Indonesia as gateway to the ASEAN region
A practical guide on Indonesia market entry to help you achieve your sales targets in this fast developing Southeast Asian market.
ASEAN and Indonesia introduction
ASEAN (the ‘Association of Southeast Asian Nations’) is a union of 10 Southeast Asian membership states that foster economic, social and cultural developments. With a population of more than 650M people it’s home to 8,5% of the world’s population. It’s a very diverse region both in terms of population (from over 100M inhabitants in both Indonesia and Philippines to just over 5M in Laos and Singapore) and GDP per capita (from below $4,000 in Cambodia and Vietnam to over $70,000 in Singapore).
The focus of this blog is on Indonesia. With a population of over 250M, Indonesia is the 4th most populous country in the world. It consists of thousands of islands, Java being the most populated one with over 50% of the total population. It’s GDP per capita is around $4,500 having seen an enormous growth in the last 10-20 years.
Indonesia healthcare system and opportunities for medical device and IVD manufacturers
Indonesia has over 2,500 hospitals in total. Most of them are located on Java and Sumatra and over 60% are privately run. We do see however significant differences between regions and rural versus urban when it comes to availability, quality and capacity of health services. Over the last few years, a universal insurance scheme has been implemented covering currently more than 80% of the population. Infant mortality has decreased while life expectancy has increased considerably over the last 20 years. Like in many other developing markets, risk factors for non-communicable and chronic diseases (such as high blood pressure and high cholesterol) are increasing, while challenges around maternal and child health, nutrition and communicable diseases remain.
Government is promoting local manufacturing of medical devices but the local industry is still relatively small and has a focus on consumables and low-value add products. Given the above challenges there are ample opportunities for medical device manufacturers from abroad (approximately 90% of the market is still imported products). Especially for those high value-add, more complex (digital) solutions that increase the efficiency of the system, cater to the needs of the growing population of elderly and better reach the more remote living patients. The Indonesia medical device market has seen a compound annual growth rate of well over 10% over the last few years. Next to that, the medical device regulatory pathways and importation requirements have become more transparent and efficient over the past few years which makes it easier to enter this promising market.
The Indonesia regulatory pathway for medical devices
Distribution of medical devices in Indonesia is mainly going through a foreign investment company (a PT PMA – specifically for foreign investors that wish to conduct business activities in Indonesia) or through a local medical device distributor. How to establish a PT PMA is not part of this blog.
Registering medical devices in Indonesia is a relatively efficient process controlled by the National Agency of Drug and Food Control (NADFC), which is falling under the Indonesian MoH. They are also responsible for e.g., pre- and post- market evaluations and Good Manufacturing Practices (GMP) certifications. All imported medical devices and IVDs must have a registration number and product license (a so-called AKA marketing license), which is issued by the MOH to a local established and licensed distributor.
Medical device distributor companies must obtain a business registration license number (NIB) and a medical device distributor license (IDAK) before being able to sell in Indonesia.
NIB is processed via the online OSS system and IDAK is processed online within the MoH system with a registration fee (PNBP) IDAK of Rp. 1,000,000 (appr. 65-70 USD) and a lead time of 1-3 months. Next to the IDAK license, the distributor should also appoint a person that is able to handle technical queries depending on the medical device category.
Prior to distributing medical device products in Indonesia, it is necessary to obtain a pre-market license, a so-called NIE/AKL (circulation permit number) for imported medical devices.
The NIE/AKL registration process in Indonesia is done online within the MoH system with the following lead time and registration fees plus appliable local taxes:
Class A Medical Device Registration (low risk)
PNBP: Rp. 1,000,000
Leadtime: 1-2 Months
Registration of Class B and C Medical Devices (low to moderate and moderate to high risk)
PNBP: Rp. 3,000,000
Lead time: 1- 3 Months
Class D Medical Device Registration (high risk devices like MRI’s, cardiac stents or pacemakers)
PNBP: Rp. 5,000,000
Leadtime: more than 3 months
Building a market entry strategy on local market intelligence
Developing countries, one of which is Indonesia, are widely recognized as one of the most important growth areas for medical devices. However, multinational players are still trying to untangle each type of the market in order to apply the right formula for success.
