1.
“IMPLICATIONS OF JAPANESE FDI IN INDIA”
RESEARCH
REPORT
Submitted in partial fulfillment of the requirements
For Award of Degree Of
“MASTER OF BUSINESS ADMINISTRATION”
By
Mr. AMIT KUMAR ROY (Reg.No: 1014370005)
Under
the
guidance
of
Miss. Punjika Rathee
LECTURER, DEPARTMENT OF MBA
DEPARTMENT
OF
MBA
SCHOOL
OF
MANAGEMENT
IMS
ENGINEERING
COLLEGE
MAY 2011
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CERTIFICATE
Certified that the project report entitled “IMPLICATIONS OF JAPANESE FDI IN
INDIA” submitted by “AMIT KUMAR ROY (1014370005)” is a record of project work
done by him under my supervision. This project has not formed the basis for the award of any
degree, diploma, associateship, or fellowship.
Internal Guide Head Of The Department
For
the
purpose
of
viva
voce
1.
2.
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DECLARATION
I do hereby declare that the dissertation entitled “IMPLICATION OF JAPANESE FDI IN INDIA”
is a record of original work carried out by me under the supervision of Miss. PUNJIKA RATHEE,
Lecturer, Department of MBA, IMS ENGINEERING COLLEGE, Ghaziabad. This project has not
been submitted earlier in part or full for the award of any degree, diploma, associateship or
fellowship.
Ghaziabad,
Date AMIT KUMARROY
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ACKNOWLEDGEMENT
I hereby acknowledge all those who are related to this work either directly or
indirectly. I express my deep sense of gratitude to my project mentor Ms. Punjika Rathi for
her expert guidance, stimulating discussions throughout the period of this project.
I gratefully convey my utmost regards to , Under whose exhilarating, inspiring, and precious
advice the exploration was carried out. His immutable solacing, uniform enlivening, even
motivating and painstaking deadlines decided by him have shaped it feasible to accomplish
the project successfully.
I express my deep sense of gratitude to Mrs. ANJU NANDRAJOG, Department of MBA,
IMSEC, Ghaziabad, for her encouragement and support.
Last but not the least I am thankful to the almighty and I will be failing in my duty if I do not
express my indebtedness to our Department Staffs, Parents, and Friends for their support and
encouragement.
AMIT KUMAR ROY
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TABLE OF CONTENTS
Chapter No. Subject Page No.
1.0 Introduction 6
a. Objectives 10
b. Reason for Choosing the topic 10
2.0 Literature review 11
3.0 Hypothesis and Area of Study 25
4.0 Scope of Study 26
5.0 Research Methodology 27
a. Collection of Data
i. Primary data
ii. Secondary data
b. Data Analysis 28
6.0 Findings on the topic chosen 29
7.0 Discussion and interpretation of findings 51
8.0 Conclusions, Implications and Recommendations 66
9.0 Limitations 67
10.0 References/Bibliography 68
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LIST OF FIGURES
NAME OF FIGURE PAGE NO:
Share of Top Sectors Attracting FDI Inflow 35
from Japan 1991-1999
Cumulative Outward Flows of Japanese FDI 36
into Asia: 1990 -1999
Japanese Foreign Direct Investment in India 37
Japanese FDI outflow into China and India 39
Comparison of Japanese FDI outflow into 40
Asia, China and India
India import & export from Japan 60
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1: Introduction:
Foreign direct investment (FDI) is often used as an engine of growth by developing countries.
For a developing country, it is the vehicle through which capital is provided and efficiency
induced in the industrial sector. The firm in the country of origin is encouraged to invest in
the developing country because of the lower resource costs, a growing market and restrictive
import policies. Foreign direct investment is, therefore, an intertwining of interests of both
the host and the home country. A firm that undertakes foreign direct investment gets involved
in the purchase of an existing enterprise or facilities, establishing and managing new ones
and/or participating in the management of an enterprise in a foreign country. It therefore
requires the firm to conduct operations in the foreign country either through overseas
subsidiaries or through joint ventures. Studies conducted so far have concentrated mainly on
studying trends, patterns and location issues with respect to FDI, and therefore, have dwelt on
the macro factors and policy orientations of both the host country as well as the country of
origin. Though these dominate the movement of FDI into the host country, a neglected area
of research, as pointed out by Meyer (2003), has been an analysis at the firm level of the
conditions and externalities that help/deter the FDI flow.
Until recently, Japanese foreign direct investment into India has been significantly lower
when compared with FDI in other Asian countries. At the firm level, this means that a large
number of companies have shied away from investing in India. One reason that is often
quoted for this is that India is not perceived as a viable destination for investment by Japanese
firms. This study is a modest attempt to understand the implications of Japanese FDI in India.
In India, FDI operates through subsidiaries or joint ventures with Indian partners. At the firm
level, FDI goes through three specific phases, and to understand the firm’s experience, each
phase has to be scrutinised separately. The first phase is when a firm initiates the process of
targeting the Indian market. There are various reasons for entry into a market - for a Japanese
firm, it is primarily access to the local market and to expand it for its own product(s). One
focus area of this study is to understand the entry strategy of Japanese firms, and especially,
how they identify their Indian partners.
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The second phase is the period of establishment and commencement of operations. This
usually lasts for one to five years. During this period, the manufacturing unit is constructed
and commercial production is started. This period is the toughest, as firms have to contend
with external obstacles as well as establish a fruitful relationship with their Indian partners.
How the firms (that were studied) responded to and dealt with the obstacles can be held as
examples for other Japanese companies seeking to test Indian shores.
The third phase covers the time beyond the first five years. During the first two phases, the
firms have learnt lessons from their exposure to the host country. Having harnessed their
understanding of the Indian market, they are now well established in their operations. It is in
this period that they venture to expand their business. However, certain policies and obstacles
continue to bother them. Understanding the ground realities could provide an insight into the
problems being faced by the firms and help policy makers find solutions to them.
Since 1990, Japanese business arena is experiencing and enjoying an “Indian Boom”, with a
high level of expectations for business opportunities here in India and activating further
investments in Indian market. Recent surveys by Japan external trade organisation (JETRO)
and Japan Bank of International Co-operation (JBIC) on Japanese companies operating
abroad concluded that India is considered to be the second most prospective investment
destination abroad next to China for the Japanese business circles especially in sectors such
as automobiles, IT, infrastructure, steel, power and pharmaceuticals.
The Japanese foreign direct investment (FDI) in India tripled to $5.4 billion (nearly Rs
25,160 crore) in 2008 from $1.78 billion (nearly Rs 8,290 crore) in 2007, overtaking the
Japanese FDI in China. The key reason for increasing the momentum of Japanese
investments in India is the growth potential of the local market, Japanese automobile and
general machinery companies were the most interested in India as an investment destination,
Joint efforts by India and Japan in research and development (R&D) facilities, especially
during economic difficulty such as the global meltdown, Need for more Japanese investments
in India’s infrastructure companies at a time when India had proposed an investment of $500
bllion. Also some more reasons includes that Japan could tap investment opportunities in
power, clean technologies, nuclear energy, energy efficiency, university linkage and human
resource development, Japan can reduce its cost of healthcare by sourcing generic drugs from
India, Need of more Japanese investment in India’s consumer goods industry.
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Facts about India:
India has been ranked at the third place in global foreign direct investments in 2009 and will
continue to remain among the top five attractive destinations for international investors
during 2010-11, according to United Nations Conference on Trade and Development
(UNCTAD) in a report on world investment prospects titled, 'World Investment Prospects
Survey 2009-2011' released in July 2009.
India attracted FDI equity inflows of US$ 2,214 million in April 2010. The cumulative
amount of FDI equity inflows from August 1991 to April 2010 stood at US$ 134,642 million,
according to the data released by the Department of Industrial Policy and Promotion (DIPP).
The services sector comprising financial and non-financial services attracted 21 per cent of
the total FDI equity inflow into India, with FDI worth US$ 4.4 billion during April-March
2009-10, while construction activities including roadways and highways attracted second
largest amount of FDI worth US$ 2.9 billion during the same period. Housing and real estate
was the third highest sector attracting FDI worth US$ 2.8 billion followed by
telecommunications, which garnered US$ 2.5 billion during the financial year 2009-10. The
automobile industry received FDI worth US$ 1.2 billion while power attracted FDI worth
US$ 1.4 billion during April-March 2009-10, according to data released by DIPP.
Japan ranked seventh in terms of cumulative foreign direct investment (FDI) in India,
accounting for US$ 3,714 million in the period from April 2000 to March 2010, of which
US$ 1,183 million came in the period April 2009-March 2010, according to the latest data
released by the Department of Policy and Promotion (DIPP). According to investment
bankers, India may witness US$ 20 billion worth of Japanese investment by 2012. India's
exports to Japan in the period 2008-09 stood at US$ 3025.70 million while imports totalled
US$ 7886.27 million for the period. During April to December 2009, India exported goods
worth US$ 2,479.38 million to Japan. India imported merchandise worth US$ 4823.66
million from Japan during April-December 2009-10. Major Japanese funds have been coming
into India by way of offshore funds, with many Indian houses such as SBI Capital, UTI and
DSP Blackrock raising money from the Japanese markets to invest in India.
