PDPDPRIETI Policy
RIETI Discussion
Discussion Paper
Paper Series
Series 12-P-016
12-J-025

Japan-India Economic Relationship: Trends and prospects

KONDO Masanori
International Christian University

The Research Institute of Economy, Trade and Industry

http://www.rieti.go.jp/en/

RIETI Policy Discussion Paper Series 12-P-016
August 2012

Japan-India Economic Relationship: Trends and prospects
KONDO Masanori
International Christian University

Abstract
This research paper tracks Japan-India trade and investment relations. India's potential as amarket for Japanese companies is now well understood by the business community, which isparticularly interested in the rising middle class.
Analysis of the significance of the Comprehensive Economic Partnership Agreement (CEPA),
which took place in August 2011, is provided in addition to present-day characteristics ofJapanese investment in India, including mergers and acquisitions (M&A) and interest in the IT
industry as well as other service industries such as finance and retail. Japanese small- andmedium-sized enterprises (SMEs) are also increasingly turning their eyes to India. Anotherrecent trait in Japanese business strategy has been to diversify regions for investment fromthe area surrounding the national capital, Delhi, to southern cities such as Chennai.
The research also addresses the remaining obstacles that challenge investors. The extent
and time scale for tariff reduction following CEPA is one concern, as is the continuing problemof land acquisition.
The paper concludes, however, that while 2011 was challenging for the Japanese economy,prospects for greater economic cooperation with India remain. Japanese companies aregradually adjusting their business models to suit the nuances of the Indian market, providing
opportunities for both the Indian and Japanese economies.

Keywords: Economic relations, India, JapanJEL classifications: F14, O53

RIETI Policy Discussion Papers Series is created as part of RIETI research and aims to contribute topolicy discussions in a timely fashion. The views expressed in these papers are solely those of theauthor(s), and do not represent those of the Research Institute of Economy, Trade and Industry.

iTABLE OF CONTENTS

List of Abbreviations

iv

List of Figuresv

Introduction

1

Overview of the India-Japan economic relations

2

Rising trade and the conclusion of CEPA

2

Potential obstacles following CEPA

3

Expansion in investment

5

Recent characteristics of Japanese investment in India

7

Merger and Acquisition (M&A)

7

Diversification of industries for investment

9

Machinery-related SMEs

9

SMEs related to agriculture and food products

10

Diversification of regions

11

New obstacles to investment

12

Where economic relations stand today

13

Conclusions

15

Bibliography

17ii

LIST OF ABBREVIATIONSASEANAssociation of South-East Asian Nations

CEPA

Comprehensive Economic Partnership Agreement

EPA

Economic Partnership Agreement

FDI

Foreign Direct Investment

FTAFree Trade Agreement

JBIC

Japan Bank for International Cooperation

JETRO

Japan External Trade Organization

M&A

Mergers and Acquisitions

METI

Ministry of Economy Trade and Industry

MNC

Multi-National Corporation

RIICO

Rajasthan State Industrial Development & Investment
Co. Ltd.

SEZs

Special Economic Zones

SMEs

Small- and Medium-sized Enterprisesiii

LIST OF FIGURESJapan-India Trade3

Direct Investment from Japan

6

iv

Introduction

The present-day importance and future prospects of India for Japanesecompanies is well-understood by the business community. Although GDP growthrate has been falling in the last three years, India still represents one of Japan’s best
hopes for rejuvenating its export-dependent economy whose own growth rate hasremained stagnant at around 1 percent.1 India has the fastest-growing middle-classsociety in Asia, expected to grow by almost 20 percent in the next five years.2 The
need to diversify from politically volatile reliance on the Chinese market serves as
further impetus.

This research paper tracks Japan-India trade and investment relations. India's
potential as a market for Japanese companies is now well understood by thebusiness community. They are particularly interested in the rising middle class.
Attention is given to characteristics of Japanese investment in India, including
M&A, SMEs and diversification of investment regions.

The paper also addresses the remaining obstacles, which challenge investors,
especially after the economically challenging year of 2011. Nevertheless,prospects for greater economic cooperation with India remain. Japanesecompanies, it is argued are gradually adjusting their business models to suit thenuances of the Indian market, providing opportunities for both the Indian andJapanese economy.

