There are many remarkable things about Indonesia.

One of the most striking is it is the world’s fourth most-populous country - on a land mass that is four times smaller than Australia.

It is also one of the world’s fastest-growing economies, persistently defying expectations to perform strongly in the midst of global economic turmoil.

The first quarter of this year saw the economy grow by 6.3 per cent and that was a relatively slow run for the country, which is enjoying increasing prosperity, a growing middle class and unprecedented levels of development, largely thanks to the prosperous exploitation of its mining, gas and mineral wealth.

Unsurprisingly, Australian and global law firms are eyeing Indonesia with great interest and are looking to consolidate and increase their offerings in the face of burgeoning foreign investment into a country which is shaping up to be a regional – if not global – economic powerhouse.

When neighbours become good friends

Numerous Australian law firms have had some sort of presence in Indonesia for many years, which is hardly surprising given it is our nearest neighbour.

Allens has been working in Indonesia since the 1970s, and Norton Rose and Clayton Utz also saw its potential many years ago.

Unfortunately for foreign law firms looking to get a foothold in the market, Indonesian regulation dictates that they are not able to establish an office in the country or practice local law.

As such, Australian and global firms either operate on a fly-in, fly-out basis, or have established ‘associations’ with Indonesian firms.

According to Allens’ executive partner, Robert Cornish, the fact the firm has been unable to set up shop in Indonesia has not created a barrier to doing business.

“We don’t view it as an impediment,” he says.

“We’ve got a very close, cooperative working relationship with Widyawan & Partners. It’s a fine firm and we have very close personal relationships – which is important – and it is a longstanding relationship. We are able to deliver seamless and integrated service to clients. It is a model that has been working for a long time.”

Cornish says there are no indications that the Indonesian legal services market will liberalise any time soon but this is not deterring many law firms, such as Norton Rose, from establishing a strong presence in the smoggy and heaving capital city, Jakarta.

“Norton Rose has been involved in Indonesia for a long time but, just under two years ago, work levels were really building up and we had a lot of clients who were either expanding their operations or coming to Indonesia for the first time so we took the view that we really needed to expand the offering of Norton Rose in Indonesia,” says Jakarta-based senior foreign legal counsel Ross Ramsay.

“We have an association with local firm Susandarini & Partners. We have introduced a lot of the Norton Rose systems and the Indonesian lawyers have a lot of training opportunities, including international training … So, while we have to be in association with an Indonesian law firm, when clients come here they are getting the same service as they would in other Norton Rose offices.”

The melting pot heats up

Easily the biggest carrot Indonesia can offer Australian law firms is significant energy and resources wealth, which is attracting huge amounts of foreign direct investment from places like Australia, China, Japan, Korea, the US and Europe.

“Resources is our primary focus in Indonesia,” says Cornish.

“For many years now Indonesia has had a very strong resources sector, primarily driven by oil and gas and coal mining. More recently there has been very strong activity in the LNG sector and, even more recently, there has been strong activity in geothermal energy.”

This foreign investment is creating a melting pot of cultures and is somewhat diluting Australia’s dominant presence.

Another change brought about by the energy and resources boom is the growing demand for improved infrastructure to facilitate the exploitation of such wealth – and this is keeping lawyers busy.

“There has been real growth in areas like infrastructure,” says Ramsay. “There are very big infrastructure projects rolling through. Mining has always been a big practice for us here but it is becoming much busier. It is a little bit like Australia – when you think about a mine in Australia it’s not just about the mining but also the infrastructure. With most mines you need to build rail and port facilities or at least think about those things to get the coal or the minerals out. It is quite similar here – there is a lot of development of facilities to extract or process the minerals.”

 

Ross Ramsay, senior foreign legal counsel, Norton Rose

There is also a significant amount of money being spent by both the Australian and Indonesian governments to improve public infrastructure – something that is vital to the functionality of such a populous nation.

Clayton Utz partner Michael Tuckfield, who flies to Jakarta from Melbourne every three weeks or so, says public infrastructure projects are booming in Indonesia.

“The population here is 240 million and there is thus an extraordinary demand for drinking water,” he says.

“Quite a lot of money has been set aside to transport water from one place to another and then treat it so it is drinkable. The other things we touch on are roads. There is a very big project that we are on the edge of, which is building railway lines to transport coal from the huge mines to the ports. There are also lots of projects going on in relation to airports, telecommunications and hospitals … There is an enormous, multi-billion dollar presidential program to get the show on the road.”

