International Business Analysis: Indonesia's Economic Growth

This report provides a comprehensive analysis of Indonesia's international business environment. It begins with an executive summary highlighting Indonesia's economic growth and cultural diversity. The report then delves into a general overview of the country, focusing on its economic growth, GDP, and market size. It explores political, economic, socio-cultural, and technological influences, including government reforms and infrastructure development. The analysis covers national resources, factor endowments, and competitive advantages, particularly in the timber industry. Foreign currency and exchange influences are examined, along with a PEST analysis highlighting political, economic, social, and technological factors impacting growth. The report further investigates natural resources and their competitive advantage, the impact of Foreign Direct Investment (FDI) on the Indonesian market, and existing levels of FDI. The report concludes with a discussion of the country's potential for future growth and development, considering challenges such as corruption and infrastructure limitations. The report emphasizes Indonesia's potential as a key player in the global economy, supported by its natural resources and growing economy.

Running head: INTERNATIONAL BUSINESS ACROSS BORDERS
International Business across Borders
Name of the Student
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Author Note

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Executive Summary
Indonesia is a country which is diverse in nature when it comes to culture. It has more
than 300 different cultural groups. The country is said to have made incredible growth
since the year 1990. The gross domestic production of the country has grown steadily
in the continent faced crisis which led to financial issues and there was a great setback
for the economy. The gross domestic production per capita has increased to $3,603
which is in the year 2016 which was previously $857 in the year 2000. It is a
significant growth. If we see consider the per capita where it was previously and
where it had risen, in that case we can see that the country had made significant
development within the span of sixteen years.

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Table of Contents
Table of Contents...........................................................................................................2
Introduction....................................................................................................................3
General overview of the country or region....................................................................3
Political, Economic, Socio-cultural and Technological influences/benefits/ advantages
........................................................................................................................................4
National resource and factor endowments that create competitive advantage...............5
Foreign currency and exchange influences....................................................................6
PEST Analysis of Indonesia: High Potential for Growth..............................................7
Natural resources and its competitive advantage...........................................................8
Impact of FDI on market of Indonesia...........................................................................9
Existing levels of Foreign Direct Investment...............................................................11
Conclusion....................................................................................................................13
References....................................................................................................................14

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Introduction
General overview of the country or region
The trade of timber is one of the most important trades in Indonesia. Indonesia’s
forest products such timber and other related products comprises 10% of the country’s
GDP. Indonesia used to contribute 70% of the plywood industry in the world during
the year 1980. But from then there can be seen a declining trend in the exports. The
figure came down from $3.6 Billion to $2 billion in the year 2000. The decline is due
to some of the aggressive policies that are being taken by the government against
exports of timber. Timber or forest product industry is one of the major revenue
generators for Indonesia
The business market of Indonesia is one amongst the biggest business market in the
world. It is projected in accordance to the economic growth that by 2030 it will
become 7th largest economy in the world.
The country of Indonesia has a GDP of 932 billion as recorded in the year 2016. It
ranks in 8th position based on the purchase power parity. The economy of Indonesia is
growing at a rate of 5% every year since from the last decade. The country has sound
macroeconomic policies and a huge population of youth that has a growing domestic
demand have promising future ahead.
The government has announced a number of reforms or policies in order to push the
economic condition of the country. The reforms are expected to improve the business
condition of the country. The GDP per capita of the country is $3604 which is more

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than many of the Asian countries. The country has the world’s fourth largest middle
income group people with 17.3 households as in the year 2014. (Larson et al, 2016).
Political, Economic, Socio-cultural and Technological influences/benefits/
advantages
The country has developed a plan for the next 20 years. In the next twenty
years the country wants to make development and changes. There plan starts from the
year 2005 and will last till the year 2025. The main focus of the country is its
economy and other reforms. The country is looking forward to strengthen its
infrastructure and they also came up with other development programmed to develop
its educational and healthcare sector of the country. The reform which are being taken
by the country are extremely beneficial for the people who are in the below poverty
level (Lustig, N 2016).
The country is currently facing the problem of the slower pace of creation of
jobs for the people 1.7 million person join jobs each and it is problem for the country
to create jobs. The total population of the country is around 253 million out of that 28
million people live under the line of poverty. The government is trying their level best
to reduce the poverty level but from the last few days this speed has reduced. The
poverty level which was getting reduced by 1% each and every ever is now reduced to
0.3% (Aguiar, Narayanan and McDougall, 2016).
The government of the country has come up with reforms regarding the
reduction of poverty level and betterment of the public services. The public services
include transportation, health, education etc. a huge stress has been given by the
government in regard to the health care sector of the country. The health care sector