India and Japan have decided to jointly develop one city in India as a 'solar city'. The project
aims to reduce its projected demand of conventional energy at the end of five years, through
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energy efficiency measures and generation from renewable energy installations. The two
sides also agreed to strengthen cooperation in research and development for promoting
renewable energy. As part of the exchange programme, a ten-member delegation from India
participated in the Japan-India New and Renewable Energy Seminar in Tokyo in January
2010. Further, in May 2010, India and Japan agreed to set up a working group on civilian
nuclear energy. The working group is being seen as a first step towards potential civilian
nuclear cooperation between the two countries
Despite all these factors, In order to increase the Japanese FDI , Japan PM promises to link
rupee with yen to boost FDI expecting that it would allow Japanese companies to invest
directly in India, rather than the current norm of coming through Singapore and Mauritius.
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a. Objectives:
1. To better understand the trend of Japan’s FDI in India in recent years and to study the
reasons behind the interest of Japan’s FDI in India
2. To gain knowledge and analyse the contribution of Japan’s FDI towards Indian
economy and the manner in which it has been diversified in various sectors
3. To analyse the implications of the Japan’s FDI in India – Restricting the focus to
automobile sector
4. To analyse whether the recent recalls in huge numbers by Japanese Auto makers has
affected their FDI in India despite the demand in Auto industry rising to it peak.
b. Key reasons behind choosing this topic:
Through the above said context, it is evident that the Japanese FDI is majorly contributed
through their Auto manufacturers for years and it continues at an increasing rate as time
progresses due to the rising demand in India. More over the Japanese are more famous for
finding their edge in this Auto segment across globe through their quality and reliability
of their product offerings. But recent recalls in huge numbers by the major Japanese
players like Toyota, Honda, Suzuki, Nissan and Mitsubishi made me go for this topic to
find “Are they losing their edge globally in this particular segment”. If so, how it is going
to impact on their FDI in India in terms of their investments and in terms of contributions
to Indian economic growth?
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2.0: Literature review:
1. Economic Liberalization in India and Japan’s Wavering Response –
K.V.Kesavan
The end of the cold war coincided with the introduction of wide-ranging economic
liberalization measures in India. The Indian economy, which had operated within a
narrow framework thanks to the rigid socialist philosophy, started opening up from
1991. Since then numerous measures have been adopted to remove unnecessary
restrictions on the role of private enterprise in India. Similarly, for too long a time,
India had pursued an economic strategy based on import substitution. But now,
export-led growth has become a major thrust of India’s strategy. As a result of these
economic reforms, India’s manufacturing industries have witnessed dramatic growth
leading to the accumulation of huge foreign exchange resources. To what extent has
Japan taken advantage of the prevailing favourable economic climate in India? While
Japan’s evaluation of India’s economic prospects has been positive, it has still not
tapped India’s potential fully. Whereas other countries like the US and UK have gone
far ahead in strengthening their economic ties, Japan is still rather wavering in its
approach. To be sure, Japan was one of the earliest countries to invest in India even
during the 1960s. Many of the economic surveys done by the Japanese firms have
considered India as a very attractive investment destination both in the medium and
long-term perspectives. Yet, for a variety of reasons, Japanese investments have not
grown in an appreciable manner. The time has come for both countries to seriously
examine their relations in terms of building a long-term partnership that can
contribute to the stability of Asia.
http://www.ritsumei.ac.jp/acd/cg/ir/college/bulletin/e-vol.2/kesavan.pdf
Critical Review: In this Article, Mr. Kesavan brings into limelight how the trade
relations between India and Japan emerged after post cold war period providing the
year on year statistical figures. But he has raised a point that Japanese has not tapped
India’s potential fully.. But this point has to be considered this way that though
Japanese are interested to do lot more investment in India, is that our nation’s
economic policies that are restricting them to invest beyond a limit.?
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2. Japanese FDI in India and its impact – An evaluation by Satinder Bains -
Wednesday, 05 December 2007
Japan has emerged as one of the economically dominating forces on the global map in
the decade of the eighties. Japan's FDI has to date been 'trade oriented'. The major
part of investment has been directed towards natural resources' development in which
the Japanese economy is comparatively disadvantaged. In the decade of 90s, business
environment is more conducive to increase FDI to Asian economies than in the
decades 60s, 70s, and 80s and there is a great potential to attract such investment to
the region.
http://punjabnewsline.com/content/japanese-foreign-direct-investment-india-and-its-
impact-evaluation
Critical review: As Satinder says, it is agreed that the Japanese FDI in recent days are
highly trade oriented. But when it comes into the picture of their FDI in India their
interests are more into the segments of IT and Electronics ad into automobiles. They
are also aligning with India through many projects in Energy and Transportation
sector.
3. Japan retailers want India to remove FDI restrictions – PTI / NewDelhi/ April 02
-2010:
Terming India as one of the most vibrant and potential markets, the Japan Retailers
Association (JRA) today said over a dozen players from the East Asian nation are
willing to invest here, provided the government relaxes foreign direct investment
norms in the sector. It said that at a time when said the home market in Japan has
saturated, major players are ready to invest up to $10 million individually in India but
mainly in the multi-branded segment where FDI is currently prohibited.
In the last few years, the retail scenario in India has become most promising but we
will be even happier if current restrictions on FDI are removed. The big Japanese
chains are interested in entering India's multi-brand retail trade," JRA Director Jun
Omi said.
http://www.business-standard.com/india/news/japan-retailers-want-india-to-remove-
fdi-restrictions/90155/on
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Critical review: AS per this article, Japanese claim India to remove FDI restrictions.
Incase if that is done, what would be the scene of the domestic players? By relaxing
the FDI regulations it will certainly encourage Japanese to invade Indian market.
Once it happens it would certainly hit the growth rate of domestic players in various
sectors and make them face a tough competition.
4. India-Japan Investment Relations: Trends & Prospects – ICRIER working
paper 245, Geetanjali Nataraj, January 2010
Though Japan had been one of the top five investors in India for long, its share in
India’s total FDI inflows has been dwindling since 2000. Other countries have
surpassed Japan in terms of their investment and market share in the Indian economy.
In this context, this study attempts to analyse the constraints on Japanese investment
in India. The study finds that poor infrastructure, taxation system, procedural hassles
in customs clearance, and red tapism are important factors deterring Japanese
investment in India. Further, many Japanese companies have lost out to stiff
competition from South Korean companies, which have been able to understand the
price-sensitive nature of the Indian consumer better. It is expected that the completion
of the on-going negotiations on the Comprehensive Economic Partnership Agreement
(CEPA) will boost Indo-Japanese investment relations. There exist huge opportunities
for Japanese investors in sectors such as biotechnology, agriculture, hydrocarbon fuels
and information and communication technology.
http://www.icrier.org/pdf/WorkingPaper245.pdf
5. Japanese FDI in India – A weak link in Ties – Arpita Mathur – Issue no 1, 19th
March 2010
http://www.rsis.edu.sg/publications/policy_brief/RSIS%20-%20PB%20-
Issue%20no%201%20-%202010%20(pdf).pdf
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6. India and Japan: Increasing interest, Declining inflows – Geetanjali Nataraj,
09/09/09
Japan and India are two of the largest democracies in Asia, sharing a commitment to
the rule of law and respect for human rights. They are also leading economies in Asia.
In recent years, the two countries have strengthened bilateral ties through new
initiatives and programmes ranging from economic and cultural linkages to defence
and security. Japan gives 30 per cent of its overseas development assistance to India
and is, even in this period of global economic downturn, committing more than $4
billion to the Delhi-Mumbai Industrial Corridor. But our economic relationship is still
far below its potential. Two-way trade ($10.18 billion for 2007-08) has risen in the
last five years, but still remains considerably low when compared with the China-
Japan trade or even the India-China trade (respectively, $237.193 and $37.931 billion
in 2007-08). Similarly, Japan’s foreign direct investment in India for March-April
2008 ($0.82 billion) ill compares to its investment in smaller Asian countries such as
Vietnam ($0.41 billion), not to mention China ($1.9 billion).
According to a recent survey conducted by the Japan Bank for International
Cooperation, India has become the most favoured investment destination for long-
term Japanese investments. While nearly 70 per cent of Japanese manufacturers
regarded India as the most attractive country to do business in over the next 10 years
or so, only 67 per cent preferred China. Russia came third, with a 37 per cent rating,
followed by Vietnam at 28 Per cent.
