Business Environment

Japanese Companies Doing Business in Indonesia【Choosing between specializing in the Galapagos market and competing in the outside world】

2020/01/15

日系企業のインドネシアでの事業展開【ガラパゴス市場に特化するか外の世界で勝負するかという選択】

Shrinking domestic demand is forcing Japanese companies to accelerate their overseas expansion

If Japan's population continues to decline at the current rate, domestic demand will continue to shrink, and if this happens, it is inevitable that domestic companies that find it difficult to survive in the Japanese domestic market alone will seek to find a way to survive in overseas markets.

Recently, the inward orientation of Japanese young people has become a problem, but the only way for a company to survive is to aim for overseas markets, and in that case, it is inevitable that it will have to compete with other companies in the same industry around the world, as well as with local companies in the local area where it operates.

While the position of Japanese home appliances in the global market has been declining for a long time, in Indonesia, the presence of Chinese car manufacturers in the two-wheeled and four-wheeled market, which can be said to be the last bastion of the Japanese manufacturing industry, is increasing.

The resale price on the second-hand market is an important factor in determining the sales of motorcycles and four-wheelers, but until now, cars and bikes made in China and Taiwan sold in Indonesia have not been able to expand their market share due to the short distribution period on the market and the high rate of price decline on the second-hand market.

However, once Wuling (Shangqi General Wuling Automobile) vehicles, which are currently being actively marketed in Japan, are distributed in the market and used car prices stabilize, it is expected that other Chinese vehicles will increase their presence, and this trend should become more pronounced along with the spread of electric vehicles.

The Japanese Galapagos market in Indonesia is also on the decline

Japan's domestic market, which has evolved and developed uniquely and is protected by Japan's special business practices and the Japanese language barrier, is called the "Galapagos" market.

In this case, the barrier to entry comes down to the word "Japanese," which means "the Japanese person in charge must respond in Japanese," but with the recent rise of foreign companies, this principle is breaking down.

Japanese manufacturers of raw materials and parts are said to be slow to make decisions on overseas expansion, which has led to a strong tendency for companies that have already made inroads into overseas markets to rely on imports of raw materials and a low local procurement rate among Japanese companies.

Behind this is the fact that non-Japanese companies have improved productivity and quality as a result of continued capital investment and quality improvement efforts, and have become more competitive in the market, as well as the company's efforts to adapt to Japan's Galapagos business practices in order to take advantage of business opportunities.

Company Y, a parts manufacturer in Cikarang, whose major customer is a major Japanese consumer electronics manufacturer, Company X, took the opportunity of a change in the top management to move away from the traditional "Customers are gods" approach to a subcontracted factory that "Speaks up when it's important".

As a result, Company X's orders were shifted to a Chinese company, due to the "Customer god" sales efforts, a Chinese parts manufacturer in the same business, which made capital investments with huge financial power to improve productivity and reduce production costs.

This fact means that the Japanese Galapagos market in Indonesia is shrinking, but if you feel a sense of crisis and want to develop your business in the local market, you will naturally have to fight with local and foreign companies.

However, I have heard from a certain Japanese automobile parts manufacturer that there is an iron curtain made by Chinese companies that surpasses the Galapagos in Japan, such as the above-mentioned Chinese car manufacturer Wuling, and that Japanese companies cannot find a chance to enter the market.

In addition, if you run into barriers such as differences in business practices, difficulties in accepting inspections, and difficulties in collecting accounts receivable, you may find it easier to do business with Japanese companies than to go through such hardships, and you may end up returning to the shrinking

How to take advantage of being Japanese?

In recent years, Japanese startups entering Indonesia are likely to bet on the competitiveness of their products, but one of the most common risks is the loss of market share to a late-blooming local company backed by large capital.

Indonesia is ranked 73rd in the world in the latest business environment ranking (29th in Japan), and the business difficulty is high due to complicated regulations, tax laws, and high tariffs, etc. In the end, I believe that the shortest way is to develop the business from the viewpoint of how to demonstrate the superiority of being Japanese.

In recent years, both the consumer electronics industry and the entertainment industry have seen Japanese brands being driven out of business by countries such as South Korea and China, but unfortunately, Japan has not had the educational environment to foster the kind of innovative ideas that the United States has to overcome the current situation.

There is an urgent need to update the educational environment in Japan in the direction of developing human resources who will be able to fight on the world stage in the future.

Above all, we are in a difficult situation where there is an overwhelming shortage of technical and English-speaking human resources, so we have no choice but to expand into the local market with support from the Japan External Trade Organization (JETRO) and local government agencies, etc., while continuing to promote Japanese brands as before.