“Look West” with the strategic partnership between India - JETRO
16
“Look West” with the strategic partnership between India & Japan Japan External Trade Organization September 2013
Transcript of “Look West” with the strategic partnership between India - JETRO
partnership between India & Japan
Japan External Trade Organization
Japan External Trade Organization
TEL03-3582-5179 FAX03-3582-5309
September 2013
Japan External Trade Organization Asia and Oceania Division, Overseas Research Department
[email protected]
Table of Contents
Over the past two years, JETRO has conducted an extensive survey consisting of interviews
with over 200 companies, particularly Indian and Japanese, on the current status of corporate
partnership between the two countries and the potential for using India as an export base to
enter the west market*. This pamphlet summarizes the interview results into 10 points.
JETRO is working to disseminate the survey results through our website and seminars. We
hope that the survey will contribute to the further invigoration of business exchange between
India and Japan.
Asia and Oceania Div is ion, Overseas Research Depar tment
Reference 1: Directory of 200 Key Indian companies Reference 2: JETRO Activities in India
1. Current state of India-Japan partnership
2. Main reasons why Japanese companies are interested in partnering
3. Main reasons why Indian companies are interested in partnering
4. Differences in way of thinking between Japanese and Indian companies on partnership
5. Potential for entering the west market (Middle East and Africa): 10 advantages
6. India as an export base
7. Government policies for encouraging exports and related issues
8. Network of Indian people in the west market
9. Current state of overseas activities of Indian companies
10. Opportunities in the west market for India-Japan partnership
* In this rep or t , “wes t market ” re fer s to the Middle E ast and Af rica.
Copyright (C) 2013 JETRO. All rights reserved.
Form of Japanese affiliated companies in India ratio by form
Importance of partnering with local companies in order to expand/strengthen India business (N=243)
Main joint-venture business of Japanese companies in India(2012 )
According to JETRO’s Survey on Business Conditions of Japanese-Affiliated Firms in Asia and Oceania (2012), of the Japanese companies that have established local affiliates in India, 40.9% engaged in manufacturing and 22.1% engaged in non-manufacturing have chosen to establish the affiliates as joint ventures.
Over three quarters of Japanese companies entering India responded that affiliation/partnerships with Indian companies are important for starting business in the country.
Since 2012, the main joint-venture business of Japanese companies has become very diverse, ranging from auto- motive/motorcycle related manufacturing including automotive parts, motorcycle parts and car audio to that of elevators, pigments and surface-processing equipment. The number of joint ventures in the service industry such as cosmetic sales, installment sales and security gears are also increasing.
Current state of India-Japan partnership
24
Not very important 10
Source : Survey on Business Conditions of Japanese-Affiliated Firms in Asia and Oceania (2011)
Source : Survey on Business Conditions of Japanese-Affiliated Firms in Asia and Oceania (2012)
Source : Produced by JETRO from press releases from each corporation
Oji Paper Co., Ltd.
Otsuka Pharmaceutical Co., Ltd.
NACHI-FUJIKOSHI CORP
Toyota Tsusho Corporation
Optex Co., Ltd.
Mitsubishi Electric Corporation
Toyo Ink Co., Ltd.
AEON Credit Service(M) Berhad
Kasai Kogyo Co., Ltd.
NHK Spring Co., Ltd.
n.a.
Claris Otsuka Ltd.
Minda F Ten Pvt. Ltd.
ISGEC Hitachi Zosen Ltd.
Fuji Furukawa E&C(India)Co.Ltd.
Mitsubishi Elevator ETA India Private Limited.
n.a.
n.a.
NHK F. Krishna India Automotive Seating Private limited.
KOSE Elder(India)Private Limited.
JK Paper.
ETA Ascon Holding LLC.
Heubach colour Pvt. Ltd.
Manufacture of molding equipment & surface processing equipment
Manufacturing and sales of resin-coated sand (RCD)
Transfusions
Processing devices
Machining tools
Main reasons why Japanese companies are interested in partnering
0
20
40
60
80
100
120
25
8
37
Points of particular note when partnering with local companies (multiple answers allowed, N=214)
Expectations for Local Partners multiple answers allowed, N=212
Many Japanese companies whose participation in this market has until now been inadequate are now exploring partnerships with local companies in India aiming at full-fledged market entry.
By partnering with Indian companies, these Japanese companies hope to access sales channels, personnel and sources of funding of these local companies.
Untapped markets
Localization
Outsourcing
The diversity of the Indian market is different from that of the market which Japanese compa- nies have experienced until now. Due to few examples of either success or failure cases, there is no business model to serve as a norm or benchmark. Japanese companies are cautious about entering the market in a business environment containing risks.
Each day, numerous multinational companies are entering the Indian market, resulting in increased competition. Japanese companies worry that they will miss the timing for market entry if they con- tinue to hesitate. In order to take business chances in the rapidly growing Indian market, one option is to start operation using the existing business infrastructure of Indian companies.
There are few Japanese companies capable of committing abundant funds and many experi- enced staff members to India because companies have been expanding in Japan, China and ASEAN. Many Japanese companies expect Indian companies to share the costs of investment and realizing the desired business scale.
Localization is a key concept in emerging-market strategy. In addition to localization of prod- ucts and human resources, Japanese companies seek hints on how to configure their business.
India lacks an established supply chain. In many cases, conventional business models will not succeed. Accordingly, one tactic is utilizing external resources to flexibly operate/manage these resources. Based on experience in China, many Japanese companies select balanced operation of in-house manufacturing and outsourcing when they start business in the country.
Main reasons why Japanese companies are interested in partnering
2
Source: Survey on Business Conditions of Japanese-Affiliated Firms in Asia (2011, JETRO)
Copyright (C) 2013 JETRO. All rights reserved.
(Unit: number of company) (Unit: number of company)
Main reasons why Indian companies are interested in partnering
Main reasons why Indian companies are interested in partnering
With a number of recent policy moves such as FTAs focusing on Asian countries, Indian companies expect to tap the high potential for growth in Asian economies and companies.
Japanese companies in particular have moved vigorously into India in recent years, and are advancing strongly into India-Japan partnerships in areas such as the Delhi-Mumbai Industrial Corridor (DMIC) and the Chennai-Ben- galuru Industrial Corridor (CBIC) projects. As such, Japanese companies are viewed as attractive partners.