India’s robust economic growth in recent years has not gone unnoticed on the
Japanese radar. It’s now the sixth-largest FDI facilitator in India. Although Japan’s
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contribution to India’s FDI inflow was only 4.29 per cent between 1991-2007, the
quantum of investment is rising steadily, especially in the Indian financial market.
In 2006-07, the share of Japan in the total inflows was 0.54 per cent. Next year, it
increased to 3.32 per cent but dwindled to 1.07 per cent in 2008-09. In fact, over the
years, the share of Japan in total inflows of India has been declining. This can be
attributed to several factors including the failure of the Japanese investor to
understand the Indian consumer.
The analysis of sector wise inflows from Japan shows that the automobile sector has
received the most FDI during 2000-07, constituting nearly 41 per cent of the total FDI
inflows from Japan. Other favoured sectors include electrical equipments, trading,
services sector and telecommunications. These five sectors together constitute nearly
72 per cent of the total FDI inflows from Japan.
As far as technology transfers are concerned: 863 technical collaborations have been
approved for Japan, which accounts for 10.93 per cent of the total collaborations
approved from August 1991 to November 2007. The highest technical collaborations
have been in the transportation industry, followed by the electrical equipments
(including computer software & electronics) industry and chemicals (other than
fertilisers).
Japan has been one of the top five investors in India for a long time. However, since
2000, many countries have surpassed Japan in their investment in the Indian
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economy. This can be attributed to several reasons. In a recent report submitted to the
Department of Industrial Policy and Promotion, GoI, the Japan Chamber of
Commerce and Industry in India (JCCII) has termed the Indian business environment
as tough. JCCII has listed 61 issues related to infrastructure, the taxation system and
customs clearance that need to be settled before more Japanese investors look to
India. Japanese investors describe the tax system in India as being too complicated
and difficult to understand. India’s land acquisition and utilisation procedures have
been termed complicated and non-transparent. Further unresolved issues include
intellectual property rights, regulation of foreign capitals and visa concerns. Many
clauses in contracts with industrial parks are not honoured, such as those concerning
supply of power, water and drainage. Japanese companies have also requested
simplification and speeding up of various application procedures related to
construction. Language is a major barrier and restricts easy interaction between the
business representatives of India and Japan.
Further, Japanese firms like Toshiba, Sanyo and Sharp (with the exception of Sony)
have lost out to the competition posed by Korean products. The Koreans appear to
have better served the price-sensitive nature of the Indian market. Perhaps Japanese
business would do better if it establishes 100 per cent subsidiaries in India, instead of
setting up joint ventures with local partners in India. For the many Japanese
companies currently in the sunset plane, where current economic compulsions render
them non-competitive, there could be a better future in relocating elsewhere. India is a
first-class option. Here, there is ample availability of skilled labour at a reasonable
cost, a huge domestic market and a potential base for exporting to other countries.
Even catering to Japanese needs.
The completion of the Comprehensive Economic Partnership Agreement (CEPA) is
expected to enhance Japan-India investment relations. Steps being considered include
setting up Japanese language teaching cells across Indian universities and using
Japanese investment for promoting SME clusters in India.
In the new Asian era, Japan and India need each other. India’s interest in Japan is also
attributable to its ‘Look East policy’. What cannot be overemphasised is that stronger
Indo-Japan ties could help counterbalance China’s growing power in the region.
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http://www.eastasiaforum.org/2009/09/09/india-and-japan-increasing-interest-
declining-inflows/
7. Japanese are Eyeing Indian IT for Acquisition
TNN, Jan 26, 2011, 08.09pm IST
BANGALORE: Japanese IT companies are aggressively looking at technology
companies in India to acquire. Three Japanese IT majors - Fujitsu, NTT
Data and Hitachi Consulting - were amongst the early bidders to acquire Patni
Computers, though all of them eventually backed off.
But they have been successful in some others. NTT Data acquired US-based IT
services firms Keane International and the US-based Intelligroup in 2010, and Hitachi
Consulting acquired another US IT company called Sierra Atlantic in January 2011.
Over three-fourths of employees in these companies are based in India.
"In the next 18 months we could expect a lot more action from Japanese companies,"
said Partha Iyengar, V-P at research firm Gartner. According to IT industry body
Nasscom, the Japanese IT services market, pegged at $108 billion, is the world's
second largest after the US. A shortage of skilled manpower and increasing cost
pressures are driving the Japanese IT majors to explore cheaper offshore buys in
India. The demand for IT services in Japan is driven by the banking, financial services
and insurance (BFSI) and manufacturing industries, which together account for over
40% of the IT services market. Local companies like Fujitsu, Toshiba, NEC and NTT
Data and the US-headquartered IBM are the top players in Japan.
According to Raja Lahiri, director - transaction services at KPMG India, Japanese
companies are looking at acquiring mid to large sized IT services companies in India.
"It makes sense to have a presence in India to service global clients, as also the large
Japanese market. With an ageing population they lack the manpower skills that India
can offer," he said.
Most Japanese enterprises continue to operate the legacy mainframe and more than
53% of Japanese IT services constitute customized software development. These
applications, developed primarily using the IBM family architecture, require
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extensive manpower skills to maintain and enhance them. Japanese companies are
now beginning to modernize and migrate their legacy applications in view of the high
maintenance cost, low flexibility and non-availability of legacy skills. As the top-tier
Japanese vendors who developed these systems will get the biggest pie of the
migration opportunity, it makes sense to have offshore centres in countries like India
to gain scale and reduce costs.
There's also another reason why the Japanese are interested in Indian IT. As Sameer
Dhanrajani, country head of Fidelity National Financial India, points out, Japanese
companies have been primarily servicing the APAC, China and South Korean regions
due to cultural affinity. They miss out on large opportunities in the more lucrative
European and US markets. India has a first mover advantage in capturing the US and
European offshoring markets. Thus acquiring Indian companies with blue-chip clients
is an attractive option.
Like European firms, Japanese firms have been reluctant in the past to take decisions
on M&As due to the difference in cultures. "However they now realize that as
countries like China and India threaten to eat into their own client base at home as
well as globally, not having an offshore presence in India puts them at a
disadvantage," Gartner's Iyengar added.
Fujitsu president Masami Yamamoto recently said that the company intends to
increase its focus on IT services through acquisitions of software firms particularly in
the area of cloud computing. A paper titled `The competitiveness of Japan's software
industry' by Tatsuo Tanaka, a faculty fellow at the Research Institute of Economy,
Trade and Industry (RIETI) in Japan, indicates that Japan excels in producing custom
and embedded software, but lags when dealing with packaged business and online
software. Custom software is said to be inefficient in terms of cost and quality
because it can't derive economies of scale and compete globally against packaged
business and online software.
Fidelity's Dhanrajani added that Japanese companies are involved in high-end
software development, engineering and R&D work. They do not have the IT services
capabilities at the lower end of the value chain, which constitutes the mass segment of
IT services demand. "To offer services across the value chain it becomes essential for
them to make acquisitions in India. Moreover, several small and mid cap IT services
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companies are now coming at good valuations as they continue to struggle with lower
margins and growth," said Dhanrajani.
Siddharth Pai, MD of IT consulting firm TPI India, said that Japanese companies have
been looking at acquisitions for sometime now but the interest is greater today as the
Indian IT sector has matured significantly. Pai also added that there may not be a
dramatic increase in acquisitions, as even today most Japanese companies are
conservative in outsourcing contracts.
Currently less than 10% of Japanese outsourced IT services are offshored. Of the
offshored amount, more than 50% goes to China, and 13% to India. All IT
development work is first contracted only to large system integrators like NTT and
Fujitsu, who then breakup large projects and outsource to secondary and tertiary
players. Indian and Chinese vendors often serve as tertiary service providers.
http://timesofindia.indiatimes.com/business/india-business/Japanese-are-eyeing-
Indian-IT-for-acquisition/articleshow/7367416.cms
8. Japan PM promises to link rupee with yen to boost FDI:
This promise would allow Japanese companies to invest directly in India, rather than
the current norm of coming through Singapore and Mauritius. The Japanese foreign
direct investment (FDI) in India trippled to $5.4 billion (nearly Rs 25,160 crore) in
2008 from $1.78 billion (nearly Rs 8,290 crore) in 2007, overtaking the Japanese FDI
in China.
The key reason for increasing the momentum of Japanese investments in India is the
growth potential of the local market. Japanese automobile and general machinery
companies were the most interested in India as an investment destination.
-­‐ Joint efforts by India and Japan in research and development (R&D) facilities,
especially during economic difficulty such as the global meltdown.
-­‐ Need for more Japanese investments in India’s infrastructure companies at a
time when India had proposed an investment of $500 bllion.
-­‐ Japan could tap investment opportunities in power, clean technologies, nuclear
energy, energy efficiency, university linkage and human resource
development.
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-­‐ Japan can reduce its cost of healthcare by sourcing generic drugs from India.
