Indonesia provides opportunity for Korean companies

Ronny P. Sasmita

Over the past five years, economic ties between Korea and Indonesia have shown consistent growth. Bilateral trade has hovered between $20 billion to $22 billion annually, with both countries exchanging critical goods: Indonesia exporting coal, copper, gas and palm oil while importing Korean automobiles, electronics and industrial machinery.

On the investment side, Korea has committed more than $11 billion between 2020 and 2024 with inflows rising steadily, reaching more than $2.5 billion in 2023 alone, and likely higher in 2024. This upward trajectory is not just a statistical achievement — it signals a deeper partnership that is waiting to be fully realized.

For Korea, the urgency to prioritize Indonesia as a trade and investment partner cannot be overstated. Indonesia is now Southeast Asia’s largest economy, with gross domestic product surpassing $1.4 trillion and a population of more than 280 million, half of them under 30 years old. For Korean exporters, this represents a vast consumer base with rising purchasing power, particularly for electronics, beauty products, automobiles and cultural exports such as K-pop and K-dramas. The domestic appetite in Indonesia for Korean goods and culture is unmatched in the region.

At the same time, Indonesia is positioning itself as a hub for strategic industries of the future, especially electric vehicles (EV), batteries and renewable energy. The country controls one of the world’s largest reserves of nickel, a critical input for battery production. Korean giants like Hyundai and LG Energy Solution have already taken steps into this market, partnering with Indonesian companies to establish a full EV supply chain, from mining to smelting to battery and car production. These moves demonstrate not only Indonesia’s attractiveness but also the alignment of industrial goals between the two countries.

Today, under President Prabowo Subianto, Indonesia is doubling down on its quest for foreign investment. Prabowo has inherited an ambitious development agenda and is pushing forward with industrialization, defense modernization and the massive project of relocating the capital to Nusantara. These projects require substantial capital inflow, advanced technology and managerial expertise, areas where Korea can make a decisive contribution. Without strong foreign partners, Indonesia risks falling short of its targets. With Korean participation, however, Indonesia can accelerate modernization in a way that benefits both sides.

Another critical factor is Korea’s demographic challenge. The country is aging at one of the fastest rates in the world, with fertility rates at historic lows and a shrinking workforce. This creates structural pressure on Korean industries, which are struggling to secure young and dynamic workers at home. Indonesia offers the demographic complement to Korea’s aging society, a youthful labor force, abundant natural resources and a growing middle class eager to consume. By relocating more investment to Indonesia, Korean companies can not only diversify their global production bases but also tap into an ecosystem rich with human capital. In essence, what Korea lacks domestically can be found in Indonesia.

Yet, despite this potential symbiosis, the partnership faces serious challenges. Regulatory uncertainty in Indonesia, such as abrupt export bans on raw minerals or frequent changes in investment rules, creates hesitation among foreign investors. Infrastructure gaps and high logistics costs raise operational expenses. Labor productivity and skill mismatches remain issues, especially for high tech sectors. Moreover, environmental and social concerns, such as community disputes or weak enforcement of sustainability standards, complicate large projects.

Korean investors also face intense competition from China and Japan. China, in particular, has moved aggressively in Indonesia’s nickel and EV sectors, often backed by state financing and large-scale infrastructure packages. Japan, with its long history of investment in Indonesia, remains deeply entrenched in the automotive and manufacturing sectors. As a result, Korean projects sometimes receive less visibility or priority, despite their technological sophistication.

If Korea wants to compete fairly and successfully in Indonesia, it must address these challenges proactively. Several steps are essential. Seoul should deepen institutional engagement with Jakarta through regular trade and investment forums, ensuring that Korean concerns about regulatory shifts are heard early and constructively. Korean firms can partner with Indonesian universities and vocational schools to train workers for advanced manufacturing and digital industries.

This not only improves productivity but also builds goodwill and long-term trust. To avoid local backlash and align with global standards, Korean companies must prioritize environmental and social governance in all projects. Transparent operations will set them apart from competitors.

Equally important, Korea should expand joint ventures and commit to genuine technology transfer. By forming real partnerships with Indonesian firms, Korea can foster an ecosystem of innovation and ensure sustainable growth. The Comprehensive Economic Partnership Agreement between the two countries, which now lowers tariffs and streamlines procedures, must be fully utilized to expand Korea’s market share in Indonesia and deepen supply chain integration.

Korea’s choice is clear: continue to compete narrowly with other powers in Indonesia, or step up as a long-term strategic partner that provides not just capital, but also technology, skills and cultural exchange. The second path will not only expand Korea’s footprint in Southeast Asia but also reinforce its global economic resilience.

Indonesia is at the heart of Southeast Asia’s growth story, while Korea faces the realities of a maturing economy and an aging society. Both countries can fill each other’s gaps. But time is of the essence. If Korea does not move decisively, others will. Prioritizing Indonesia now is not merely a matter of opportunity, it is a strategic necessity for Korea’s future prosperity.

Ronny P. Sasmita is a senior analyst at the Indonesia Strategic and Economics Action Institution.