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As the 4th largest nation in terms of population and boasting a rapidly expanding middle class, Indonesia undoubtedly offers lucrative investment potentials for the global cosmetic sector.
The positive growth of cosmetic and personal care markets in Indonesia is 7.2% per annum (CAGR 2018-2021) and signifies that the country is brimming with ample opportunities for investors and business owners to grab. By the same token, it also brings with it the likelihood of a larger number of business owners facing compliance challenges. In this article, we will detail the sector’s market potential, regulations, and highlight some important case studies showcasing commonly encountered obstacles during cosmetic product registration in Indonesia.
Market Potential of Indonesia’s Cosmetic Sector
Indonesia' s promising cosmetic and personal care product sectors are growing rapidly. At the moment, there are more than 33,000 items registered under Indonesia' s National Agency of Drug and Food Control (BPOM).
The booming customer base in Indonesia’s cosmetic sector is one of the main reasons behind the success of this sector. A decade ago, cosmetic companies served the Indonesian upper-class and only sold their products in large and major cities across Java and Sumatra. However, things changed after a decade of progress in the country. Indonesia is now home to 19.6 million middle-class households (in 2016) and is ranked the 4th largest middle class nation in the world. By 2030, the number is expected to hike further to reach 23.9 million.
The high penetration of smartphone and Internet usage in Indonesia is a big contributory factor for this growth. Smartphone penetration growth is estimated at 4% annually, providing a platform for all Indonesians, especially those living in rural areas to purchase cosmetic products. Furthermore, imported cosmetic products play a vital role as Indonesians prefer overseas to domestic products.
Regulations of Cosmetic Products Registration in Indonesia
Broadly speaking, the procedure of registering a cosmetic product with BPOM is complicated and time consuming. However, don’t get discouraged as we have analyzed the individual procedures and compiled a list of common mistakes investors make.
Four Costly Mistakes to Avoid
Failure to Meet the Requirements for an Independent Distributor
One of the critical requirements for manufacturers who set up a company in Indonesia is that they can also become direct distributors of their cosmetic products. However, it is not very easy for investors, especially if they are new to the market. As a result, many cosmetic producers give up distributing their products on their own. Instead, they engage a local distributor or agent to help them.
Foreign investors can opt for starting a local or foreign-owned company. The foreign-owned company (PT PMA) would be their best option if they want to be independent of an Indonesian national or company. However, this process requires completion of the PT PMA incorporation process which is costly and time consuming and subject to restrictions such as the Negative Investment List and minimum capital investment requirements.
Losing Control of Your Products
If setting up your company in Indonesia is a daunting task, you can avoid this and just decide to register your existing cosmetic products under an Indonesian distributor or agent.
It is important to note that you can only register your products under just a single Indonesian company. The right of exclusive distribution belongs to the company you engage, even without you signing an agreement of exclusivity.
Partnering with An Unreliable Company
Finding a reliable business partner is vital to success in Indonesia. The validity of a distribution agreement is 3 years. Therefore, if you unluckily choose a bad partner, you will be stuck with this untrustworthy partner.
Underestimating the Process Length
The next step after completing your company registration is registering your cosmetic products through these steps:
Prepare documents related to every product.
Submit the documents for each product registration.
Make payment to BPOM for each product registration.
BPOM notifies you of the approval of cosmetic within 2 weeks upon the receipt of the payment (in general).
However, depending on the claim and formula complexity of your product, this step could take longer. Once you have obtained the BPOM notification, you can acquire your Import Notification Letter (INL). With the INL approval, you can then import your product to Indonesia.
This overall registration process might take longer than you anticipate. Everything depends on how and when you prepare all the supporting documents required as well as the submission timing. It is recommended to seek professional assistance for document review, or if any of the steps is unclear to you.
Other Common Mistakes
All cosmetics products must comply with the testing requirements of BPOM
All cosmetic products must fulfill the safety, benefit, labeling, packaging, quality, advertising, and claim requirements stipulated within ASEAN Cosmetic Directive (ACD) and other national standards
All cosmetic products must fulfill precise rules for labelling, packaging and advertising of cosmetics products in Indonesia
Important information in cosmetic products must be translated into Bahasa Indonesian accurately, such as function/claim, direction of use, and warning/cautions
Cosmetic products are not exempted from the list of halal certification requirements in Indonesia.
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