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India: A new dawn for Japanese companies?
An Economist Intelligence Unit report
Sponsored byIndia: A new dawn for Japanese companies?
Contents
Executive Summary 2
About the research 4
Introduction5
1) The big picture 7
A young, growing economy 7
India as an export market 8
Japanese FDI in India 9
M&A 11
2) Synergies and opportunities 12
Infrastructure 12
Energy and arms 14
“Make in India” 15
Hitachi: India as global hub 16
Retail and consumer goods 17
3) Challenges ahead 18
Red tape and taxes 18
Logistics 19
HR and cultural issues 20
Kokuyo: Lessons in M&A, from India to the world 22
4) Conclusion 23
1 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
Executive
Summary
As the second-most-populous country in the remain for those companies eager to seize them.
world and one of the largest and fastest-growing Its main findings include:
economies in Asia, India has always offered much
to internationally minded Japanese firms. The l India’s demographic profile and economic
success of companies like Suzuki and Honda, transition represent great opportunities
which formed partnerships with Indian firms so India’s economy will grow at an average
successful their products came to dominate their of 7.1% per year to 2020, according to EIU
respective markets, is evidence of this potential. forecasts. It has a youthful population and
Yet these successes are notable because they a rapidly expanding middle class. Moreover,
have been comparatively rare; it is fair to say between 2015 and 2030 its urban population
that the potential of the overall bilateral trade will rise by 39% to nearly 600m people. As well
and investment relationship has been largely— as infrastructure needs, such growth implies
so far—unrealised. India ranks only 20th as a a massive increase in demand for consumer
destination for Japanese exports, for instance, goods and financial services that Japanese
and accounts for just 1.5% of Japan’s foreign firms should be well positioned to provide,
direct investment. Fewer Japanese businesses given their experience in emerging markets.
operate in India than in Thailand.
l India needs infrastructure; Japan can
The difficulty of doing business in India—dealing finance and build it
with its complex bureaucracy and regulations, Japan’s abundance of capital and India’s
numerous jurisdictions, and inadequate need for it are a good match. Japan has
infrastructure, among other irritations—has long experience in channeling long-term,
put off many foreign investors. However, the low-cost funds for infrastructure projects in
crushing victory in the 2014 general election of emerging markets. Japanese firms are already
Narendra Modi, the reformist and pro-business playing a major role in several such projects in
former chief minister of Gujarat state, was seen India, including the US$90bn Delhi-Mumbai
as heralding a new dawn. Mr Modi, it was hoped, Industrial Corridor and a similar project
would usher in investor-friendly reforms and linking Chennai and Bangalore. Japan is also
a new focus on infrastructure that would ease in the running to supply India with high-
the path of foreign investment and fast-track speed shinkansen passenger trains: a joint
economic growth. Japanese companies should feasibility study is underway. Japanese firms
be well-placed to benefit. This paper examines such as Hitachi, Toshiba, Mitsubishi and JGC
where the opportunities are and what challenges Corporation are also working on “smart cities”
within the planned transport corridors.
2 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
l Energy is also a core focus, but nuclear also sees India as “a major production hub for
cooperation remains sensitive overseas markets,” and has made acquisitions
Improving India’s patchy energy infrastructure to bolster its manufacturing capacity with this
is a key goal for Mr Modi—with the ambition in mind.
of achieving 24-hour electricity for all
by 2019. Reaching this goal will require l The challenges of investing in India remain
estimated investment of US$250bn in the considerable
sector. In Mr Modi’s first full budget the So far, the economic transformation under
government announced plans to build five Mr Modi is more wishful thinking than
“ultra mega” power plants of 4,000 megawatts reality. The World Bank ranks India 134th
to ease supply problems. India has been out of 189 economies in terms of ease of
courting Japan with regard to nuclear power doing business, taking into account factors
generation, but diplomatic obstacles to this such as dealing with permits, paying taxes,
remain considerable, as India is a declared enforcing contracts and getting electricity.
nuclear-weapons state. Poor infrastructure, arbitrary tax treatment,
lax enforcement of intellectual property laws
l Japanese firms are taking up the invitation and complex bureaucracy (especially regarding
to “make in India” land acquisition) are particular problems.
It is telling that while India is Sony’s fourth- Mr Modi’s first full budget, announced in
largest market globally, it has not made any February 2015, includes measures to bolster
products in the country since it shut its last infrastructure spending, simplify taxation
facility there in 2004. Recognising the crucial and—pending parliamentary approval—ease
role manufacturing plays in economic growth, land-acquisition rules, which may help.
Mr Modi wants to raise its share of GDP from
15% to 25-30%, with plans to slash red tape, l Success in M&A requires getting over
simplify taxation and offer incentives to firms “culture shock”
to “make in India”. These are so far at an early Japanese firms’ record of buying assets in
stage, though the prospect of lower costs India is not stellar: the ill-fated purchase by
should be enticing: average wages in India pharmaceutical company Daiichi Sankyo in
are lower than many comparable economies. 2008 of Ranbaxy, an Indian maker of generic
Many Japanese firms—including Sony—are drugs, is one oft-mentioned failure, as is NTT’s
reconsidering; Toto, Nidec and Daikin are just loss-making joint venture with Tata Group. But
some examples of companies that have either M&A is picking up: according to the Zephyr
opened factories in India in recent months or M&A database Japanese companies made
have made plans to do so. some 46 acquisitions (including minority
stakes and joint ventures) in India in 2014, up
l Many see the potential of India as hub to from just 23 in the previous year. Interviewees
reach markets to the west for this paper recommend close control of
India is appealing as a potential production acquired assets and getting over “cultural
and distribution hub for markets in the Middle gaps” through regular communication.
