PROVEN STRATEGIES

JAPANESE COMPANIES IN INDIA

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FOREWORD
Indias business and commercial ties with Japan have been as enduring as they have been deep. Japanese companies were among the first foreign investors in India.The worlds largest twowheeler manufacturer, and the worlds lowest-cost small car manufacturer, both collaborative ventures between Indian and Japanese companies, are powerful success symbols of this prosperous association. These are but two examples.There are several more, in diverse fields. And the good thing is that these are all moving on an upward trajectory. Indo-Japanese businesses in India are on a major expansion drive, and the future promises to be even brighter. I am pleased that the India Brand Equity Foundation has undertaken this report on Proven Strategies: Successful Japanese Companies in India.This report should serve as a strong proof point for Japanese companies looking at globally competitive investment destinations.The companies profiled here are a small sample of the 300-plus Japanese businesses that are thriving in India, today. I invite more Japanese companies to put their faith in the worlds fastest growing free market democracy. I assure you it will be a profitable bet!
Kamal Nath Minister of Commerce & Industry Government of India

EXECUTIVE ABICOR BINZEL SUMMARY PRODUCTION (INDIA) PVT. LTD.

India - Japan: Economic and Commercial Relations

A robust bilateral relationship between India and Japan holds the key to the future of a prosperous Asian continent. Economic cooperation between India and Japan took off in 1984, after the visit of Y. Nakasone, then Prime Minister of Japan. Since then, there have been a large quantity of Foreign Direct Investment (FDI) in India with Suzuki,Yamaha,Toyota, Honda and others entering the Indian market. Indias large domestic market has been the main factor for investments by Japanese companies.The majority of investments are in traditional fields like automobiles and auto parts. However, some companies have invested in businesses like pharmaceuticals (EISAI), health drinks (Yakuruto), pulp (Nihon Koso) and rice processing (Yanmar).
Eight-fold initiatives to promote cooperation between India and Japan
8 Facing global challenges together

Japanese SMEs are also investing in India. Japan and India share a common vision for the world.This is aptly illustrated by the fact that there has been an increase in the number of joint declarations, delegation visits and other business events between the two countries. Trade & investment relations between India and Japan are growing stronger.This can be explained by the following facts: Japan is a relatively labour-scarce, capital abundant country that complements Indias rich spectrum of human capital. Indias prowess in the software sector lends synergy to Japans excellence in the hardware sector. Indias abundance of raw-materials and minerals matches well with Japans capabilities in technology and capital to produce knowledge intensive manufactured goods. This is further substantiated by the fact that Japan is among Indias top five trading partners. Total trade between India and Japan was close to US$ 5 billion during 2004-2005. Imports Machinery, transport equipment, electronic goods, chemicals and metal products are among the key goods imported by India from Japan. Imports from Japan have grown at a CAGR of 28 per cent for the period 2003-2005. During 2004-2005, imports from Japan to India were US$ 3 billion.

1 Enhanced dialogue

7 Cooperation in UN

2 Economic engagement

Building strong relationship between India and Japan

6 Shaping Asias future

3 Security cooperation

4 Technology initiative

5 Cultural activities

Source: Indiaonestop

Imports from Japan to India (US$ million): 2003-2005

3,500

3,005 2,668 1,836

Imports (US$ Mn)

2,800 2,100 1,400 700 0 2002-2003

to Indias total technical collaborations with foreign partners. Main areas of collaboration are electrical industry (26 per cent), transportation (24 per cent), industrial machinery (6 per cent), chemicals (9 per cent) and metallurgy (5 per cent).
Japanese FDI inflows in India (US$ million): 2003-2005

2003-2004

2004-2005 Source: Reserve Bank of India

140 120

122

FDI (US$ Mn)

100 80 60 40 20 0 2002-2003 2003-2004 2004-2005 Source: Reserve Bank of India 66 67

Exports Gems and jewellery, marine products, minerals and iron ore, and textile products dominate exports from India to Japan. Exports from India to Japan were US$ 1.9 billion during 2004-2005, as compared to US$ 1.7 billion in 2003-2004.This represents a CAGR of 3 per cent over the period 2003-2005.
Exports from India to Japan (US$ million): 2003-2005
2,500

