, and platform FDI.
One of the most important things in FDI is the presence of the host country. Some countries are selected since those countries have some goods potential to be used as the host country. One of them is Indonesia. This country is located in South East Asia. The location of Indonesia is close to Australia, some southeast Asia Countries such as Singapore, Malaysia, and the Philippine. So, Indonesia is simply located in a strategic location. In addition, this country has a large population and becomes the 4th country with the biggest population. These conditions lead to some strong points to invest in using FDI in Indonesia.
One of the strong points of FDI in Indonesia is a great potential market due to the large population. Indonesia has more than 260 million people. This condition will give more benefits to the company since there will be a lot of potential consumers. Another strong point is the huge amount of natural resources. Indonesia is a country that is given by a huge amount of oil, metals, natural gas, and other natural resources. It will be a great potential since the company can look for raw materials easily. Moreover, Indonesia is also well known as the country with high biodiversity that will be more beneficial for the company. Indonesia also has a high domestic demand with a favorable economic environment. This condition will lead to big demand from the consumer and gives more profits to the company.
However, just like other countries, there are some weak points of FDI in Indonesia. The first one is the legal framework, economic framework, custom administration, and others are quite less effective in Indonesia. In addition, there are many sectors in government and private communities that are corruptive so that it will make the investor think twice for doing FDI in Indonesia. On the other hand, the infrastructure of Indonesia is still lack that leads to the injustice of the economic sector.