East, Europe and Africa. To take two examples Cultural differences are exacerbated by the
from interviews for this paper, Hitachi plans to relative dearth of personal contact between
make India a “global hub for productisation”, Japanese and Indian people: only around
from which to develop products for export to 7,000 Japanese work in India (as of 2012),
the Middle East and Africa—as well as for sale compared to 150,000-plus living in China.
locally. Kokuyo, a stationery manufacturer,
3 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
About the research
This Economist Intelligence Unit report, EIU and do not necessarily reflect those of the
sponsored by Standard Chartered Bank, is sponsor. The report was written by David Line
based on in-depth research, data analysis and and edited by Laurel West. Amie Nagano and
interviews with a number of senior executives Takato Mori contributed additional reporting,
in India and Japan. Our thanks are due to all and translated the report into Japanese. The
interviewees for their time and insights. The English text should be regarded as definitive.
views expressed in the report are those of the
4 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
Introduction
The warm relationship between India’s prime areas in which Japanese firms excel. Japanese
minister, Narendra Modi, and his Japanese consumer companies, meanwhile, are aware
counterpart, Shinzo Abe, is the most obvious that with a shrinking and ageing domestic
sign that ties between the two countries population their future lies abroad: India
are stronger than perhaps ever before. The has a young demographic profile and vast
two leaders began their respective tenures population, a fast-growing economy, and ample
with much in common: solid mandates after urbanisation potential.
crushing electoral victories, a determination
to drive economic growth after years of A bilateral free-trade agreement, signed in
underperformance, and a robustly nationalist 2011, seemed set to herald a new phase in cross-
political philosophy. Strategically the two border trade and investment. Yet economic ties
countries—separated geographically by China— have so far failed to achieve their potential. To
have much to gain through co-operation. That be sure, many Japanese brands are well known
Mr Modi made an official visit to Japan only a few in India (e.g. Honda and Suzuki, to give just two
months after taking office was symbolic of his household names in the automotive sector), and
desire to deepen and strengthen the bilateral around 1,000 Japanese firms have operations
relationship. of one kind or another there, according to the
Japan External Trade Organisation (JETRO). But
The two leaders’ personal ties have a long to put that in perspective, over 1,400 Japanese
history, cemented during Mr Modi’s tenure as firms are registered with the Japanese Chamber
chief minister of Gujarat state. The “Gujarat of Commerce (JCC) in Thailand while over 2,400
model” of development he championed— have signed up at the JCC’s Shanghai office.3
1
BJP, “Modi’s Gujarat
Model”, campaign pamphlet
focused on power-sector reforms, infrastructure All told, India accounts for only around 1% of
investment and industrial liberalisation, among Japan’s foreign direct investment and 1.2% of 2
PTI, “40 more Japanese
other measures1—benefited from investment its exports. It is also worth noting that previous firms to invest in Gujarat:
by Japanese firms, of which more than 60 now summit meetings between national leaders of Japan’s envoy”, August
operate there.2 It could therefore be seen as the two countries, such as one between Mr Abe 20th 2014
a natural step for Japan to play a key role in and Mr Modi’s predecessor Manmohan Singh 3
JETRO, “Challenges for
helping Mr Modi apply his policies on a national in May 2013, led to grand pronouncements India-Japan Investment
scale. India is in desperate need of investment about Japanese investment without heralding Promotion and Proposals
in infrastructure, energy and manufacturing, any breakthroughs. Indeed, the difficulties to Both Governments”,
September 2013
5 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
for Japanese companies of operating in India quarter. (Full-year GDP results released since
remain considerable. suggest India’s economy is now outpacing even
China’s, growing 7.5% in 2014 as a whole.4)
Nonetheless there is a feeling that given his Mr Abe, meanwhile, promised to double both
pro-business credentials and the success of Japan’s investment and the number of Japanese
the “Gujarat model”, Mr Modi’s accession to companies operating in India within five years,
the premiership marked a new start in the targeting ¥3.5trn (US$33.6bn) of private and
relationship. In an address to business leaders public financing. Japanese companies should be
in Tokyo last September he proclaimed that in prime position to benefit if the two leaders’
the “environment of disappointment” that hopes are fulfilled. This paper examines where
had surrounded India’s economy was over, the opportunities are and what challenges
citing the fastest pace of GDP growth in two remain for Japanese companies eager to seize
years of 5.7% year on year in the April-June them.
4
This follows India’s
rebasing of official GDP
data, making 2011-12 its
base year for comparison
rather than 2004-05.
This arguably inflated the
official growth rate.
6 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
1 The big picture
A young, growing economy goods in India and repatriate profits at such
rates—it is far smaller (Figure 1). Nevertheless
India’s economic potential has never been in its economy is expected to grow rapidly, at an
doubt. It is the second most populous country average of 7.1% per year to 2020 according
in the world and in purchasing-power-parity to EIU forecasts, and despite having very
terms (in nominal US dollars) its economy is low per-capita income India has a rapidly
larger than that of Japan and third globally expanding middle class (Figure 2). Moreover its
behind the US and China. However, at market demographics are favourable, especially when
exchange rates—of greater relevance to compared to Japan (Figure 3).
would-be exporters, considering they must sell
Figure 1: Large but poor
2013 GDP, select G20 economies
(US$ bn)
PPP Market e/r
16,000
12,000
8,000
4,000
0
il
ia
ia
e
a
n
y
UK
a
lia
ly
o
na
a
sia
a
y
a
an
nc
ad
re
az
in
r ic
ke
xic
pa
bi
ss
d
Ita
tra
i
ne
In
Ko
nt
Ch
ra
Br
a
r
rm
n
Ru
Ja
Af
Me
Tu
Fr
Ca
iA
ge
do
s
h
Ge
Au
h
ut
Ar
ud
ut
In
So
So
Sa
Source: EIU
7 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
Figure 2: Getting richer
US$, constant 2005 prices
Median household income (LHS) % of households earning > US$3,000 p.a. (RHS)
4,000 60
50
3,500
40
3,000
30
2,500
20
2,000 10
1,500 0
2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: EIU
Figure 3: Youthful profile
Population by age group
(thousands; both sexes)
2030 2010
0-14
351,239
363,764
15-24
25-49
50-64
65+
0 100,000 200,000 300,000 400,000 500,000 600,000
Source: UN World Population Prospects 2012. Projections are based on medium fertility profile
Figure 4: Not heavily featured India as an export market
Share of Japan’s goods exports, 2013
Despite its potential, India is a surprisingly
(%)
small market for Japanese exporters: it ranks
India
ROW only 20th overall (Figure 4). The main reason is
Canada
Panama US India’s limited purchasing power. Much smaller
Philippines
13.65 economies (such as Mexico or the Philippines)
Mexico 18.81
1
1.2.20 rank higher as markets for Japanese exports,
Vietnam 1.3 2
1.3 5
1.365
partly because of their higher per-capita
Russia 1.48
1.53
China incomes: US$10,630 in Mexico and US$2,790 in
UK 1.55
Netherlands 1.94
18.1
the Philippines, compared to India’s US$1,505.
