Outsourcing System Development in Indonesia: Key Advantages, Risks, and Optimal Solutions

Indonesia, with the largest population in Southeast Asia, has experienced rapid growth in the digital sector in recent years. An increasing number of Japanese companies are outsourcing system development and production to Indonesian companies with the aim of reducing costs and expanding into the Southeast Asian market. However, outsourcing to local companies not only has advantages but also comes with some disadvantages that should be carefully considered.

In this article, we will explain in detail the benefits and challenges of outsourcing system development to local Indonesian companies, and also explore the option of utilizing Japanese-affiliated development companies as the optimal choice for Japanese businesses, taking into account local conditions.

Advantages of Outsourcing System Development to Local Indonesian Companies

Significantly lower labor costs and reduced development expenses
The average monthly salary of IT engineers in Indonesia is around 50,000 to 100,000 yen even in Jakarta (as of 2024). In regional cities, the figure is even lower, around 30,000 to 60,000 yen. Compared to Japan or Western countries, development costs can be less than one-third, making it extremely cost-efficient. Due to the lower cost of living—about one-fourth to one-fifth of Japan’s—and the increasing supply of engineering professionals, price competitiveness is maintained.

Access to insights and networks within the Indonesian market
Local companies are well-versed in Indonesia-specific requirements that may be hard for Japanese developers to grasp, such as UI/UX trends, religious and cultural specifications (e.g., adjustments for Ramadan), and local payment methods like GoPay, Dana, and OVO. If you want to create a system or app that fits local users, working with local companies is practically essential.

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Disadvantages of Outsourcing System Development to Local Indonesian Companies

Large variation in technical skills and quality
While IT talent development is progressing, there is still a significant gap in skill levels and experience. Even if portfolios look impressive, the delivered work may not meet expectations.

Example: Even after submitting a specification document, a developer might arbitrarily change parts saying, “I decided to do it this way instead.”

Countermeasures: Use technical tests and trial contracts to assess capabilities; set up environments for continuous reviews via GitHub, Figma, etc.

Loose adherence to deadlines, requiring close progress management
There is a cultural tendency to be relaxed about time—often referred to as “Jam Karet” (rubber time). If you leave project management entirely to them, there’s a high risk of delays.

Common issue: A team member quits midway, progress halts, and there is no reporting.

Countermeasures: Conduct progress reviews in sprints; use tools like Trello or Jira; schedule daily or weekly meetings consistently.

Misunderstandings in requirements and the “Yes culture”
Even if they say “Understood,” they may not actually understand. From a Japanese perspective, hearing “Yes” often gives a sense of relief, but it might actually mean “No.”

Countermeasures: Ask them to explain back to confirm understanding; use diagrams and samples to share requirements; communicate in Bahasa Indonesia whenever possible.

Limitations in English and Japanese language proficiency
Although more engineers are becoming proficient in English, business-level reading and writing are still a high hurdle. Even fewer personnel can communicate in Japanese.

Countermeasures: Use a bridge SE (System Engineer), or prepare documentation in Japanese, English, and Indonesian.

Weaknesses in security and information management
The level of awareness around information management is not yet as high as in Japan. Some companies are lax in sharing source code or protecting personal information.

Countermeasures: Clearly state NDA and intellectual property clauses in contracts; strictly manage access and use cloud-based systems.

Risk of project disruptions due to staff turnover
In Indonesian local companies, it’s not uncommon for engineers or project managers to suddenly quit. When this happens, projects may stall due to insufficient handovers. In small companies, tasks are often person-dependent, which means successors may struggle to understand the work—resulting in delays or quality issues.

Countermeasures: Include a handover obligation in contracts; ensure that specifications and progress information are always shared within the team.

Why Japanese System Development Companies in Indonesia Are a Recommended Option

When outsourcing system development in Indonesia, there are two main options: directly hiring a local company or partnering with a Japanese-affiliated development firm based in Indonesia. At first glance, local companies may seem more attractive due to their lower costs. However, for Japanese companies, working with a Japanese-affiliated firm often results in higher satisfaction and fewer issues, even if the cost is slightly higher.

Smooth Communication in Japanese

Many Japanese-affiliated development companies have Japanese project managers or systems engineers on staff, allowing communication in Japanese throughout all phases—from requirement definition to delivery and operational support. They understand the nuances and ambiguity unique to the Japanese language, which significantly reduces the risks of misunderstandings and misinterpretations that can commonly occur with local companies.

