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Consider these three data together. First, compared to 100,000 Japanese expats in China, India hosts just 4,000. Second, this week, Japan recorded its first trade deficit in 31 years; exports were short of imports by $30 billion. Third, in 2011, car sales in Japan fell, yes, fell by 15%.
What do these numbers taken together mean, specifically what do they mean for India? Japan Inc's presence in India is still small but Japan's current trade and economic factors are set to change that. A strong yen that makes exports expensive, a weak economy that means shrinking home demand and near-saturation presence of Japanese business in China already are combining to make India a much bigger play for Japan Inc.
Early Signs of Big Push
You can see the first big signs of Japanese businesses new big push in India. NTT Communications acquired Netmagic Solutions and Nomura Research has acquired Anshin Software and Market Xcel Data Matrix respectively. Panasonic has bought out Indian brand Anchor Electricals.
Dentsu has raised its stake in its Indian venture to make it a wholly-owned subsidiary. Companies like JTB are making their Indian debut by setting up offices here and some like Nippon Life are buying minority stakes in Indian companies like Reliance Capital AMC.
Not surprisingly, therefore, earlier this week, Federation of Indian Chambers of Commerce and Industry (Ficci) received the biggest ever business delegation from Japan. Some 80 Japanese business heads were here. And, yes, the 4,000 Japanese expats in India does look a small number compared to the Japanese presence in China. But the Japanese expat population in India has doubled in the past two years.
And the number of Japanese companies doing business in India has jumped. "In the past two-three years the number of Japanese companies here has doubled," says Gajendra Badgujar, deputy director, Ficci. There are now 1,000 Japanese companies in India.
Post-Reforms Small Entry
Japan Inc had of course discovered India in the 1990s, after reforms began. Companies like Sony, Toyota, Honda entered in the 1990s. But barring Suzuki, most of them made what can only be called half-hearted India plans. The results were predictable.
Lack of focus, low investments and poor India connect meant most India operations of Japanese companies remained small. Koreans, American and European MNCs in various sectors outpaced Japan Inc in India. For example, today the consumer durables business is dominated by the Koreans with Sony being a very small player. Ditto in cars where Korean Hyundai and even a very late entrant like VW is making good gains in the Indian market.
Japanese businesses' smaller presence is clear even from success stories. Nikon India set up its India office in 2007. Its managing director, H Takashina, says Nikon has been doubling its turnover every year. "This market is small but it is one of the most promising for us," he says.
In 2011-12, Nikon sold 3.2 million camera and optical units, up 33% from the previous year. The story is the same in the premium single-lens reflex (SLR) camera category. But Nikon has no manufacturing facility, just 130 staff, including three Japanese executives, and offices in the four metros. That's really small compared to the Samsungs and LGs. Or take Sony. It retailed products in India but failed to invest in after-sales service support.
But Nikon India is also a good example of how things might change. It has 22 service centres and 50 collection centres, many in Tier II and III cities. And it is betting that India will contribute 5% of its global sales by 2015; the current figure is just 1%. This kind of scaled up ambition for India has a very sobering context, however.
The Yen for Change
The sharpest wake up call for Japan Inc in India, indeed for Japan Inc everywhere else in the world, has been the strong yen. Last year the yen was at an historical high since the World War II and it continues to remain strong against dollar. That makes Japanese exports uncompetitive, making one of the foundational principles, make high-quality products, sell them everywhere, of Japan Inc shaky. It puts enormous stress on the business model of most Japanese companies in India.
With exceptions like Suzuki Motors, very few Japanese companies have invested in manufacturing facilities here. Since they were selling imported products, their pricing suffered a double whammy, a strong yen and a weak rupee, both increasing the cost of imports substantially.
Take for example Canon India. It imports all its products from overseas, and at least 40% of its imports are from Japan. Between July and December 2011, the yen appreciated against the dollar by 5%, and the rupee depreciated against the dollar by 21%. The math is simple, and terrible for Canon India. The landed cost of its products went up by 26% in six months.
Canon India simply couldn't pass on that degree of cost hike to consumers. "So many of our products are either loss-making or not as profitable," says Alok Bharadwaj, vice-president, Canon India. And some Japanese companies in India had to cut their product prices, despite the deeply unfavourable rupee-yen scenario. The prime example is Honda SIEL, which reduced its auto prices thanks to intense competition in the Indian car market.
Home for Aged
Markets like India would have been less crucial for Japan Inc had its home market not become increasingly unreliable. Across many consumer product categories, from cars to cameras, Japan's domestic market is shrinking rapidly. Japan's macro-economic problems that started after the 1980s bubble burst are well known. But the shrinking domestic market has a dimension that can't be righted by policy correction.
