RESOURCE PAPER - 3

Greater Japan-India
Cooperation
thro' SME RoutebyMs. Suguna Ramamoorthy

Greater Japan-India
Cooperation
thro' SME RoutebyMs. Suguna Ramamoorthy

PREFACE
Rejuvenation of SMEs is an urgent need of the hour in both
Japan and India. This Resource Paper on 'Greater Japan-India
Cooperation thro' SME Route' tries to open up new avenues ofcooperation between small and medium industries of Japan andIndia.
Ms. Suguna Ramamoorthy, Secretary General of IJCCI, is adouble graduate in Economics and Commerce. She is with IJCCIfor the last two decades and has developed a keen desire to build
greater and stronger economic bonds between Japan and India
with her association with Japan over the years.
We in IJCCI are confident that this booklet will stimulate
greater enthusiasm among SMEs in both the countries to theirmutual advantage.

13-10-2015

N. Krishnaswami

Greater Japan-India Cooperation
thro' SME RouteThe seeds of Japan-India relations were sown in 752
AD by an Indian Monk, Bodhisena, who performed theconsecration of the towering statue of Lord Buddha in Nara,
Japan. Indian culture, filtered through Buddhism, createdgreat impact on Japanese culture. Buddhism is deeply rooted
in the minds and lives of the people of Japan. Even today,
43 % of the Japanese people follow Buddhism and this is thesource of Japan's closeness to India.
History speaks volumes about the close connections
between Japan and India, in modern times. The first Peace
Treaty of Japan was signed with India in 1952, anddiplomatic relations between Japan and India was5

established.

India helped Japan with iron ore, to aid

recovery from the devastation of World War II. The first Yen
Loan was extended by Japan to India in 1958 and even today,
Japan is the largest aid donor to India.
Though the historic, emotional and culturalconnections are very deep, and the people of India consider
Japan and her people special and unique, the relations
between Japan and India has not assumed the expectedsignificant level of closeness; a disappointment to great
scholars and well wishers of both the countries, for a longtime. Better late than never, the two countries should now
forge close relations, considering the economic advantagethat the two countries would enjoy.
Some of the positive factors about India for the Japanese :India is a democratic country with no dispute ideological, cultural or territorial ; a booming economy withhuge potential - land and resources; a labour force - young,skilled and competitive, available in abundance; a hugemarket potential; a good base for foreign market activities ;the Indian labour force and the Japanese labour force sharecommon values of high work ethics, dependability and highfamily values. These are some of the factors that favour India
6

being an ideal choice for Japanese investment. Further, theindustrial policy of India has been formulated with a primary
focus on deregulating India's industry and allowing it
flexibility and freedom to respond to market forces.
Japan is the third largest economy in the world bynominal GDP, the fourth by purchasing power parity and theworld's second largest developed economy. This augurs wellfor the future. However, the limitations, such as theincreasing competition it faces from China and South Korea
and the increasing cost of manufacturing in Japan, curtails
its manufacturing activities to primarily focus on high-techand precision goods like optical instruments, robotics andhybrid vehicles.
Increase in the ageing population is a big threat forJapan today. Nearly 26% of the population is over 65 yearsof age and 12.5 % of the population is aged 75 years andabove. Also, the recent statistics reveals that the populationof Japan has decreased by 0.17 % from a year earlier, as ofOctober 2014.
Why Japan and India should work together?
India and Japan never had any pin pricks in theirrelations. In addition to the socio-economic factors listed7

above, Japan is a country of SMEs, like India. The SMEs ofJapan and India are the growth engines for the twoeconomies. 99.7 % of enterprises in Japan and 95% ofenterprises in India fall under the SME category. Famouslarge enterprises in Japan such as Toyota, Honda, Sony etc.
originally began as back-street factories. Also, the productsof a majority of Japanese large enterprises are made up ofparts produced by SME subcontractors. The reliability ofJapanese products is supported by the underlying strength oftheir SMEs.
Millions of SMEs in both the countries are not in good
shape today. While the Indian SMEs are on the verge ofextinction despite the support of the Central and State
Governments, the Japanese SMEs are hollowing out to third
world countries and a good percentage of them closing theiroperations, despite the support of the Government agencies
in Japan.
However, the trend is slowly changing in India. In
recent times, large companies that are globalizing are setting
in place a support structure of SME ancillaries, to meet theglobal standards. Many new Indian entrepreneurs with greatrisk appetite are entering new market segments. It is theright time for the Japanese SMEs to grab the opportunity.
8Today, in India, every State is vying with the other tobe on the economic forefront. A new trend has emerged in
the financing of SMEs. Both domestic and overseas funds
are turning to Indian SMEs. The Government of Tamilnadu
introduced, for the first time in the country, a Special Policy
for Micro, Small and Medium Sector, as early as 2008. The
State of Tamilnadu has come out with a legislation tofacilitate a favourable climate for infrastructure projects,
besides creating sector-specific and country-specificindustrial parks and special economic zones. Every State inIndia is vigorously concentrating on the establishment ofspecial economic zones and announcing special incentives
to encourage industries, particularly SMEs.
A historic Japan-India Comprehensive Economic
Partnership Agreement (CEPA) signed in February 2011,
came into force in August 2011 to promote liberalization andfacilitation of trade and investments between the two countries
and strengthen the economic ties in wide-ranging fields. This
CEPA is significant in terms of the sizable GDP of India andJapan.
Under CEPA about 94% of the tariffs between Japanand India will be eliminated within 10 years (about 97% byJapan and about 90% by India) on a trade value basis. Japan9agreed to eliminate almost all the tariffs on industrial
products at the entering into force of this Agreement and also
made commitments on agricultural products.
Japan has scrapped import duties on 87 percent ofgoods that it imports from India with immediate effect while
India has dropped tariffs on 17.4 percent of goods that it
imports from Japan. A large number of the 87 percent items
are of India's export interest e.g. seafood, agriculturalproducts, instant tea, beverages such as rum, whiskies, vodka
etc., textile products such as woven fabrics, yarns, synthetic
yarn, readymade garments, petrochemical and chemical
products, cement, jewellery, etc.
India is the first CEPA partner of Japan with whom it has
agreed to commit on the approval procedure of Generic
medicine. Japan will provide “National Treatment” toIndians for the application of approvals for release of generic
medicine, and complete the procedures within a reasonable
period of time.
Japan's major exports to India:
Heavy machines; electronic gadgets and spares; toys,
gaming systems; pharmaceutical products ;biotech products
and transport equipments.
10India's major exports to Japan:
Agricultural products such as fresh fruits and dried
fruits, fruit juices and concentrates, vegetables, oilseeds,
vegetable oils and fats, edible nuts, sugar and honey, grains
and pulses, wheat, tea, coffee, spices and herbs; Marineproducts; leather garments and goods; carpets andhandicrafts; cotton and animal feed.
The following statistics proves that there is ample
scope for taking the trend forward:
2010 2011 2012 2013 2014
(In Billin Yen)
Trade from India to Japan 497 543 579