-­‐ Need of more Japanese investment in India’s consumer goods industry
http://www.singhanialaw.com/images/FDI%20final1%201%202010%20pdf.pdf
9. Japan March auto sales slump in quake aftermath
Published on Fri, Apr 01, 2011 at 18:23 | Updated at Sat, Apr 02, 2011 at 09:09 |
Source : Reuters
Vehicle sales in Japan fell by more than a third in March as a devastating earthquake,
tsunami and resultant nuclear crisis wreaked havoc on assembly plants, parts
manufacturers and the global supply chain. Sales, excluding 660cc minivehicles, fell
37 percent for the industry overall, and industry leader Toyota Motor Corp saw sales
for the month tumble 46 percent, the Japan Automobile Dealers Association said on
Friday. It was the industry's biggest monthly percentage fall since February 1974.
Nissan Motor Co's Japan sales slumped 38% and Honda Motor Co retreated 28%. The
figure for Toyota excluded the Lexus brand.
The latest numbers give the first indication of how Japan's car makers are faring in
their home market after the March 11 earthquake and tsunami that devastated
northeast Japan and triggered power outages and the worst nuclear crisis since
Chernobyl.
Many of Japan's auto plants are closed in the wake of the disaster, unable to get parts
from suppliers. All but two of 18 factories that assemble Toyota and Lexus vehicles in
Japan remain idle. Toyota Motor Corp President Akio Toyoda said on Friday that the
devastating earthquake and tsunami in northeast Japan would hurt the company's
earnings, but said that was not on his list of priorities. "We're not thinking about
numbers right now," Toyoda said at the company's headquarters in Toyota City,
adding he could not estimate the scope of the impact. Deutsche Securities this week
slashed its forecast for Toyota' operating profit by 84% to USD 1.7 billion for the
current business year due to production outages.
Toyoda repeated the company's stance that it is uncertain when it can resume full
production after the March 11 disaster disrupted its supply chain. Honda and Mazda
Motor Corp said on Thursday they would resume some production in Japan. Honda
said it would resume production of parts for overseas use on April 4 and production at
all its car factories on April 11. Honda also said production cuts at its plants in the
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United States and Canada would last through April 15. Mazda Motor Corp said it
plans to restart limited production of vehicles from April 4 at its Hiroshima and Hofu
plants. A decision on the resumption of full-scale production of both parts and
vehicles has not been made.
PMI record decline
As might be expected, Japanese manufacturing activity slumped to a two-year low in
March and posted its steepest monthly decline on record after the disaster disrupted
supply chains and production operations, a survey showed on Thursday.
The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a
seasonally adjusted 46.4 in March, the lowest since April 2009 and down from
February's 52.9. The data provided one of the first quantitative assessments of the
severe damage to production from the March 11 quake and tsunami in northeast
Japan, which triggered a nuclear safety crisis and widespread power shortages. "The
impact from the power outage, supply chain disruption and a halt of many factories'
activity after the quake is large. There is a possibility that the PMI index will further
weaken," said Takeshi Minami, chief economist at Norinchukin Research Institute in
Tokyo. "It is a major issue now how the nuclear crisis develops, and stock market
players are also closely watching it. The outlook for business activity depends on
progress in reconstruction and recovery." The Bank of Japan's closely watched
Tankan survey showed Japanese manufacturers' business sentiment improved slightly
in the three months to March, but analysts anticipate a downturn in confidence this
quarter because of the disaster. The BOJ's quarterly Tankan survey showed the
headline index for big manufacturers' sentiment improved to plus 6 in March from
plus 5 in December, compared with a median market forecast of plus 7. But 72% of
replies for the survey came in before the earthquake, which means it did not much
reflect the impact of the earthquake, the tsunami and the world's worst atomic crisis in
25 years.
http://www.moneycontrol.com/news/world-news/japan-march-auto-sales-
slumpquake-aftermath_533543.html
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10. Japan carmakers see return to full output taking time
Published on Tue, Mar 29, 2011 at 19:11 | Updated at Tue, Mar 29, 2011 at 19:52
Source : Reuters
Japanese automakers including Toyota Motor Corp and Nissan Motor Co said on
Tuesday it would be some time before they could return to full production after
Japan's devastating March 11 earthquake and tsunami disrupted supplies to their
plants. With some 500 parts affected, a Toyota spokesman said it was impossible to
say when production would resume in full. A source with knowledge of the matter
told Reuters that the automaker had told its main suppliers not to expect production to
restart until at least April 11 -- exactly a month from the quake.
All vehicle assembly has been halted at the 18 domestic factories that build Toyota
and Lexus cars except for two plants that began producing a limited number of three
hybrid models, including the Prius, on Monday. Meanwhile, Nissan CEO Carlos
Ghosn told workers at one of the company's factories in the stricken northeast he
wanted to bring the site back to full production levels by early June at the latest.
Speaking at an engine factory in the city of Iwaki, about 50 km (30 miles) from the
stricken Fukushima Daiichi nuclear plant, where workers are battling to control
radiation leaks, Ghosn said he had no intention of closing the site, a Nissan
spokesman said. Ghosn said he wanted to have the factory ready to start production
by the end of April and to resume full production in June, while keeping an eye on
suppliers. The No. 2 Japanese automaker earlier told Reuters it aimed to manufacture
on a "normal process" basis, with deliveries to come from suppliers from mid-April,
but added that deliveries of some parts may take longer to return to normal.
The earthquake off Japan's eastern coast damaged some assembly and parts factories
in the northeastern region, causing an industry-wide production loss of at least
400,000 vehicles to date in Japan. Analysts expect the effect to ripple across overseas
production and non-Japanese automakers will also be hit as inventories of parts dry up
in the coming months.
A spokesperson for Honda Motor Co said on Tuesday that car production would be
suspended until the end of the week and that the company was considering when it
could re-start output.
Honda said it needed to examine when suppliers will able to resume deliveries of
parts and what their inventory levels are. The company has suspended exports of
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parts. Toshiyuki Shiga, Nissan's chief operating officer and the chairman of the Japan
Automobile Manufacturers Association, told the Wall Street Journal the auto industry
should be able to get a full picture of the parts-supply network by mid-April.
http://www.moneycontrol.com/news/world-news/japan-carmakers-see-return-to-full-
output-taking-time_532756.html
11. Japan fund managers' equity weighting 12-yr low: Poll
Published on Thu, Mar 31, 2011 at 10:08 | Updated at Thu, Mar 31, 2011 at 14:55
Source : Reuters
Japanese fund managers reduced their global stock weighting to a 12-year low in
March, while raising their bond weighting to an all-time high as they lightened risk
positions after a devastating earthquake in Japan, a Reuters survey showed. Fund
managers increased their cash position in March to the highest level since November
2009 after the March 11 earthquake and tsunami in northeastern Japan severely
damaged Tokyo Electric Power's Fukushima Daiichi nuclear power plant. Money
managers also had to actively cut their risk positions as increasing unrest in the
Middle East and North Africa bolstered global oil prices.
"The massive disaster in Japan was the major factor. But even leaving that aside,
uncertainty was already building due to unrest in the Middle East and North Africa,"
said Yoshinori Nagano, a senior strategist at Daiwa Asset Management.
"The market was relatively stable despite many uncertainties. There are expectations
that investment conditions will improve potentially, but this doesn't mean that the
market can ease its caution towards taking risks." Fund managers' average weighting
for global equities in March fell 3.4 percentage points from the previous month to
42.6% -- the lowest since January 1999. The weighting for bonds climbed to the
highest since the survey was first compiled in February 1995. It jumped to 49.5% in
March from 47.6% a month earlier.
"Shares prices are expected to be under selling pressure for a while as the market is
still not sure about the impact of the nuclear problem and power shortages," said
Yuichi Kodama, an economist at Meiji Yasuda Life Insurance. "Stocks are likely to
be supported later in the year as we are expecting to see demand related to
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reconstruction in the damaged areas, but gains are likely to be limited due to
uncertainty over potential economic growth in the country." Japanese money
managers piled into more cash positions, with exposure to cash jumping 0.9
percentage point to 5.1% -- the highest since November 2009.
Their weighting for alternative assets rose by 0.6 point to 1.5% in March, while the
weighting for property inched up by 0.1 point to 1.4%. The Reuters poll was based on
responses from 12 Japan-based institutional investors, instead of the usual 13 as one
company was unable to finalise its allocation due to the earthquake. The poll of asset
management companies was conducted March 14-24 when Japan's benchmark Nikkei
average rapidly plunged to a two-year intraday low of 8,227.63 on March 15.
