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)