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has made many advances so there is an improved and modern health care unit so as to
provide health care services.
National resource and factor endowments that create competitive advantage
The gap between the poor and the rich is relevant in Indonesia and the
government is trying to reduce this gap. The health care in the country suffered a lot.
It is said that 103 children in 1, 00,000 die in Indonesia which is a very high alarming
number and reforms are being taken to reduce this high maternal death. Out of 3 every
1 child suffers health condition such as problems of growth and brain development.
The problem in the youth results in problem of the growth of the country. As it is
know that youth is the future of our country and it is through youth that we bring
changes and new reforms in the country (Otoo et al 2014). If the youth of the country
is not strong enough then it is bad sign for the country. The government of Indonesia
is trying to cope up these challenges and they had been pretty successful regarding
controlling these problems. In order to strengthen the economy of the country the
government has brought new reforms they have opened up sectors for different kinds
of investment and thus this will reduce high logistics that they may had been facing in
the past.
The economy of Indonesia is rising it is making great progress so the investors
around the world seeing this great opportunity. The country has become a great place
for foreign direct investment from around the world. After India and china Indonesia
is the third major country if consider its economy.

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Foreign currency and exchange influences
As we know that the country is the world’s tenth most populated country and
the world’s third largest democratic country. If we look at the export of Indonesia, in
that case we will see that the country is one of the largest exporter of thermal coal and
also the exporter of palm oil. These are products of high value and they fetch high
revenue from the foreign countries. The most important thing about the economy of
the country is that it relies on itself. The economy does not rely on other countries. In
one word it can be said that the country is self sufficient, it is a great advantage for the
country. When a country is self sufficient, in that case the country does not require the
help of other countries in case of importing products that means the country produces
most of the products (Otoo et al, 2015).
Right at the moment Indonesia is standing at a situation where it is a key point
of the country where it is making a transition for the betterment for the country. The
growing from small economy to a larger economy, the country was a primary
producer of the products such as coal and palm oil and now has become one of the
largest producers of in the world. The country has opened a window for the investors.
The country’s economy is one of the fastest in the world and its growing at a
rapid speed. This economy brings in great opportunity to investment. There is a huge
opportunity for foreign direct investment within the country (Ozawa, T 2014).The
analyst have made an assumption that Indonesia will grow as a very large and stable
economy in the future though the country is facing some issues such as corruption and
bureaucratic issues that is restraining the country from 360 degree modernization but
still the country has every possible opportunity to grow. One of the main issues is the
poor infrastructure and not qualified human resources which are not contributing

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towards its growth. The country has all the resources needed to rule the economy of
the world in the future but it is to be guided in a way such that it can be made possible
(Ikein, A.A 2017).
PEST Analysis of Indonesia: High Potential for Growth
Political Factors
The government of Indonesia is proactive and they have come up with numerous
numbers of reforms which will help in foreign direct investment. Although the
corruption remains a big issue which needs to be handled for better growth.
Economic Factors
Due to the large population of Indonesia the market is very vast and dynamic and the
FDI will help the country to fulfill its need and thereby providing growth for the
country by improving its economy.
Thanks to a large population and FDI inflow, Brazil’s potential for growth is
extremely high. There is a substantial trend of a growing middle-class and the gap
between the rich and poor is declining steadily. Additionally, the Central Bank has
successfully reduced the risk of currency devaluation and has also brought inflation
under control. However, when it comes to the dollar, the currency is considered to be
overvalued, which is adversely affecting the exports of the country.

