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3 Types of FDI Companies in Indonesia

For foreign investors who would like to open a business in Indonesia, they have to know about FDI. FDI stands for Foreign Direct Investment, which means an investment that is made by a company or a businessperson in business interests. The business interests are in the form of a foreign company, which will be located in another country.

Since the global investment patterns have grown and changed quickly, there has been an expansion of the definition of FDI or Foreign Direct Investment. This includes all the acquisitions that are beside the investing firm in the home country. The forms of FDI are many. For examples: a foreign firm’s direct acquisition, facility construction, or investing in a joint venture or forming a strategic alliance with a local firm. The last bit includes an input of technology, with a license of intellectual property.

There are three (3) types of FDI, which are:

Horizontal

Horizontal - 3 Types of FDI Companies in Indonesia
Horizontal – 3 Types of FDI Companies in Indonesia – thedollarbusiness

 

This is the part where the company does the same things as their original headquarter back home. For example, automotive brands from Japan assemble cars and motorcycles too in Indonesia as they do back home.

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Vertical

Vertical - 3 Types of FDI Companies in Indonesia
Vertical – 3 Types of FDI Companies in Indonesia – Researchleap

 

This is the part where the company in another country does things differently with the one back home. For example, a retail company (that makes clothes) acquires a foreign company that supplies raw materials to help them to create jeans and other outfits.

Conglomerate

conglomerate - 3 Types of FDI Companies in Indonesia
conglomerate – 3 Types of FDI Companies in Indonesia – iPleadersBlog

This is the part where the company or an individual invests in a foreign company that has no relation to their own business back home. Since the investor usually has no experience in the foreign company they invest in, this usually comes in the form of a joint venture. The joint venture is with that foreign company which is already operating in the industry.

What is unique about this FDI type is that two barriers are simultaneously overcome:

  • Coming into a foreign country.
  • Working in a new field of industry.

Based on the relation with FDI or Foreign Direct Investment, here are the sectors that hire foreign workers in Indonesia:

  1. Services: 52,633 people.
  2. Industry: 30,625 people.
  3. Agriculture: 2,716 people.
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Since Indonesia also has Negative Investment List, there are three (3) categories regarding FDI or Foreign Direct Investment that the companies receive, which include:

  1. Open for FDI.

Companies that are open for FDI or Foreign Direct Investment can be owned by foreign investors 100%. This is because the field of industry that they choose is not part of the Negative Investment List.

  1. Conditionally-open for FDI.

Companies that are only conditionally-open for FDI or Foreign Direct Investment must have a fair division of capital or percentage share between foreign investors and their local partners. The share can go between 50-50 or not, depending on the mutual agreement between parties involved.

  1. Closed for FDI.

The companies that are closed for FDI or Foreign Direct Investment mean that the field of industry is part of the Negative Investment List. The sector is also related to the country security or prohibited by the country’s law.

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These are the three (3) types of FDI Companies in Indonesia. Based on the Foreign Direct Investment, you will get to know which one is which.

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