Moving to Indonesia
By Kenichi Amaki
July 13, 2012
I just returned from a two-week trip to Asia, meeting with companies in Japan, Indonesia and Singapore. One notable change I observed in Tokyo—and confirmed in Jakarta—was the emergence of Indonesia as an investment destination for Japanese companies. All of the auto-related companies I met with in Japan were either building or had plans to build new capacity in Indonesia. Moderate labor cost inflation, coupled with a young and growing population, have made this market attractive for cash-rich, growth-starved Japanese companies.
The Indonesian auto sector, which has seen car sales nearly triple over the past decade, is a major driver of investment. Japanese auto companies hold an eye-popping 90% market share in the country. Though insufficient traffic infrastructure and the ongoing debate over whether to scrap or reduce an expensive government program to maintain low fuel prices for consumers present some uncertainties, the growth potential remains attractive given the low vehicle ownership. An Indonesian real estate company I met with told me that industrial land prices have tripled in the past two years due to strong demand from Japanese manufacturers looking to set up factories.
The Japanese are pursuing opportunities beyond just the auto industry in Indonesia. A local operator for a major convenience store chain talked to us about the intense quality control training they receive from their Japanese partner. This operator plans to significantly accelerate store openings over the next several years.
The investment push into Indonesia makes sense from a return perspective. According to Japan's Balance of Payments statistics, return on direct investment into Indonesia has averaged 10.7% in the decade up to 2010. In contrast, investment returns from North America and China have averaged only 5.4% and 8.1%, respectively, during the same period. As growth in China moderates, Southeast Asian nations such as Indonesia are emerging as a new source of growth for Japan Inc.
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