3
Generational change
Mainly in the automotive field, there has been successive entry of Japanese companies into the Indian market. The presence of Japanese companies is increasing day by day. Furthermore, India-Japan cooperation is being enhanced in areas related to domestic industrial policy, such as the projects of Delhi-Mumbai Industrial Corridor (DMIC) and Chennai-Bengaluru Industrial Corridor (CBIC). This has led to increased expectations towards Japan (Japanese companies) as a business partner. Moreover, mid- to small-sized Indian companies see partnerships with Japanese companies as a gateway to participating in Japanese business.
The Indian market is being deregulated and there is fierce competition among both domestic and foreign companies. The speed with which companies rise and fall has also increased. Due to the rapid diversification and change of consumer/user needs, even Indian companies which possess a firm foothold and commercial channels in the local market are also seeking for differentiation through the technology, quality, brand, know-how, sales channels and procurement networks of foreign companies. Moreover, in order to enter new growth markets, an increasing number of Indian companies are hurrying to globalize through acquiring foreign companies.
Many Indian companies have positioned business diversification as the core of their growth strategy. This trend provides an opportunity for foreign companies which possess a core advan- tage (technology, etc.) to enter the Indian market. As a result, numerous partnerships have been formed. On the other hand, there are signs of restructuring due to recent economic slow- down and excessive diversification, which has led to an increase in M&A.
As a solution to high procurement cost caused by high interest rates, there are many cases of supplementing funds with foreign investment, including institutional investors. The movement of mutual funds has stagnated due to sensitivity towards risk in emerging countries and invest- ment from Europe and America has weakened. Therefore, many Indian companies hope for equity investment from Japanese firms.
In the case of Indian Companies which are controlled by families, the business line sometimes changes dramatically when a new generation of management assumes control. More than 20 years have passed since economic liberalization in India. From major companies to conglomerates and mid-/small-sized companies, an increasing number of companies are experiencing a genera- tional change in which the founders are retiring. The second generation tends to reduce the man- ufacturing industry which requires long-term investment and technological renewal, while expanding the service industry. Therefore, there is interest in partnerships (including the sale of companies) to Japanese manufacturing companies which possess both capital and technology.
Source : Produced by JETRO based on interviews with corporate representatives.
Copyright (C) 2013 JETRO. All rights reserved.
Voices of Japanese companies Differences in way of thinking
between Japanese and Indian companies
Copyright (C) 2013 JETRO. All rights reserved.
Differences in way of thinking between Japanese and Indian companies on partnership
When Japanese and Indian companies form partnerships, there are differences in way of thinking between the two sides regarding quality and technology management, facility investment, profit management, competition and trading spheres, decision-making and management policy.
It is essential for the companies to establish tight-knit communication, so as to gain a clear understanding of the differences in approaches and values between the two sides and to overcome those differences.
4
1. “Indian companies want work, not technology.” in terms of quality/technology management
Indian partners are satisfied with current quality as long as sufficient demand exists.
Due to cost considerations, Indian partners cannot accept the introduction of technology and improvement of quality from Japanese companies.
Indian partners see technological value as cost, not as management expenses.
2. “Indian companies are averse to long-term investment.” in terms of facilities investment
Indian partners are not interested in investment or businesses which do not make profit directly or quickly.
Instead of making long-term investment, Indian partners are always think- ing of high-yield methods.
Regarding fund procurement, Indian partners seek to borrow while Japan companies seek to increase capital.
3. ”Priority is given to profit in India.” in terms of profit management
Indian partners seem not to understand that operations in India are only one part of a global strategy for Japanese companies.
Indian partners prioritize profit within the domestic market.
4. “Japanese companies want to sell to different customers.” in terms of competition and trading spheres
Indian partners diversify their business and enter the same business as their Japanese partners.
Japanese companies compete with their Indian partners in overseas busi- ness (outside of India) and the export market from India.
Business with Japanese clients is not possible due to collaboration with conglomerates, who are competitors.
5. “Decisions in Indian companies are not made by the company.” in terms of decision-making
The majority of decision making in Indian companies is at the discretion of the owner.
Employees in Indian companies are used to top-down management and lack teamwork.
6. “Japanese companies face difficulties in understanding Indian companies way of doing business.” in terms of management policy
When collaborating with Indian conglomerates, their rules are applied. As soon as Indian partners become minority investors, they began to seek
dividends. Japanese companies will become a part of the Indian companies if Japa-
nese companies relinquish control of operation.
Source: Produced by JETRO based on interviews with corporate representatives
10 advantages for entering the west market through India
1.2 bill ion people
Potential for entering the west market (Middle East and Africa):10 advantages
Many Japanese companies have come to India with the aim of entering its domestic market. However, business in India offers opportunities other than just entry into the Indian market.
One such opportunity is the “look west” approach: entry into the “west market” (the Middle East and Africa). India offers many advantages as a spring- board for entering the west market, including geographical proximity, a network of Indian expa- triates and market similarity.
5
1. Geographical advantage As opposed to East Asian countries, India is located on the opposite shore of the Arabian sea and has good access to the west market.
2. Historical/cultural connection India has strong historical connections with Gulf countries and Africa. 19 African countries belong to the same British Commonwealth as India.
3. Market similarity Middle Eastern and African markets are diversified and class-structured. This characteristic is similar to the strong independence of states in India.
4. Similar market maturity and growth process
There are large numbers of low and mid-class consumers in the west market. In general, there is a volume zone of consumers who are sensitive to the price of products and services in this market.
5. English-speaking employees The high English-language proficiency of Indians facilitates a variety of com- mercial activities. The overwhelming majority of countries in the west market use English as the business language.
6. Scale of industry and personnel West of India, there are no countries which rival the industry accumulation and scale of India. India offers many advantages as a frontline base of the west market.
7. Rich resources
India has sought nationalization in all fields. In addition to being one of the world’s leaders in production amount of agricultural and marine products and fibers, India also provides a wealth of basic engineering products such as metals and chemicals.
8. Network of Indians residing overseas
Approximately 5 million Indians reside in the Middle East and approximately 4 million reside in Africa. They form the most promising business network as local bases for business originating from India.
