Business Environment

The Importance of Doing Business in the Local Indonesian Market【Expertise in Fields Other than Work】

2020/02/20

インドネシアのシステムインテグレーション業界【2020年代はメーキングインドネシア4.0の追い風あり】

Brand issues(The relative decline of Japanese brand power)

The other day, an Indonesian general manager of one of our customers in the manufacturing industry said to me

We were told that our Indonesian clients are promised a one-week turnaround time and the goods arrive a month later, which is a headache, our Japanese clients are promised a three-week turnaround time and the goods arrive a week later, which is a relief, and our Korean clients are promised a one-week turnaround time and the goods arrive "roughly" a week later, which makes it easier to do the job.

This doesn't mean that the services of Japanese companies are declining, but rather that Japanese companies are still outdated and unchanging, while Korean companies have been adapting to the world with an emphasis on speed.

In fact, in the last 20 years, the position of the Japanese in Indonesia has changed from being respected as "a grateful presence that provides technology and opportunities from the developed countries of Asia" to "a rival that comes from a slightly depressed former economic powerhouse looking for business opportunities".

Again, it is not that the quality of the Japanese people has declined, but that the economic and cultural status of rival countries such as Indonesia, South Korea and China has risen, and Japan's relative status has declined.

There is even some exciting news that suggests a reversal of the Japan-Southeast Asia phenomenon, such as that the Japanese will be turned away from the Japanese brand in Southeast Asia by relying on its past glory, or that the main reason for Southeast Asian tourists to travel to Japan is the low cost of living, not the attractiveness of the country.

At the recent Academy Awards, Korean director Bong Joon-Ho won the Best Picture Award for his film "Parasite: The Family Under the Ground" and it has become a big topic of conversation in Indonesia, BTS is very popular among overseas pop artists, and Korean yakiniku and cheese fondue are favorite among young people at shopping malls.

Price issues (More difficult to continue than to advance)

Once upon a time, it was easy to start a business in Indonesia, and it was even said that if you didn't succeed in Indonesia, you wouldn't succeed anywhere else because it was so easy to start a business in Japan.

There are already many consulting companies that can help you expand your business in Indonesia, so it is relatively easy for a company or an individual who has no knowledge of Indonesia to start a business in Indonesia.

After entering Indonesia, we had trouble expanding the market (why are local products selling worse than ours?) It's a sad story that the head office blames them if they fail to change their way of doing things, so they keep doing things the way they've always done, and inevitably end up withdrawing.

The Omnibus Law on Job Creation (a set of bills), which the Jokowi administration hopes to enact by the end of this year, includes amendments to the worker-dominated labor law, one of the stumbling blocks to foreign investment, and has created friction with labor groups that are trying to protect workers' rights protected by the current labor law.

In addition, the tax law has been amended to reduce the corporate tax from 25% to 20% and the penalty for late PPN reporting from 2% (24% per annum) to 1%, thereby deregulating business continuity rather than expansion.

In other words, the legal and regulatory side of things is a tailwind for companies at the moment, and it is the sales side of competition with local companies that is a problem for new businesses to continue.

Consumables, food, and other non-assetable items need to be inexpensive to begin with, and I think that's a tough sell in Indonesia. It's like quality is secondary, and it's cheap because it's so-so. On the other hand, I think that certain brands become important because they are concerned about resale prices for things with asset value.

When I opened a boutique in Denpasar mall in Bali, I was disappointed to lose to the local boutique in front of me in terms of price.

Indonesians don't check the quality of consumables, so the quickest and most effective way to attract customers is simply to "discount" them.

Even now, Japanese companies are still maintaining a certain presence in the Indonesian market in areas such as four-wheeled motorcycles and industrial machinery where they have assets, but I think that most of the cases of products that startups are good at, such as consumer goods and soft content, are struggling due to the weak price competitiveness caused by the gap between quality and local demand.

The problem of connections (How to make connections in Indonesia)

As long as we are doing business in Indonesia, I think that aiming for the huge local market in Indonesia is a romantic idea that everyone has, but now that the Japanese brand that we have been flying like a brocade flag is shrinking and we can no longer avoid getting caught up in the price competition with local companies, it may be said that our true value as Japanese businessmen is being tested in order to grow our business sustainably.

And for Indonesians, especially Chinese-Indonesians, the third factor - neither brand power nor price - is the importance of connections in expanding into the local market.

Whenever an Indonesian told me that my business in Indonesia was based on connections (no joke, I'm going to prove to myself that it works without connections), I thought to myself, "It's the connections," but after so many years of no results, I'm starting to wonder if it's the connections, too.

It's understandable that the path of a snake is a snake and the Indonesian market needs Indonesian people, but it's not so easy to make a network of people even though it's said that network is important for the Indonesian local market, right?

If you approach an Indonesian with a position and honor for profit, they won't accept you, so you need to appeal to them that you have added value to your business, and before that, you need to have added value to yourself, which is what you should do before you start your business.

As a place where you can appeal your added value to Indonesian entrepreneurs, there are events such as business matching and exhibitions organized by JETRO and Tokyo SME, but in my experience, joining a hobby group where Indonesian entrepreneurs seem to get together and immerse yourself in your hobby is an easy way to make connections.

As is the case in Japanese society, it is easier to get the other party to talk to you over alcohol than in the office, or to decide important matters during a smoke in the smoking room, and it is easier to get into the other party's pocket when you are less alert outside of business hours.

My wife belonged to a group of photography enthusiasts like that, but since it costs money for a camera and peripheral equipment, many of them were wealthy to some extent, and I, who was my wife drop-off and pick-up, such as a TV producer, police chief, and female dentist, used to get a lot of meals from them.

Bicycles, cars, idols, video games, pets...you name it, there are always opportunities to meet people who are involved in your day job at hobby gatherings that anyone can get into, regardless of nationality, status or honor.

This may sound like a joke but it's a serious story, but if it's important to have a network of people in the local market, I think it's quicker to look for connections that can show off your added value at gatherings in your area of expertise, such as hobbies or volunteer activities outside of your main business.

And the most important thing is to enjoy your hobbies and concentrate on them without working. Commercial activities such as searching for connections will always be found out, and more importantly, it will lead to a vicious cycle of not being able to enjoy your hobbies.