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Japan's Toppan bets big on Indonesia with packaging acquisition

Company's high-end film can keep food, oil and coffee fresher

Cooking oil is just one of the food products that packaging materials made by companies like Toppan are used for in Indonesia.

TOKYO -- Japan's Toppan Printing has embarked on an acquisition spree to shore up business at a time when the domestic printing market is bottoming out. A cornerstone of its expansion push is Indonesia, where a swelling middle class and growing demand for value-added packaging materials have created a market nearly as big as Japan's.

The printing company announced on Aug. 24 that it will spend about 10 billion yen ($90 million) to buy Karya Wira Investama Lestari, an Indonesian manufacturer of food packaging materials with annual sales of 13 billion yen. Together with its local subsidiaries, Toppan will become the country's largest producer of packaging materials by sales. 

The holding company will be established this fall, with Toppan owning 51%. Karya's operating company will also be owned by the holding company.

Although the Japanese company has been slower than its domestic rivals in venturing abroad, it has been accelerating its investments in Asia. Toppan acquired a stake in an Indian maker of food packaging materials in March and purchased shares in a Thai container maker in April.

Pole position

Japan's Dai Nippon Printing entered Indonesia in 1972. It is the largest packaging materials maker there, with sales of about 20 billion yen. Not counting the Karya deal, Toppan, which entered the country in 1973, is ranked around eighth with sales of several billion yen.

However, by acquiring the fourth-ranked Karya, Toppan is expected to take the lead, with sales of over 20 billion yen.

It plans to widen that gap by spending some 5 billion yen to build a new plant by 2020, which the company hopes will boost sales by 50% from the current level to 30 billion yen.

Toppan currently produces general-purpose products in Indonesia, but it plans to begin focusing on high-performance products such as GL film -- a transparent film that prevents gases such as oxygen and water vapor from passing through it. Toppan will also help Karya produce high-performance products.

The shift to more value-added products comes as Indonesians are gravitating away from traditional food stalls -- where delicacies tend to be eaten on the spot -- and toward convenience stores and supermarkets, where perishables such as cooking oil, coffee and powdered juice need to be kept fresh longer.

Part of the reason Toppan lagged behind Dai Nippon and other competitors in Indonesia was because rather than sharpen its focus on the country, it used the nation as a base for exporting products to neighboring countries. But Toppan reversed that policy about four years ago and has since been working to cultivate the Indonesian market.

The company has been able to offset the effects of a slumping domestic commercial printing market and actually grow by expanding its business to include information services. That includes processing customer information and issuing electronic cards for banks and credit card companies.

But with Japan's printing business bottoming out, achieving growth through domestic demand alone is becoming increasingly difficult. The company decided that tapping overseas markets was a must.

Toppan has set a goal of spending 125 billion yen on new businesses and buyouts over the five years through the fiscal year ending March 2022.

Part of that plan included teaming up with Japanese trading house Itochu to tap the Thai container business. Toppan, which excels at making airtight plastic containers, will provide technology to local manufacturers. The company also pumped 3.4 billion yen into an Indian food packaging company.

Middle-class boost

But the Karya investment is bigger by far -- and highly promising. Southeast Asia's swelling middle class means demand for high-performance packaging materials and containers of the kind found in Japan is likely to keep expanding.

Although Toppan's overseas sales ratio was a modest 14% for the fiscal year ended March, the company is determined to push that number higher by combining its technical prowess and capital with smart overseas acquisitions.

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