2.13
Malaysia 2.37
Australia 2.3
8 In terms of composition, India’s US$10.5bn
65
Indonesia 2. worth of imports from Japan—which account
93
Germany 2.
5.03 7.9 Korea for 2% of its total imports—are idiosyncratic:
Singapore 5.23 5.82
Thailand Taiwan globally Japan’s biggest export line is cars and
Hong Kong other vehicles (which account for 21% of its
Source: ITC calculations based on UN COMTRADE statistics
8 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
total goods exports), but these struggle to get Figure 5: What India wants
into the protected Indian market: vehicles make
India’s imports from Japan, 2013
up only 5% of India’s purchases from Japan, and
(US$bn and %)
many of the largest Japanese auto firms have Everything else
production facilities in the country already. Mineral fuels, distillates 1.35
0.22 Machinery
There is a much better match between India’s 2.87
demand for capital equipment as the country 13%
Rubber and articles thereof 2%
27%
industrialises and Japan’s ability to supply 0.3 3%
it: comfortably the largest single element Plastics and articles thereof 4%
in India’s imports from Japan is machinery 0.37
4%
(US$2.9bn worth, 27% of total imports from Organic chemicals
0.4 4%
Japan; Figure 5).
Articles of iron or steel
5% 15%
0.42
Japan and India signed a bilateral free-trade 5%
Vehicles Iron and steel
agreement in 2011, the Comprehensive 0.55 7% 1.54
11%
Economic Partnership Agreement (CEPA), Electrical, electronic
Optical, photo, technical, medical, equipment, 1.16
which covers liberalisation of trade in goods etc apparatus, 0.57
Ships, boats
(90% of tariffs on India’s side and 97% on 0.75
Japan’s are to be phased out within 10 years) Source: ITC calculations based on UN COMTRADE statistics
and more limited provisions covering trade in
services, intellectual property, cross-border Figure 6: A yen for India
investment and visa requirements. Within a Japanese FDI stock by country, 2013
year of its coming into force in August 2011 the (US$bn and %)
number of Japanese firms operating in India Vietnam, 8.4 Everywhere else
109.7
rose 14%, while the country’s exports to India Philippines, 10.4
Malaysia, 13.3 US
rose from US$9bn in 2010 to US$11bn the 285.8
year after. The trend has not been maintained,
Taiwan, 13.3 11%
28%
1
1 %
Canada, 14.5 1 %
1%%
however: by 2012 not many more Japanese India, 15.1
1
1%%
2%
firms had set up in India and goods exports fell Germany, 16.9 2%
to US$10.6bn in 2012 and US$8.6bn in 2013. Hong Kong, 18.3 2%
2%
Ironically, India’s free-trade agreements with Indonesia, 18.4 2%
France, 20 3%
other nations have been equally as beneficial to
Korea, 25.5 3%
9% Netherlands
Japanese companies: Sony, which used to have Thailand, 35 3%
94.2
a manufacturing facility in India that it shut China
Brazil, 35.3 5% 9% 93
in phases in 2004, now imports its products to Singapore, 36 6% Australia
6%
India from overseas factories using FTAs India 61.2
UK, 53.8
Cayman Is
has signed with other nations.5 59.6
Japanese FDI in India 5
Economic Times, “Sony
only 1.5% of the total) or its investment in other mulls setting up a
The CEPA was also expected to herald rapid Asian destinations (it is not much more than its manufacturing plant in
growth in Japan’s foreign direct investment India enthused by policies
FDI in the much smaller economies of Taiwan
(FDI) into India, but this has not transpired. of new government”, August
or Malaysia; Figure 6). To be sure, Japan’s 26th 2014
Japanese direct investment in India, at around investment in India has grown considerably
US$15bn, is still relatively modest whether in recent years, from the US$100m-200m 6
Nikkei, “Daiichi Sankyo to
compared with Japan’s total FDI (India makes up range per year in the early 2000s to a high of end 6-year Ranbaxy debacle
with sale”, April 8th 2014
9 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
Figure 7: Investing abroad US$5.6bn in 2008 (most of which came from the
purchase of Ranbaxy, an Indian pharmaceuticals
Annual FDI flows from Japan to India
(US$m) manufacturer, by Japan’s Daiichi Sankyo, for
6,000 Japan data (JETRO) India data (via UNCTAD) ¥500bn6). But gains have not been sustained:
currently annual FDI from Japan is running
5,000
around US$2bn a year. Data from the Reserve
4,000 Bank of India, meanwhile, suggests a doubling
3,000 of FDI flows from Japan in the year after the
CEPA’s introduction, although it also shows that
2,000
it subsequently fell back (Figure 7).7 Red tape
1,000 and a poor record on the part of Japanese firms
0 in managing acquisitions in India (explained in
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 more detail in part 3) are partly to blame.
Figure 8: Good prospects
(% respondents)
Promising countries over next 10 years Promising countries over next 3 years
Rank Country % Rank Country %
1 India 53.1 1 Indonesia 44.9
2 China 38.6 2 India 43.6
3 Indonesia 37.5 3 Thailand 38.5
4 Brazil 31.7 4 China 37.5
5 Thailand 27.5 5 Vietnam 30.3
6 Vietnam 26.7 6 Brazil 23.4
7 Myanmar 20.8 7 Mexico 17.2
8 Russia 18.1 8 Myanmar 13.1
9 Mexico 13.1 9 Russia 12.3
10 US 13.1 10 US 11.1
Source: JBIC
Figure 9: Buying spree?
Japanese acquisitions in India
(number of deals)
7
FDI flow data from 50
India, Japan and in third
party databases do not
46
40
necessarily match. Figures
in this paragraph are those 30
from the Japan External
28 27
Trade Organization (JETRO). 20 23
For comparable data from 20 20
18
the Reserve Bank of India
10
(RBI), collated by UNCTAD,
see Figure 4. Data from
0
the RBI includes FDI only
2008 2009 2010 2011 2012 2013 2014
through official routes
NB: Deals completed and assumed completed in given year. Includes minority stakes, increases in stockholdings, joint ventures and acquisitions.
and refers to fiscal years
Source: Zephyr, Bureau van Dijk
beginning in April.
