Local Content Requirement, or LCR, is a regulation aiming to boost the national economy by requiring imported products to have a part of their content made locally.
In Indonesia, this regulation is known as TKDN “Tingkat Komponen Dalam Negeri”. In the Indonesian medical equipment industry, the LCR applies to public hospitals only and is currently at 40%, gradually increasing.
While the LCR has good intentions, its fast implementation may have led to unintended consequences. To support the LCR, the Indonesian government encourages:
1. Foreign brands to come and set up a plant in Indonesia.
2. Existing local distributors to invest in a workshop.
Scenario 1 will ensure the quality and safety of products but is a strategic and costly decision for companies, so few have opted for it thus far.
Scenario 2 has a lower cost but a high probability of :
– tampering with the products
– jeopardizing their quality
– creating a risk for foreign brands to lose their sales licenses back home
Besides, scenario 2 doesn’t guarantee the genuine localization of products. For example, a local company can import parts and buy and assemble them locally with another company, making the final product a local one, legally.
If done with low-cost supplies it will lower the quality, and lead to potentially dangerous consequences for hospital patients. So, what should you do if you are interested in Indonesia’s big market but are worried about the LCR’s impact on your business? No matter which sector you are in, you can seek expert advice to avoid mistakes and traps:
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