9. Desire to expand overseas (toward west)
Deregulation of foreign exchange controls continues and Indian corporation are becoming more interested in overseas investment.
10. Support from Indian government The Indian Government strongly supports Indian companies’ entry into the west market, with measures such as active provision of information on investment in Africa and tax incentives for exporters.
Source: Produced by JETRO based on interviews with corporate representatives
The future market for India
Copyright (C) 2013 JETRO. All rights reserved.
0
20000
40000
60000
80000
100000
ASEAN
EU
201220072002
Source World Trade Atlas
0 100000 200000 300000
EXPORT VOLUME
MARKET SHARE
EXPORT VOLUME
MARKET SHARE
EXPORT VOLUME
MARKET SHARE
2007 2012
India as an export base6 India’s export value has expanded greatly in recent years. Over the past decade, the country’s exports have mul-
tiplied six-fold, to approximately US$300 billion. Whereas 10 years ago India’s export value was lower than those of Thailand and Indonesia, today it significantly exceeds them.
Key exports are petrochemical products, jewelry and agricultural and marine products. Industrial products including transportation equipment, machinery and medical and pharmaceutical products also capture a large share.
In recent years, the west market’s share of India’s exports has climbed rapidly.
Export volume by country (Unit : US$ million)
2002 2007 2012
Government policies for encouraging exports and related issues
The Indian Government has implemented a variety of export promotion schemes and established SEZs. The gov- ernment also focuses on building ties with Africa, a region with strong growth prospect as well as deep historical relationship with India. The Indian Ministry of Commerce has launched the “Focus Africa” Program with mea- sures such as active provision of information on investment in Africa and tax incentives for exporters.
Although use of the various export promotion schemes has progressed greatly among Indian companies, there are requests for improvement from Japanese companies in India.
7
http://www.indiaafricaconnect.in/
Export Promotion Capital Goods Scheme (EPCG)
Advance Authorization Scheme (AAS)
Duty Drawback Scheme (DDS)
Served From India Scheme (SFIS)
Focus Market Scheme (FMS)
Focus Product Scheme (FPS)
Export Promotion Council (EPC)
Copyright (C) 2013 JETRO. All rights reserved.
1. Special Economic Zones(SEZs)
2. Variety of export promotion schemes
The EPCG Scheme aims at exemption of duties for capital goods related to production of export products.This scheme requires a 8-fold increase in export of products in 8 years. Our company is focusing on both domestic sales and exports. Since the ratio between the domestic and overseas markets could change due to the market situation, the mandate for export amounts has become a bottleneck in using the scheme.
The Duty Drawback Scheme (DDS) aims at offering refunds for export products. However, when applying for drawbacks, it is necessary to submit certificates of duty paid by business partners for applicable parts and materials. Furthermore, even certificates of the sub-sub contractors are needed. This results in a massive amount of documents which must be submit- ted. In addition, a great amount of time is required for clearance of the procedures. Simplification of the scheme is request- ed such as designating companies in good standing and conducting periodic audits instead of inspecting every clearance.
Population 27 million
Network of Indian people in the west market
An estimated 27 million Indian citizens live in countries outside India. This figure makes the Indian diaspora one of the largest in the world, second only to an estimated 40 million diasporic Chinese. Indians living abroad are connected with India through various forms. Recently, residents living abroad are exerting considerable influ- ence on the Indian economy.
This diaspora has a major social and economic impact on the countries of the west market.
8
Composition
NRI (non-resident Indian) Indian who resides abroad and posses Indian citizenship OCI (overseas citizen of India) Indian who resides overseas and possess both Indian citizenship/ citizenship in country of residence PIO (person of Indian origin) Indian immigrant and descendants
North America : Asia :
Other :
United States (2.25 million) , Canada (1 million) , Malaysia (2.05 million) , Sri Lanka (1.6 million) , Nepal (600 thousand) , Singapore (590 thousand) , Thailand (150 thousand) , China (Mainland: 67 thousand; Hong Kong: 37 thousand) , Japan (22 thousand) Saudi Arabia (1.79 million) , UAE (1.7 million) , Kuwait (580 thousand) , Oman (560 thousand) , Qatar (500 thousand) South Africa (1.22 million) , Mauritius (880 thousand) UK (1.5 million) , The Netherlands (200 thousand) , Germany (70 thousand), Italy (70 thousand) , France (65 thousand) , Spain (30 thousand) Trinidad and Tobago (550 thousand) , Australia (450 thousand)
Number of Indians in main countries
Remittance 63.7 billion USD (3%of 2011 GDP)
58.6 billion USD (as of June 2012)Balance in bank account
Fact sheet on Indians living abroad Source : Ministry of Overseas Indian Affairs
1 million or more people 500 thousand or more 200 thousand or more 100 thousand or more 50 thousand or more 20 thousand or more 10 thousand or more
Indian people living abroad
Source: Prepared by JETRO from various documents
Copyright (C) 2013 JETRO. All rights reserved.
Examples of companies in the west market acquired by Indian companies
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Current state of overseas activities of Indian companies
Overseas operations of Indian companies have been growing briskly since 2005, when India posted econom- ic growth of over 9%. One factor in this overseas expansion is these companies’ favorable business results, which have enabled them to build capital and earn trust. However, the main factor is thought to be capital liberalization. Since 2003, foreign-exchange controls on overseas investment (curbs on remittance and bor- rowing) have been gradually relaxed.
Much of this overseas expansion by Indian companies has been in the west market. Key background factors supporting this phenomenon include the extensive network provided by the Indian diaspora in the west market and the similarities between the Indian and west markets (maturity, longstanding relationships with European countries, etc.) .
9
March 2010
March 2008
March 2003
May 2010
December 2009
October 2010
May 2007
August 2006
September 2010
April 2011
March 2007
Cement
Pharmaceuticals
Telecom
Pharmaceuticals
Chemicals
Chemicals
Source: Prepared by JETRO from press releases from each corporation as well as newspapers and other media
Source: Reserve Bank of India international statistics
Change in India’s outward foreign direct investment (FDI)
10,700
1,060
770
460
400
380
370
350
330
290
200
Company Overview
Opportunities in the west market for India-Japan partnership
In the overseas activities of companies, regional blocs that include India tend to be divided into two categories: Block A which includes East Asia and Block B that includes the Middle East and Africa. In Block A, Japanese com- panies have formed detailed supply chains and hope that India will further participate in these supply chains. Re- gional partnerships such as the ASEAN-India FTA and India-Japan EPA, as well as the RCEP currently under nego- tiation, are accelerating this effort.