1

M.Kondo "Growing Economic Relationship between Japan and India", Contemporary India Forum
Quarterly Review, No.5, 2010
2
Prince Mathews Thomas, “Why Japanese Steel Companies Are In India,” Forbes India, 21 February
2011, http://forbesindia.com/article/breakpoint/why-japanese-steel-companies-are-inindia/22432/1#ixzz1p64mLi7c

1

Overview of the India-Japan economic relations

Rising trade and the conclusion of CEPA

Indo–Japanese economic relations are exhibiting a new surge. The numberof companies entering the Indian market has been steadily rising, spurred by theconclusion, after five years of negotiations, of the Japan–India Comprehensive
Economic Partnership Agreement (CEPA), which entered into force on August 1
2011.3

Japan–India trade has been trending upwards since around 2003, andexports from Japan to India in products such as steel, automobile parts, processing
machinery have increased. Although there was a decrease in 2009 due to the global
downturn and currency fluctuations, a return to expansion is expected (see Figure 1
below). In early 2011 when CEPA was signed, trade stood at approximately $10
billion with aspirations to reach $25 billion by 2014.4

3

In this Japan–India EPA, tariffs on goods making up 94% of the value of bilateral trade will beabolished over a period of 10 years. Items covered are 97% of Japanese imports from India and 90%
of Indian imports from Japan. The agreement was considered particularly noteworthy for its inclusionof services, elevating its title to ‘comprehensive’ and differentiating the accord from others. "JapanIndia Economic Partnership Agreement," Ministry of Foreign Affairs, Japan,
http://www.mofa.go.jp/policy/economy/fta/india.html
4
Between India and South Korea in contrast, trade stands in 2012 at $20 billion with a target of $40
billion by 2015. Siddharth Varadarajan, 'As trade soars, India and Korea push 'strategic' side", The
Hindu, 25 March, 2012, http://www.thehindu.com/news/national/article3222762.ece

2Figure 1: Japan-India Trade (Yen: billion)
2004

2005

2006

2007

2008

2009

2010

India to Japan

283

352

472

491

544

348

497

Japan to India

329

388

518

723

819

591

792

TOTAL:

612

740

990

1214

1363

939

1289

(Source: Japanese government documents, http://www.mofa.go.jp/region/asiapaci/india/index.html)

1600
Japan to India
1400

India to Japan

1200

TOTAL

1000
800
600
400
200
0
2004

2005

2006

2007

2008

2009

2010

The major items of market access improvement from India to Japan include
industrial products, generic drugs, durians, sweet corn, curry, black tea, lumber andshrimp.

From Japan to India items which benefit in the industrial sector areautomobile parts such as engine-related parts and mufflers, steel products such as
various types of steel plate, electric/electronic goods such as DVD players and video
cameras. Industrial machinery such as tractors and bulldozers also gain from theagreement, as do agricultural, forestry, and fishery products, bonsai, Chinese yams,
peaches, cherries and persimmons.
3

Potential obstacles following CEPA

Some potential hurdles remain, for example when dealing with intermediary
trade and rules of origin. If the 35% added-value criterion and the change in HS
code at the 6-digit level criterion are not simultaneously met, a certificate of origin at
the exporting country cannot be obtained.

Another problem is the number of years required before lower tariffs takeeffect. Many Japanese corporations are concerned that since in the Japan–India
EPA the reduction in tariffs in many items will occur in the final tenth year, there will
be no benefit during the first nine. It has also been noted that there is a large
number of items excluded from tariff reduction related to automobiles and automobile
parts where Japanese corporations had the highest hopes during negotiation.

Meanwhile, from India’s perspective, there is no significant effect other thanan expansion in generic drug exports. Other fields such as the movement of people
including the dispatching of nurses and caregivers are under separate discussion.
The reduction in tariff rates has also been cited by Indian business leaders as merely
a neutralizer to the strong yen which has a far greater impact on the attractiveness ofJapanese products.

However, despite these complaints and whilst it remains too early to acquirereliable figures, the number of Japanese corporations acquiring certificates of origin
for exporting to India as of August 2011 is positive. In the Indian market, where cost4competition is already intense, for Japanese companies to compete while the yen ishigh, there is a large benefit to even a miniscule cost reduction. In particular, it isthought that there will be a benefit to capital-intensive industries for whichinternational prices have been established. Products with a large technological edge
and which require continuous research and development need the support of low
tariffs.

