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Expansion of investment into new desirable areas

Prof. Masanori Kondo, International Christian University

(This is the concluding part of a series of articles, excerpted from an article contributed by Prof. Kondo, the original Japanese version of which was published in the Weekly Economist of July 15, 2006)

Integrated knowledge fields such as biotechnology, pharmaceuticals and IT are much easier to catch up despite a later entrance into the market, much more so than labor-intensive or capital-intensive fields.

Until now, most of the Japanese investment in India has been mainly focused on machinery components and chemicals, but there is still very little in the areas of biotechnology, pharmaceuticals and IT. While India is seen as a growing stronghold for American and European companies that operate in such fields, Japan is seen as making gains only in capital-intensive markets. However, with the further opening up of the Indian market, especially in the finance, retail, and applied-research industries, Japanese companies should be looking for more opportunities in India and its growing tertiary industries. This is a valuable opportunity for Japanese companies to improve their business image in India.

Finally, there has been an increase in interest in the Indo-Japanese relationship due to the strained Sino-Japanese political relationship as well as Japan and India's shared goal of UN Permanent Security Council membership. However, it is difficult to say to what extent these so called "outside factors" are actually being successful in improving the Indo-Japanese economic relationship.

While ever since India's 1991 economic liberalization, there has been an increased interest in India, this interest just does not seem to translate into greater investment from the Japanese business community. Once tensions with China and the UN Security Council issues begin to lessen, it may become clear as to whether this current period of interest in India is just a passing trend or will become something more long term.

A recent March study by JETRO revealed that Japanese companies' Indian operations are in fact on average more profitable than in other Asian countries. There are also more Japanese companies than ever before planning various expansions in the Indian market.

If Japanese firms are willing to make a serious commitment to India, I believe there is plenty of possibility for them to make up for lost time. Hopefully Japanese companies can utilize their strengths and meet the high expectations for them in the Indian market.

Prof.Kondo, a well known specialist in Indian economics in Japan, is a member of Nihongo Bashi's Academic Advisory Board.