In Block B, Japanese companies are launching business in the west market from India in an increasing number of cases. One option for doing so is to partner with an Indian company with extensive experience in the west market. Expectations for this approach are currently rising. From the perspective of Indian companies, collabo- rating with Japanese companies, with established supply chains in East Asia, offers an opportunity to improve their competitive position and gain an advantage in expansion of the west market.
10
Toyota
Suzuki
Nissan
Panasonic
Daiichi-Sankyo
Source : Produced by JETRO based on interviews with corporate representatives
Examples of Japanese companies entering “west market” trough India
India’s position in regional blocs
Source: Produced by JETRO based on interviews
withcorporate representatives
Exporting of ‘Etios’ , a strategic vehicle model for India, to South Africa
Supplying completed vehicles and parts to the Middle East and Africa
Supplying completed vehicles and parts to the Middle East and Africa
As a part of 2011 organizational restructuring, incorporated the Middle East and Africa, which creates synergy with India, into the Asia & Oceania bloc that is headquartered in Singapore
Purchased Ranbaxy, India’ s largest manufacturer of generic medicines. Selling new medicines and patented medicines in Africa and other emerging countries.
ASEAN India FTA Japan-India EPA
RCEP
Information included in profiles
Directory of 200 key Indian companies As part of its efforts to provide information to Japanese companies considering partnering with Indian companies, JETRO has collected profiles of 200 key companies in India. These companies were selected based on criteria such as net sales as well as consideration of industrial and regional balance. The profiles include overviews of each corpora- tion, descriptions of their management structure, business performance and financial condition. The directory is available on the JETRO website.
Reference 1
http://www.jetro.go.jp/world/asia/in/
Industry types 1. Infrastructure (17 companies) , Real-estate development (3), Turn-key operations and consulting (1) 2. Automobiles and auto-related (15), Casting and forging (4) 3. Cement (13) 4. Chemicals (12) 5. Textiles (11) , Retail (1) 6. Food processing and personal care (12) 7. Sugar (11) 8. Pharmaceuticals (9), Medical equipment (1) 9. Metals (10), Mining (1) 10. Engineering (8), Petroleum extraction and development (2), Aircraft (1) 11. Consumer durables (2), Jewelry (6) 12. Transportation (4) , Logistics (3) 13. IT () 14. Extraction of food oils and solvents (7) 15. Printing, publishing and stationery (4), Media and entertainment (3) 16. Papermaking and related fields (5), Wooden decorative items (2) 17. Agriculture (5) 18. Packaging (metals, plastics, etc.) (5) 19. Beverages (4) 20. Energy-related (power generation (1), power transmission and infrastructure (1), renewable energy (2), transformers (1) ) 21. Casting (4) 22. Finance and investment (2)
1. Corporate overview 2. Management and shareholding structure Directors Shareholding structure 3. Business categories and affiliated companies Overview of operations Affiliated companies 4. Growth strategy and business model 5. Financial condition (non-consolidated) 6. Business results and market share 7. Partnerships, collaboration and expansion with foreign-affiliated companies 8. New operations, diversification, expansion 9. Overseas operations and export sales 10. Evaluation
Copyright (C) 2013 JETRO. All rights reserved.
Consulting firms
and industry Financial institutions
Diplomatic establishments abroad HIDA
organizations
Four JETRO offices in India
New Delhi
Mumbai
Chennai
Bangalore
JETRO Business Support Center (BSC) JETRO BSC is a comprehensive support center for Japanese companies considering entering the Indian market. This facility offers rental of short-term office space and consulting services by specialist advisors. JETRO BSCs offer efficient information collection and problem-solving as well as feasibility studies to help companies settle in, and assistance in establishing a local affiliate. Shared assistants are also available. Locations: New Delhi, Mumbai, Chennai
Business matching support JETRO has been focusing on support for business matching between Japanese and Indian companies through interna- tional trade fairs. The following are forthcoming auto-parts business talks aiming at matching between Japanese-affiliated auto manu- facturing companies in India and Indian parts suppliers. -Chennai: Nov. 26-27, 2013 -Pune: Nov. 29, 2013
Development of business environment - Japanese industrial park -
Japanese industrial park in Neemrana, Rajasthan Established in 2006, 1,167 acres of land, 44 Japanese firms invested
Japanese industrial park in Mandal, Gujarat Three companies signed MOUs with GoG in Jan. 2013
SME Overseas Expansion Platform -Support system for small and medium- size enterprises (SMEs) overseas-
Structure of SME Overseas Expansion Platform
In an effort to bolster support in response to the diversifying needs of indi- vidual SMEs, the platform team up with local consulting firms, law firms and accounting firms to strengthen the network with each support organiza- tion and provide and introduce the necessary services, as well as act as an intermediary, in an integrated fashion. Various types of events will be held in cooperation with other support organizations with the aim of discover- ing local partners and learning useful information. Locations: Mumbai, Chennai
JETRO NEW DELHI
JETRO MUMBAI
JETRO CHENNAI
JETRO BANGALORE
4th Floor, Eros Corporate Tower, Nehru Place, New Delhi 110019, INDIA TEL:91-11-4168-3006 FAX:91-11-4168-3003
Naman corporate Link, 2nd Floor, Plot no C-31 & C-32, G Block, Bandra, Kurla Complex, Bandra East, Mumbai-400 051,INDIA TEL:91-22-2659-7261 FAX:91-22-2659-7260
Seshachalam Centre 8F , 636/1 Anna Salai, Nandanam, CHENNAI - 600035 INDIA TTEL:91-44-3927-0100 FAX:91-44-3927-0190
10th Floor, Tower B, Millenia Towers, Ulsoor Lake, Bangalore 560 001, INDIA TEL:91-80-4113-8168 FAX:91-80-4113-8169
Copyright (C) 2013 JETRO. All rights reserved.