Sectors that have attracted significant Japanese investment in India include transportation (28 per cent), telecommunications (18 per cent), fuel (14 per cent), chemicals (12 per cent), and trading (6 per cent). India has been the largest recipient of Japans Official Development Assistance (ODA) since 2003. Japan is committed to addressing the following development needs of India: Infrastructure development Poverty reduction Improvement of healthcare facilities Environmental protection Most of the grants received by India from Japan were in the field of basic human needs and medical services. Some of the key ODA projects in India funded by Japan are as follows: Delhi Mass Rapid Transport Irrigation Improvement Plan in Rajasthan Ganga Action Plan in Varanasi Tamil Nadu Afforestation Plan Construction of Diarrhoea Research and Control Centre Super Thermal Power at North Karanpura

Exports (US$ Mn)

2,000 1,500 1,000 500 0

1,864

1,977 1,709

2002-2003

2003-2004

2004-2005 Source: Reserve Bank of India

Investments in India Since September 2004, Japan has invested nearly US$ 5 billion in Indias capital markets. On the flip side, Japan has been an attractive destination for Indian investors. Japan hosts one of the best Information and Communication Technology (ICT) facilities in the world. Around 70 Indian IT companies have already established their offices in Japan. Japan has emerged as the fourth-largest FDI contributor to India for the period from 1991 to 2004. Japan contributes around 8 per cent

Major locations of Japanese companies in India

Source: Japan Embassy

Japanese Companies in India

Japanese companies have been operating in India for long. Around 328 affiliates of Japanese companies are operating in India in various sectors such as machinery, electrical goods, IT and automobiles. Most of the companies are located in metropolitan cities (Delhi, Bangalore, Mumbai and Chennai).The following figure provides information on major locations of Japanese companies in India: This study surveyed 25 successful Japanese organisations in India, and includes 17 company profiles.The study combines primary and secondary research.The table alongside provides a break-up of organisations by sector researched for the study:

Break-up of companies by sector

Sector No. of Companies Studied 7 6 3 3 2 1 1 1 1

Automobiles/Ancillaries Technology Associations Diversified Financial Services Media FMCG Infrastructure Capital Goods

Most Japanese companies in India are planning to expand further.This study revealed that 57 per cent of the companies studied is more than satisfied with their overall experience of operating in India.
Experience of Japanese Companies in India

(JETRO), in 2005, indicated that India is a top priority in terms of expansion for Japanese companies, corroborating this finding. Many Indian companies have established technical collaboration with their Japanese counterparts. There is an ideal match between the technology and finance of Japan and skilled and relatively inexpensive labour of India.This can be harnessed to deliver quality products to the world at competitive costs. A Japan Bank for International Cooperation (JBIC) report, in 2005, on Japanese manufacturers overseas business operations has ranked India second among promising countries for business development in the medium term.

43%

57%

Satisfactory Exceptionally Good

Source: EVS Analysis

Maruti, Honda, and Toyota are among the major players planning to invest heavily in India in the coming years. According to data gathered during this study, 71 per cent of Japanese companies are planning to increase their investment in India. An earlier study by Japan External Trade Organisation

Indian Small and Medium Enterprises (SMEs), which form the backbone of the Indian economy, are keen on establishing strategic alliances with their global counterparts. Japanese companies are the most obvious choice for such alliances due to their proven supremacy in technology. Potential areas for cooperation are electrical equipment, transportation, chemicals, industrial machinery and metallurgical industries.

Japans FDI projects in India over the period 2005-2007

Company Name FDI Amount (US$ million) 699 364 128 214 54 Description

Maruti Udyog MCC PTA Toyota Motor Corporation Honda Sakata Inx

New factory for car production and diesel engine plant. Increasing capacity at Haldia plant Increasing its capacity Increasing its capacity and building new factory Increasing its capacity
Source: Japan Embassy

Outlook of Japanese companies on India and ASEAN countries

Country India Vietnam Thailand Malaysia Philippines Indonesia Outlook on profit growth (%)* 48.4 44.8 39.9 18.9 18.4 2.8 Outlook on expansion (%)* 90.5 80.5 71.6 44.9 49.1 54.3

