> Indonesia trade policy prioritizes locally manufactured products. In Indonesia, only locally registered pharmaceutical companies can obtain marketing authorization for their products. This means that foreign companies must either establish local manufacturing facilities or transfer intellectual property rights to a local company to access the Indonesian market. In the pharmaceutical industry in Indonesia, there are several trade barriers that impact the market for patented or innovative medicines, especially in areas like cardiovascular and chronic diseases. One significant barrier is the regulatory framework that prioritizes locally manufactured products. In Indonesia, only locally registered pharmaceutical companies can obtain marketing authorization for their products. This means that foreign companies must either establish local manufacturing facilities or transfer intellectual property rights to a local company to access the Indonesian market. ==Additionally, imported drugs are required to be manufactured locally within five years of their first importation, except for those still under patent protection.== These regulations aim to boost the local pharmaceutical industry but can be challenging for foreign companies that need to adjust their business models to comply with these requirements. [[Localisation barriers to trade in the biopharmaceutical industry]]. [Source](https://geneva-network.com/research/localisation-barriers-to-trade-in-the-biopharmaceutical-industry/)​. Highlight: Motivations for localisation policies include the possibility of cheaper products, security of supply and the potential to upgrade industrial capacity, local skills, and ultimately an economic transition towards innovation. However, Forced localisation policies fail to increase employment and FDI, and harm the ability of local companies to become more innovative. ![[CleanShot 2024-02-17 at 16.31.57.png]] The Indonesian government has taken steps to improve the attractiveness of the country as an investment destination for the biopharmaceutical industry. For example, ==the government scrapped the patent working requirement in 2020, moving towards a system where patent holders are only required to ensure the availability of patented products in Indonesia via importation or licensing==. This change makes the environment more investor-friendly, as patent holders do not risk forfeiting their rights if they do not manufacture locally. However, ==the requirement for either licensing or importation still poses challenges for the availability of complex, innovative medicines==​[](https://geneva-network.com/research/localisation-barriers-to-trade-in-the-biopharmaceutical-industry/)​. Moreover, Indonesia's trade agreements include provisions that could impact domestic pharmaceutical policy and regulation. These include TRIPS-Plus intellectual property protections, investment protections (including [[Investor-State Dispute Settlement (ISDS)]]), and rules applying to government procurement of pharmaceuticals. ==Such provisions might delay the entry of less expensive generic medicines, keeping prices high for longer periods and potentially impacting government expenditure on pharmaceuticals and out-of-pocket costs for consumers​==[](https://globalizationandhealth.biomedcentral.com/articles/10.1186/s12992-019-0518-2)​. In summary, while there are opportunities in Indonesia's pharmaceutical industry, particularly in the development of innovative medicines for chronic diseases, companies need to navigate a complex regulatory landscape that includes a preference for local manufacturing and specific trade agreement provisions. These factors can influence market entry strategies, investment decisions, and overall business operations in the Indonesian pharmaceutical sector. ## Why investing in Indonesia's local manufacturing is difficult? The requirement in Indonesia for imported drugs to be manufactured locally within five years of their first importation, ==with the exception of those still under patent protection, poses several challenges for foreign pharmaceutical companies==. This requirement is part of Indonesia's efforts to boost its local pharmaceutical industry but can be demanding for foreign companies for several reasons: 1. **Investment in Local Manufacturing**: Foreign companies are usually set up to manufacture and distribute their products globally, often from centralized locations. The Indonesian requirement necessitates these companies to invest in local manufacturing facilities in Indonesia. This involves significant capital expenditure and logistical planning. 2. **Change in Supply Chain and Logistics**: Adapting to local manufacturing means altering the supply chain and logistics. Companies need to source raw materials locally or transport them to Indonesia, set up production lines, and ensure compliance with local regulations, all of which can be complex and time-consuming. 3. **Regulatory Compliance**: Complying with local manufacturing regulations, quality standards, and obtaining necessary approvals from Indonesian authorities can be challenging, especially for companies not familiar with the regulatory landscape in Indonesia. 4. **Business Strategy Alteration**: ==Pharmaceutical companies often have business models focused on research and development, with production centralized in a few locations globally. The Indonesian requirement compels them to shift towards a more distributed manufacturing model, which can be a significant strategic shift.== 5. **Intellectual Property Concerns**: For some companies, setting up manufacturing facilities involves transferring technology and intellectual property (IP) to the local entity. This can raise concerns about IP protection and control, especially in countries where IP laws might differ from their home country. 6. **Market Adaptation**: Adapting to the Indonesian market might also require changes in product formulation or packaging to meet local preferences and standards, which again requires investment and research. Contrastingly, in many other countries, pharmaceutical companies operate under different business models: - **Centralized Manufacturing**: Companies often manufacture in a few locations globally and export to multiple countries. This model benefits from economies of scale and centralized quality control. - **Focus on R&D and Innovation**: In countries with strong IP protections, companies often focus more on research and development of new drugs. The profits from patented drugs finance this R&D. - **Partnerships and Alliances**: In some markets, companies form partnerships or alliances for manufacturing and distribution, rather than setting up their own facilities. - **Outsourcing**: Some companies outsource manufacturing to contract manufacturers in other countries to reduce costs and avoid the complexities of setting up and managing manufacturing facilities. The requirement in Indonesia represents a significant departure from these models, requiring companies to localize manufacturing and potentially adjust many aspects of their operations, from production to regulatory compliance.