10 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
Nevertheless, surveys of Japanese firms show entering specific sectors—is heating up, such
that India remains a favoured investment investment is starting from a comparatively
destination—particularly in the longer term. low base and has suffered some high-profile
A 2013 survey of Japanese manufacturers failures (discussed below). The number of
conducted by the Japan Bank for International completed deals in recent years has been
Cooperation (JBIC), a publicly owned bank that modest: according to the Zephyr M&A database
supports Japanese businesses going abroad, Japanese companies made some 46 acquisitions
showed India ranked first for promising overseas (including minority stakes and joint ventures)
business destinations over the next 10 years and in India in 2014, up from just 23 in the previous
second over the next three years (Figure 8).8 year (Figure 9). These included Hitachi Systems’
acquisition of a 76% stake in Micro Clinic India,
M&A an IT services company, and the purchase by
Meidensha, a capital goods manufacturer, of
Although Japanese companies’ interest in
23% of Prime Electric, an Indian transformer
acquiring assets in India—or entering into
manufacturer (Figure 10), as well as various
joint ventures, which is a prerequisite for
other deals.
Figure 10: Who’s in?
Select Japanese deals in India, 2014
Buyer Target Deal type Industry
Shiroki Corporation Shiroki Technico India Joint venture Automotive parts
FCC Rico Auto Increased stake in JV to Automotive parts
100%
Nippon Life Insurance Reliance Capital Asset Increased stake to 49% Financial services
Management
Hitachi Zosen ISGEC Hitachi Zosen Joint venture Heavy engineering
Outsourcing Inc Alp Consulting Acquisition Human resources
Tsubakimoto Chain Mahindra Conveyor Systems Acquisition Industrial machinery
Hitachi Systems Micro Clinic India Acquisition IT services
CAC Accel Frontline Acquisition IT services
Kintetsu World Express Gati Joint venture Logistics
Rohto Pharmaceutical Deep Care Health Joint venture Pharma-ceuticals
Toshiba Vijai Electricals – electricity Acquisition Power
T&D business
Toshiba Mitsubishi-Electric AEG Power Solutions: Acquisition Power
Industrial Systems Bangalore facility
Meidensha Prime Electric Joint venture Power
en-Japan New Era India Consultancy Acquisition Recruitment consulting
Softbank Inmobi Technologies Capital increase Telecommunications
Sources: Zephyr/Bureau van Dijk, press, companies
8
JBIC, “Survey Report
on Overseas Business
Operations by Japanese
Manufacturing Companies”,
March 2014
11 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
2 Synergies and opportunities
Infrastructure metro projects, water supplies, sanitation,
power and other infrastructure sectors.9 JBIC’s
Japan has much to offer India—particularly to 2014 annual report showed 832 loans and equity
help it complete desperately needed large-scale participation commitments to India up to March
infrastructure projects. “Too much debate and of that year, worth a combined ¥1.2trn.10
corruption has led to a lack of infrastructure
like roads, highways, energy and industrial “If you look at the amount [of funds] and the
zones; we are lagging behind,” says Sanjeev long-term appetite, Japan is number-one in the
Sinha, president of Sun and Sands Advisors, world [for infrastructure financing],” says Mr
a consultancy that specialises in Japan- Sinha, noting that JBIC offers 40-year loans at
India business links. “This is exactly where low interest rates.
Japan can contribute: it has huge technology
[capabilities] and a long-term investment This presents a massive opportunity for
appetite.” Japanese construction, transport and
machinery companies—the involvement of
Japan’s abundance of capital and India’s which is often a prerequisite for securing the
need for it are clearly a good match. Japan type of funding described above. JICA was
has long experience in channeling long- involved in the funding of the Delhi Metro,
term, low-cost funds for infrastructure India’s biggest subway system, and will play a
projects in emerging markets in the form of major role in several other major infrastructure
official development assistance (ODA) loans, projects that have been prioritised by the
distributed through policy institutions such as Modi government. These include the US$90bn
9
JICA, ODA Loan Project the Japan International Cooperation Agency Delhi-Mumbai Industrial Corridor (DMIC), which
Data, available at http://
(JICA) and JBIC. JICA figures show a cumulative includes a raft of proposed developments along
www2.jica.go.jp/en/yen_
commitment of ODA loans to India of ¥4.2trn a dedicated 1,483km freight railway (Figure
loan/index.php/module/
search (around US$35.7bn at exchange rates as of 11), and a similar project linking Chennai and
mid-January 2015), through more than 240 Bangalore.
JBIC, Annual Report 2014,
10
agreements for various projects such as roads,
p94
12 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
Figure 11: Delhi-Mumbai Industrial Corridor
JAMMU
AND KASHMIR
HIM ACHAL
PRADESH
PUNJAB
ARUNACHAL PRADESH
HARYANA SIKKIM
Delhi
RAJASTHAN
UTTAR BHUTAN
PRADESH ASSAM NAGALAND
Ikbalgarh
BIHAR MEGHALAYA MANIPUR
GUJARAT
WEST
Ahmedabad MADHYA PRADESH
BENGAL MIZORAM
TRIPURA
MAHARASHTRA ORISSA
Mumbai
ANDHRA
PRADESH
GOA
KARNATAKA
TAMIL NADU
KERA
LA
Such projects are not necessarily new, but their energy, water, transport, and healthcare—and
implementation has proved more difficult than the IT network infrastructure that cuts across
perhaps the Japanese investors envisaged these—there is huge potential.” At the end of
when the initial deals were struck. The DMIC 2012 Hitachi committed to investing ¥70bn
agreement was signed in 2007 but work got (US$587m) in India, of which 60-70% had been
bogged down in disagreements between rival spent by the end of 2014.
political parties running different states along
the route. The crushing victory of Mr Modi’s Two aspects of infrastructure in particular
party in the 2014 general election has removed have attracted a lot of Japanese attention:
many of these impediments. transport links and smart cities. In 2013 Sojitz,
a Japanese conglomerate, signed a ¥110bn
“India is about to build its infrastructure from contract—the largest ever signed under an ODA
the bare minimum,” says Ichiro Iino, who was loan—to build a 626-km section of the Western 11
Sojitz press release,
until recently the managing director of Hitachi Dedicated Freight Corridor in partnership with “Sojitz Receives the
India and is now the company’s chief executive India’s Larsen & Toubro.11 Separately, much has Contract of Civil & Track
Works for Western Dedicated
for the Asia-Pacific region. “It’s certainly a also been made about the possibility of Japan
Freight Corridor Project in
land of opportunity. In all fields including supplying India with high-speed shinkansen India”, June 10th 2013
13 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
passenger trains, particularly since Mr Modi has India illustrates the size of the opportunity:
allowed complete foreign ownership of such according to UN projections, between 2015
projects. There has been little concrete progress and 2030 India’s urban population will rise by
on these to date, although a joint feasibility 39% to nearly 600m people (Figure 12). As well
study on a high-speed railway between Mumbai as infrastructure needs, such growth implies
and Ahmedabad has been launched and should a massive increase in demand for consumer
be complete by July 2015.12 goods and financial services that Japanese
firms should be well positioned to provide.