“Look West” with the strategic
partnership between India & Japan
Japan External Trade Organization
Japan External Trade Organization
TEL03-3582-5179 FAX03-3582-5309
September 2013
Japan External Trade Organization Asia and Oceania Division, Overseas Research Department
[email protected]
Japan External Trade Organization
Japan External Trade Organization
TEL03-3582-5179 FAX03-3582-5309
September 2013
Japan External Trade Organization Asia and Oceania Division, Overseas Research Department
[email protected]
Table of Contents
Over the past two years, JETRO has conducted an extensive survey consisting of interviews
with over 200 companies, particularly Indian and Japanese, on the current status of corporate
partnership between the two countries and the potential for using India as an export base to
enter the west market*. This pamphlet summarizes the interview results into 10 points.
JETRO is working to disseminate the survey results through our website and seminars. We
hope that the survey will contribute to the further invigoration of business exchange between
India and Japan.
Asia and Oceania Div is ion, Overseas Research Depar tment
Reference 1: Directory of 200 Key Indian companies Reference 2: JETRO Activities in India
1. Current state of India-Japan partnership
2. Main reasons why Japanese companies are interested in partnering
3. Main reasons why Indian companies are interested in partnering
4. Differences in way of thinking between Japanese and Indian companies on partnership
5. Potential for entering the west market (Middle East and Africa): 10 advantages
6. India as an export base
7. Government policies for encouraging exports and related issues
8. Network of Indian people in the west market
9. Current state of overseas activities of Indian companies
10. Opportunities in the west market for India-Japan partnership
* In this rep or t , “wes t market ” re fer s to the Middle E ast and Af rica.
Copyright (C) 2013 JETRO. All rights reserved.
Form of Japanese affiliated companies in India ratio by form
Importance of partnering with local companies in order to expand/strengthen India business (N=243)
Main joint-venture business of Japanese companies in India(2012 )
According to JETRO’s Survey on Business Conditions of Japanese-Affiliated Firms in Asia and Oceania (2012), of the Japanese companies that have established local affiliates in India, 40.9% engaged in manufacturing and 22.1% engaged in non-manufacturing have chosen to establish the affiliates as joint ventures.
Over three quarters of Japanese companies entering India responded that affiliation/partnerships with Indian companies are important for starting business in the country.
Since 2012, the main joint-venture business of Japanese companies has become very diverse, ranging from auto- motive/motorcycle related manufacturing including automotive parts, motorcycle parts and car audio to that of elevators, pigments and surface-processing equipment. The number of joint ventures in the service industry such as cosmetic sales, installment sales and security gears are also increasing.
Current state of India-Japan partnership
24
Not very important 10
Source : Survey on Business Conditions of Japanese-Affiliated Firms in Asia and Oceania (2011)
Source : Survey on Business Conditions of Japanese-Affiliated Firms in Asia and Oceania (2012)
Source : Produced by JETRO from press releases from each corporation
Oji Paper Co., Ltd.
Otsuka Pharmaceutical Co., Ltd.
NACHI-FUJIKOSHI CORP
Toyota Tsusho Corporation
Optex Co., Ltd.
Mitsubishi Electric Corporation
Toyo Ink Co., Ltd.
AEON Credit Service(M) Berhad
Kasai Kogyo Co., Ltd.
NHK Spring Co., Ltd.
n.a.
Claris Otsuka Ltd.
Minda F Ten Pvt. Ltd.
ISGEC Hitachi Zosen Ltd.
Fuji Furukawa E&C(India)Co.Ltd.
Mitsubishi Elevator ETA India Private Limited.
n.a.
n.a.
NHK F. Krishna India Automotive Seating Private limited.
KOSE Elder(India)Private Limited.
JK Paper.
ETA Ascon Holding LLC.
Heubach colour Pvt. Ltd.
Manufacture of molding equipment & surface processing equipment
Manufacturing and sales of resin-coated sand (RCD)
Transfusions
Processing devices
Machining tools
Main reasons why Japanese companies are interested in partnering
0
20
40
60
80
100
120
25
8
37
Points of particular note when partnering with local companies (multiple answers allowed, N=214)
Expectations for Local Partners multiple answers allowed, N=212
Many Japanese companies whose participation in this market has until now been inadequate are now exploring partnerships with local companies in India aiming at full-fledged market entry.
By partnering with Indian companies, these Japanese companies hope to access sales channels, personnel and sources of funding of these local companies.
Untapped markets
Localization
Outsourcing
The diversity of the Indian market is different from that of the market which Japanese compa- nies have experienced until now. Due to few examples of either success or failure cases, there is no business model to serve as a norm or benchmark. Japanese companies are cautious about entering the market in a business environment containing risks.
Each day, numerous multinational companies are entering the Indian market, resulting in increased competition. Japanese companies worry that they will miss the timing for market entry if they con- tinue to hesitate. In order to take business chances in the rapidly growing Indian market, one option is to start operation using the existing business infrastructure of Indian companies.
There are few Japanese companies capable of committing abundant funds and many experi- enced staff members to India because companies have been expanding in Japan, China and ASEAN. Many Japanese companies expect Indian companies to share the costs of investment and realizing the desired business scale.
Localization is a key concept in emerging-market strategy. In addition to localization of prod- ucts and human resources, Japanese companies seek hints on how to configure their business.
India lacks an established supply chain. In many cases, conventional business models will not succeed. Accordingly, one tactic is utilizing external resources to flexibly operate/manage these resources. Based on experience in China, many Japanese companies select balanced operation of in-house manufacturing and outsourcing when they start business in the country.
Main reasons why Japanese companies are interested in partnering
2
Source: Survey on Business Conditions of Japanese-Affiliated Firms in Asia (2011, JETRO)
Copyright (C) 2013 JETRO. All rights reserved.
(Unit: number of company) (Unit: number of company)
Main reasons why Indian companies are interested in partnering
Main reasons why Indian companies are interested in partnering
With a number of recent policy moves such as FTAs focusing on Asian countries, Indian companies expect to tap the high potential for growth in Asian economies and companies.
