Press Release

June 1, 2021
ASEAN-Japan Centre
Non-equity Modes of Trade between Indonesia and Japan
seen to offer opportunities to join international networks of production

according to the study by ASEAN-Japan Centre“Non-Equity Modes of Trade in ASEAN” on Indonesia is available for download on AJC website

ASEAN-Japan Centre (AJC) issued the 7th paper of the “Non-Equity Modes of Trade in ASEAN: Promoting new formsof trade between Japan and ASEAN” series focusing on Indonesia in March 2021. The findings of the paper were
presented in the “Webinar on Non-Equity Modes of Indonesia” by AJC held on May 27, 2021. According to the paper,
non-equity modes (NEMs) of trade in Indonesia is foreseen to potentially play a role in expanding opportunities toparticipate in global value chains and are critical for inclusive economic development especially in the COVID19
pandemic.
Indonesia is the seventh largest economy in the world, and one-third of its economy is contributed byinvestments. NEMs in Indonesia exists in natural rubber industries in the form of contract farming, in footwear industry
through outsourcing and subcontracting, in fast-food and convenience stores through franchising, and in international
hotel chains through management contracts or licensing agreements. The recent passage of Law number 11 of 2020
on Job Creation aims to ease the main obstacles to investing in Indonesia, and benefits also NEMs by attracting
investors to Indonesia with the expected ease of doing business in the country.
NEMs present opportunities that are not found in foreign direct investment (FDI). For example, it is an attractive choicefor international brand owners and transnational corporations (TNCs) considering their flexibility to enter the Indonesianmarket through contractual agreements with local companies. To meet the standards of TNCs, local companies areexpected to be equipped with management and technological skills and capacity. However, as transnational
corporations can easily terminate contracts, a long-term relationship is not guaranteed particularly when the quality ofgoods and services does not meet the TNC’s standards. While FDI may have a better advantage than NEM in terms ofbringing in capital, NEM expands the operational methods to have local Indonesian firms engaged in international
networks of production.

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The existence of NEMs provides incentives for local companies to grow their businesses. If local firms can maximize
know-how and technological skills by linking with TNCs, they can build their own capacities based on these incentives
and even expand their businesses by using the TNC’s networks. To fully maximize the potentials of NEMs, the paper
recommends that the Indonesian government consider: (1) enhancing capability of small and medium enterprises
through entrepreneurial development and incubation programs and microfinancing programs; (2) implementing andstrengthening the regulatory working environment to expand employment, upgrade technology and contribute to global
value chains; (3) support the promotion and upgrading of skills and expertise of its local workforce through new
education programs such as Kampus Merdeka, and through the Pre-Employment Card; and (4) develop science,technology and innovation infrastructure to enable companies to build more efficient business practices.
The Regional Comprehensive Economic Partnership (RCEP) concluded in late 2020 further expands the market to awider East Asia. The Indonesian government’s efforts to maximize such opportunities can enable NEMs to better
integrate ASEAN economies. Reduced bureaucracy and deregulation will increase the competitiveness of Indonesiancompaniesand help themaccessglobal markets. Further, facilitative

investment policies

anda moreflexible labour market are indispensable strategies to improve Indonesian competitiveness in the future.
The findings of the paper were presented in the Webinar on Non-Equity Modes of Indonesia held on May 27, 2021. AJC
invited paper discussants from the government and academe, including Dr. Kasan Muhri, Head of Trade Analysis andDevelopment Agency, Directorate General of Trade Policy Analysis and Development, Ministry of Trade, Republic ofIndonesia, Professor Chie Iguchi from Keio University, and AJC Secretary General Masataka Fujita. For the full reporton the webinar, please see https://www.asean.or.jp/en/trade-info/20210601/.
“Non-Equity Modes of Trade in ASEAN: Promoting new forms of trade between Japan and ASEAN: Paper 3 Indonesia”
is available for download on AJC’s website as below.

https://www.asean.or.jp/ja/wp-content/uploads/sites/2/NEM-Indonesia-Paper-3-full-web.pdf

Contact:
ASEAN-Japan Centre (AJC) PR Unit
Tomoko Miyauchi (MS)URL: https://www.asean.or.jp/en/
E-mail: toiawase_ga@asean.or.jp

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