Japan is ageing fast, the average age is 40, compare that to India's under 30. One in four Japanese today is over 65. A decade back, about one third of Canon's business came from Japan. Today the domestic market contributes just 10% of Canon's sales. But Asia minus Japan buys 30% of Canon's products, up from 5% 10 years back.
An even more dramatic illustration: car sales in Japan in 2011 dipped by 15%. Japan experts say preference for public transport (for environment and cost reasons) combined with an ageing population is impacting car sales in Japan.
Global M&As
Domestic market performance has brought home the message to Japan Inc that the future of their businesses lies outside. "They finally are realising that the future is overseas, especially China and India," says Kenichi Takano, general manager, JTB India, Japan's largest travel company. JTB set up its India office two months back.
This realisation is already showing up in numbers. Last year, Japan saw a record number of outbound mergers and acquisitions transactions, the highest in its history, valued at $88 billion-plus. And this M&A figure is not just quantitatively impressive, the qualitative dimensions of outbound Japanese investment in 2011 tell an even more interesting story.
China overtook the US last year to become the largest destination of Japanese foreign investment. Emerging markets are increasingly getting more attention from Japan Inc. Another change: Japan's export-oriented companies used to dominate foreign investment. But 2011 saw home market-focused firms looking overseas more aggressively. The Japanese business delegation Ficci welcomed was dominated by small and medium enterprises (SMEs), which typically have bigger bets on the home market than on exports.
India Over China
As in almost everything to do with India and business, there's the India-China debate. India now appears to have some advantages vis-a-vis China, which of course remains the bigger market for Japanese products.
The first Indian advantage is the already huge presence of Japan Inc in China. There are 8,000 Japanese companies in Shanghai alone compared to 1,000 in India. Second, India has a political advantage over China. Sino-Japanese ties are marked with distrust and suspicion. Indo-Japanese ties aren't.
"The Indian government is much more stable, much more welcoming and fairer," says Sandeep Singh, deputy MD, Toyota Kirloskar Motors. India was one of first destinations of the new Japanese prime minister, Yoshihiko Noda. "The new bilateral agreements will give trade a big boost," says Ficci's Badgujar.
In 2008-09 and 2009-10, Indo-Japanese trade was stuck at around $10 billion. In 2010-11, the figure moved up to $14 billion. Bilateral trade is likely to cross $16 billion in 2011-12, and the target for 2014-15 is $25 billion, according to Ficci.
The third reason India looks more favourable than China is that Japan Inc can build things that India desperately needs. "India is at a stage where Japan was in the 1960s. We need to build our basic infrastructure, cities. Delhi Metro has been a great success story," says Singh.
Japanese companies can contribute significantly in infrastructure like the Delhi-Mumbai industrial corridor. Experts also see a big role for Japanese manufacturing companies, even the SMEs going forward, in the growth of Indian manufacturing. Companies like Toyota are looking at India as an export hub.
Invest in India?
The big questions though are will Japanese companies set up local manufacturing bases and significantly scale up their managerial presence? Bar the auto majors who are in India, most Japanese companies still aren't talking about investment in plants here. Most of them are importing products from China, Thailand and Japan.
Japan's automakers are rapidly changing gears, Singh says in two years Toyota's Etios model will have 90% localisation. The business conditions for others to follow are there. Investing in India may be the next stage, say Japan Inc watchers.
"By nature, Japanese companies are cautious but once they are comfortable they are ready to bet big. Many are now looking at reshaping their business model", says Sandeep Dhupia of KPMG, a consultancy.
Unlike other MNCs, Japanese firms don't seem to mind taking minority stakes in business ventures. Dentsu or Nippon Life, unlike, say, Walmart or Ikea, prefer a small start before upping their stakes, even if government rules allow bigger plays from the beginning. What's changing is that an increasing number of Japanese companies are willing to play a bigger game.
The Japanese Way
Even if Japan Inc puts its money where business logic points it should be, a few very Japanese ways of doing things won't change. Japanese companies like Japanese managers to head their foreign operations. Look at Suzuki. It's been in India for so long, but it's still more comfortable with a Japanese heading its biggest foreign operation. In this, the Japanese are like the Koreans, and unlike most Western MNCs.
Another very Japanese characteristic is that most expat managers don't bring along their families. Japan Inc watchers say just 30% of the Japanese expats in India have brought their families. No family means no need to set up homes. Most Japanese executives of Maruti Suzuki live out of hotels.
This reluctance to set up homes may be explained by cultural complexities, language barriers and the very different food in India, say Japanese expats. Nikon's Takashina, who in contrast to most Japanese expats is comfortable speaking in English, says "things have become better in the past three years. There is a Japanese supermarket now in NCR". For him, that's a sure sign that Japan Inc is making big plans.