In addition, Japanese companies have sought to benefit from India's activism
in signing FTAs with other economies with which Japan already holds strong
economic ties. The India-ASEAN Free Trade Agreement is one such example. In
August 2009 in the culmination of India's 'Look East Policy' an FTA was signed with
ASEAN, ratified in August 2011. Between 2010 and 2012, India-ASEAN trade
increased by 30% with prospects of reaching $70 billion in 2012. 5 Japanesecompanies' established production networks are being utilized as springboards or atleast facilitators into the Indian market.6

Expansion in investment

Trade has consistently provided a disappointing record in India-Japan
relations. Where trends have proven more positive is direct investment which grewfrom ¥59.7 billion in 2006 to ¥178.2 billion in 2007 and ¥549.2 billion in 2008 (see5B. Muralidhar Reddy, "India-ASEAN connectivity is our strategic objective, says Manmohan", The
Hindu, 19 November, 2011, http://www.thehindu.com/news/national/article2641786.ece
6“Japan-India Economic Partnership Agreement – summary and comparative analysis with IndiaKorea CEPA", ("Nihon Indo Houkatsutekikeizairenkeikyotei – sono gaiyo to kanin ETA•AIFTA tono
hikaku”, Mizuho Research Institute, March 2011, http://www.mizuhori.co.jp/publication/research/pdf/policy-insight/MSI110510w.pdf

5

Figure 2 below).7 Although this decreased in 2009 (to ¥344.3 billion),8 there is no
mistaking that India has become one of the three largest investment destinations in
Asia, alongside China and the ASEAN six majors.

Figure 2: Direct Investment from Japan (Yen: billion)
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

18.4

18.7

14.6

15

29.8

59.7

178.2

542.9

344.3

241.1

(Source: Japanese government documents, http://www.mofa.go.jp/region/asiapaci/india/index.html)
600

500

400

300

200

100

0
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

In the annual survey “Investment Destination Countries/Regions Important toJapanese Corporations” conducted by the Japan Bank for International Cooperation

7“India”, Ministry of Foreign Affairs, Japan, June 2012,
http://www.mofa.go.jp/mofaj/area/india/data.html
8
By 2010 the figure was ¥241.1 billion. Ibid.

6

(JBIC), India continues to rank in the top class alongside China.9 It is also often
heard that the number of inquiries regarding business expansion at banks and thinktanks that relate to India exceeds that for any other country.

Studies of the Indian market by Japanese businesses have also developed.
Just a few years ago, the majority of companies took a ‘wait and see’ attitude,
conducting studies into the market which rarely progressed further. The likelihood ofentry following market research is currently greater than continued deferral. Whilst
difficult to accurately quantify, a gradual change in mindset among Japanese
executives is apparent. From a situation in which business strategists sought to bide
their time regarding India until GDP per capita more closely resembled that ofSoutheast Asian countries, with whom Japan had profitable relations, firms havebecome more active.

A number of conditions can explain this development. Continued domestic
economic stagnation and comparatively steady increases in India’s GDP growth
have been major conditions, but so too has the success evident from South Korean
corporations. South Korean firms entered the Indian market early in the country’s
economic liberalization experiment, gaining market share and expertise. By focusing
on localization of production and low-priced, market-specific goods, Korean firms
have set an example Japanese counterparts are eager to replicate. This subject will
be discussed in greater detail below.

2 – Recent characteristics of Japanese investment in India
9

M. Kondo "Growing Economic Relationship between Japan and India", Contemporary India Forum
Quarterly Review, No.5, 20107

Merger and Acquisition (M&A)

A significant characteristic of recent investment in India has been a rise inlarge-scale investments in the form of M&A. Representative examples include the¥50 billion acquisition of electrical materials heavyweight Anchor Electricals by
Matsushita Electric Works (now Panasonic) in 2007, the ¥485.4 billion acquisition of
the major pharmaceutical company Ranbaxy by Daiichi Sankyo in 2008 and the¥264.9 billion capital participation in Tata Teleservices by NTT DOCOMO the same
year. In addition, in 2010 there was a ¥97.6 billion capital participation in steel
heavyweight JSW Steel by JFE Steel, ¥55.5 billion in the Reliance Life Insurance
Company by the Nippon Life Insurance Company and the ¥6.5 billion acquisition of
stationary heavyweight Camlin by Kokuyo in 2011.

Investment in India previously concentrated on the automobile sector. The
increase in M&A, however, has diversified the nature of direct investment. Daiichi
Sankyo’s entrance in India’s pharmaceutical sector in 2008 and NTT DOCOMO’s
investment in communications in 2009 greatly increased the total value of investment
in India. To Japanese corporations, with their late start in India, acquiring strong
local companies through M&A and engaging in capital participation even when in theminority have proven effective means to make up lost ground.