*Figures are percentages of Japanese firms expecting their profits to rise or planning to expand in 2006-07
Source: Business World India

Best Practices Adopted by Japanese Companies Entering India

Strategic alliances and partnerships Majority of Japanese companies entered India through a strategic partnership with an Indian company.This assisted them in effectively understanding the Indian market. Following are some of the benefits offered by alliances and partnerships: Penetrate Indian market Hitachi entered into several strategic alliances and partnered with local distributors. In April 2006, Hitachi Global Storage Technologies entered into a partnership with Redington as its new authorised distributor.This will facilitate Hitachi to enter the B and C-class cities, which the company feels are witnessing the maximum growth. Tokio Marine partnered with IFFCO to enter India.This helped the company to leverage a network of 37,500 cooperatives of IFFCO to effectively target its customers. Ensure business Showa Corporation partnered with Hero Honda to enter India (Munjal Showa).This ensured

initial business to the company as products manufactured by Munjal Showa were supplied to Hero Honda. Customised Products India with a diverse cultural-mix requires companies to offer products that are adapted to local needs. Japanese firms were quick to realise this fact and therefore, customised their products to meet the consumer requirement. For instance, Indo Nissin Foods closely studied local tastes, culinary traditions and eating habits of Indian consumers. It was quick in adapting its product to the tastes of local people.This facilitated the company in increasing sales. Best Management Practices Japanese companies ensured that their management practices were followed in their Indian operations as well. Special emphasis was made to ensure proper relationship between the Japanese and Indian counterparts. For instance, Suzuki, when it entered India through a joint venture with Maruti, ensured that its best practices such as team work, imparting multiple skills to operators, flat hierarchy, bottom-up innovation, in-line quality assurance processes, etc. were replicated in the Indian operations as well.

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Leverage Brand Since, Japanese brands are perceived as reliable, cost effective and technologically advanced, companies entering India capitalised on this and used their global brand name. Companies such as Sony, Panasonic, Honda,Toyota and Sakata are examples of those who used their brand to drive sales in India. Robust dealer network Companies have established strong sales and services network in India.This has ensured their penetration of the Indian market. Companies that have Indian partners have leveraged the established distribution network of the Indian counterpart. Some examples of companies having an excellent dealer network: Daikin Air-conditioning India has more than 200 dealers all over the country.The company also provides technical training to its dealers that further improve after-sales services. A strong dealer network and reliable after-sales service is a key factor that contributes to Hondas success in India.This gives the company massive reach and the ability to better serve its customers. Further, companies have also ensured an efficient supply chain of dealers, ancillaries and vendors. This results in cost savings and thus improves the bottom line.

Future Plans of Companies regarding India

INDIA

Companies enjoying their success in India are planning to increase operations. They are also venturing into activities like R&D.

Increase Localisation

Making India a hub for manufacturing

India is on the radar of companies for future investments

Establishing Global Service Centres

Establish R&D Centre

Expanding Capacity

Establish R&D centre Japanese companies have enjoyed the advantage of technical supremacy in the Indian market. Companies, apart from transferring their technical expertise to India, are now establishing their R&D base in India. For instance, Maruti Suzuki is planning to set up a complete automobile design centre in India.The centre will be equipped with complete design capabilities. As part of the plan, Maruti is sending some of its engineers to Japan to get some hands-on experience in car designing at Suzuki Motor Corporation. Increase Localisation In order to reduce import cost of components and accessories, companies are planning to localise components sourcing to a greater extent. For instance, Maruti has achieved over 90 per cent localisation for Maruti 800, Zen, and Alto cars. Expanding Capacity Companies are expanding their capacity in order to meet the growing demand from Indian market.

Future Plans
The current economic momentum in India is one the prime reasons for companies to have aggressive future plans. Most companies are planning to expand their production capacity, increase product portfolio, target new consumer segments and increase market share in India. Further, companies are also planning to establish India as a global hub for manufacturing thereby leveraging the lower installation and operating cost in India.