More and more Japanese managers shopping for home-sourced comfort food in India while setting up more and more manufacturing and service shops here, that may be the positive business future India and Japan are looking at.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Consider these three data together. First, compared to 100,000 Japanese expats in China, India hosts just 4,000. Second, this week, Japan recorded its first trade deficit in 31 years; exports were short of imports by $30 billion. Third, in 2011, car sales in Japan fell, yes, fell by 15%.
What do these numbers taken together mean, specifically what do they mean for India? Japan Inc's presence in India is still small but Japan's current trade and economic factors are set to change that. A strong yen that makes exports expensive, a weak economy that means shrinking home demand and near-saturation presence of Japanese business in China already are combining to make India a much bigger play for Japan Inc.
Early Signs of Big Push
You can see the first big signs of Japanese businesses new big push in India. NTT Communications acquired Netmagic Solutions and Nomura Research has acquired Anshin Software and Market Xcel Data Matrix respectively. Panasonic has bought out Indian brand Anchor Electricals.
Dentsu has raised its stake in its Indian venture to make it a wholly-owned subsidiary. Companies like JTB are making their Indian debut by setting up offices here and some like Nippon Life are buying minority stakes in Indian companies like Reliance Capital AMC.
Not surprisingly, therefore, earlier this week, Federation of Indian Chambers of Commerce and Industry (Ficci) received the biggest ever business delegation from Japan. Some 80 Japanese business heads were here. And, yes, the 4,000 Japanese expats in India does look a small number compared to the Japanese presence in China. But the Japanese expat population in India has doubled in the past two years.
And the number of Japanese companies doing business in India has jumped. "In the past two-three years the number of Japanese companies here has doubled," says Gajendra Badgujar, deputy director, Ficci. There are now 1,000 Japanese companies in India.
Post-Reforms Small Entry
Japan Inc had of course discovered India in the 1990s, after reforms began. Companies like Sony, Toyota, Honda entered in the 1990s. But barring Suzuki, most of them made what can only be called half-hearted India plans. The results were predictable.
Lack of focus, low investments and poor India connect meant most India operations of Japanese companies remained small. Koreans, American and European MNCs in various sectors outpaced Japan Inc in India. For example, today the consumer durables business is dominated by the Koreans with Sony being a very small player. Ditto in cars where Korean Hyundai and even a very late entrant like VW is making good gains in the Indian market.
Japanese businesses' smaller presence is clear even from success stories. Nikon India set up its India office in 2007. Its managing director, H Takashina, says Nikon has been doubling its turnover every year. "This market is small but it is one of the most promising for us," he says.
In 2011-12, Nikon sold 3.2 million camera and optical units, up 33% from the previous year. The story is the same in the premium single-lens reflex (SLR) camera category. But Nikon has no manufacturing facility, just 130 staff, including three Japanese executives, and offices in the four metros. That's really small compared to the Samsungs and LGs. Or take Sony. It retailed products in India but failed to invest in after-sales service support.
But Nikon India is also a good example of how things might change. It has 22 service centres and 50 collection centres, many in Tier II and III cities. And it is betting that India will contribute 5% of its global sales by 2015; the current figure is just 1%. This kind of scaled up ambition for India has a very sobering context, however.
The Yen for Change
The sharpest wake up call for Japan Inc in India, indeed for Japan Inc everywhere else in the world, has been the strong yen. Last year the yen was at an historical high since the World War II and it continues to remain strong against dollar. That makes Japanese exports uncompetitive, making one of the foundational principles, make high-quality products, sell them everywhere, of Japan Inc shaky. It puts enormous stress on the business model of most Japanese companies in India.
With exceptions like Suzuki Motors, very few Japanese companies have invested in manufacturing facilities here. Since they were selling imported products, their pricing suffered a double whammy, a strong yen and a weak rupee, both increasing the cost of imports substantially.
Take for example Canon India. It imports all its products from overseas, and at least 40% of its imports are from Japan. Between July and December 2011, the yen appreciated against the dollar by 5%, and the rupee depreciated against the dollar by 21%. The math is simple, and terrible for Canon India. The landed cost of its products went up by 26% in six months.
Canon India simply couldn't pass on that degree of cost hike to consumers. "So many of our products are either loss-making or not as profitable," says Alok Bharadwaj, vice-president, Canon India. And some Japanese companies in India had to cut their product prices, despite the deeply unfavourable rupee-yen scenario. The prime example is Honda SIEL, which reduced its auto prices thanks to intense competition in the Indian car market.
Home for Aged
Markets like India would have been less crucial for Japan Inc had its home market not become increasingly unreliable. Across many consumer product categories, from cars to cameras, Japan's domestic market is shrinking rapidly. Japan's macro-economic problems that started after the 1980s bubble burst are well known. But the shrinking domestic market has a dimension that can't be righted by policy correction.