Roads are another promising area: in 2013 East Nevertheless, competition from firms in South
Nippon Expressways acquired a small stake in Korea, Singapore, Germany, the UK and the US
an Indian special purpose company set up by is likely to be steep as more urban development
the country’s largest operator of public-private plans are rolled out. China, too, aims to increase
partnership (PPP) roads to widen highways its presence in the country: while visiting Delhi
in Maharashtra—a trial that will be carefully shortly after Mr Modi returned from Japan,
watched to see if it is successful and replicable.13 China’s president, Xi Jinping, announced plans to
invest US$20bn in India over the next five years.15
Meanwhile Hitachi, Toshiba, Mitsubishi and JGC
Corporation have formed a consortium to work
on four “smart cities” within the DMIC route
Energy and arms
(of several that are being planned). These are India’s patchy energy infrastructure is a
intended to be self-sustainable habitats with key focus for Mr Modi—with the ambition of
low pollution, efficient energy supplies and achieving 24-hour electricity for all by 2019.
state-of-the-art public transportation. Mr Modi, This will require a massive increase in capacity:
whose election campaign promised 100 new in November 2014 Piyush Goyal, the minister for
city developments, took the opportunity while power, coal and renewable energy, said India
visiting Kyoto in September 2014 to depict it as needed investment of US$250bn in the sector to
a model for the planned revamping of Varanasi realise this goal. Meanwhile rapid urbanisation,
into a “smart heritage city”,14 suggesting and a commitment to electrify rural regions, will
Japanese design and technology will be require more investment in transmission and
12
Business Standard, distribution (T&D).
uppermost in planners’ minds.
“Japan going whole hog
with investment in Indian
The scale and speed of urbanisation across Investment in power generation has been
infrastructure”, January
27th 2014 Figure 12: Run to the cities
13
Economic Times, “IL&FS, India’s urban population
Millions (LHS) % (RHS)
East Nippon Expressway
900 55
to jointly work for PPP
projects”, Jun 27th 2013 800 50
700 45
14
IBNLive, “PM Narendra
600 40
Modi’s plan to turn Varanasi
into a ‘smart city’: Will 500 35
the Kyoto model work?”,
400 30
September 1st 2014
300 25
15
Nikkei, “China to invest 200 20
$20B in India over next 5 2015 2020 2025 2030 2035 2040 2045 2050
years”, September 19th Source: UN, Department of Economic and Social Affairs, Population Division, World Urbanisation Prospects: The 2014 Revision
2014
14 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
hamstrung over the years by numerous issues military co-operation agreements that elevated
such as acceptable risk levels, and most the relationship between the two countries to
recently by erratic fuel supplies (in particular a “Special Strategic and Global Partnership”—
owing to controversies over the allocation part of which will involve the sale of 15 planes
and exploitation of coal resources, and the worth more than US$1.5bn in total.
inefficiencies of the state-owned supplier, Coal
India) but Japanese companies have invested in “Make in India”
T&D—including two high-profile deals in 2014 by
In theory India should be an attractive
Toshiba and its partners (Figure 10). Meanwhile,
opportunity for Japanese companies to
in the first full budget of Mr Modi’s tenure,
establish lower-cost manufacturing bases from
unveiled on February 28th 2015, the government
which to ship goods to the rest of the world.
announced plans to build five “ultra mega” power
This has been the foundation of Japanese
plants of 4,000 megawatts to ease problems with
direct investment in South-east Asia in recent
electricity supply.
decades—and a trend Mr Modi hopes can be
It is in the field of nuclear power generation replicated in his country. During a speech on
that India is most assiduously courting Japan. India’s Independence Day (15th August) he
Hitachi, which in collaboration with GE has a invited global companies: “Come, make in
large nuclear-power generation equipment India”, and he reiterated that call while in Tokyo
business, would be one major supplier if the following month, promising that “now a red
diplomatic obstacles can be overcome. These carpet, not red tape, awaits you”.16 Currently
remain considerable: during Mr Modi’s visit manufacturing makes up around 15% of GDP; Mr
last year a highly anticipated civil nuclear Modi wants to raise this to 25-30%.
agreement between the two countries did not
Certainly the prospect of lower costs should
materialise, although both governments did
be enticing: average wages in India are lower
pledge to accelerate negotiations. The issue
than many comparable economies—and are
of nuclear co-operation with India remains a 16
NDTV, “Red Carpet, Not
projected to stay that way for the short term at
particularly sensitive one in Japan, as India is a Red Tape, Awaits You in
least, according to EIU projections (Figure 13).
declared nuclear-weapons state. The Japanese India, Says PM Narendra
Productivity growth and a continued plentiful Modi to Japan”, September
government wants explicit guarantees from
supply of new labour, given the country’s 2nd 2014
India, which is not a signatory of the nuclear
non-proliferation treaty, to limit atomic tests
and allow closer inspection of its nuclear Figure 13: Pricier, but still cheap
facilities. Average manufacturing labour costs per hour
(US$, EIU estimates and forecasts)
An equally controversial opportunity— 5
China Thailand India
especially given Japan’s fractious diplomatic
relations with China—is for Japan to export 4
military equipment to India, something that
has only become possible since Mr Abe lifted 3
a long-term ban on such exports in 2013.
