On 28 March 2016, the Minister of Trade of the Republic of Indonesia (“Minister”) issued Minister Regulation No. 22/M-DAG/Per/3/2016 (“Permendag No. 22”), which stipulates further provisions on goods distribution as regulated under Indonesian trade law. The Permendag No. 22 revokes the Minister Decree No. 23/MPP/Kep/1/1998 that previously stipulated trade business institutions.
In principle, the distribution of goods can be made either by direct distribution system or indirect distribution system. The producers or producers’ representative must appoint a distributor or agent to distribute their goods. The obligation to appoint the distributor or agent as mentioned above is not applicable to the micro and small-scale producers. For selling its goods to the distributor, the producer does not have to obtain a trade license.
The indirect distribution is implemented by using a general chain of distribution, as follows:
- distributors and its network, such as distributors, sub-distributors, wholesales (perkulakan), grocers (grosir), and retailers (pengecer);
- agent and its network, such as agents, sub-agents, wholesales, grocers, and retailer; or
- franchise, such as franchisors, sub-franchisors, franchisees, and sub-franchisees.
Few things that the distributor entrepreneurs must be aware in the indirect distribution system, among others are:
- the distributors shall only distribute the goods to the sub-distributors, wholesales, grocers, and/or retailers;
- the sub-distributors shall only distribute the goods to the wholesales, grocers, and/or retailers;
- the agents shall only distribute the goods to the sub-agents, wholesales, grocers, and retailers;
- the sub-agents shall only distribute the goods to wholesales, grocers, and retailers; and
- sub-distributors, grocers, wholesales, agents and sub-agents are not allowed to distribute the goods to the consumers in retail.
Further, Permendag No. 22 also specifies requirements for the distributor entrepreneurs that implement the indirect distribution system, among others:
- the distributor, sub-distributor, agent and sub-agent must obtain registration identity of distributor from the Minister;
- the distributors and sub-distributors must own or possess a registered warehouse with a correct, permanent and clear address;
- the agents, sub-agents and grocers must own or possess a business place with a correct, permanent and clear address;
- the distributors, sub-distributors, agents, sub-agents, wholesales, grocers and retailers must have trade licenses;
- the wholesales must have a business place with a minimum area of 5,000 m2 (five thousand square meter), near to the arterial road or highway, with a correct, permanent and clear address;
- the wholesales may only sell the goods to the entrepreneurs or retailers that have a member card from the wholesales; and
- the distributor entrepreneurs that use the franchise chain distribution must hold a business license from the technical agency in the line business of franchise, and also hold franchise registration certificate.
The direct distribution is carried out through direct selling system either in (a) single level marketing or (b) multilevel marketing. The goods that are distributed using the direct selling system can only be marketed by the official seller registered as the member of the direct selling company with exclusive distribution. The distributor entrepreneurs that implement the direct selling system must be in the form of limited liability company, and have a direct selling license from the authorized institutions or agencies.
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