703 726

Trade from Japan to India 792 882 842

824 900

During the period June-September 2014, the FDI inflow
from Japan amounted to US $ 618 million, against US $ 273
million for the corresponding period in 2013. Further, theFDI inflow of US $ 103.14 million took place in October
2014. In October 2014, the number of Japanese companies
registered in India reached 1,209, 13 % higher over the same
period the previous year. Various States of India areconducting road shows and international investors'11

meetings, to showcase their economic potentials for
exploitation by foreign investors.
The July 2014 survey by the Japan Bank forInternational Cooperation (JBIC) reveals that the Japanesemanufacturing companies consider India a top investment
destination and that Rs.75,000 crore investments are being
planned in the next 2-3 years by the Japanese companies.
The Government of India has set up a ' Japan Plus', aspecial management team to facilitate Japanese investments.
The team is actively interacting with Japanese companies
and handholding them through various approval processes.
'Japan Plus' will help develop Japanese integrated industrialparks. Discussions are already on with Japanese companies
and the concerned State Governments.
The coming together of SMEs of Japan and India
For the Indian SMEs:
Doing business with Japanese takes a lot of time.
Patience and perseverance can only bear fruit. The mindsetof 'think international' must reach the Indian SMEs anddeveloping the SME units to international standards is ofutmost importance.

Market research and market

12information exercises should be done adequately. Exploring
the possibility of new product line, new partners, adapting tonew technologies, quality consciousness to meetinternational demand and competition are all mandatory
requirements. Once the ground work is done sufficiently
well, SMEs should take it forward, with the help ofGovernment/economic organizations with a clear andtransparent project proposal and knock on the doors ofpotential Japanese SMEs.
It is to be borne in mind that the Japanese take a longtime to be convinced.

They might ask for a lot of

information related to the project and some times, much to
our annoyance, visit their counterparts in India a number oftimes. The Japanese do these exercises only to understandtheir counterparts better and try to come closer, without
revealing their minds. Some strong advice to the IndianSMEs - never promise a deadline that you cannot meet toimpress the Japanese counterpart or try to clinch the deal in ahurry. Never promise what you cannot deliver. Present theproblems in an acceptable manner by the Japanesecounterpart and supplement it with facts and figures. The
Indian SMEs must try to understand and absorb the Japaneseculture and business values. Japanese, by nature, are shy and13

reserved. According to them, there are only two sets ofpeople - Nihonjin (we the Japanese) and Gaijin (theforeigners). This Nihonjin syndrome can be broken if a little
bit of care is exercised in learning Japanese language, andtrying to address the communication gap that exists with thecounterpart. Also, one must understand that the Japanese
are tough bargainers. Finish your deal on a win-win basis.
Once your Japanese counterpart is happy, he will support
you and stand with you even during tough times, and help
you come out of your crisis.
For the Japanese SMEs:
Things are changing in India. What was seen, whatwas said, what was experienced a few years ago need not be
prevalent now. Japanese SMEs should not be prejudiced
with the opinion of some Japanese who claim to be'know-all India'. India is a vast country and its people areheterogeneous. Similarly, each State in India has its own
policies and procedures. Discuss the matter in confidence
and transparently with the right organization, clarify yourdoubts, seek the help of nodal agencies and non-profit
organizations who can give you a candid picture.

14Remember India is a fast growing economy. The
inordinate delay in decision making may turn out to be aloss of a good opportunity and your counterpart in someother country might be waiting in the queue, and would
make good use of your opportunity. There are problems
and hiccups, everything may not be in line with yourexpectations. Do not wait for all the issues to be sorted out
to get into action. Do remember that the Indian
entrepreneur shares the common ground with theJapanese.

While the Japanese think of a life-time

employment, the Indian SMEs think of not only a life-time
partner, but a partner for generations.
In conclusion, we have Federal andPrefectural/State Governments both in Japan and India,
working for the welfare of the people.

Besides thegovernment bodies, several economic organizations suchas Chambers of Commerce and Industry, ManagementAssociations, Research Organizations etc. are also trying
to work towards the same objective. But they suffer frompaucity of information, published and unpublished. Thereis a tendency of late to consider any statistics as'confidential' in both the countries. “Development” is a
joint effort embracing all well- meaning economic bodies,15

including governments. Efforts must made to disseminate
all relevant economic information to such economic
bodies as committed bilateral organizations working forthe strengthening of Indo-Japan economic cooperation.
These small economic bodies will help the small
and medium industries to grow and help each other inthe long run.

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