The Nikkei regained some strength, climbing to around 9,500 this week as foreign
investors flocked to purchase oversold Japanese shares, but the market lacked the
energy to post convincing gains amid views that the nuclear crisis in Japan was far
from over, equities fund managers said. In terms of regional allocations, fund
managers have lowered their weightings for Japanese stocks and bonds. The equities
weighting for Japan fell 0.4 percentage point to 28.4% in March and the bond
weighting dropped 1.0 point to 34.8%.
http://www.moneycontrol.com/news/world-news/japan-fund-managers-equity-
weighting-12-yr-low-poll_533122.html
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3.0: Area of study:
Being interested with International business and Finance, I wished to take my dissertation
topic across the area of Operations too. And that is the main reason for electing this topic
through which I can understand the real scenario of India – Japan relations in terms of
Finance. But when we speak about the relationship between both the companies the major
investments of Japanese in India are mainly through setting up their manufacturing operations
in India or either through joining hands with Indians in upcoming projects. Some basic strong
facts that support my area of Interest include:
• India found as the most interested destination for FDI of Japanese
• Japanese FDI in India finding a good growth in past 3 years
• Japanese who proved themselves for decades as pioneers in Auto manufacturing –
Found losing their edge through recalls. Also there are two major M&A deals coming
to an end – Between MUL and Suzuki which is named as MSIL right now and
between Hero and Honda. How do all these affect the Japanese FDI in India?
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4.0: Scope of Study:
Scope of study includes:
-­‐ Trend of FDI in India
-­‐ Japanese FDI in India (in different sectors)
-­‐ The major players and the investments involved
-­‐ How much it adds to Indian economy
-­‐ Forecoming projects & Mergers and Acquisitions
-­‐ Current scenario
-­‐ Positive and negative impacts
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5.0: Research methodology:
a. Data collection:
The data required for performing the analysis on the above mentioned objectives was
gathered using the reports from the official government websites, using the discussions made
in forums, latest facts and figures, using magazines and other articles as reference. Also the
details related to the recalls and the M&A among the top Japanese companies with the Indian
industry were obtained from company websites and by interviewing personnel of Japanese
car manufacturers.
In process of Data collection, the data collection is done using
i. Primary data:
The primary data used for this analysis was obtained from Japanese Embassy and
from the Department of Industrial Policy and Promotion, Ministry of commerce and Industry,
Government of India. This process is on progress by correspondence through mails with Mr.
Shyamal Mishra, Deputy Secretary – DIPP in gathering information regarding the same and
also will be carried out through interview with embassy people. Also the details related to the
recalls and the investments were tried to be obtained from the companies directly.
ii. Secondary data:
The sources of secondary data includes websites, E-books, Magazines, Articles
related to recalls and Japanese investments and books about both the Nation’s economy.
Major facts and figures related to this FDI of Japan in India are mainly from the Japan Bank
for International Co-Operation, DIPP – Ministry of Commerce and industry in India, India
Brand Equity foundation, Embassy of Japan in India and Economy watch. The details
referred from these sites include:
• Cumulative FDI flows
• Share of Japan in FDI flows
• Sector and Year wise FDI flows into India
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b. Methods of Analysis:
The analysis will be carried through hypothesis testing when it comes for the final
objective. For rest other objectives mentioned, it will be carried out using the graphs, charts
and tables. Will be including tools like histograms, scatter and pareto diagrams in the areas
demanding. Some of the results of analysis includes the below mentioned Graphs and tables.
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6.0 Findings on the topic chosen:
History of Japanese Foreign Direct Investment into India
Japan’s participation in FDI in India is conditioned by Indian foreign investment policy as
well as its industrial policy. A chronological study of Japan’s foreign direct investment into
India can be divided into two phases - one, the post liberalisation phase-I, that is from 1991 to
2000 and second, the post liberalisation phase-II, which is from 2000 till date. In the first
phase, the Government of India had allowed a maximum of 49 per cent equity participation
by foreign companies in a limited number of sectors. Over a period of time, the cap on equity
participation by foreign companies as well as the sectors in which foreign companies could
participate was increased. The division of the liberalisation phases is essentially linked to the
direction taken by the Indian government towards equity participation by foreign companies
and the opening up of different sectors in which foreign companies have been allowed to
participate.
India followed a restrictive foreign private investment policy until 1991, relying more on
bilateral or multilateral loans with long-term maturity. The Foreign Exchange and Regulation
Act (FERA), 1974, stipulated that foreign firms could have equity holdings only up to 40
percent. The government could use its discretion to make exemptions. The law also
prohibited the use of foreign brands. However, one did see some hybrid domestic brands like
Hero Honda operate in the Indian market. By the 1980s, some relaxation was made in the
foreign investment policy, and this saw the setting up of Maruti, a central government joint
venture with Suzuki Motors of Japan, in 1982. A crop of Japanese companies followed, who
gained entry through technical collaborations or by getting exemptions. Sanyo and JVC used
the technical collaboration route.
The Post Liberalisation Phase-I:
In 1991, with the initiation of the industrial liberalisation policy, a significant change came
about in the FDI climate. Foreign investment came to be regarded as supply of scarce capital,
technology and managerial skills. India, having observed the development gains made by
south-east Asian countries through foreign investments, benchmarked its own policies to help
attract FDI. Over the decade, India permitted foreign investment in almost all sectors.
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Table 1: Japanese Investment in India 1991-2000
Year Investment in US$ million
1991 21.5
1992 233.2
1993 84.0
1994 127.8
1995 482.3
1996 432.8
1997 531.5
1998 324.8
1999 379.7
2000 279.8
2001 150.8
2002 149.6
2003 125.9
2004 139.8
2005 254.7
2006 515.5
Source: Government of India Statistics
The cumulative FDI inflow received from Japan during the period 1991-1999 was US$2.6
billion. This placed Japan in the fourth position among the countries which were investing in
India. A closer look at the top ten investing countries in India (Table 2) shows that a fifth of
the investment came from the US alone. Mauritius and the U.K. put together, made up almost
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another one fifth of the total investment. Thus, Japan with a 4 per cent share of the total FDI,
had not taken advantage of the opening up of the Indian economy.
Japanese FDI inflow into India (US$
million) 515.
5
254.9
150.8 149. 125. 139.
6
9 8
200 200 200 200 200 200
1 2 3 4 5 6
Only by totaling 27 FDI projects reported in Japanese media, Japan’s FDI to India will
amount to around US$ 5.5 billion over 5 years from 2006 to 2010
Only by totaling 27 FDI projects reported in Japanese media, Japan’s FDI to India will
amount to around US$ 5.5 billion over 5 years from 2006 to 2010. The major FDI projects
are as follows :-
Maruti-Suzuki US$ 2564 million (¥ 300 billion)
Toyota Motor Corp US$ 385 million (¥ 45.0 billion)
MCC PTA US$ 364 million (¥ 42.5 billion)
Nissan Motor US$ 231 million (¥ 27.0 billion)
Honda Siel Cars US$ 175 million (¥ 20.5 billion)
Asahi India Glass US$ 111 million (¥ 13.0 billion)
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India: Growing Japanese Interest
Major Japanese FDI Projects in the Pipeline (2007-2012)
Maruti Suzuki 2546
Toyota 386
MCC PTA 364
Nissan Motors 231
Honda Siel Cars 175
Asahi India Glass
111
Source: Embassy of Japan in India, New Delhi
India maintained its 2nd rank among “Promising countries/regions For business
development in the Medium term for Japanese Manufacturers’ overseas business
operations
2006 2005 2004 2003 2002
China China China China China
India India Thailand Thailand Thailand
Vietnam Thailand India USA USA
Thailand Vietnam Vietnam Vietnam Indonesia
USA USA USA India Vietnam
Russia Russia Russia Indonesia India
Brazil Korea Indonesia Korea Korea
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Table 2: Top Ten Investing Countries in India 1991-2000
Rank Country/ Region % Share in FDI inflow
1 US 20.4
2 Mauritius 11.9
3 UK 6.4
4 Japan 4.0
5 South Korea 3.9
6 Germany 3.4
7 Australia 2.7
8 Malaysia 2.3
9 France 2.1
10 Netherlands 1.9
Source: Handbook of Industrial Policy and Statistics, 2001
The importance of Japan and East Asia was realised during the first stage of the initiative of
liberalising in India. Dr. Manmohan Singh, the then finance minister, launched India's ‘Look
East’ policy in 1992 to seek out and develop economic ties with the members of ASEAN and
major East Asian economies. The policy was a natural extension of the reform programme
which aimed to open up the Indian economy and expand its participation in the global
economy. There was also the hope that closer ties with the East Asian economies that had
achieved enviably high growth rates would provide helpful insights for India.
Unfortunately however, the ‘Look East’ policy did not capture Japan on its radar and failed to
stimulate Japanese investment into India. Although in the beginning, there was a surge in
Japanese companies arriving in India through joint ventures as shown in Table: 1, the flow
did not gain momentum and actually hovered around US$300 million. The sectors that
attracted Japanese investment were automobiles, telecommunications, fuel, chemicals and
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trading. Though the number of approvals steadily increased, the average investment was
definitely low. The only silver lining was that the major approvals were technical
collaborations (around 668 approvals), which meant that that Japanese companies were
testing Indian business partners.