Panasonic Electric Works in particular can be cited as successful example
among the M&A cases by Japanese companies in India. Anchor Electricals, which
was bought by Panasonic, manufactures and sells primarily household electrical8equipment such as wiring instruments, circuits, electrical wire, ceiling fans, lighting
lamps and lighting fixtures. It operates a nationwide sales network as the largest
company for writing instruments with a 37% market share. Panasonic Electric Works
engaged in a capital participation in this company in 2007, claiming 100% subsidiaryby 2009. Currently Panasonic Electric Works is improving production processes bysending Japanese employees to the local sites, becoming a new model for successfor Japanese corporations.

NTT DOCOMO also deserves consideration. This company agreed to capital
participation with Tata Teleservices, part of the Tata Group, in 2008 and invested¥250 billion in 2009 to acquire 26% of their stock as well as 12% of the stock of therelated Tata Teleservices Maharashtra. NTT DOCOMO launched the brand “Tata
DOCOMO” in India, started offering innovative services such as “one paisa persecond” (1 rupee=100 paisas) and “one paisa per SMS character” immediately upon
starting with a cellular service plan. Despite starting late in GSM, it now is holding
the top spot in terms of net increase in users.

Diversification of industries for investment

Japan is now making its presence known in IT service industry. At first,
manufacturing was considered the primary field of interest but as a result of NTT
Data’s acquisition of US-based Intelligroup and Fujitsu’s acquisition of US-based
Rapidigm in 2006, a base has been established in India. With a subsidiary in Pune,
Fujitsu has started offering offshore services to Japanese corporations. The use ofIndian IT engineers is also on the rise. It is expected that the number of technicians

9that NTT Data has in India will exceed 10,000 within a year. Fujitsu is implementing aplan to increase its number of Indian technicians to 5000 in three years. Hitachi alsoplans to have a 6000-person organization in the future. The major IT companies
such as Accenture and US-based IBM already have nearly 100,000 technicians intheir bases in India, and despite this order-of-magnitude difference, it seems
Japanese businesses have finally become serious about taking advantage of IndianIT.

In other service industries, Japanese businesses are placing priority on
India.

In finance, Nomura Securities acquired the Asian branches of the fallen

Lehman Brothers in 2008, and has as a result attracted high-quality staff in India.
Mizuho Bank is also clearly setting forth with an emphasis on India. In the retailindustry, aiming for the opportunities resulting from the opening up to foreign capitalof the multiple-brand sector, Lawson and Daiso are proceeding with plans to expand
into India.

Machinery-related SMEs

Japanese small- and medium-sized enterprises (SMEs) are also increasingly
turning their eyes to India. Most Japanese SMEs that have expanded to India arelocal automotive-related subcontractors for companies such as Suzuki, Honda andToyota. There remain only a few Japanese SMEs that are opening up India’s local orexport markets. With legal, finance problems and market access difficulties, India
poses a high hurdle to Japanese SMEs, which despite having a high level oftechnology are deficient in other types of knowhow.

10

Yet even amidst these circumstances, Igarashi Electric Works has been an
exceptional example of a successful Japanese SME.

This global enterprisedevelops, produces, and sells compact DC motors. Ten years after establishing a
production base in China, another was opened in Chennai.

As a result of aninvitation by a US trading company partnered in Hong Kong, Igarashi Electric Works
has a joint venture with India-based Crompton Greaves called Igarashi Motors India.
The number of employees currently exceeds 400 and is listed on the local stock
exchange. Igarashi Motors India produces for itself as well as manufacturing partsand finished articles requested from customers. Occasionally Japanese technicians
give guidance to Indian staff but only one Japanese staff is resident locally. The top
leader of Igarashi Motors India is also concurrently a director of the Japanese parent
company.

Localization is part of Igarashi Electric Works’ overall strategy, forexample of 2000 employees in China, only four are Japanese.

SMEs related to agriculture and food products

A number of Japanese SMEs related to agriculture and food products havealso entered the Indian market, though their record of success is less prevalent.
Satake engages in sales and after-sales services for mechanized equipment andplant related to grain and food products such as rice, wheat, corn, and lentils in India.
The products it handles are grain hullers, grain selectors, rice mills, rice polishers,
and color selectors, which are especially used as processor/selectors for export rice.
Based on past success, in 2006 the Delhi branch was upgraded to a local
corporation. Satake is now aiming at sourcing materials and installation construction

11

duties locally in addition to enhancing its total engineering and after-sales services.10

Where Satake has found success has been through deploying strategies,
which other SMEs have also found beneficial (and will be addressed in more detailbelow). These include employing a top-down administration of ownership,
specialized technology that is not exposed to cost competition within the industry andmaintaining a strong track record in alternative markets. Satake for example,
concurrently operates bases in China, Thailand, Myanmar, Brazil, Australia, the US,
Canada and UK in addition to India.