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Social Factors
There are a number of people who live under the line of poverty and with the help of
FDI the economic condition of the country will improve. The country has huge
number of youth who have demands and wants that can be fulfilled by the FDI by
giving them the opportunity for employment and a better standard of living.
Technological Factor
The country is good at technology. The maximum part of the population of Indonesia
is under the age of 30 and they are technologically savvy. So with the flowing of
foreign direct investment, the country can utilize its human resource to generate
revenue which will help in improving the condition of the country
Natural resources and its competitive advantage
The country of Indonesia is rich in natural resources. The natural resources that are
being produced are petroleum, tin, natural gas, nickel, timber, bauxite, copper, fertile
soils, coal, gold, silver.
The natural resources of the country will attract foreign investment more in
comparison to the countries with fewer natural resources. This helps to give a
competitive edge over other countries which may have few amounts of natural
resources. It also opens the door for multinational companies to exploit the situation
and do business in the country which will help the country in economic growth. The
natural resources create more option and helps in growth of the economy.

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Impact of FDI on market of Indonesia
In Indonesia the one fourth of the manufacturing production was accounted by FDI
during the period of 1990s. The Foreign direct investment created employment and
developed the support of the suppliers and transferred technology. It also helped in
generating more tax revenue for the government of Indonesia but it had a problem
regarding the balance of payment. It impacted negatively on balance payment and it
also caused continuous deficit in relation to manufacturing goods.
Though FDI can help and bring positive changes in number of sectors and so it is not
to be restricted. It can create technological advancement, help in growth of the
economy, Improve the infrastructure of the country and thereby helping in overall
growth of the company.
Current trade policy barriers
 End of quota of importing live cattle from Australia
 The ban on raw material exports.
 Restricted the retail sales of alcoholic beverage.
These policies or reform that is being taken by the country are causing hindrance in its
growth. The ban on raw material exports is one of the biggest problems the country is
currently facing.
The restriction of retail sales of liquor and they have also proposed a ban on sales of
liquor in the parliament which is contributing in the decline of the economy.

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The countries existing trade policies, systems, barriers and incentives
The country is high in natural resources. It is blessed with natural minerals. It
is one of the largest thermal coal exporters in the world. The country is blessed
mineral resources. They are the largest exporter of tin in the world (Dunning, J.H
2014). The coal that is found in Indonesia is low in sculpture which is good in nature
and it can be found very close to the surface which makes it very easy to extract.
Thereby the cost of extraction of the coal is very little in comparison to other
countries where the coal can be found deep below the soil, where the extraction cost
gets very high. Apart from coal Indonesia has great deposits of gold and silver which
thereby makes it very rich in minerals (Visor et al, 2015). As there are active
volcanoes in the country, the soil of Indonesia is very fertile and has many deposits
which is high in natural minerals there by making the country high in natural
resources. Apart from this Indonesia is situated in such an area that it helps them to
generate renewable energy. As the soil is extremely fertile in nature it helps to
cultivate commodities of high value such as palm oil, coffee and rubber. These
products are exported to different parts of the world and they fetch great revenue for
the country.
The country is trying to be as self-sufficient as possible thereby reducing their import
and increasing their export so that they increase their revenue earning and gives away
less revenue (Cairns and Slew, 2017).
The country has large number of population and youth that can drive the
country to a new economic height. The country has around a population of around
250 million and its growing every day.

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In the year 2009 the country has seen a growth of 4.9 % in gross domestic production,
which is a substantial growth. As the country is self sufficient and most of the need of
the country is fulfilled by the products of its own, in that case the country is fewer
dependants on other. This will help the country in time of economic crisis. In case of
any kind of economic cries faced by the world, in that case it won’t affect much on
Indonesia (He et al, 2015).
Existing levels of Foreign Direct Investment
As the country achieves new growth each and every day the manufacturer in
the country plays a greater role in satisfying the needs of the people. With the increase
in gross domestic production and economy of the country the income level of the
people of the country will also increase and this is a very positive point for the people
who are in the middle income group or people who reside below the poverty level or
lower income group (Hill and Kohpaiboon, 2017).The country will need to start
production of the products which it is not producing currently at this moment such as
smart phones or other technological products. The youth of the country is becoming
technologically savvy and the manufacturing industry is also trying to understand the
trend within the population of the country and acting accordingly (Nasution, 2014.).
It is great news that more than 50% of the total population of the country is
youth which is under the age of 30, which is great news for the country. Having a
large base of youth for the country is very advantageous, this youth is technologically
very upgraded which is a very important for the country. So the future of the country
is promising unlike china where the percentage of the youth is very little as most of
the population is aged due to their one child policy.