Discussions on the possible purchase of 2
amphibious aircraft from Japan, specifically
the ShinMaywa US-2i, started long before that. 1
During Mr Modi’s Japan trip last year he co- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
signed defence equipment, technology, and Source: EIU
15 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
youthful demographics, also have the potential there.17 If it decides to do so Sony would
to limit future growth in real wages. However, follow Panasonic, Daikin, Sharp and Hitachi in
Japanese firms have so far been reluctant to increasing investment in production capacity in
take advantage of these factors (for reasons the country.
examined in more detail below). As mentioned
above, to take one example, even though India Manufacturers in other sectors are also stepping
is Sony’s fourth-largest market globally, it no up their capacity in India to take advantage
longer makes any of its products in the country. of expected burgeoning demand. Toto, a
manufacturer of sanitary ware, teamed up
But prompted by Mr Modi’s initiatives, the with trading house Mitsui to begin full-scale
prospect of manufacturing in India is gaining production at a state-of-the-art factory in
currency among Japanese electronics firms— Gujarat, which opened in August 2014,18 while
which have been struggling to match the Nidec, a maker of electric motors, announced
aggressive pricing of their Korean competitors last June that it would build its first plant in
in the Indian market. A report by India’s India, for ¥10bn (US$93m), in the Neemrana
Economic Times newspaper quoted Kenichiro Industrial Area in Rajasthan—where Daikin
Hibi, managing director of Sony’s Indian has a factory.19 Nidec’s president, Shigenobu
subsidiary, saying that initiatives allowing Nagamori, later said the company would build
foreign manufacturers to sell their products around five factories in India.20 Yokohama
directly online—as well as the prospect of stable Rubber, meanwhile, completed a new plant in
economic growth and exchange rates—may well the country in February this year, while JFE Steel
prompt the firm to look again at the possibility has a joint venture with local steel major JSW in
of making flat-panel TVs and smartphones
Hitachi: India as global hub
Although Narendra Modi has set his sights on past two to three years we’ve found that India
increasing India’s manufacturing capacity, it has strength in designing and producing
17
See footnote 5 would be a mistake to see it only as a centre for electrical equipment such as motors and
low-cost production, reckons Ichiro Iino, chief switchgears, the core items supporting the
18
Mitusi & Co press release, executive for the Asia-Pacific region at Hitachi manufacturing industry,” he says. Such
“Mitsui & Co., TOTO joint Group. The company is making India a “global technical expertise, married with experience of
venture opens sanitary ware hub for productisation”, that is to develop international standards, makes the partnership
factory in India”, August products there for export to the Middle East of Japanese and Indian skillsets particularly
20th 2014 and Africa—as well as for sale locally. beneficial.
19
Globe Newswire, “Once you cross the western boundary of “India has great talent with a flexible and
“Nidec to Set Up Its First Myanmar, it’s wise to assume that you are no innovative mindset,” Mr Iino explains. “The
Manufacturing Foothold in longer able to sell the same goods in the same Indian people are also more used to working
India”, June 4th 2014 way as you do in Japan and in the rest of South- with global standards than the Japanese,
east Asia,” Mr Iino says. “We can leverage the given the big presence of Western firms in this
20
Nikkei, “Nidec to build five trust and respect that the Japanese brand and country. Japanese [companies] tend to be
plants in India: President”, quality receive. But once you are in India, you’d strong in working in an organised manner and
June 18th 2014 want to look forward to doing things that you producing goods with consistent quality. So I
couldn’t do in Japan.” think Japanese and Indian talents complement
21
Nikkei, “Japanese each other well, presenting immense
investment in India Mr Iino stresses the appeal of the technical potential.”
growing, but for how skills available to investors in India. “In the
long?”, July 2nd 2014
16 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
the latter’s first cold-rolling mill, in Karnataka.21 Spencer of the UK and Benetton of Italy) to take
advantage of the recent liberalisation, but Mr
Many Japanese companies—including Hitachi Modi’s warm welcome to foreign investment
and Kokuyo, profiled in boxes below—are could be the needed incentive for them to dip
excited about the prospect of using India as a their toes in the water. In the highest-profile
manufacturing hub from which to ship products move thus far, Ryohin Keikaku, owner of the
elsewhere. One of the most successful Japanese Muji brand of household goods, will be the
companies in India, Suzuki, is committing to first major Japanese retailer to open in India
exports by building a plant in Gujarat expressly when it finalises a joint venture agreement
to service the European and African markets. with a local partner later this year. It plans
In January 2015, at an investment summit in to open its first store in Delhi or Mumbai in
Gujarat, the chairman of Suzuki, Osamu Suzuki, 2015 or 2016 depending on how swiftly the
told the Nikkei newspaper: “For Japanese Indian government approves its investment
companies, India is a gateway to the Middle application.24
East, Africa and Europe.”22 But there will be
many hurdles—not least logistics and trade Mr Modi also had a meeting with Tadashi Yanai,
facilitation—before this potential can be CEO of Fast Retailing (which owns the Uniqlo
realised. brand), in June 2014 and apparently entreated
him to expand into India.25 Mr Yanai reportedly
Retail and consumer goods told Mr Modi the company would source
garments from India.26 Previous reports in early
As mentioned above, the potential for supplying
2013 that the company was about to start a
goods and services to India’s rapidly expanding
joint venture with India’s Arvind, to establish
urban, middle-class population is considerable.