Diversification of regions

The diversification of investment destination regions is also a prominent
development. The bases for Japanese corporations had been largely collected in
the Delhi national capital region, where factories for Suzuki and Honda are located.
Toyota had established a factory in Bangalore but otherwise Japanese companies
risked over-concentration. Recently however, Japan has extended its reach to thesouth in Chennai and Mumbai. 11 Chennai in particular is seen by Japan as apossible springboard for production to Southeast Asian markets. Chennai is also
known as a hub for electronics and IT production, dubbed the ‘Detroit of India’.
Given the circumstances, the Japanese Ministry of Economy, Trade, and Industry(METI) is planning an industrial corridor between Chennai and Bangalore. Following
an initial proposal in 2011, the following year during economic talks in Delhi, plans for10

Satake’s emergency provisions (Magic Rice) were notoriously useful following the Gujarat
earthquake in 2001.
11
D. Matsushima, “Accelerating Japanese FDI into India under the Upgrading DMIC”, Contemporary
India Forum Quarterly Review, No.9, 2011, http://www.japan-india.com/pdf/forum/45-1.pdf

12

a BCIC (Bangalore-Chennai Industrial Corridor) were discussed further.12

Furthermore, it was recently reported that Suzuki is planning to build a newfactory in the state of Gujarat. Previously few Japanese corporations expanded into
Gujarat, but since the administrative efficiency of the provincial government has
proven increasingly favorable and infrastructure such as harbors and electric power
developed, other Japanese corporations may well follow Suzuki’s lead.

New obstacles to investment

The above consideration of Japan’s improved appreciation of the merits of
the Indian market, cannot defer however, the reality that whilst potential exists,
obstacles for Japanese corporations in India are also diversifying. Until recently, thetop three problems for Japanese corporate investment in India centered on
undeveloped infrastructure, bureaucratic ‘red tape’ and labor problems. In response,
the Japanese government repeatedly requested improvements from the Indian
government with little success. Additional problems have now surfaced in the form ofintense competition from South Korean companies and land acquisition disputes.

The acquisition of industrial land has proven particularly troublesome to
Japanese corporations. Many hastily forayed to the vicinity of Delhi and Gurgaon
where securing space for new industrial parks is highly problematic, encouraging
Japanese corporations to use local corporations as dummies to prevent a sudden
jump in land prices. India remains a seller's market with negotiating power firmly in
12"Bangalore-Chennai industrial corridor gets nod", Deccan Herald, 30 April, 2012,
http://www.deccanherald.com/content/246055/bangalore-chennai-industrial-corridor-gets.html

13

the hand of the supplier. Reports have even surfaced that whilst land might beavailable; owners refuse to disclose their status, thereby making it impossible forcorporations to make a bid.13

The Japanese government has attempted to mitigate some obstacles andencourage the private sector by supporting industrial parks exclusively for the use ofJapanese corporations. One such exists in Neemrana, Rajasthan through anagreement between the Japanese METI, the Japan External Trade Organization(JETRO) and the Rajasthan State Industrial Development & Investment Co. Ltd.
(RIICO). METI and JETRO are also planning a similar enterprise in the state ofTamil Nadu. Japan’s trading companies thus far had not been earnest about setting
up industrial parks or Special Economic Zones (SEZs) in India. Overall, Japan's
trading houses have thus far been hesitant to set up industrial parks or Special
Economic Zones (SEZs) in India. One exception however, is the Sojitz Motherson
Industrial Park (SMIP) in Tamil Nadu, the first of its kind.

The 115 hectare ofindustrial park is intended to attract Japanese companies by the summer of 2013
and be completed in 2014, following an initial investment of 5 billion yen.14

Where economic relations stand today

The year 2011 was disastrous for the Japanese economy. The giant tremor
that struck in the Pacific Ocean off the Tohoku region on March 11 was the strongest
in Japan’s recorded history.

