Indonesia is likely to see a shift in investment by Japanese companies as investors take full advantage of the country's huge population.

While investment in manufacturing by Japanese firms will continue, new investment would go into other sectors, including services and retail, according to Yoshida Susumu, secretary general of the Jakarta Japan Club (JJC).

"Investment in manufacturing has passed its peak. Japanese businesses will now focus on [taking advantage of] the purchasing power of the Indonesian people," he said.

"Given this focus, investment in sectors dealing with consumer goods or services, such as finance, information technology and health care, will likely be the next boom," he added.

At present, around 70 percent of investment projects by Japanese firms in Indonesia are in manufacturing, according to data from the JJC.

"With its robust economy and huge population, Indonesia has drawn Japanese companies seeking opportunities outside their home market where they're struggling with an aging population," said Susumu, whose organization represents nearly half of Japanese businesses in Indonesia.

Japanese retailer FamilyMart Co., convenience store operator, Lawson Inc. and Seven & I Holdings Co. are expanding operations in Indonesia to generate growth from a young consumer-oriented population.

With a market of more than 240 million people, Indonesia was an attractive investment target compared to its Southeast Asian peers.

Susumu added that along with the shift of investment focus, Japanese firms would also tap into Indonesia's rising middle class, which now represents more than half the total population.

"Life insurance firms, for instance, are looking to offer products that suit the middle class," he said.

Japanese External Trade Organization president director Kenichi Tomiyoshi pointed out that Japanese firms consulting his organization in the past year expressed interest in a wide array of areas outside the manufacturing industry.

"That will lead to a reduction in investment from Japan because investment by non-manufacturers is much smaller than that of manufacturers," he said.

Japan was the second-largest foreign direct investor in Indonesia last year, pouring US$2.46 billion into 405 projects. Investment in manufacturing such as rubber processing, textiles, pulp and paper, chemical and automotive amounted to $2.29 billion, with a total of 269 projects.

Services, covering retail, hotels, restaurants, warehouses, industrial estates and construction, came in second place with $159.62 million invested in 126 projects.

Investment in 10 projects in the primary sector - mining, plantation, fisheries and animal husbandry, accounted for $3.36 million.

"We are confident about business prospects in Indonesia. That's why we're pioneering the business to fulfill the demand of seniors living here," said Yuzurihara Kazuma, Indonesia plan leader of Longlife Group Holding Co. Ltd., the leading operator of nursing homes in Japan.

By Linda Yulisman, The Jakarta Post, Jakarta

The post Japanese firms move into RI service sector appeared first on Asean Investment | Marc Djandji Blog.