Doing business in Indonesia and Singapore

With its dynamic economies and strategic location, Southeast Asia continues to attract global businesses seeking growth and expansion. Singapore and Indonesia, in particular, offer unique opportunities but also present new challenges for enterprises looking to establish a foothold in the region.

Despite the region's appeal, Southeast Asia's economic landscape is far from uniform. Each country has its distinct set of conditions that businesses must navigate. While Singapore offers political stability, a transparent tax regime, and a well-developed infrastructure, its high operational costs and stringent regulatory requirements can be challenging. In contrast, Indonesia's vast market and growing middle class promise significant opportunities, but businesses face complex regulatory environments and infrastructure challenges.

Current business climate in Southeast Asia

"Key challenges are arising from different conditions in different countries of Southeast East Asia. Other than Singapore itself, in most other Southeast Asian countries, the culture is different. They have very complicated legal systems, and ever-changing laws and policies. You really have to have regional expertise and business partners," explains Amanda Chen,  Head of International China Practice at RHTLaw Asia, during the HLB Global China Service Forum recently held in Zambia.

Companies aiming to succeed in Southeast Asia need to develop tailored strategies that address these diverse local conditions, leveraging regional expertise and forming strong local partnerships to overcome obstacles and capitalise on growth potential.

Celebrated for its business-friendly environment, transparent tax regime, and robust infrastructure, Singapore remains a magnet for foreign investment. However, the cost of doing business is high due to increasing working capital loans, persistently high real estate prices, and utility expenses driven by global geopolitical tensions.

Still, the country appears able to fend off these pressures. Singapore's political stability and robust legal framework provide a secure environment for business operations, and its ability to attract talent and foster innovation further strengthens its position as a leading business destination.

Neighbouring Indonesia is at a critical point in its economic development, with the private sector set to drive growth and innovation. With its vast population and growing middle class, the country presents a different yet still compelling opportunity. However, the challenges persist despite the economic potential across various sectors, including consumer goods, technology, and manufacturing.

Regulatory unpredictability and corruption remain significant hurdles. Access to finance and high regulatory compliance costs present significant productivity constraints. While business licensing has improved, the increased time required for regulatory compliance poses an essential challenge for businesses.

Also, the country faces ongoing Infrastructure challenges. "While Indonesia’s market is vast, infrastructure development is still catching up. Companies should be prepared for logistical challenges and invest in local partnerships to navigate these issues effectively," confirms Mr. Adi Wirawan, Senior Partner of HLB Indonesia.  "Despite the challenges, Indonesia’s growing middle class and expanding consumer base offer significant opportunities. Businesses should focus on understanding local consumer behavior and tailoring their strategies accordingly," he concludes.

The shifting labour market

Influenced by cultural shifts, regulatory adjustments, and economic pressures, the labour markets in Southeast Asia are undergoing significant transformations.

Singapore's recent changes to the foreign worker policy have made hiring international talent more complex. The enhanced assessment framework for employment passes aims to ensure that only highly qualified candidates are admitted into the workforce. While this increases wage costs in the short term, it is expected to benefit the economy by fostering a more skilled and competitive labour market.

These regulatory changes are vital for maintaining Singapore's reputation as a hub for high-calibre professionals, as businesses need to be more selective in their hiring practices. Additionally, the focus on employee well-being has become a significant factor in staff retention. Companies prioritising work-life balance and offering competitive remuneration packages are seeing positive employee loyalty and performance results.

Indonesia's labour market reforms under the Omnibus Law on Job Creation aim to simplify regulations and attract foreign investment by streamlining the hiring process and reducing bureaucratic red tape. The informal economy is substantial, constituting more than 60% of the workforce.

Navigating these intricacies poses significant operational challenges, but the substantial market potential justifies the effort. "The Omnibus Law on Job Creation aims to simplify hiring processes, but businesses still face challenges with workforce management. Understanding local labour laws and ensuring fair treatment of employees is crucial," said Mr. Adi Wirawan.

Rising costs in Southeast Asia

Rising costs are a significant concern for Southeast Asian businesses, especially in Singapore. Despite its business-friendly environment and transparent tax regime, Singapore faces high operational expenses due to several factors:

These rising costs require businesses to make strategic adjustments. Firms are increasingly turning to government support programs, such as the Productivity Solutions Grant (PSG), which co-funds expenses related to technology acquisition and employee upskilling.

Additionally, businesses are adopting technological solutions to enhance efficiency and reduce operational costs. For example, investment in artificial intelligence (AI) technology can lead to significant productivity gains.

Regulatory changes

Regulatory changes in Singapore and Indonesia are significantly impacting business operations.

In Singapore, recent developments include stricter anti-money laundering measures for corporate service providers, with higher fines for violations and tighter restrictions on nominee directorships. Additionally, mandatory sustainability reporting has been introduced for listed companies, with a push for SMEs also to comply. These changes aim to enhance transparency and accountability but require businesses to invest in compliance and reporting capabilities.

Similarly, Indonesia's regulatory environment is evolving with the Omnibus Law on Job Creation, which aims to streamline business regulations and improve the investment climate by simplifying the regulatory framework. However, businesses continue to face challenges due to the uncertainties of the regulatory landscape.

"Indonesia’s regulatory environment is complex and often unpredictable. Businesses must stay updated with the latest laws and policies to ensure compliance and avoid potential legal issues," confirms Mr. Wirawan, emphasising the importance of staying informed to remain compliant and competitive.

Looking ahead

Singapore appears poised for steady growth. A recent survey reveals that 82% of business SME leaders in Singapore express optimism on the growth prospects of their companies over the next year, identifying digital transformation, the adoption of artificial intelligence, and automation as the primary growth drivers for the next 12 months. They also emphasise the importance of forming strategic partnerships, embracing flexible working conditions, and strengthening supply chains.

Indonesia's expanding consumer base offers significant potential, but navigating regulatory complexities and understanding local markets are crucial for success. The country is on the verge of hitting the middle-income trap. Like in many developing nations, the majority of Indonesia's workforce (97.2%) is employed by SMEs.

However, these SMEs often struggle to provide long-term job security, health benefits, or income growth potential. These businesses need to evolve into more established enterprises for robust economic growth. Their low productivity, driven by small scale and limited experience, restricts access to finance, information, skills, and technology.

Despite decades of campaigns promoting local products, Indonesia has been slow to support the growth of local businesses. As a result, SMEs have room to enhance their competitiveness, as they contribute only about a third of total value added or exports.

Let HLB guide your Southeast Asian expansion

Navigating the complexities of Southeast Asia's business environment requires expert guidance and local insight. HLB Global is a trusted partner, offering services across our Global Accounting and Compliance, and Global China Services teams to help businesses thrive in this dynamic region.

Whether you need support with regulatory compliance, market entry strategies, or managing rising costs, HLB Global is here to facilitate your growth and expansion.

Contact us to discover how we can assist in achieving your business objectives in Southeast Asia.