Extensive Experience with Japanese Clients

Japanese-affiliated companies typically have a strong track record of working with Japanese clients and are well-versed in Japanese development culture, industry practices, and quality standards.

For example:

• Attention to product quality and completeness

• Strict adherence to deadlines

• Familiarity with the level of detail and format required for reports and progress updates

Because of this, communication tends to be smoother and less stressful.

Japanese-style Project Management Culture

These companies often implement project management practices aligned with Japanese standards, including task management, progress tracking, reviews, and bug handling.

They are also equipped with structures like WBS (Work Breakdown Structure), daily and weekly reports, and deliverable reviews, and can provide documentation in the format and detail required for internal approval and accountability in Japanese headquarters.

Acting as a Bridge Between Local Teams and Clients

Even if the engineers are Indonesian, having a Japanese or fluent Japanese-speaking project manager greatly reduces the workload on the client side. When working with local companies, the client is often responsible for translation, technical interpretation, and quality control. In contrast, Japanese-affiliated firms typically handle all of this for you.

Bridging the Cultural and Business Practice Gap

Indonesia differs greatly from Japan in terms of religion, holidays, daily life customs, and work culture. Japanese-affiliated companies are capable of interpreting and adjusting communication with local staff while delivering results that align with Japanese expectations.

For example:

• Adjusting project schedules during Ramadan

• Accommodating local smartphone and internet conditions

• Supporting Indonesian-specific payment systems and UI trends

Their strength lies in understanding both local knowledge and Japanese-quality expectations.

Contracts and Security in Line with Japanese Standards

When it comes to contracts, confidentiality, and intellectual property rights (e.g., source code ownership), Japanese-affiliated companies generally operate under frameworks similar to those in Japan. In contrast, contracts with local firms are often only in English or Indonesian and may contain vague terms. Japanese firms may provide contracts in Japanese or with clauses aligned with Japanese legal standards.

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Summary

Outsourcing to local companies in Indonesia offers many benefits, including cost savings and responsiveness to local needs. However, there are also downsides such as varying technical capabilities, challenges in project management, and communication gaps.

If your company wants to proceed with development while minimizing these risks, partnering with a Japanese-affiliated system development company with a presence in Indonesia is a wise choice. They offer Japanese-language support, Japanese-style management practices, and strong coordination with local teams—making them ideal even for first-time overseas development projects.

For companies considering expansion into the Southeast Asian market, Indonesia is an attractive option. Choosing the right partner and preparing thoroughly can greatly increase your project’s chances of success.

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Glossary of Terms Used in This Article

Local Company
A local company headquartered in Indonesia, managed and operated by Indonesians.

Japanese-affiliated Development Company
A system development company in Indonesia with Japanese capital or Japanese management. You can expect communication in Japanese and Japanese-style project management.

Jam Karet
An Indonesian expression meaning “rubber time.” It refers to a flexible attitude toward time, where being late to appointments is culturally more acceptable.

Bridge SE (System Engineer)
A system engineer who serves as a bridge between Japanese and overseas development teams. They facilitate smooth project progress by managing differences in language and culture.

WBS (Work Breakdown Structure)
A project management method that breaks down the entire project into smaller tasks for systematic management. It is used to clarify deadlines and responsibilities.

Frequently Asked Questions (FAQ)

Q1. How does the technical skill level of Indonesian engineers compare to Japanese engineers?
There are many highly skilled engineers in Indonesia. However, overall, there is a wide variation in skill levels. This depends on factors like experience and educational background. It’s important to verify skills through technical tests and portfolio reviews when hiring or outsourcing.

Q2. Why is a Japanese-affiliated development company considered more reliable?
Because they offer communication in Japanese and manage projects with standards that align with Japanese companies. They are also better at preventing issues arising from cultural or business practice differences, which helps ensure smooth project execution.

Q3. Is development in Indonesia really cost-effective?
Yes. Even in urban areas like Jakarta and Bali, development costs are typically less than one-third of those in Japan. In areas like UI/UX design and mobile app development, the cost-performance is especially strong.

Q4. I’m concerned about delays and quality issues. How can we prevent them?
Using project management tools (such as Trello or Jira), setting up daily or weekly progress reports, and establishing a solid testing framework are effective measures. Choosing a company with a Japanese project manager or a bridge SE can significantly reduce the risk of problems.

Q5. What is the cost difference between local companies and Japanese-affiliated companies?
Japanese-affiliated companies are usually slightly more expensive. However, they often provide higher quality, better communication, and stronger project management, resulting in greater overall cost-effectiveness and satisfaction.

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