Honda in the automobile sector and Sony in the electronics sector were the two important
Japanese brands that made their entry in 1991. Taking advantage of the movement of the
zipper industry from being a small scale industry to becoming a large scale industry, a
company like YKK made its entry too. By the end of the decade, important brands like
Toyota, Toshiba and Panasonic had also entered the Indian market. There was also a
proliferation of companies in auto parts, fuels and chemical and industrial goods.
Figure 1: Share of Top Sectors Attracting FDI Inflow from Japan 1991-1999
Source: Government of India Statistics
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Comparison of Japanese FDI inflow into Asia and India in Phase-I:
Statistically, Japan was positioned fourth among the countries that invested in India.
However, if one were to compare Japanese investment in India with that in the South East
Asia region, one would find that India had attracted only 2 per cent of the Japanese
investment flow into Asia in the first phase (Fig: 2)
Figure 2: Cumulative Outward Flows of Japanese FDI into Asia: 1990 -1999
Source: JETRO, Statistics: Japan Outward / Inward Foreign Direct Investment Statistics
Overseas subsidiaries of Japanese firms in South East Asia and its neighbouring states were
mainly in consumer durables manufacturing, industrial products and natural resources sector.
In the 1980s, the Government of Japan had taken positive interest in developing this region
with economic assistance. This had enticed Japanese FDI to this region, as among other
reasons, labour here was cheap and disciplined. By the 1990s, this region was growing
rapidly and providing greater opportunities. Moreover, the ease of operations due to Japan’s
long associations with these countries had generated a certain level of comfort. India, with a
diverse culture and complex socio-economic factors was a challenge to Japan. This was
reinforced by varying legal provisions, policies and regulations in different parts of India.
The labour situation in India was considered volatile. All this made Japan a reluctant investor.
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On India’s part, no image building exercise was carried out to project India as an industrial
hub.
The Post Liberalisation Phase-II
In the second phase, 2000-2008, though there was a substantial increase in Japanese
investment in 2002, it fell to a pathetic low of US$94.4 million in the year 2003 (see Figure
3).There was some improvement between 2004 and 2006 though it was only in the last two
years of this phase that there was a significant improvement to levels above US$600 million.
Figure 3: Japanese Foreign Direct Investment in India
Sources: Compiled from data of Department of Industrial Policy and Planning, Govt. of
India, Monthly FDI fact sheet 2008.
If one looks at the country-wise flow of FDI into India, then one finds that Japan has slipped
from the fourth position in the previous decade to the sixth position in this decade. It is
noticeable that even with more liberal policy changes; Japan’s percentage share has become
3.27 per cent, while a country like Singapore, which did not figure as an investor in India in
the last decade, has taken second position to Mauritius. This shows that whereas the “look
east” policy of India did find takers in countries like Singapore, it did not impact the mind set
of Japanese investors.
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Table 3: Top Ten Investing Countries in India 2000-2009
Source: Fact sheet on Foreign Direct investment (FDI) April 2000-July 2009, Department of
Industrial Policy and Promotion
The year 2000 saw a major policy change with foreign participation being allowed up to 100
percent in most sectors. Following this, the government rapidly relaxed conditions and
enacted FEMA. In 2005, a significant change was brought about when foreign companies
already operating in one sector were allowed to re-invest in another sector, through the
automatic route. This permitted the foreign company to be treated as the equivalent of a
domestic company, allowing it access to sectors that had so far been denied to it.
All this should have encouraged Japanese companies, especially those in retail and finance -
which are major players in Japanese outward FDI. However, one finds little presence of such
Japanese companies in India. According to the current publication (2008) of the Japanese
embassy in India, there are 550 Japanese companies operating in India through joint
ventures/subsidiaries. The sectors in which Japanese companies are operating have not
changed much from the previous decade (Table: 4). Japanese companies have made their
presence felt in the services sector but its share is only 3 per cent. In telecommunications,
Japan has dropped from the second position to the fifth position in this decade. The latest
figures are given below:
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Table 4: Share of Top sectors Attracting FDI Inflow from Japan 2000 -2007
Source: Department of Industrial Policy and Promotion, India: A brief note on foreign
collaboration with Japan.
Comparison of Japanese FDI inflow into Asia and India in Phase-II
A comparison between India and the countries in Asia which attract FDI from Japan shows
India in an even poorer light until 2005. As Fig: 4 and Fig: 5 show, India did not find favour
with the Japanese investor. India lagged substantially behind China which was the most
favoured destination for Japanese FDI. In 2005, India attracted only US $266 million of
Japanese investment against the investment of US$6575 million in China. This was only 1.6
per cent of Japan’s total FDI flow into Asia.
Figure 4: Japanese FDI outflow into China and India:
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Figure 5: Comparison of Japanese FDI outflow into Asia, China and India:
Source: JETRO, Statistics: Japan Outward / Inward Foreign Direct Investment Statistics
After 2005, however, the picture is quite different (Table: 5). India’s share in FDI flows from
Japan has increased from 1 per cent in 2006 to 2 per cent in 2007 and to 4.2 per cent in 2008.
It now ranks second among the Asian countries. The more popular destinations like Malaysia,
Hong Kong, Thailand and the Republic of Korea have slipped considerably.
Source: JETRO, Statistics: Japan Outward / Inward Foreign Direct Investment Statistics
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FDI SYNOPSIS ON JAPAN - (as on 31.10.2009):
Cumulative FDI inflows during 1991-2009 (up to October):
FDI equity Inflows is US$ 124.2 billion, including amount on account of acquisition of
existing shares (upto 1999), RBI’s- NRI Schemes, stock swapped & advance pending for
issue of shares.
Share of Japan with FDI inflows:
• Japan ranks 6th
• Percentage share with total FDI inflows is 3.55%.
• Total FDI Inflows from Japan are US$ 4.4billion.
Sectors attracted FDI inflows for Japan:
Top sectors attracting FDI inflows (from April 2000 to October 2009) are:
• Automobile Industry (31%)
• Electrical Equipments (14%)
• Telecommunications (9%)
• Trading (8%) and Services Sector (7%)
Technical collaborations:
• Since 1991, total technical collaborations are 8,080 Nos.
• Of these, Japan has been granted 879 technical collaborations.
• Share of Japan with total is 10.88%.
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Top five sectors attracting technology transfer from Japan are:
• Transportation Industry (262 nos.)
• Electrical equipment (including software & electronics (198 nos.)
• Chemicals (other than fertilizers) (77 nos.)
• Misc. mechanical & engineering (53 nos.) and
• Industrial Machinery (48 nos.)
Top inflows received during April 2000 to October 2009 from Japan through foreign
companies are:
• Matsushita Electric Works Ltd
• Suzuki Motor Co. Ltd.,
• Ntt Docomo Inc
• Panasonic Electric Works Co Ltd.
• Matsushita Electrical
• Yamaha Motor Co. Ltd
• Sanyo Electric Co.Ltd
• Suzuki Motor Corp.
• Yamaha Motor Co Ltd
• Daikin Industries Ltd.
Cumulative FDI inflows received during 1991-2009 (up to October) is 5,390.0 (US$ 124.2)
billion. Out of this, FDI inflows from Japan (Ranks 6th) is Rs. 191.28 (US$ 4.4) billion,
which is 3.55% of the cumulative inflows received from FIPB/SIA, RBI’s automatic routes
& acquisition of existing shares (from the year 2000 onwards) during August 1991 to October
2009. However, this amount does not include inflows received through acquisition route prior
to April 2000. Further, the inflows data on Sector specific in respect of Japan is available
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only for the period April 2000 to October 2009. The amount of FDI inflows project specific
in respect of all Countries is not centrally maintained prior to April 2000.
On perusal of the sector-wise distribution of FDI inflows received from Japan from
01.04.2000 to 30.09.2009 shows that the highest inflows have been in the Automobile
Industry which accounts for over 31% of FDI inflows from Japan. Electrical Equipments with
about 14% is in the second place and Telecommunications with over 9% is in the third place.
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As far as technology transfer is concerned, total numbers of 879 technical collaborations have
been approved for Japan, which accounts for 10.88% of the total collaborations approved,
during August 1991 to September 2009. The highest technical collaboration has been in the
Transportation Industry followed by Electrical Equipments (including computer software &
electronics) and Chemicals (other than fertilizer)
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Another aspect of growing India-Japan investment relations is the increasing number of
projects in India where the Japanese are involved, especially in the automobile sector. Recent
FDI projects involving Japan include:
• Honda, the Japanese auto major, has announced its foray into the compact car
segment in India and is going to invest $205.25 million in its Rajasthan plant.
• Maruti Suzuki India Ltd (MSIL) will invest $1.8 billion for research and development
(R&D) at a new facility in Haryana.
