Welcoming Japanese business partners

Ade Elimin (Assurance Partner) and Shunsuke Wariishi (Technical Advisor)

Globe Asia - December 2011

 

The 11 March 2011 earthquake and tsunami in Japan are testament of the resilience and high spirit of the Japanese people. More than half a year has passed since the tragedy and business operation has since been returning to normal in Japan. Overall reconstruction in the severely hit Tohoku area will take time; however, most major companies in Japan have recovered their operations almost to the pre-tsunami level. Amazingly, Shinkansen in Tohoku area is now back on track, with full operations. Japan has once again showed the world that it is indeed a country of operational excellence.

The disaster caused irreversible damage to Japanese industry and its people. The future historians would say that the 2011 tsunami trigger the exodus of Japanese industries, but this is only partially true. The Fukushima nuclear disaster indeed has led to a lack of electricity nationwide, which has impelled businesses to move production bases and data centers to other countries such as Korea, China and other Asian countries. However, this cannot fully explain why Japanese companies’ M&A in overseas markets have more than doubled in the last year, by as much as 2.2 trillion yen (approx. US$28 billion) from April to September in 2011. And this is not a one-time phenomenon.

There are two kinds of important waves driving more Japanese companies to go overseas. First, the all-time high Japanese yen (JPY). Some may say that this is rather due to the depreciation of the US dollar. However, the recent currency market shows that the JPY has remained high and stable, even when other currencies were being sold against the US dollar. This appreciation of the yen has driven buying appetite and urged investors to go abroad.

Another big wave is generated by Japanese demography. Many studies predict that in 2025, the ratio of the population aged 65 or older could rise to as much as 25 percent. On the other hand, the total fertility rate (average number of children each woman has in her lifetime) was 1.39 in 2010, which means that Japan’s population is in a position of shrinkage. This is having a slow but deep impact on Japanese businesses. While business is to create customers, it is getting more and more difficult to find customers in Japan.

Therefore, Japanese companies are increasingly actively investing in Asian countries including Indonesia. For the past several months, we have seen many new investments, such as Suntory’s joint venture with Garudafood, with an estimated US$126 million investment; MSIG’s entry to the life insurance market through a joint venture with Sinarmas with an investment of Rp 7 trillion (approx. JPY 67.2 billion); and Toyota’s new factory plan worth Rp 2.9 trillion. Japanese trading houses such as Toyota Tsusho, Itochu and Sojitsu have also been busy in expanding or facilitating their industrial parks in the Jakarta suburbs.

These big bets show that we can expect more investments in the future. In a trip to Japan in July this year, we met a lot of people in the financial, manufacturing and service sectors and confirmed that Japanese business communities are keener than ever to make new investments or increase investments in Indonesia. They are ready to mobilize its resources to tap into or further commit themselves to the Indonesian market. Our colleagues in the PwC Japan office are eager to know the names of potential target or business partners in Indonesian because an increasing number of Japanese clients come to them asking for assistance in finding good Indonesia companies. In fact, they have a long list of Japanese companies in various industries that want to invest in Indonesia. Seminars about Indonesian business opportunities attract large audiences and sometimes seminar room cannot accommodate all the participants. A special feature in a recent business magazine “Weekly Toyo Keizai” on ASEAN economies classed Indonesia as one of the hottest topics of the moment.

This strong appetite from many Japanese companies means that Indonesian business communities are facing golden opportunities to build relationships and partnerships with Japanese companies. As widely perceived, Japanese companies are famous not only for their quality control and technology but also for their long-term commitment, earnest training and technology transfer, compliance with local regulations, good corporate citizenship, etc. Japanese companies could be a good partner for long–term mutual prosperity.

Regardless the eagerness in Japan’s part, we were informed that only very limited information is available about Indonesian companies, unlike those about China, Thailand, Vietnam, Malaysia, and Indian companies. Therefore, it is very important to offer proper disclosure to attract investors or partners.

It is also important to note that in many cases, while Indonesia is a strong candidate, it is not the only option for investors. Despite the current political turmoil, Thailand is becoming a much more popular place for Japanese companies due to good infrastructure, tax incentives, local supporting industries, transparent regulations and law enforcement. In addition, an increasing number of companies, especially in the manufacturing sector, are interested in setting up an Asian headquarters in Thailand, such as Nissan.

Vietnam is also a popular option referred to as “China plus one”, an extension place of investment in China. Although the macroeconomic conditions are still challenging, many Japanese companies are entering into Vietnam. There are also discussions to invest in Cambodia and Bangladesh. These countries may not be regarded as “rivals” from an Indonesian perspective, given that Indonesia is a more advanced country. However, these countries can be destinations to Japanese companies seeking for frontier for their business to maximize their return.

Indonesia has competitive advantages over other countries in attracting investment, including a fast growing economy, large population with increasing purchasing power, relatively cheap labor and political stability. However, these advantages will not be sufficient to attract huge investments without clear tax and government regulations, law enforcement and a good investment climate.

Lastly, let us end this article by touching upon a recent popular jargon term in the Japanese business community: “Global Jinzai”. Jinzai means human resource or talent, so the term refers to competitive managers and staff who can work effectively in the global arena. Traditionally, Japanese businesses have been reluctant to hire foreign people as key managers and staff members.  As a result, it has not been easy for foreign students in Japan to find a good job. Even though they graduate from a prominent Japanese university, they have to go back to their own countries and take on local staff positions at Japanese companies with a local remuneration package, which is normally much lower than their Japanese counterparts.

Now, the situation is changing drastically.  Many companies have started hiring foreign nationals aggressively as key human resources for their global extension. The recent pace of globalization does not allow Japanese companies to hesitate to hire foreigners or to wait for their Japanese staff to become Global Jinzai. For instance, it was recently reported that AEON, a major Japanese retail company that operates in the AEON Mall in Japan and Asia, plans to increase the composition of foreign nationals at its headquarters in Japan to 50 percent in 2020, a great leap from 3 percent currently. Rakuten, Uniqlo, Panasonic, Hitachi and many other excellent Japanese companies have shifted gears to go global in the HR area as well. Of course, these opportunities are open for Indonesian people.

The more the Indonesian economy grows, the higher the investment from Japanese companies. The more Japanese companies extend their business in Indonesia, the more attractive they become as partners for Indonesian. Through sound development of business relationships between Japan and Indonesia, the two countries that were unfortunately hit by huge tsunamis can become constructive partners for sustainable future prosperity.