One aspect of the personal nature of doing business in Indonesia is the effect that it has on the speed of negotiations. It is important for a foreign executive in meetings and negotiations with an Indonesian Bapak (or Ibu, as more Indonesian businesses today are led by women) to be prepared to invest more time in discussions than would be usual in most Western countries. Because of the need to develop the relationship, the parties must get to know one another fairly well before they even decide whether or not to work together in the future. This is the reason that some foreign businessmen fail although they are offering a “good deal” to their counterpart. Even a lucrative win-win situation may not succeed if the parties don’t take the time to get to know and trust one another.
The “Time is Money” attitude that can be seen in many western business cultures is not that important here in Indonesia. Business should be pleasant, cooperative and polite. It would be rare indeed to get a definite yes or no answer in a first meeting. Such a hasty decision would be impolite, indicating that the other side has not given your proposal sufficient thought and consideration.
Similarly, aggressive attempts to speed the negotiations along may be seen as a sign of distrust, that one side is trying to hide something or put something over on the other side. Even worse, ultimatums and deadlines for response are considered impolite and should only be used as a last resort, only if you are prepared to leave the negotiation anyway.
Use time with your counterpart to get to know one another personally. Recognize that more time must be invested initially than is normal in western business negotiations. Remain calm and polite and do not try to force the situation. The two sides must become comfortable and trusting of one another before any relationship can develop, and the relationship must be in place before contracts are signed.
One of the reasons that it is so important to develop the relationship first is the difficulty in enforcing compliance of an agreement or contract. Indonesia’s legal system relies far less on litigation as a first resort than many Western systems do. In America, it seems that everyone is constantly suing everyone else. That was one of the first things they taught us in law school: “Anyone can sue anybody for anything at anytime.” Indonesia’s commercial law has continued to develop, including significant reforms under the 2020 Job Creation Law, but pursuing a dispute through the courts remains slower and less predictable than most foreign executives expect, and arbitration through bodies like BANI is often the more practical route.
When unforeseen circumstances arise in the execution of a contract, it is expected that the parties look to their underlying relationship to resolve the issue fairly. It may also be the case that the problem may not even be discussed directly. Avoiding responsibility and not directing fault at one another is important. When problems arise, it is important to remember not to show negative emotion. The problems will be resolved given time, understanding and a solid relationship between the parties.
A significant advantage to this system is that future agreements can be made very quickly. Once the relationship is established and both sides understand how to work together, major contracts might be agreed upon with a single phone call or meeting. When there is understanding and trust, the details can be worked out later.
An aspect of this that may cause consternation in home-office legal departments is the rather general contracts that are common here. Because the parties look to the relationship and precedence to fill in the details, contracts may not be as detailed as a foreign professional may want. Overly detailed contracts are often considered a sign of mistrust. They may cause offense and may not protect your interests during disputes in any case. An exception is some GOI contracts that may appear too detailed and restrictive. Foreign executives setting up a formal entity in Indonesia, for instance through PT PMA company establishment, will find this same relationship-first approach applies well beyond the negotiating table.
This relationship-first pace is not uniform across Indonesia. Negotiations in Jakarta’s corporate and finance sectors, particularly with younger, internationally educated executives, often move noticeably faster than the traditional model described above, and tech and startup circles in cities like Bandung or Yogyakarta may operate closer to a Western tempo. The underlying expectation of trust-building rarely disappears entirely, but how much time it takes can vary significantly by sector, generation, and region.
The time required to develop business relationships and the reliance that is placed on them is an area that many foreign professionals have trouble with. However, understanding this idea alone explains much that is unusual to the westerner in Indonesia. One of the concerns often raised by foreign executives during cross cultural training programs is just this: Why does an Indonesian business partner sign a contract and execute it in good faith? The answer to both of these questions is the same. It is because the two sides have a solid relationship forged over time and tempered with mutual trust and respect.
Related Reading
- The Indonesian Big Five: Bapakisme
- Business Across Cultures: Sense of Time
- Business Across Cultures: Equality in Business Relationships
- Business Across Cultures: Meetings and Expectations
Frequently Asked Questions
Why do business negotiations in Indonesia take so much longer than in the West?
Because trust, not contract terms, is what ultimately makes an agreement stick. Indonesian business culture generally treats the relationship as the foundation a deal rests on, so time spent getting to know a counterpart isn’t a delay, it’s the actual work of the negotiation.
Is it normal not to get a clear yes or no in a first meeting with an Indonesian business partner?
Yes. A quick answer in an initial meeting can come across as careless rather than efficient. Most experienced negotiators expect several meetings before a firm decision, and pushing for an early answer can be read as distrust.
Are verbal agreements or general contracts legally binding in Indonesia?
Indonesian contract law does recognize verbal and informal agreements in many circumstances, but enforceability in practice depends heavily on evidence and the underlying relationship between the parties. Foreign businesses are generally advised to put key terms in writing and seek local legal advice, since court enforcement can be slower and less predictable than in many Western jurisdictions.
Does this relationship-first approach apply the same way everywhere in Indonesia?
Not entirely. It’s strongest in traditional trading and family-run businesses, somewhat less pronounced in Jakarta’s corporate and finance sectors, and least pronounced among younger, internationally trained founders in tech hubs. The underlying value of trust still matters, but the pace can vary.
This article was generously contributed by George B. Whitfield, III when he was a Technical Advisor with Executive Orientation Services.