Japanese companies in particular have moved vigorously into India in recent years, and are advancing strongly into India-Japan partnerships in areas such as the Delhi-Mumbai Industrial Corridor (DMIC) and the Chennai-Ben- galuru Industrial Corridor (CBIC) projects. As such, Japanese companies are viewed as attractive partners.
3
Generational change
Mainly in the automotive field, there has been successive entry of Japanese companies into the Indian market. The presence of Japanese companies is increasing day by day. Furthermore, India-Japan cooperation is being enhanced in areas related to domestic industrial policy, such as the projects of Delhi-Mumbai Industrial Corridor (DMIC) and Chennai-Bengaluru Industrial Corridor (CBIC). This has led to increased expectations towards Japan (Japanese companies) as a business partner. Moreover, mid- to small-sized Indian companies see partnerships with Japanese companies as a gateway to participating in Japanese business.
The Indian market is being deregulated and there is fierce competition among both domestic and foreign companies. The speed with which companies rise and fall has also increased. Due to the rapid diversification and change of consumer/user needs, even Indian companies which possess a firm foothold and commercial channels in the local market are also seeking for differentiation through the technology, quality, brand, know-how, sales channels and procurement networks of foreign companies. Moreover, in order to enter new growth markets, an increasing number of Indian companies are hurrying to globalize through acquiring foreign companies.
Many Indian companies have positioned business diversification as the core of their growth strategy. This trend provides an opportunity for foreign companies which possess a core advan- tage (technology, etc.) to enter the Indian market. As a result, numerous partnerships have been formed. On the other hand, there are signs of restructuring due to recent economic slow- down and excessive diversification, which has led to an increase in M&A.
As a solution to high procurement cost caused by high interest rates, there are many cases of supplementing funds with foreign investment, including institutional investors. The movement of mutual funds has stagnated due to sensitivity towards risk in emerging countries and invest- ment from Europe and America has weakened. Therefore, many Indian companies hope for equity investment from Japanese firms.
In the case of Indian Companies which are controlled by families, the business line sometimes changes dramatically when a new generation of management assumes control. More than 20 years have passed since economic liberalization in India. From major companies to conglomerates and mid-/small-sized companies, an increasing number of companies are experiencing a genera- tional change in which the founders are retiring. The second generation tends to reduce the man- ufacturing industry which requires long-term investment and technological renewal, while expanding the service industry. Therefore, there is interest in partnerships (including the sale of companies) to Japanese manufacturing companies which possess both capital and technology.
Source : Produced by JETRO based on interviews with corporate representatives.
Copyright (C) 2013 JETRO. All rights reserved.
Voices of Japanese companies Differences in way of thinking
between Japanese and Indian companies
Copyright (C) 2013 JETRO. All rights reserved.
Differences in way of thinking between Japanese and Indian companies on partnership
When Japanese and Indian companies form partnerships, there are differences in way of thinking between the two sides regarding quality and technology management, facility investment, profit management, competition and trading spheres, decision-making and management policy.
It is essential for the companies to establish tight-knit communication, so as to gain a clear understanding of the differences in approaches and values between the two sides and to overcome those differences.
4
1. “Indian companies want work, not technology.” in terms of quality/technology management
Indian partners are satisfied with current quality as long as sufficient demand exists.
Due to cost considerations, Indian partners cannot accept the introduction of technology and improvement of quality from Japanese companies.
Indian partners see technological value as cost, not as management expenses.
2. “Indian companies are averse to long-term investment.” in terms of facilities investment
Indian partners are not interested in investment or businesses which do not make profit directly or quickly.
Instead of making long-term investment, Indian partners are always think- ing of high-yield methods.
Regarding fund procurement, Indian partners seek to borrow while Japan companies seek to increase capital.
3. ”Priority is given to profit in India.” in terms of profit management
Indian partners seem not to understand that operations in India are only one part of a global strategy for Japanese companies.
Indian partners prioritize profit within the domestic market.
4. “Japanese companies want to sell to different customers.” in terms of competition and trading spheres
Indian partners diversify their business and enter the same business as their Japanese partners.
Japanese companies compete with their Indian partners in overseas busi- ness (outside of India) and the export market from India.
Business with Japanese clients is not possible due to collaboration with conglomerates, who are competitors.
5. “Decisions in Indian companies are not made by the company.” in terms of decision-making
The majority of decision making in Indian companies is at the discretion of the owner.
Employees in Indian companies are used to top-down management and lack teamwork.
6. “Japanese companies face difficulties in understanding Indian companies way of doing business.” in terms of management policy
When collaborating with Indian conglomerates, their rules are applied. As soon as Indian partners become minority investors, they began to seek
dividends. Japanese companies will become a part of the Indian companies if Japa-
nese companies relinquish control of operation.
Source: Produced by JETRO based on interviews with corporate representatives
10 advantages for entering the west market through India
1.2 bill ion people
Potential for entering the west market (Middle East and Africa):10 advantages
Many Japanese companies have come to India with the aim of entering its domestic market. However, business in India offers opportunities other than just entry into the Indian market.
One such opportunity is the “look west” approach: entry into the “west market” (the Middle East and Africa). India offers many advantages as a spring- board for entering the west market, including geographical proximity, a network of Indian expa- triates and market similarity.
5
1. Geographical advantage As opposed to East Asian countries, India is located on the opposite shore of the Arabian sea and has good access to the west market.
2. Historical/cultural connection India has strong historical connections with Gulf countries and Africa. 19 African countries belong to the same British Commonwealth as India.
3. Market similarity Middle Eastern and African markets are diversified and class-structured. This characteristic is similar to the strong independence of states in India.
4. Similar market maturity and growth process
There are large numbers of low and mid-class consumers in the west market. In general, there is a volume zone of consumers who are sensitive to the price of products and services in this market.
5. English-speaking employees The high English-language proficiency of Indians facilitates a variety of com- mercial activities. The overwhelming majority of countries in the west market use English as the business language.
6. Scale of industry and personnel West of India, there are no countries which rival the industry accumulation and scale of India. India offers many advantages as a frontline base of the west market.
7. Rich resources
India has sought nationalization in all fields. In addition to being one of the world’s leaders in production amount of agricultural and marine products and fibers, India also provides a wealth of basic engineering products such as metals and chemicals.
