Businesses here for the long haul, despite problems

Businesses here for the long haul, despite problems

The Jakarta Post, Jakarta

Japanese businesses have long dominated the Indonesian market
with their quality products, and have been undeterred by various
regime change. They have even become accustomed to the way of
"doing business" in Indonesia.

Unlike a number of Western companies that have been here for
more than a century, the arrival of Japanese corporations has
been a relatively new phenomenon, starting only in the 1950s.

The influx of foreign investment from Japan reached a
meaningful level, however, only after the accession of Soeharto
to the presidency in the latter half of the 1960s.

Since then, Japan's investment in Indonesia has continued to
rise. According to the Japan External Trade Organization (JETRO),
Japanese investment in Indonesia totals 4.5 trillion yen (US$43
billion).

"Historically, Japan is the largest investor in Indonesia,"
JETRO President Director Kosuke Imashimizu told The Jakarta Post.

The highest level of Japanese investment here occurred in the
1970s and 1980s, when the country had political stability and
plenty of cheap labor. The country's big population, meaning a
large market, was also a major draw.

"These conditions were favorable for attracting Japanese
investors," Imashimizu said.

In addition, the yen appreciated so much that the cost of
producing goods and services in Japan increased significantly.
This prompted many Japanese manufacturers to relocate their
production facilities to countries with cheaper production costs,
such as Indonesia.

"China at that time was not good. The only choices were
Thailand, Singapore, Malaysia and Indonesia. Each had its own
merits," Imashimizu said.

Back then, Indonesia offered attractive conditions for
investment, such as a large market and plentiful cheap labor. On
top of that, Japan had an intimate historical relationship with
Indonesia, so that many businesses preferred to go to Indonesia
if they could, he said.

However, Indonesia's competitiveness slowly declined due to
the increasing attractiveness of other countries in the region,
such as Thailand and China.

Then came the crisis, which prompted a number of Japanese
firms to downsize their operations or to even relocate to other,
cheaper countries.

They include Sony, which closed one of its production
facilities in West Java, and most recently Kyocera, which has
pulled out of Batam, Riau.

"Sony went because of some labor problems and ASEAN-wide
consolidation," Imashimizu said. "Many companies, however, remain
here because they have invested too much, and most of them remain
here because they have a competitive advantage."

He said 95 percent of investors who had been in Indonesia for
some time would choose to stay here.

"Although Kyocera left Batam, don't expect any more Japanese
companies to move out. On the contrary, there has been an
increasing number of inquiries from Japanese companies wanting to
invest in Indonesia ... Indonesia's economy is recovering," he
said.

Many Japanese businesses in Indonesia play an active role in
helping the government to improve the investment climate here.

One of the ways they do this is through the hosting of
gatherings at the Jakarta Japan Club (JJC), which boasts as
members most of the Japanese businesses operating in Indonesia.

"This year, our corporate members are concentrating their
efforts on preparing a proposal for the Indonesian government on
how to increase foreign investment," said JJC deputy chairman
Tetsu Yagi.

Yagi explained that the club submitted a similar proposal
four years ago and since then had held several meetings with
the Indonesian Chamber of Commerce and Industry (Kadin) through
the Indonesia-Japan Joint Forum.

The forum was currently preparing action plans on labor
issues, infrastructure, the competitiveness of small and medium
enterprises, and improved tax and customs clearance procedures,
Yagi explained.

He particularly mentioned problems concerning infrastructure,
the law, lack of incentives and high labor costs as those that
urgently needed to be addressed by the Indonesian government.
However, Yagi added, "with a better investment climate",
Indonesia would be Japan's next preferred destination for
investment after rapidly growing China.

"Since the demonstrations against Japan in China, businesses
have become reluctant to concentrate their efforts in only one
market," Yagi explained. "We have to diversify, and Indonesia is
one candidate for the future."(003)