Until now, most MNC’s have focused on the premium customer segment with pre-existing products and commercial models, but the next wave of growth will be in the largely untapped mid-tier market. The Indonesian market is experiencing a rising middle class, having increased access to new products and new features from a growing competitor base which requires re-thinking of existing business models and strategies. This asks for a proper understanding of the market, existing competition, pricing, distribution channels and reimbursement options to name a few before a decision can be made on the business model that leads to success in the Indonesian market.
Indonesia medical device distributor search and distributor management
Indonesian businesses are organized by traditional organizational lines, with the full spectrum of agents, distributors and other intermediaries represented in the economy.
Foreign companies wishing to sell their products in the Indonesian market are initially required to appoint local agents or distributors. In practice, local partnerships are often critical to success in this market for the same reasons that an active Indonesian agent or distributor often has an advantage over a foreign trade representative office. The choice of a local partner is important for many reasons, especially for having access to a local network and relevant contacts and knowledge of local (e.g. environmental) regulations. Several companies provide background reports and credit types on Indonesian entrepreneurs and companies and can support in the search for a professional Indonesia medical device distributor.
Be careful though as partnerships in Indonesia are quite difficult to dissolve. As a result, the aim is to make the first choice the right choice. Common business sense and investing in building a long-term partnership is as important to any commercial venture in Indonesia as it is elsewhere. Since Indonesians attach great importance to personal relationships and mutual understanding, partnerships tend to be based primarily on mutual trust with written contracts playing a less significant role. It is therefore important that any agreement is well understood by both parties.
Ideally, your distributor has a good network in at least the key cities in Sumatra, Java, Kalimantan and Sulawesi. It’s also possible to work with several distributors to cover the country. Besides that, they need to have a good sales record, have thorough experience in advising on and selling medical devices and have a good customer network (e.g. in hospitals, clinics, Ministry of Health). Besides a good sales force, they should have the technical expertise for providing (after sales) technical services. Lat but not least, the distribution partners should have a solid financial record.
Luctor Medical can assist through our local team in evaluating the market potential, providing regulatory and market access services, conducting Indonesia medical device distributor searches and distributor selection and managing the distributor on your behalf. We fully understand the healthcare and medical device market in Indonesia and have a vast experience in medical device distribution channels. Some examples of cases we have worked on:
Supply chain evaluation: for a customer we did evaluate the supply chain and all sales channel options to identify distributors that can deliver products to targeted market segments as efficiently and effectively as possible;
To screen potential distributors: we have built and used a robust internal database of specialty medical device distributors to screen potential distributor candidates for client-specific requirements. This systematic approach is augmented with local market insight, research and a network of industry contacts;
Market evaluation and regulatory support: by evaluating the market potential for a manufacturer of a broad product portfolio, a selection of products was made for which we did support the product registration in Indonesia (next to finding a suitable distribution partner);
Government areas: currently, the market in Indonesia, especially for medical devices, offers interesting opportunities selling medical devices into government areas. We have provided product registration services and since we have the required distribution and import permits, we have supported the marketing of medical devices to government's medical device sales platforms and/or e-catalogs. Through the e-catalog platform, distributors or importers can sell medical devices to the government in bigger quantities as every medical device sold within the e-catalog will be ordered by government hospitals in higher quantities (depending on the medical device type and category);
Geographical challenges: one aspect every company has to overcome is the challenging establishment of distribution, sales support, product training and service channels to the vast number of Islands in the Indonesian archipelago. The vast area and distances between islands can lead to considerable difficulties when it comes to distributing goods, optimizing transportation costs and effectively make use of human resources (HR). If distribution is difficult, then the market price of the product will increase drastically. We have successfully supported companies in creating an efficient infrastructure despite the challenges at hand.