• Toyota, another Japanese car major, is going to spend $680 million on a planned
second car factory in India where it will begin producing its new compact car and the
Corolla sedan, from 2010.
• Japan’s second-largest lender, Mizuho Financial Group, has tied up with one of
India's top banks, the State Bank of India. The tie-up will include cooperation in
various areas including syndicated lending and infrastructure finance.
• The $63 billion Toshiba Corporation has entered into a joint venture with the JSW
group to manufacture turbines for large power plants.
The Indian government has established the Foreign Investment Implementation Authority
(FIIA) to facilitate implementation of FDI projects by helping investors get the required
clearances. The Indian government has also set up a dedicated “Japan Cell” in the
Department of Industrial Policy and Promotion to promote and facilitate Japanese
investment in India.
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Cumulative amount of FDI flows into India:
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As per the World Investment Prospect survey of UNCTAD, Japanese TNCs, like those
of the United States, show lower levels of internationalization than their European
counterparts. Respondent TNCs, in particular, indicated relatively low levels of
internationalization for some business functions, such as R&D, headquarters and back-office
activities. On the other hand, they have a fairly wide geographical spread, with a presence in
4.6 regions, on average. Compared to other TNCs,, they focus more, in terms of actual
presence, on their own region: South, South-East and East Asia, and also on “other
developed”; but a large percentage of them are also present in EU-15 and North America.
Regarding future FDI plans, respondents expressed less preference for Europe than average,
and a greater preference for Asia in their location strategies. Japanese TNCs also reported
their intention to increase their focus on developing regions (notably South, East and South-
East Asia, Latin America, and, to a lesser extent, Africa) and on transition economies over
the next few years. These results are largely consistent with those of a survey of Japanese
TNCs conducted by the JBIC.
According to the data from the Ministry of Finance in Japan, bilateral trade between Japan
and India has been on the steady rise since the year 2003, and the amount was more than
doubled from US$ 4.0 billion in 2002 to US$ 8.6 billion in 2006, which increased by 27%
from US$ 6.8 billion in 2005.
Effects of Mergers and Acquisitions and Recent Recalls:
When it comes to the topic of Recalls, the recent recalls includes from major players of Japan
like Toyota, Honda, Nissan, Mitsubishi and few more.
Before the hue and cry, perhaps a raised eyebrow: There are a few strange things
about Toyota's worldwide recall of 1.7m vehicles, announced on January 26th.
First, the breadth: no fewer than 21 different models are affected. Second, the dates: ranging
from 2000 to 2009. Third, the problems: they include everything from the tightness of fuel-
pressure sensors in 245,000 Lexus cars in North America to faulty spare-tyre carriers on
exactly 6,175 Daihatsu mini-trucks in Japan. The recall comes just as Toyota retained its
crown as the world's biggest carmaker, having sold 8.4m vehicles in 2010 despite the dent to
its reputation. American sales were largely flat, at 1.8m cars, European sales dropped 11%,
but sales in Asia outside Japan roared ahead by 24%.
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In Tokyo, Toyota's shares barely budged, falling a mere 1.9% on a day that the overall market
dropped 0.6%. The Japanese might be excused for feeling a bit more uneasy. Unlike a year
ago, when Toyota's recalls mostly affected cars in America and the Japanese comforted
themselves that domestically-produced vehicles were manufactured to higher standards with
Japanese parts, the latest recall mainly involves 1.3m Japanese vehicles.
The other recalls includes recalls of about 6 Lakh cars from Honda and 2 Lakh cars from
Nissan which lead to the market fall of both the companies..
Hero Honda Split – Honda Exits Joint Venture:
It's finally splitsville for Hero Honda, one of corporate India's oldest and most successful
joint ventures , with the two founding partners—India's Munjal family and Japan's Honda
Motor Corp—agreeing to part ways and terminate the 26-year-old relationship due to
unresolved differences and ambitious independent plans. Sources in the know said most of
the terms of the deal, which will see Honda selling its 26% stake to the Munjal family, have
been finalized and the matter will now be taken up by Hero Honda's board on Thursday. Top
officials of Honda are arriving here to attend the board meeting, a source said.
The sources added that the Japanese auto major will exit the JV through a series of offmarket
transactions by giving the Munjal family—that currently holds 26% stake in the company—
an additional 26%. Honda, which also has an independent fully-owned twowheeler
subsidiary—Honda Motorcycle and Scooter India (HMSI)—will exit Hero Honda at a
discount and get over $1 billion for its stake. The discount will be between 30% and 50% to
the current value of Honda's stake as per the price of the stock after the market closed on
Wednesday. The Munjal family plans to compensate Honda through high royalty payouts,
which could double to nearly 6% of net sales. However, key financial institutions have
objected to this move, saying that the deal could favour the Munjals but be detrimental to
other shareholders. Spokespersons for Hero Honda and the Munjal family refused to
comment on the development. Sources said as per the arrangement , it will be a two-leg deal.
In the first part, the Munjal family, led by Brijmohan Lal Munjal group, will form an
overseas-incorporated special purpose vehicle (SPV) to buy out Honda's entire stake, which
will be backed by bridge loans. "The PEs will take between 50-60 % stake in this entity ,
giving them just under 15% stake in the main company Hero Honda, which would soon sport
a new name," the sources said.
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Japanese FDI inflows picking up at slow pace:
Foreign direct investment by Japan in India has been extremely modest in comparison with
Japanese investment elsewhere in Asia, notably China, but has shown signs of picking up
steam recently, though moving in fits and starts–India FDI inflows from Japan were worth
$400 million in 2002-03, but hovered between a quarter and half that level over the next four
years before spiking to $800 million in 2007-08 then plunging to $200 million in 2008-09.
Foreign technology transfer approvals are perhaps a more stable indicator of the upward trend
in Japanese businesses' interest in India–permission had been granted for 878 such
technology collaborations through May 2009, placing Japan third in the list behind Germany
and the United States.
Car manufacturer Maruti Suzuki is the bestknown success story among Japanese firms tying
up with Indian partners. Now in its 29th year in India, the company makes one in every two
cars sold in India. Other big hitters among the approximately 700 Japanese firms with
operations in India are Asahi Glass, Honda, Marubeni, Mitsubishi, Panasonic, pharmaceutical
maker Ranbaxy (bought for $5 billion by Daiichi Sankyo in 2008), Sony and Toyota. Among
Japanese small and medium-sized enterprises with a presence in India, rice-milling machine
manufacturer Satake is prominent.
Potholes, Power Cuts and Paperwork
The long-standing hesitancy of Japanese firms to invest in India can be put down to four main
problems: bureaucratic red tape, in the shape of complicated taxation, customs clearance and
land acquisition and utilization systems; backward infrastructure, including unreliable power
supply, poor roads and port facilities; pro-labor policies resulting in numerous labor disputes;
and chronic security risks from ultra-left-wing and Pakistan-linked terrorist groups.
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7.0: Discussions and Interpretations of findings:
Scenario of Japanese FDI in India as on date:
As per the report of Reuters, Japanese foreign investment and companies "are increasingly
turning their attention to such (emerging) markets as India and Vietnam," JBIC economist
Toshiharu Mimura told Kyodo News agency. The survey conducted in the summer of 2010
shows that 74.9 percent of the 605 Japanese companies selected India as their investment
destination over the next 10 years, while 71.7 percent chose China. Last year, China was in
the first position followed by India.
The survey reflects increasing aversion among the Japanese manufacturers to invest in China
due to some frequent strikes last year in Chinese auto manufacturing units followed by bitter
diplomatic row between the two nations over the disputed Senkaku islands in the East China
Sea which both claim. But in an annual survey conducted by JBIC, India for the first time
topped the list as the most attractive destination, overtaking China. The new ranking was
made in the 22nd survey carried out by JBIC in 2010, said a release on Thursday. The reason
for China lagging behind was attributed to increasing labor cost and recent anti-Japan protests
in China in the wake of the boat incident in the Senkaku islands in September, and China's
move to delay exports of rare earth minerals.
The contribution of Japan in flagship projects like Delhi Mumbai Industrial Corridor (DMIC)
would enable Japanese entry into many other areas. Presently India-Japan bilateral trade
stands at $12 billion and hoped that the target of bilateral trade of $20 billion by 2014 would
be achieved on time. As regards, Japanese FDI in India, it stood at $8 billion in 2008, the year
when it surpassed Japanese FDI in China, and since then it is continuously growing.
Comprehensive Economic Partnership Agreement (CEPA) between India and Japan was
signed in February this year. Past one decade has witnessed qualitative and also quantitative
movement forward in the relationship between India and Japan. He expressed that Indian –
Japan CEPA would cover various areas including Trade in Goods, Investment, Trade in
services, and Movement of Natural Persons to Intellectual Property, Competition,
Improvement of the Business Environment and Bilateral Cooperation. India is on a steady
growth path of 8.5% to 9% GDP and invited Japanese enterprises to participate through
increased trade and investment for mutual benefit.