Japan is ageing fast, the average age is 40, compare that to India's under 30. One in four Japanese today is over 65. A decade back, about one third of Canon's business came from Japan. Today the domestic market contributes just 10% of Canon's sales. But Asia minus Japan buys 30% of Canon's products, up from 5% 10 years back.
An even more dramatic illustration: car sales in Japan in 2011 dipped by 15%. Japan experts say preference for public transport (for environment and cost reasons) combined with an ageing population is impacting car sales in Japan.
Global M&As
Domestic market performance has brought home the message to Japan Inc that the future of their businesses lies outside. "They finally are realising that the future is overseas, especially China and India," says Kenichi Takano, general manager, JTB India, Japan's largest travel company. JTB set up its India office two months back.
This realisation is already showing up in numbers. Last year, Japan saw a record number of outbound mergers and acquisitions transactions, the highest in its history, valued at $88 billion-plus. And this M&A figure is not just quantitatively impressive, the qualitative dimensions of outbound Japanese investment in 2011 tell an even more interesting story.
China overtook the US last year to become the largest destination of Japanese foreign investment. Emerging markets are increasingly getting more attention from Japan Inc. Another change: Japan's export-oriented companies used to dominate foreign investment. But 2011 saw home market-focused firms looking overseas more aggressively. The Japanese business delegation Ficci welcomed was dominated by small and medium enterprises (SMEs), which typically have bigger bets on the home market than on exports.
India Over China
As in almost everything to do with India and business, there's the India-China debate. India now appears to have some advantages vis-a-vis China, which of course remains the bigger market for Japanese products.
The first Indian advantage is the already huge presence of Japan Inc in China. There are 8,000 Japanese companies in Shanghai alone compared to 1,000 in India. Second, India has a political advantage over China. Sino-Japanese ties are marked with distrust and suspicion. Indo-Japanese ties aren't.
"The Indian government is much more stable, much more welcoming and fairer," says Sandeep Singh, deputy MD, Toyota Kirloskar Motors. India was one of first destinations of the new Japanese prime minister, Yoshihiko Noda. "The new bilateral agreements will give trade a big boost," says Ficci's Badgujar.
In 2008-09 and 2009-10, Indo-Japanese trade was stuck at around $10 billion. In 2010-11, the figure moved up to $14 billion. Bilateral trade is likely to cross $16 billion in 2011-12, and the target for 2014-15 is $25 billion, according to Ficci.
The third reason India looks more favourable than China is that Japan Inc can build things that India desperately needs. "India is at a stage where Japan was in the 1960s. We need to build our basic infrastructure, cities. Delhi Metro has been a great success story," says Singh.
Japanese companies can contribute significantly in infrastructure like the Delhi-Mumbai industrial corridor. Experts also see a big role for Japanese manufacturing companies, even the SMEs going forward, in the growth of Indian manufacturing. Companies like Toyota are looking at India as an export hub.
Invest in India?
The big questions though are will Japanese companies set up local manufacturing bases and significantly scale up their managerial presence? Bar the auto majors who are in India, most Japanese companies still aren't talking about investment in plants here. Most of them are importing products from China, Thailand and Japan.
Japan's automakers are rapidly changing gears, Singh says in two years Toyota's Etios model will have 90% localisation. The business conditions for others to follow are there. Investing in India may be the next stage, say Japan Inc watchers.
"By nature, Japanese companies are cautious but once they are comfortable they are ready to bet big. Many are now looking at reshaping their business model", says Sandeep Dhupia of KPMG, a consultancy.
Unlike other MNCs, Japanese firms don't seem to mind taking minority stakes in business ventures. Dentsu or Nippon Life, unlike, say, Walmart or Ikea, prefer a small start before upping their stakes, even if government rules allow bigger plays from the beginning. What's changing is that an increasing number of Japanese companies are willing to play a bigger game.
The Japanese Way
Even if Japan Inc puts its money where business logic points it should be, a few very Japanese ways of doing things won't change. Japanese companies like Japanese managers to head their foreign operations. Look at Suzuki. It's been in India for so long, but it's still more comfortable with a Japanese heading its biggest foreign operation. In this, the Japanese are like the Koreans, and unlike most Western MNCs.
Another very Japanese characteristic is that most expat managers don't bring along their families. Japan Inc watchers say just 30% of the Japanese expats in India have brought their families. No family means no need to set up homes. Most Japanese executives of Maruti Suzuki live out of hotels.
This reluctance to set up homes may be explained by cultural complexities, language barriers and the very different food in India, say Japanese expats. Nikon's Takashina, who in contrast to most Japanese expats is comfortable speaking in English, says "things have become better in the past three years. There is a Japanese supermarket now in NCR". For him, that's a sure sign that Japan Inc is making big plans.
More and more Japanese managers shopping for home-sourced comfort food in India while setting up more and more manufacturing and service shops here, that may be the positive business future India and Japan are looking at.
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