R.E.S.P.E.C.T

Most lawyers who have worked in Indonesia will tell you there is a certain way of doing things when it comes to doing business – a way that must be learned, respected and adhered to if one is to be successful in the long run.

According to Tuckfield, patience and respect are just two of many essential virtues.

“I haven’t encountered any difficulties, but you do need to be respectful and patient and remember that you are a visitor. I have seen people who don’t remember that – the response is always very polite, but they don’t get very far later on,” he says.

“I like the very personal, patient, courteous, determined culture that they have. They are always happy, always there to please, always very polite and courteous. It is a wonderful place to work. Some things are different, but not necessarily difficult.”

Cornish also says Indonesia has a unique and sensitive operating environment of which one absolutely must be aware.

“There are cultural nuances that you have to be very alive to, and I think the ability to work with them and adapt comes with experience and being on the ground over a significant period of time,” he says.

“It’s a different, refined culture with its own very particular nuances. Doing business in Indonesia is very different from doing business in Singapore, for example. You have to be aware of it, alive to it and work with it in order to achieve outcomes and deliver results in a way that will work on a sustainable basis.”

Perth-based Clayton Utz partner John King has also experienced certain cultural nuances that can render business deals difficult.

“Western-style negotiation tactics may offend certain Indonesian counterparts and can undermine business relationships,” he says.

“[Indonesians] may not appreciate 'Western directness'. Confrontation is often unacceptable.”

Don’t hold your tongue

While respect and patience are an essential part of conducting business, it seems the ability to speak the local language, Bahasa Indonesia, is not.

However, those who do make an effort with the language, even if merely as a sign of respect, will be doing themselves a favour.

“You don’t have to speak the language but there is no doubt that, if I were fluent, it would be a significant benefit,” says Tuckfield.

“The grammar is quite simple but it is an incredibly idiosyncratic language so it is quite difficult. Almost everybody speaks English but, out of respect, if you can speak Bahasa … There is a great emphasis on respect and personal relationships and politeness and courtesy, and if you go to the trouble of learning the language and speak it respectfully, that would definitely be a good thing.”

Michael Tuckfield, partner, Clayton Utz

Language isn’t the only thing foreign lawyers have to get their head around when working in Indonesia – battling with the country’s complex and multi-layered legal framework also poses challenges.

“There is a whole array of layers of law and it takes a while to get an understanding of what the legal parameters are here,” says Ramsay.

“You have more levels of regulation. Australia has the federal, state and local levels that can all influence things, so to that extent it is similar, but there is also a lot of regulation that takes place at the ministerial level, so you have to be wise to all those things or you can get caught out.”

Rising star

Despite its challenges, there is no doubt that Indonesia’s regional and global significance is growing, and the world is waking up to its potential.

“Jakarta is an interesting city and a very prominent city. It is not a backwater by any stretch of the imagination,” says Ramsay.

“You know you are working in a city that will just become more and more important in global terms. I found that, in our London office, people are really interested in what is happening in Indonesia. That probably wouldn’t have been the case a few years ago. In Europe and the UK people know about Indonesia and know that it’s a growing area.”

And there are no signs that client demand for legal services will die down any time soon.

“We see Indonesia’s potential as very significant. It has been referred to quite frequently as ‘the fifth brick’ and we view it in those terms,” says Cornish.

“The recent performance of the Indonesian economy makes it one of the standout performers among the Asian economies – not just Southeast Asia - and foreign direct investment has grown enormously. We regard it as highly prospective and exciting.”

Indonesia at a glance

• Indonesia is the fourth-largest country on earth. It comprises an archipelago of more than 17,000 islands, with a land mass of more that 1.9 million square kilometres
• In 2010, there were more than 237.4 million people living in Indonesia. This equates to a population density of 123.76 people per square kilometre
• More than half (58 per cent) of Indonesia’s population live on the island of Java, making it the most densely-populated island in the world. The population is expected to reach 254 million by 2020 and 288 million by 2050
• The Indonesian economy defied expectations and withstood the global financial crisis better than many predicted. It has grown strongly ever since and the forecast GDP growth for 2012 is 6.4 per cent
• Australia, primarily through AusAID, is the largest donor to Indonesia, providing technical and economic support
• BHP Billiton, Rio Tinto, Santos and Newcrest Mining all have investment interests in Indonesian mining projects
• Indonesia is a republic and shares land borders with Papua New Guinea, East Timor and Malaysia. It is a founding member of ASEAN and a member of the G20 major economies
• Indonesia boasts the world's 17th largest economy by GDP and 15th largest by purchasing-power parity. It is also one of the fastest-growing economies in the world