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Forth coming India-Japan Global Partnership Summit in September this year aims at
strengthening economic ties between Indian and Japan and would lead to greater regional
integration and multilateral trade. Six sectors has been identified for cooperation between
India and Japan: Energy, Clean and Green Technologies, Infrastructure, Small & Medium
Enterprises, Agriculture Services (ICT, Healthcare, Education & Banking)
The number of Japanese companies with business operations in India has doubled in three
years. Japan presently ranks sixth in cumulative foreign direct investment flows into
India.According to latest available statistics Japanese companies have made actual
investments of US$ 4.083 billion between April 2000 and May 2010. The sectors attracting
Japanese investment are automobile industry, electrical equipment, trading, service sector
(financial & nonfinancial), and telecommunications
Number of companies in India:
Source: Embassy of Japan, India
Japan ranked seventh in terms of cumulative foreign direct investment (FDI) in
India, accounting for US$ 3,714 million in the period from April 2000 to March 2010, of
which US$ 1,183 million came in the period April 2009-March 2010, according to the latest
data released by the Department of Policy and Promotion (DIPP).
According to the Japanese External Trade Organisation, (JETRO), Japanese firms
increasingly prefer India as an investment destination over China. The number of Japanese
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companies in India has grown three fold over the last three years from approximately 100
companies in 2006-07 to 300 in 2009-10. "More Japanese companies would enter the Indian
market in the coming years," said Naoyoshi Noguchi, retired director-general of JETRO.
According to investment bankers, India may witness US$ 20 billion worth of Japanese
investment by 2012. India's exports to Japan in the period 2008-09 stood at US$ 3025.70
million while imports totalled US$ 7886.27 million for the period. During April to December
2009, India exported goods worth US$ 2,479.38 million to Japan. India imported
merchandise worth US$ 4823.66 million from Japan during April-December 2009-10.
Major Japanese funds have been coming into India by way of offshore funds, with many
Indian houses such as SBI Capital, UTI and DSP Blackrock raising money from the Japanese
markets to invest in India.
India and Japan have decided to jointly develop one city in India as a 'solar city'. The project
aims to reduce its projected demand of conventional energy at the end of five years, through
energy efficiency measures and generation from renewable energy installations.
The two sides also agreed to strengthen cooperation in research and development for
promoting renewable energy. As part of the exchange programme, a ten-member delegation
from India participated in the Japan-India New and Renewable Energy Seminar in Tokyo in
January 2010.
Further, in May 2010, India and Japan agreed to set up a working group on civilian nuclear
energy. The working group is being seen as a first step towards potential civilian nuclear
cooperation between the two countries.
Government Initiatives
During Japanese Prime Minister Yukio Hatoyama's visit to India in December 2009, the
prime ministers of India and Japan discussed cooperation in infrastructure projects, climate
change and security and renewable energy. The two countries also agreed to work out
funding and logistical issues relating to the Dedicated Rail Freight Corridor.
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In the course of the visit, the governments of India and Japan also agreed to relax visa rules in
a year's time in order to facilitate improved trade and widen cooperation between the two
nations. In the last week of December 2009, India and Japan signed two important
agreements for implementing the ambitious US$ 77.16 billion Delhi-Mumbai Industrial
Corridor (DMIC) project which seeks to create integrated investment regions and industrial
areas across six states.
The agreements included collaborating in the development of eco cities that are
environmentally and ecologically sustainable along the corridor and setting up of a project
development fund to undertake activities like master planning & feasibility studies, preparing
project reports and obtaining approvals and bid process management for projects. Top
Japanese consultants, including Mitsubishi, Nikken Sekkei and IBM Japan, have joined hands
with three state governments and the Delhi-Mumbai Industrial Corridor Development
Corporation (DMIDC) to develop eco-friendly infrastructure for new cities planned along the
DMIC.
The first phase of the project which was launched in 2006 will be completed by 2018. The
corridor will run through six states —Haryana, Uttar Pradesh, Madhya Pradesh, Rajasthan,
Gujarat and Maharashtra—and is being developed as a global manufacturing and trading hub.
The Japanese consultants will launch feasibility studies to set up the first set of eco-friendly
cities in Manesar-Bawal region of Haryana, Dahej, Changodar in Gujarat and Shendra
industrial region in Maharashtra, as per the agreements entered into by them, the three state
governments and the DMIDC.
In the first phase, seven cities, each entailing an investment of around US$ 9-10 billion, will
be developed. Moreover, according to the Japanese ambassador to India, Hideaki Domichi,
the Government of Japan is keen to extend financial assistance to the proposed Chennai-
Bangalore corridor project. “This project is another strategic area from our point of view. Big
Japanese companies like Toyota are already here, and the Chennai area is also attracting a lot
of Japanese investments. We will soon work out the exact amount of financial assistance the
Japan government will provide for this project,” he said at the 33rd annual general meeting of
the Bangalore Chamber of Industry and Commerce in June 2010.
Once the free trade agreement or the Comprehensive Economic Partnership Agreement
(CEPA) is signed and operationalised, 9,000 products—ranging from steel and apparel to
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drugs and machinery—are expected to be traded either without duty or at substantially
reduced tariffs. The CEPA is expected to be signed by the end of the year.
Further, in order to attract Japanese investments, the Karnataka Government is planning to set
up a 1,000-acre 'Japanese village' which will house Japanese industrial and business
establishments. The proposed village would be set up near Tumkur.
Investments & deals
• The initiatives of the Ministry of Trade and Economy, Japan and the Japan External
Trade Organisation (JETRO) have helped rope in Japanese companies into investing in
India's first exclusive industrial parks for Japanese firms in Rajasthan. The companies include
majors such as Daikin Industries Ltd, Nissin Kyogo Ltd and Mitsui Chemicals.
• Tata Steel, India's largest steel producer, has entered into a joint venture (JV) with
Japan's Nippon Steel for production and sale of automotive cold-rolled flat products at
Jamshedpur. The JV is expected to invest US$ 400 million towards setting up of an
automobile venture in India.
• Hitachi Transport System, an offshoot of Japan's Hitachi, has acquired Flyjac
Logistics for nearly US$ 54.61 million, giving it a firm footing in India's logistics and
warehousing sector. The deal propels Hitachi to the top 10 Indian logistics companies.
• Japan's JR Kyushu Group and Patni Computer Systems, have announced a 51:49
venture to provide information technology (IT) and product engineering services to the
Japanese enterprise market. The venture is being formed with a capital of US$ 1.09 million.
The factors that have contributed to the change of perception regarding the Indian economy
include:
• Impressive growth despite the global economic downturn
• Robust domestic demand
• Projections of expansion of India’s working population aged 15-64 over the long term
• Strengthening ties with other East Asian economies particularly Singapore, Thailand,
South Korea, and China
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• Geographically strategic position to develop as a production and export base for the
growing market in the Middle East and Africa
The governmental support has come in the form of the Special Economic Partnership
Initiative (SEPI). This has several high visibility flagship projects like Western Corridor of
the Dedicated Freight Corridor (DFC) and the Delhi-Mumbai Industrial Corridor (DMIC).
The total volume of Japanese ODA loan committed for the first phase of the Western
Corridor is about 405 billion Yen. The DMIC is projected to attract foreign investment worth
about US$92 billion and will be built around DFC and will include cooperation in
development of sea ports on the west coast and industrial estates and Special Economic
Zones with high quality physical and social infrastructure through collaboration between
private and governmental sectors of India and Japan. A consortium of Japanese private sector
companies is already collaborating with the DMIC Development Corporation as well as the
Governments of the concerned states, in developing eco-friendly townships in the DMIC
zone using Japan’s best practices.
In this context two agreements have the potential be the “game changers” for India-Japan
economic relations - the India-Japan Comprehensive Economic Partnership Agreement
(CEPA) and the Civil Nuclear Cooperation Agreement. The focus of both these agreements is
on providing the essential institutional framework to further accelerate and consolidate
business activities between India and Japan.
As part of the CEPA, India will eliminate tariffs on 90 per cent of its imports from Japan, and
Japan will remove tariffs on 97 per cent of Indian imports on a trade value basis within 10
years. In addition the CEPA will relax barriers on investment, trade in services and
movement of professionals, competition and improvement of the business environment by
both sides, besides enhanced cooperation on protection of intellectual property. With tariffs
slashed on more than 8,000 products including generic drugs, apparel, agricultural products
and machinery the bilateral trade between both countries is expected to reach US$20 billion
by 2012-13. The CEPA is also expected to address the balance of trade which is currently
heavily tilted in favour of Tokyo.
The Civil Nuclear Cooperation Agreement is similarly crucial for enhancing economic
relations between India and Japan. India’s civil nuclear market opened up in 2008 after the
landmark agreement between the United States and India. And given the rising demand for
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