a US$1bn business in the country, came to
However, retail remains one of the most
nothing (Arvind later announced a joint venture
protected industries in India. The liberalisation
with Uniqlo’s US competitor, Gap, to open 40 22
Nikkei, “India on cusp of
of the sector, while politically sensitive and
stores in India).27 breaking out, says Suzuki
slow-moving, is proceeding gradually. Since chief”, January 14th 2015
2012 restrictions have been loosened to allow Food is another promising area given projected
single-brand stores to establish wholly-owned urbanisation and rising incomes. Japan’s Nikkei
23
Wall Street Journal,
units, and more opening up is expected during newspaper recently reported that Toyo Suisan
“Arvind to Bring Gap Stores
Mr Modi’s tenure. to India”, August 22nd 2014
and Ajinomoto have formed an Indian joint
venture to produce instant noodles in Tamil 24
Nikkei, “Muji stores to
With India’s apparel market, to take one retail
Nadu; Nissin has opened its third instant-noodle open in India as country
sector, valued at around US$40bn per year eases restrictions”,
plant in India, in Odisha; and Mitsui and Yanmar
and expected to grow 50% by 2020,23 the September 1st 2014
have formed a JV with India’s Mugrappa Group
opportunity is considerable. Japanese firms
to make rice-farming machines and combine 25
See footnote 21
have been slower than their counterparts
harvesters.28
overseas (such as Inditex of Spain, Marks & 26
Reuters, “Japan’s Uniqlo
may source garments from
India”, June 25th 2014
27
Times of India, “Japanese
giant Uniqlo set to partner
Arvind in India JV”, January
16th 2013
28
See footnote 21
17 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
3 Challenges ahead
India is not an easy place to do business: the companies going to India to do business,”
World Bank, in its annual ranking of such issues, says Sandeep Tewari, country head and CEO
rates India 134th out of 189 economies, taking in Japan for the State Bank of India. JETRO
into account factors such as dealing with permits, cites complaints by Japanese companies about
paying taxes, enforcing contracts and getting unequal treatment and uncertainty in how
electricity.29 But India is far from a homogenous companies will be treated by the tax authorities
entity. The World Bank also ranks 17 Indian cities in different jurisdictions. The prime minister
by the same criteria. Ludhiana, in the state of is aiming to tackle such issues, says Mr Tewari,
Punjab in northern India, ranks first while Kolkata “but it will not happen overnight.” Mr Modi’s
in West Bengal is 17th. To take one indicator, in government made some initial steps in its first
Ludhiana businesses need 17 procedures to deal budget, cutting corporate taxes over the next
with construction permits, taking an average four years to 25% (from around 30% now) and
of 143 days (against an OECD average of 13 implementing a countrywide goods and services
procedures in 147 days) while in Kolkata they tax by April 2016.
must grapple with 27, taking 258 days.
Land acquisition has long been recognised as
While it is beyond the scope of this paper to a hindrance to large-scale investment, even
29
World Bank Group, “Doing iterate the precise advantages and disadvantages for local businesses, let alone foreign ones.
Business: Measuring of each location in the country, there are a The establishment of special economic zones
Business Regulations”, number of common factors that companies (SEZs) in which permits and land rights could
available at http://www. struggle with when doing business there. be more easily acquired was meant to tackle
doingbusiness.org/rankings
this problem. But it is not a new solution: the
30
Ministry of Commerce & Red tape and taxes first such zone was set up in 1965 and there
Industry, Special Economic are more than 190 in operation around the
Taxes and land acquisition are particular
Zones in India website, country (as of May 2014).30 This has not led
problems. “The complex tax system prevalent in
“Fact Sheet on Special to a significant liberalisation of the business
Economic Zones”, January India [and] the acquisition of land to establish
environment in the same way that China’s usage
21st 2015 a factory are major hurdles for Japanese
18 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
of similar zones has, but there are hopes Mr India’s regulations (or at least the enforcement
Modi’s push for the broader use of such entities of them) are insufficient, particularly in terms
may yield faster benefits. Steps taken in the of protecting intellectual property. JETRO’s
2015 budget, including an executive order to paper cites numerous instances where Japanese
revise a restrictive 2013 law governing land companies have complained that counterfeit
purchases (eliminating a consent clause and the and imitation brands operate with impunity
requirement for social impact assessments to be and recommends various areas in which
conducted should the land be used for certain improvements are needed. The paper estimates
purposes) may help, although this requires the damages from piracy in 2012 were worth as much
consent of parliament. as 80% of revenues in the IT software industry
and 30-40% in the auto parts sector.33
Mr Modi’s government has also emphasised
the importance of cutting back on the endless Logistics
regulations that stymie foreign investors.
Hiroyuki Ishige, chairman of JETRO, identified While there are plenty of opportunities for
bureaucratic red tape as the number-one Japanese construction companies to build roads,
problem in a recent interview with the Wall bridges, ports, power stations and other vital
Street Journal, saying Japanese companies infrastructure in India, the poor current state of
had complained to him that “when they build a such facilities makes life difficult for businesses
factory in India, they need a separate warehouse in most other industries. JETRO cites complaints
to store all the documents for regulatory from Japanese investors about limited power
filings”.31 As part of his simplification drive Mr and water supplies (even in industrial parks),
Modi has scrapped India’s planning commission, congestion and poor roads that limit truck
which he has accused of excessive centralisation, transport to 300km per day, and innumerable
obstructing other state governments from delays in getting approvals for upgrading
following the kind of plan he pioneered in infrastructure.
Gujarat. Changes to liberalise foreign investment
Logistics and distribution have been a particular
in various sectors are expected, though these
challenge. Mr Sinha of Sun and Sands Advisors
are progressing less swiftly than many had
cites the example of Lawson convenience stores,
hoped when Mr Modi took office.
which sought his advice when investigating
Given India’s political constitution it might not whether to open in India. The political sensitivity
be realistic to expect dramatic simplification of of allowing foreign investment in retail (given
regulatory jurisdictions, but Japanese investors it is dominated by mom-and-pop stores) meant
would be well served by a central repository of it was always going to be a speculative exercise.
information that provides necessary information But Lawson’s former president, Takeshi Niinami
(for instance about SEZs), claims a 2013 JETRO (who stepped down in May 2014) decided
white paper. The paper makes unflattering that the poor infrastructure and distribution
comparisons with the situation in Thailand— network—as well as human resources issues—
pointing out that while Thailand’s Board of made it a non-starter. 31
Wall Street Journal Japan
Investment has two desks in Japan (in Tokyo RealTime blog, “Japan,
The situation is changing, though, Mr Sinha India Look to Reenergize
dating from 1979 and in Osaka from 1995) the
says. “Distribution and logistics for retail has Economic Ties”, June 3rd
Indian government has none.32 2014
improved from e-commerce. Flipkart [an online
The problem is not always of excessive retailer] and other companies have created 32
See footnote 3
regulation; there are important areas in which the impetus to [improve] the logistics industry
at the retail level—it’s getting better day by 33
Ibid.
19 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
Figure 14: Reported problems HR and cultural issues
Business issues of Japanese companies in India
(% respondents) India’s abundant, relatively cheap human
India % capital makes it an ostensibly attractive place
1 Wage increase 71.1 to invest. However, it is hardly alone in having
2 Difficulty in local procurement of raw materials and parts 66.4 a large labour pool: its South Asian neighbours
2 Power shortage or blackouts 66.4 Bangladesh and Myanmar can offer the same.
4 Competitors’ market shares are growing (cost-wise competition) 63.5 And while there might be an abundance of
5 Complicated customs clearance procedures 55.6 unskilled labour in India, the price of this
Source: Survey on Business Conditions of Japanese-Affiliated Firms in Asia and Oceania (2012, JETRO) is rising steadily: in a 2012 JETRO survey of
Japanese companies in India wage increases
were the most commonly cited business
day. Five years ago it was quite backwards, issue—ahead of even logistics or infrastructure
but maybe now Lawson or Uniqlo can consider problems (Figure 14).