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Companies are also setting up new plants. Hero Honda is planning to increase capacity of its existing production line as well as build a new plant with annual production capacity of 450,000 units. Manufacturing Hub Companies are targeting India as a global hub for manufacturing.This is because of availability of skilled workforce and availability of natural resources. Following are some companies that plan to make India a manufacturing hub: Panasonic is planning to make India a global manufacturing hub.The company has decided to source colour television sets from India for its international markets. Sakata Inx Corporation is planning to make India its global outsourcing hub for offset printing inks. The company plans to export the offset ink to Sri Lanka, Bangladesh, Middle East, Central Asia, CIS countries and Africa. Establishing Global Service Centres Companies are setting up technical support centres in India to meet the growing needs of global customers and strengthen global solution businesses worldwide. Companies are seeking to provide global outsourcing services to their customers along with focus on technical skills, English language proficiency and multinational project management. Fujitsu Services has partnered with Zensar Technologies (India) to provide integrated business solutions to Fujitsus clients in Europe, Middle East and Africa markets through a Global Delivery Centre in Pune. Hitachi has recently established a Global Service Centre in Bangalore with an initial staff strength of approximately 100 people. It aims at providing services such as application development, and maintenance and operation support to its facilities worldwide.
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Indias Advantage
India is the fastest growing free market democracy in the world. India has a mature and dynamic private sector, which accounts for 75 per cent of Indias GDP, and a market with enormous potential due to its large size and diversity. India offers significant business opportunities to the manufacturing as well as the service sectors.This is because of benefits that India offers with respect to cost advantage in product development and back-office processing, and availability of a large network of skilled Englishspeaking professionals. According to the findings of this study, Japanese companies in India considered market potential as the main advantage that India offers. 86 per cent of the companies surveyed, considered market potential to be a major advantage offered by India. Skilled labour (79 per cent of the companies) was another major advantage offered by India. MNC experiences have proven that India is an attractive investment destination. It is expected to achieve the highest growth rate amongst the BRIC countries (Brazil, Russia, India and China). AT Kearney ranked India as the most attractive democracy in its FDI confidence index in 2005.
Key India Advantages (As perceived by Japanese Companies) Percentage of Companies
100% 86% 80% 60% 40% 20% 0% Market Potential Skilled Human Resources Cost Effectiveness Regulatory Environment Source: EVS Analysis 14% 14% 79%

Strong economy India's economy is on the fulcrum of an ever increasing growth curve.With positive indicators such as a stable 8 per cent annual growth, rising foreign exchange reserves of over US$ 160 billion, a booming capital market with the popular BSE Sensex topping the majestic 10,000 mark, flowing foreign direct investment (FDI) close to US$ 8 billion, and a more than 20 per cent surge in exports, it is easy to grasp why India is a leading destination for foreign investment. Market potential India is one of the largest consumer markets in the world. Due to rapid growth of the economy and a rise in disposable income, the spending power of the consumer is increasing rapidly. In 2001, about 54 per cent of the total population was below 25 years of age. By the year 2013, another 200 million people will be joining that number, representing exponential growth in the consuming class. Availability of skilled manpower India has over 380 universities and about 1500 research institutes, which cull out approximately 2,00,000 engineers; 3,00,000 post graduates; 21,00,000 other graduates and around 9,000 PhDs.This large base of skilled manpower offers unparalleled advantages to companies operating in India. Availability of natural resources India has large reserves of metals, minerals, coal, oil and gas, rubber and wood. India has the fourthlargest coal reserves in the world. Indias long coastline ensures supply of marine products also. Low cost of infrastructure and operation The Ministry of Commerce, Government of India, has estimated that off-shoring operations to India can lead to a cost benefit of up to 40 to 60 per cent, as compared to developed countries.

It has one of the lowest labour costs among the developing countries. India also offers a costeffective manufacturing base.The country has also emerged as a major R&D and design hub with over 200 of Fortune 500 companies setting up base in India.

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The India Brand Equity Foundation is a public-private partnership between the Ministry of Commerce & Industry, Government of India and the Confederation of Indian Industry.The Foundations primary objective is to build positive economic perceptions of India globally. India Brand Equity Foundation c/o Confederation of Indian Industry 249-F Sector 18, Udyog Vihar Phase IV Gurgaon 122015, Haryana, INDIA Tel +91 124 401 4087, 4060 - 67 Fax +91 124 401 3873 Email ajay.khanna@ciionline.org Web www.ibef.org