Just a few months later, Thailand – an important13“A study of Japanese small and medium industries into Indian Market”（“Chusho kigyo no Indoshinshutsu wo kanngaeru”, India Business Environment Study Group Report, JETRO, March 2012,
http://www.jetro.go.jp/jfile/report/07000855/reports.pdf
14“Sojitz to Establish Industrial Park in Outskirts of Chennai, India”, Press Release, Sojitz
Corporation, 28 November 2011, http://www.sojitz.com/en/news/releases/20111128.html

14

overseas production base for Japanese companies – suffered severe flooding,halting the supply-side production belt.

Confidence in Japanese business remains low. According to a Bank of Japan(BOJ) Tankan Survey in April 2012, pessimism persists among Japanesemanufacturers wary of continued strength in the yen and stalled economic recovery.
Reports of a possible slowdown in the Chinese economy and the deficit crisis in
Europe add to Japanese business concerns.15

Fortunately amidst these circumstances, business in India for Japanesecompanies has been relatively unaffected.

After the Great Eastern Japan

Earthquake, Suzuki’s corporation in India had three months’ supply of automobile
parts from Japan so continued relatively unscathed. Toyota, which had beenplanning a factory opening ceremony in Bangalore on March 15, postponed the
ceremony on account of the earthquake and reviewed the production and sales planfor compact vehicles. Earlier in 2008, following the Lehman Shock, India’s rural
economy remained strong, reinforcing the perception among Japanese companies
that India provided an important “risk hedge” for the future.

There was also some recent progress on a previous sticking point inbilateral economic relations regarding social security payments. Following the fourthround of negotiations in May 2012 an agreement was made on a social security
convention, under which workers migrating on short-term contracts between the twocountries do not have to pay into the pension schemes of both countries
15"Japan's Tankan survey shows business morale remains low", BBC News, 2 April, 2012,
http://www.bbc.co.uk/news/business-17580984

15

simultaneously. 16 This had previously limited human exchange by imposing an
additional financial burden on individuals and corporations.

The Great Eastern Japan Earthquake also did not significantly affectintergovernmental negotiations towards a Japan–India Civil Nuclear Cooperation
Agreement, underway since June 2010.

Although investigations of safety withrespect to location are already being conducted for existing nuclear power plants aswell as new proposals in India, the Indian government is not undertaking a large
review of nuclear power plant expansion. As there is no Japan–India Civil Nuclear
Cooperation Agreement at present, Japanese corporations cannot export therelevant materials to India, but US and French companies are hoping for Japan toexport materials to India so they too can benefit from the complex corporate
structure in which major power corporations share technology.

METI will likely

gradually ease trade regulations in order to placate domestic concerns over the useof nuclear power whilst concurrently capitalize on India’s energy demand.

To

Japan’s nuclear power plant component manufacturers, facing a clearly shrinking
global market, India remains an attractive market.

Conclusions

The Indian facet of Japanese enterprise models are entering a new era.
Investment in India by Japanese corporations is rapidly expanding and diversifying inscope, industry and geographical location. An increase in corporate acquisitions
resulting from large-scale M&A is a recent significant characteristic of Japanese
16“Substantial Agreement on Negotiations with respect to an Agreement between Japan and India on
Social Security”, Ministry of Foreign Affairs of Japan, 30 May, 2012,
http://www.mofa.go.jp/announce/announce/2012/5/0530_01.html

16companies.

Although it is necessary to pay thorough attention to corporate

governance of partner Indian companies, as in the case of the enormous losses
tallied by Daiichi Sankyo, this direction is not itself mistaken and should bemaintained.

The difficulty and riskiness of investing in India, such as the infrastructure
and bureaucracy have been noted for decades. However, the importance of India asa global risk dispersion base has drawn ever greater attention, especially following
the dual natural disasters of 2011 in Tohoku and Thailand.

Investment in India by Japanese SMEs will furthermore increase in addition
to that by multinational corporations such as automobile and consumer electronics
manufacturers. Japanese SMEs that quickly carry out top-down decision-making
and are able to find suitable partners are also expected to rise.

The story of Japanese firms in India is not all one of missed opportunities. As
noted above, FDI has accelerated in the past several years.

Ingenuity andtechnological aptitude remain in several firms who are learning the lessons ofprevious years. Firms acknowledge that their prices were too high and products
misdirected and are making efforts to narrow the gap with their Korean rivals. As
Japanese firms gradually gain market share, they too are able to exploit theirproduction assets such as an emphasis on quality and efficiency. Indo–Japanese
economic relations, having entered a new stage in their development are likely tofurther progress in the future. The story of Japanese corporate activity in India is only
beginning.

17

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