8. Network of Indians residing overseas
Approximately 5 million Indians reside in the Middle East and approximately 4 million reside in Africa. They form the most promising business network as local bases for business originating from India.
9. Desire to expand overseas (toward west)
Deregulation of foreign exchange controls continues and Indian corporation are becoming more interested in overseas investment.
10. Support from Indian government The Indian Government strongly supports Indian companies’ entry into the west market, with measures such as active provision of information on investment in Africa and tax incentives for exporters.
Source: Produced by JETRO based on interviews with corporate representatives
The future market for India
Copyright (C) 2013 JETRO. All rights reserved.
0
20000
40000
60000
80000
100000
ASEAN
EU
201220072002
Source World Trade Atlas
0 100000 200000 300000
EXPORT VOLUME
MARKET SHARE
EXPORT VOLUME
MARKET SHARE
EXPORT VOLUME
MARKET SHARE
2007 2012
India as an export base6 India’s export value has expanded greatly in recent years. Over the past decade, the country’s exports have mul-
tiplied six-fold, to approximately US$300 billion. Whereas 10 years ago India’s export value was lower than those of Thailand and Indonesia, today it significantly exceeds them.
Key exports are petrochemical products, jewelry and agricultural and marine products. Industrial products including transportation equipment, machinery and medical and pharmaceutical products also capture a large share.
In recent years, the west market’s share of India’s exports has climbed rapidly.
Export volume by country (Unit : US$ million)
2002 2007 2012
Government policies for encouraging exports and related issues
The Indian Government has implemented a variety of export promotion schemes and established SEZs. The gov- ernment also focuses on building ties with Africa, a region with strong growth prospect as well as deep historical relationship with India. The Indian Ministry of Commerce has launched the “Focus Africa” Program with mea- sures such as active provision of information on investment in Africa and tax incentives for exporters.
Although use of the various export promotion schemes has progressed greatly among Indian companies, there are requests for improvement from Japanese companies in India.
7
http://www.indiaafricaconnect.in/
Export Promotion Capital Goods Scheme (EPCG)
Advance Authorization Scheme (AAS)
Duty Drawback Scheme (DDS)
Served From India Scheme (SFIS)
Focus Market Scheme (FMS)
Focus Product Scheme (FPS)
Export Promotion Council (EPC)
Copyright (C) 2013 JETRO. All rights reserved.
1. Special Economic Zones(SEZs)
2. Variety of export promotion schemes
The EPCG Scheme aims at exemption of duties for capital goods related to production of export products.This scheme requires a 8-fold increase in export of products in 8 years. Our company is focusing on both domestic sales and exports. Since the ratio between the domestic and overseas markets could change due to the market situation, the mandate for export amounts has become a bottleneck in using the scheme.
The Duty Drawback Scheme (DDS) aims at offering refunds for export products. However, when applying for drawbacks, it is necessary to submit certificates of duty paid by business partners for applicable parts and materials. Furthermore, even certificates of the sub-sub contractors are needed. This results in a massive amount of documents which must be submit- ted. In addition, a great amount of time is required for clearance of the procedures. Simplification of the scheme is request- ed such as designating companies in good standing and conducting periodic audits instead of inspecting every clearance.
Population 27 million
Network of Indian people in the west market
An estimated 27 million Indian citizens live in countries outside India. This figure makes the Indian diaspora one of the largest in the world, second only to an estimated 40 million diasporic Chinese. Indians living abroad are connected with India through various forms. Recently, residents living abroad are exerting considerable influ- ence on the Indian economy.
This diaspora has a major social and economic impact on the countries of the west market.
8
Composition
NRI (non-resident Indian) Indian who resides abroad and posses Indian citizenship OCI (overseas citizen of India) Indian who resides overseas and possess both Indian citizenship/ citizenship in country of residence PIO (person of Indian origin) Indian immigrant and descendants
North America : Asia :
Other :
United States (2.25 million) , Canada (1 million) , Malaysia (2.05 million) , Sri Lanka (1.6 million) , Nepal (600 thousand) , Singapore (590 thousand) , Thailand (150 thousand) , China (Mainland: 67 thousand; Hong Kong: 37 thousand) , Japan (22 thousand) Saudi Arabia (1.79 million) , UAE (1.7 million) , Kuwait (580 thousand) , Oman (560 thousand) , Qatar (500 thousand) South Africa (1.22 million) , Mauritius (880 thousand) UK (1.5 million) , The Netherlands (200 thousand) , Germany (70 thousand), Italy (70 thousand) , France (65 thousand) , Spain (30 thousand) Trinidad and Tobago (550 thousand) , Australia (450 thousand)
Number of Indians in main countries
Remittance 63.7 billion USD (3%of 2011 GDP)
58.6 billion USD (as of June 2012)Balance in bank account
Fact sheet on Indians living abroad Source : Ministry of Overseas Indian Affairs
1 million or more people 500 thousand or more 200 thousand or more 100 thousand or more 50 thousand or more 20 thousand or more 10 thousand or more
Indian people living abroad
Source: Prepared by JETRO from various documents
Copyright (C) 2013 JETRO. All rights reserved.
Examples of companies in the west market acquired by Indian companies
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Current state of overseas activities of Indian companies
Overseas operations of Indian companies have been growing briskly since 2005, when India posted econom- ic growth of over 9%. One factor in this overseas expansion is these companies’ favorable business results, which have enabled them to build capital and earn trust. However, the main factor is thought to be capital liberalization. Since 2003, foreign-exchange controls on overseas investment (curbs on remittance and bor- rowing) have been gradually relaxed.
Much of this overseas expansion by Indian companies has been in the west market. Key background factors supporting this phenomenon include the extensive network provided by the Indian diaspora in the west market and the similarities between the Indian and west markets (maturity, longstanding relationships with European countries, etc.) .
