Global Business Guide Indonesia

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Services | Challenges and Opportunities in the Creative Industry

Indonesia’s creative industries offer both challenges and opportunities for new entrepreneurs and foreign companies coming to the sector. The large domestic market and rapid rate of new technology uptake reflected in the widespread success of social media make it ripe for innovative products in the digital arena. The growing diversity and sophistication of consumers is also impacting tastes in entertainment at a key time when the film sector has been opened up to foreign investment.

Local Indonesian brands are gaining international recognition such as Bagteria, a boutique bag producer using traditional craft and embroidery techniques. Founder, Nancy Go’s creations have been seen on celebrities and are sold in stores throughout Asia, the Middle East and in Europe. The brand reflects the potential for international success of other Indonesian designers many of which are already making headway in areas such as Muslim fashion and batik. Further exposure abroad and events such as the Jakarta Fashion Week held annually that encourages collaboration with western designers will help in carving out an image for Indonesian brands. The push by the government is also proving a success in generating awareness of goods for export; Sweden has undertaken partnerships with Indonesian companies for the export of furniture, crafts and other goods. This has seen the opening of the Swedish Trade Council in Indonesia and a steady increase in bilateral trade over the first half of 2011.

The sector presents opportunities for investment and partnership to access the domestic market. Indonesian consumers represent a large, youthful and highly adaptive market. The uptake of technology takes place at high speed with Indonesia being Facebook’s second largest market and Twitter’s third largest worldwide. The success of smart phones such as Blackberry which counted 3 million users at the end of 2010 (Ministry of Information and Communications) is giving rise to third party applications, tailored advertising solutions and software. Digital music downloads is a further trend in the technology sphere. Managing Director of E-Motion Entertainment, a music label, Florine Lismasnax told GBG about the acceleration in consumption of digital music that she has witnessed over the past few years. ‘One of our bands reached 12 million downloads, other labels have seen 30 million downloads which is just the beginning of the potential and I do not think you would see that in any other country’. The unique nature of the market is reflected in the popularity of ring back tones which account for 95% of the total digital music market but have weak popularity throughout the rest of the region. According to the main telecom providers, users change their tones at least once every three months illustrating the scope of such products that allow personalisation within technology and communication.

The film industry in Indonesia has had relatively recent beginnings following decades of censorship under the Suharto regime. From 2001-2002 only 6 films were released, a revival began to take place from 2005 and in 2008 there were 87 Indonesian films. The Ministry of Culture and Tourism has been supportive of the industry and has high hopes for the future with a target of 200 films a year being released by 2014 by up to 2,000 film producers and directors. Currently the quality of films being produced is still low with cinema goers preferring to see what Hollywood has to offer; a blockbuster Indonesian film will only sell up to 1 million tickets. There is potential for far more within the industry and the country possesses many talented film makers. Hard hitting documentaries such as ‘Conspiracy of Silence’ that highlighted medical malpractice serves as an example of the current generation who are seeking to challenge Indonesian audiences. The popularity of film is unquestionable with the industry making an estimated $100 million USD in 2010 and reflected in the success of the country’s film festival such as the Jakarta International Film Festival. The recent opening up of the sector to foreign investment will provide the room for greater collaboration in this promising industry and support for budding producers. Previously closed to foreign investors, foreign ownership is now permitted up to 49%.

One of the major challenges faced by the industry is the lack of protection of intellectual property. Intellectual property as a concept has been slow to take hold in the country with counterfeit DVDs for films, music and software openly sold by vendors despite copyright law No. 19/2002. Consumer attitudes are more geared towards the purchase of cheaper replicas over the original with quality not being a major consideration. For producers of pirated goods, the lack of enforcement of the laws and low rate of prosecution for such cases keeps the industry going. The government, through the Directorate General of Intellectual Property under the Ministry of Justice, has set goals to tackle this. The policy is aimed at reducing software piracy to 30% by the end of 2011 from the 88% that is currently in circulation. An investigatory team will be set up for prosecution as well as the directorate working closely with software developers.

Winita Kusnandar of Kusnandar & Co law firm, who has extensive experience in intellectual property law in Indonesia, spoke to GBG and confirmed that the climate has improved. ‘Many of the issues have been solved but problems still exist, new [foreign] companies should register their trademarks and patents immediately as there have been cases of Indonesian nationals registering the brand name before the company has entered the market’. Undergoing registration is therefore a necessity for any company prior to operating in the country, despite the weak enforcement of law in commercial disputes. In addition, under the law on patents No.14/2001, inventors must produce the product or conduct the value added process in Indonesia to be eligible for patent registration. Crucial to success in the creative industry for both local and international companies is therefore the development of products with high intellectual and cultural added value that are difficult to replicate in content and quality.

The creative industry is seen as a vital part of moving the country towards a more innovative and knowledge based economy, therefore encouragement of the sector will continue with the aim of it infiltrating the practices in other industries. The large domestic market and natural artistic disposition of the culture makes the country ideal for partnerships in this area for both export and tapping the consumer market. Intellectual property rights will remain a major challenge for entrepreneurs to contend with and will require greater will on the part of the government to set an example by strict enforcement against those that infringe it. In the meantime, new local brands must concentrate on developing affinity with consumers and continue to innovate to meet the demands of the fast paced consumer environment.

Laws to Consider

  • Negative Investment List, Presidential Decree No. 36/2010
    • Handmade lace, Batik fabric reserved for local micro businesses and SMEs (category a)
    • Jewellery production (not from gold) can be conducted through partnerships (category b)
    • Art galleries can have up to 67% foreign ownership
    • Telecom value added content provider can be conducted through partnerships (category b)
    • Multimedia services are allowed to have up to 49% foreign ownership
    • IT and Web consultancy are allowed up to 100% foreign ownership
    • Film Industry such as production and technical services are allowed up to 49% foreign ownership.
  • Presidential Instruction No.6/2009 prioritising the creative industry and charging 26 government bodies to actively encourage the sector.
  • Patent Law No.14/2001 allows patent ownership of up to 20 years to bring Indonesia in line with the World Intellectual Property Organisation. However, the inventor must carry out the value added process of production in Indonesia to obtain patent protection for their product.
  • Trademark Law No.15/2001 that determines rights by the priority of registration over that of commercial use under a ‘first to file’ principal. Cases of infringement are now dealt with by commercial courts with a maximum fine of up to 1 billion RP.

Note – Indonesia remains on the International Intellectual Property Alliance watch list.

Global Business Guide Indonesia - 2012

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Indonesia Manufacturing Snapshot - Creative Industries

Contribution to GDP: 7.66% (2016)
Contribution to Exports: 8% (2015)
Number Employed in the Sector: ±12 million (2015)
Main Areas: Fashion, Crafts, Advertising, Design, Architecture, Broadcasting, Publishing, Music, Software Development.
Relevant Law: Presidential Regulation No. 6 of 2015 on the Creative Economy Agency, intellectual property laws, and the National Medium Term Development Plan 2015-2019 (RPJMN 2015-2019).