KOLKATA -
When a high-level business delegation from Japan
accompanied the Minister of Trade and Industry Shoichi
Nakagawa to India in August, it made Japan-watchers sit
up and take note. In contrast to countries such as India
and the United States where businessmen often accompany
diplomats, it is rare for Japanese businessmen to
accompany their political leaders on official visits.
And, it was the first time in more than five years that
a business delegation from Japan came visiting India.
Both countries, therefore, seized the
opportunity to establish a couple of new initiatives
that have never been attempted before: six Indian and
five Japanese (including one Indo-Japanese joint
venture) companies came together to form a non-profit
organization called the India-Japan Initiative (IJI) for
greater exchange of ideas and business. And, both
proposed an Economic Partnership Agreement, which would
supposedly go much beyond a vanilla, or ordinary, free
trade agreement (FTA).
After a five-year hiatus
that saw Japanese industry bogged down by recession and
crisis in its financial sector, and India struggling to
put in place a slow pace of reforms, the two countries
have started looking at each other again with renewed
vigor. "It is true that for five years, the relationship
between the two had been placid and plateaued," says
IJI's chairperson Geetanjali Kirloskar, whose family
cofounded Toyota Kirloskar Motors, "but now efforts have
resumed between the two countries' industry bodies,
governments and diplomatic channels for a spurt in trade
and investments."
According to Kirloskar, there
are a string of factors attached to the renewed drive,
"and the key among them is that Japan is getting a
little concerned about China ... The Japanese economy is
recovering, which has made Japanese companies look at
fresh investment opportunities outside China, the
country that has kept Japan engrossed for the last half
a decade. India is now being considered an alternative
to China for powerful business collaboration and beyond,
India's economy is also booming."
Japanese
Ambassador to India Yasukuni Enoki, who has been
spearheading his country's economic and business
relations with India ever since he assumed office last
year, also said India's emergence as a powerful nation
in Asia is important for Japan. The country has never
been politically comfortable with China, which makes it
necessary for Japanese companies to spread and reduce
the risks of their overseas investments that have
remained focused largely on China for the last few
years.
There is also a fear in Japan that when
China's scorching pace of growth finally slows down
after Beijing Olympics in 2008, it could hit Japanese
companies hard. Japanese business, said Enoki, views
India as a stable democracy that has sustainable
economic growth prospects. Further, politically India
looks more stable as an investment destination now that
the country's relationship with the US is improving,
which helps in easing tensions with Pakistan as well.
The possibility of a war with Pakistan, which led many
countries, including Japan, to be wary of increasing
commitments in the region, seems less probable now.
However, it may not be just the China factor.
According to Kirloskar of the India-Japan Initiative,
who also co-chairs the industry lobby FICCI's
(Federation of Indian Chambers of Commerce and Industry)
India-Japan Business Cooperation Committee, Japanese
presence in India has been far below its potential.
Except for Suzuki Motor, which entered India nearly 20
years ago with real investment on the ground, most large
Japanese companies have not made huge capital investment
commitments in India. But with the recent Japanese
success stories in India (apart from the Maruti-Suzuki
car joint venture), such as Toyota Kirloskar Motors,
which has emerged as one of the fastest growing
luxury-car companies in India; Sona Koyo Steering, yet
another highly successful Indo-Japanese joint venture;
as well as other cases like Motherson Sumi, Mitsubishi
Chemicals, Toshiba, Sansui, and the like, "India seems
to be a viable option where success stories can be
extrapolated and extended," said Kirloskar.
The
emergence of India as the largest recipient of overseas
development assistance (ODA) from Japan is another
driver for the renewed interest in India by Japanese
companies. It reflects the Japanese government's
confidence in the country, "which is significant because
Japanese corporations' business decisions depend a lot
on their government's stance toward a country", added
Kirloskar.
The new initiatives are being driven
at two levels. At the business level, IJI has identified
the software and manufacturing industries as the two
main areas of focus and is working in collaboration with
India's software industry lobby NASSCOM (National
Association of Software and Service Companies) and
another significant industry lobby, CII (Confederation
of Indian Industry), to conduct workshops with
professionals of the software and manufacturing
industries on "how to succeed in Japan".
"The
idea is not only to focus on harder technical issues but
also softer intangible issues that can make a difference
during business interactions," said Kirloskar.
"Understanding the softer issues is equally imperative
because one of the reasons why Japanese businesses have
been slow in their approach to India has been a mental
distance between the two countries and a management
style that's very different from the Americans and
Koreans. Japanese companies are typically hierarchical,
where decision making can be slow because of the
bottom-up approach that often makes Indians impatient."
At the other, cultural level, the focus is on
educating and sensitizing the two countries about each
other's lifestyles and cultures. "Unfortunately, there
are no Japanese marquees for Indians," says Kirloskar.
"For instance, the mention of China instantly brings
Chinese cuisine to the minds of Indians, just as Italy
is associated with fashion or France with perfumes. When
it comes to India, most ordinary Indians grope for an
association. We hope to bridge that gap with the IJI
cultural workshops that are scheduled to be held once a
month in each of India's largest cities."
Nevertheless, despite the new-found business
confidence between the two, the key question is whether
these efforts will result in higher investments in
India? After all, though a few big Japanese
conglomerates have been doing business in India for
decades, their investment or size of operations is small
compared with their investments in countries smaller
than India. The number of Japanese companies with
business interests in India is also much smaller -
around 600- compared to Thailand that has 2,000 Japanese
companies, and the huge 6,000 in China. For that matter,
a common complaint among Japanese companies about India
is its poor infrastructure, red tape and complicated tax
structure. Others say that for most Japanese companies,
India is still a "remote land, mentally too far to do
business with".
But that is beginning to change.
According to Kenji Yoshizawa, advisor to Bank of
Tokyo-Mitsubishi, there is already more than a whiff of
willingness to invest in India from smaller and
medium-sized Japanese companies that are strong on
technology and want to expand globally. Some of the big
names in the Japanese industry that were not in India
until recently have also started coming in. For
instance, Nissan has just started selling one of its
high-end car models in India. Satoshi Toshida, president
and chief executive officer of Asian Honda, also said
the fact that many Japanese businessmen still do not
know India actually has a positive aspect in the sense
that there is huge room for improvement in business
relations if the two countries can build upon this
renewed enthusiasm.
Indrajit Basu is a
Kolkata-based equity-analyst-turned-journalist with more
than 12 years of experience in business/finance and
technology journalism. Besides writing for Asia Times
Online, he also writes for US-based publications, as
well as IT companies.
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