9
March 2010
March 2008
March 2003
May 2010
December 2009
October 2010
May 2007
August 2006
September 2010
April 2011
March 2007
Cement
Pharmaceuticals
Telecom
Pharmaceuticals
Chemicals
Chemicals
Source: Prepared by JETRO from press releases from each corporation as well as newspapers and other media
Source: Reserve Bank of India international statistics
Change in India’s outward foreign direct investment (FDI)
10,700
1,060
770
460
400
380
370
350
330
290
200
Company Overview
Opportunities in the west market for India-Japan partnership
In the overseas activities of companies, regional blocs that include India tend to be divided into two categories: Block A which includes East Asia and Block B that includes the Middle East and Africa. In Block A, Japanese com- panies have formed detailed supply chains and hope that India will further participate in these supply chains. Re- gional partnerships such as the ASEAN-India FTA and India-Japan EPA, as well as the RCEP currently under nego- tiation, are accelerating this effort.
In Block B, Japanese companies are launching business in the west market from India in an increasing number of cases. One option for doing so is to partner with an Indian company with extensive experience in the west market. Expectations for this approach are currently rising. From the perspective of Indian companies, collabo- rating with Japanese companies, with established supply chains in East Asia, offers an opportunity to improve their competitive position and gain an advantage in expansion of the west market.
10
Toyota
Suzuki
Nissan
Panasonic
Daiichi-Sankyo
Source : Produced by JETRO based on interviews with corporate representatives
Examples of Japanese companies entering “west market” trough India
India’s position in regional blocs
Source: Produced by JETRO based on interviews
withcorporate representatives
Exporting of ‘Etios’ , a strategic vehicle model for India, to South Africa
Supplying completed vehicles and parts to the Middle East and Africa
Supplying completed vehicles and parts to the Middle East and Africa
As a part of 2011 organizational restructuring, incorporated the Middle East and Africa, which creates synergy with India, into the Asia & Oceania bloc that is headquartered in Singapore
Purchased Ranbaxy, India’ s largest manufacturer of generic medicines. Selling new medicines and patented medicines in Africa and other emerging countries.
ASEAN India FTA Japan-India EPA
RCEP
Information included in profiles
Directory of 200 key Indian companies As part of its efforts to provide information to Japanese companies considering partnering with Indian companies, JETRO has collected profiles of 200 key companies in India. These companies were selected based on criteria such as net sales as well as consideration of industrial and regional balance. The profiles include overviews of each corpora- tion, descriptions of their management structure, business performance and financial condition. The directory is available on the JETRO website.
Reference 1
http://www.jetro.go.jp/world/asia/in/
Industry types 1. Infrastructure (17 companies) , Real-estate development (3), Turn-key operations and consulting (1) 2. Automobiles and auto-related (15), Casting and forging (4) 3. Cement (13) 4. Chemicals (12) 5. Textiles (11) , Retail (1) 6. Food processing and personal care (12) 7. Sugar (11) 8. Pharmaceuticals (9), Medical equipment (1) 9. Metals (10), Mining (1) 10. Engineering (8), Petroleum extraction and development (2), Aircraft (1) 11. Consumer durables (2), Jewelry (6) 12. Transportation (4) , Logistics (3) 13. IT () 14. Extraction of food oils and solvents (7) 15. Printing, publishing and stationery (4), Media and entertainment (3) 16. Papermaking and related fields (5), Wooden decorative items (2) 17. Agriculture (5) 18. Packaging (metals, plastics, etc.) (5) 19. Beverages (4) 20. Energy-related (power generation (1), power transmission and infrastructure (1), renewable energy (2), transformers (1) ) 21. Casting (4) 22. Finance and investment (2)
1. Corporate overview 2. Management and shareholding structure Directors Shareholding structure 3. Business categories and affiliated companies Overview of operations Affiliated companies 4. Growth strategy and business model 5. Financial condition (non-consolidated) 6. Business results and market share 7. Partnerships, collaboration and expansion with foreign-affiliated companies 8. New operations, diversification, expansion 9. Overseas operations and export sales 10. Evaluation
Copyright (C) 2013 JETRO. All rights reserved.
Consulting firms
and industry Financial institutions
Diplomatic establishments abroad HIDA
organizations
Four JETRO offices in India
New Delhi
Mumbai
Chennai
Bangalore
JETRO Business Support Center (BSC) JETRO BSC is a comprehensive support center for Japanese companies considering entering the Indian market. This facility offers rental of short-term office space and consulting services by specialist advisors. JETRO BSCs offer efficient information collection and problem-solving as well as feasibility studies to help companies settle in, and assistance in establishing a local affiliate. Shared assistants are also available. Locations: New Delhi, Mumbai, Chennai
Business matching support JETRO has been focusing on support for business matching between Japanese and Indian companies through interna- tional trade fairs. The following are forthcoming auto-parts business talks aiming at matching between Japanese-affiliated auto manu- facturing companies in India and Indian parts suppliers. -Chennai: Nov. 26-27, 2013 -Pune: Nov. 29, 2013
Development of business environment - Japanese industrial park -
Japanese industrial park in Neemrana, Rajasthan Established in 2006, 1,167 acres of land, 44 Japanese firms invested
Japanese industrial park in Mandal, Gujarat Three companies signed MOUs with GoG in Jan. 2013
SME Overseas Expansion Platform -Support system for small and medium- size enterprises (SMEs) overseas-
Structure of SME Overseas Expansion Platform
In an effort to bolster support in response to the diversifying needs of indi- vidual SMEs, the platform team up with local consulting firms, law firms and accounting firms to strengthen the network with each support organiza- tion and provide and introduce the necessary services, as well as act as an intermediary, in an integrated fashion. Various types of events will be held in cooperation with other support organizations with the aim of discover- ing local partners and learning useful information. Locations: Mumbai, Chennai
JETRO NEW DELHI
JETRO MUMBAI
JETRO CHENNAI
JETRO BANGALORE
4th Floor, Eros Corporate Tower, Nehru Place, New Delhi 110019, INDIA TEL:91-11-4168-3006 FAX:91-11-4168-3003
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Seshachalam Centre 8F , 636/1 Anna Salai, Nandanam, CHENNAI - 600035 INDIA TTEL:91-44-3927-0100 FAX:91-44-3927-0190
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“Look West” with the strategic
partnership between India & Japan
Japan External Trade Organization
Japan External Trade Organization
TEL03-3582-5179 FAX03-3582-5309
September 2013
Japan External Trade Organization Asia and Oceania Division, Overseas Research Department
[email protected]