India as a better opportunity.” Still, it will take
time to raise standards. “Logistics will remain a Tellingly, according to Mr Sinha, the second
challenge for Japanese companies because they reason Lawson’s president gave for deciding
are used to working in an extremely organised against an Indian foray was the low quality of
environment.” available labour. “One of India’s weaknesses
is education; it’s good in tech education like
There are signs that Japanese companies in physics, sciences, engineering and so on, but
some sectors are learning to adapt to India’s there isn’t enough vocati onal education.” This
operating environment. For example, there have means a lack of available middle managers who
been frustrations with delays in getting grand might reliably oversee the local operations
projects such as the DMIC up and running. In of Japanese businesses. Meanwhile, cultural
part, Mr Sinha contends, this is because Japanese differences are exacerbated by the relative
investors “wanted a Master Plan approach for the dearth of personal contact between Japanese
whole region and to work under that plan”. Given and Indian people: only around 7,000 Japanese
the multiple jurisdictions involved this was always work in India (as of 2012), compared to 150,000-
going to be unrealistic. For a similar Bangalore- plus living in China.35
to-Chennai industrial corridor now being
planned, Japanese companies are being much A lack of mutual understanding has proved
more flexible. “They have not taken a ‘big plan’ to be a problem when Japanese companies
approach, which won’t work in India,” says Mr buy assets in the country. Indeed, the story
Sinha; rather “they are attracting entrepreneurs of Japanese M&A in India is more famous for
and using a PPP [public-private partnership] its high-profile failures than its successes.
model rather than government planning.” These include the purchase by pharmaceutical
company Daiichi Sankyo in 2008 of Ranbaxy,
34
Wall Street Journal, The government is certainly aware of the need an Indian maker of generic drugs. Shortly after
“India’s Budget Focuses on to invest in infrastructure to make India a more
Infrastructure”, February
the purchase, quality-control problems led to
attractive investment destination. In Mr Modi’s Ranbaxy’s products being banned by the US’s
28th 2015
first full budget the government said it would Food and Drug Administration. Daiichi Sankyo
35
Statistics Japan dataset, double investment in transport, as part of was unable to fix problems at Ranbaxy, in part,
“Japanese Nationals Living Rs700bn (US$11bn) in extra spending allocated some analysts speculated, because it never
Abroad, 1990-2012”, for roads, railways and other infrastructure.34
available at http://www.
stat.go.jp/data/nenkan/
zuhyou/y0215000.xls
20 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
had sufficient control of the company—with Such examples, while famous, are arguably no
only one Japanese executive among 10 senior more representative than the success enjoyed by
operating officers.36 It ended up offloading its Suzuki—which through its 30-year partnership
stake in Ranbaxy to an Indian company, Sun with Maruti became India’s largest producer
Pharmaceuticals, in early 2014, through a stock of vehicles—or Honda, which parlayed a joint
swap that leaves Daiichi owning 9% of Sun. venture with Hero (begun in 1984 and dissolved
Another high-profile failure was NTT’s joint in 2011) into a market leading position on its
venture with Tata Group, signed with much own. And as the box below on Kokuyo (which
fanfare in 2009, which the Japanese company bought India’s Camlin in 2011) illustrates, open
sold last year having never made a profit. communication is the key to overcoming cultural
surprises.
36
Nikkei, “Culture clashes
threaten quality standards
for Japanese companies in
India”, April 21st 2014
21 © The Economist Intelligence Unit Limited 2015India: A new dawn for Japanese companies?
Kokuyo: Lessons in M&A, from India to the world
Kokuyo, a Japanese manufacturer of The company continues to face challenges
stationery, saw great potential in the Indian in managing its Indian business. “Cultural
market when it bought Camlin, a stationery gaps still exist in some areas, not least in
company based in Mumbai, in 2011. But the area of compliance,” Mr Sumitani says.
managing the investment has been far from “Our challenge is to optimise our existing
straightforward. compliance standards in accordance with local
legal frameworks and social conventions. We
“When we started our business in India about also organise annual gatherings to discuss
four years ago, we were really surprised by the these matters with all staff in India and deepen
cultural gaps,” says Tsutomu Sumitani, director understanding of our compliance practices.”
and managing officer for Kokuyo Solutions &
Technologies. Kokuyo recognised that Camlin Despite these issues, Kokuyo remains excited
had established itself in India as a leading about the Indian market. “Its demographics
stationery and art material manufacturer, with are qualitatively different from China, given
strong brand equity and a robust distribution its growing, young population and vibrant
network. “But the company needed to improve middle class,” Mr Sumitani explains. The
its product development and design capability company’s confidence is reflected in the new
as well as cross-departmental communication,” manufacturing facility it is building—its largest
Mr Sumitani says. outside Japan—in Maharashtra, into which
its subsidiary operations will be consolidated
In fixing these issues, it wouldn’t work simply when it starts fully-fledged production in 2016.
to impose the Japanese model that Kokuyo
had perfected at home. “One of the keys [to Kokuyo’s enthusiasm for acquiring Indian
M&A success] is effective localisation of the assets is likewise undiminished. “Our next step
business model and product development,” he would be to develop India as a major production
says. “It [may have been] less time-consuming hub for overseas markets, including Asia, the
to introduce our existing business model, or Middle East, Africa and Latin America,” Mr
products that we have nurtured in Japan. But Sumitani says. To this end in 2013 it acquired
we cannot make our business grow in India Riddhi Enterprises, an Indian firm that did
unless our local staff are confident in our not have a domestic brand or distribution
business model and products.” network but which specialised in the export
of stationery products to overseas markets,
“To overcome differences, it is important mainly Central and South America. “We are
to communicate and establish mutual planning to expand our presence into new
understanding,” he adds. “It is also important markets in those regions by leveraging Riddhi’s
to share management know-how and systems production and distribution infrastructure,” Mr
freely with the acquired company and ensure Sumitani says.
speedy decision-making through seamless
communication at management level.”
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