Japan External Trade Organisation (JETRO), an independent agency recognised by the Ministry of Economy, Trade and Industry of Japan, has been promoting bilateral trade and investment between Japan and India since 1966. The Dollar Business caught up with Kazuya Nakajo, Chief Director General of JETRO India, to understand how JETRO is helping Japanese and Indian firms leverage each other’s strengths.

Interview by Ahmad Shariq Khan | July 2017 Issue | The Dollar Business

TDB: What is the mandate for JETRO’s India office?

Kazuya Nakajo (NK): JETRO in India works in three main areas: diversification of Japanese investments in various sectors, helping Indian business to explore opportunities in Japan and creating a Japanese business base in India from which we can serve other countries.

TDB: What programmmes is JETRO currently undertaking in India?

KN: JETRO is currently providing a few programmes in India, under which ‘Invest in Japan’ is one of the main focus areas. Under this programme, JETRO offers consultation services in areas pertaining to taxation, legal frameworks, finances, human resources, etc., to Indian companies that are looking at Japan as an investment or expansion destination. It also offers temporary office space in six major cities of Japan, and shares market reports, online database, etc., with the companies – and these services are provided absolutely free. Other programmes that JETRO offers include buyer-seller meets, trade tie-up promotions, online trade fair databases, etc., and information about these can be obtained from any of the JETRO offices in India.

TDB: What are the key sectors in which we can hope to see Japanese investments? What role is JETRO playing in diversifying the investment portfolio?

KN: Japan is the third-largest foreign investor in India. The top two investors are Mauritius and Singapore, but their investments are primarily in financial sectors as they are low tax economies. When it comes to foreign direct investments (FDI), Japan is the biggest source of FDI into India.

Well, distribution of Japanese investment, by industry, is somewhat concentrated in automobile, machinery and engineering sectors as these are industries in which Japan excells. However, to attract more investments into India, we are looking at sectors like services, information technology, industrial machinery, food processing, etc.

To achieve this diversification, showcasing market potential and market entry opportunities to potential investors is vital. To do this we are trying to create partnerships with the Government of India and industry organisations such as CII, FICCI and ASSOCHAM.

TDB: What makes India an attractive investment destination for Japan?

KN: Investment is determined by market potential, potential for technology application, as well as the availability of human resources and capital. And, since the room for market growth is shrinking in Japan, Japanese companies have started deploying their financial resources in overseas markets. Japan has been looking at India as an FDI destination as well as a production base, especially considering India’s strength in engineering resources, for exports to both developed and developing countries.

TDB: What advantages does Japan offer as an investment destination, compared to some of its neighbours like China and South Korea?

KN: Japan has its own unique position in Asia, and one of the advantages Japan offers is its highly-sophisticated market. Those who are able to profit with their technology, products and services in the Japanese market are able to replicate the same in all other Asian markets. For example, P&G conducts test marketing for their diaper products in Japan. Even some Asian companies have started producing their high-end products in Japan as it enables them to add value to these products. Also, when it comes to R&D activities, Japan is in an advantageous position – not only because of the availability of researchers but also the existence mission critical partners.

TDB: Since one of JETRO’s primary objectives is to help Japanese SMEs expand their business abroad, are you looking to tie-up Indian SMEs with those from Japan?

NK: One of JETRO’s main focus areas is to enhance the number of SMEs deployed in foreign markets. We have been conducting market research, doing custmised consulting for Japanese SMEs and creating business opportunities by organising trade fairs and business meetings. However, I must tell you that we are not particularly looking at the SME sector in India for business opportunities. We are looking at those industries that are at the nascent stage – especially in the multi-tier structured industries such as automotive and electronics.

TDB: JETRO recently associated with Snapdeal, a major e-commerce platform, to create a niche space for Japanese products in the Indian market. How succesful was the campaign?

KN: The campaign’s main objective was to improve the acceptance of Japanese products in Indian market. However, since the prices of the products that were being sold through the initiative were relatively higher than similar products available in India, and the uniqueness of the products were difficult to elaborate online, we faced a slight difficulty in convincing Indian consumers and in turn not achieveing the desired sales number.
We are now analysing the sales data to send feedback to Japanese companies. Also, a second round of sales campaign, a more efficient one, will be conducted by the end of 2017.

TDB: What are the sectors in which Indian and Japanese companies can mutually benefit from working together?

KN: We see vast opportunities in areas such as telecommunications, infrastructure, mobility and sophisticated services – while Japan has some of the best technologies, products, services and know-how in the world in these areas, Indian companies can boast of appropriate local strategies for penetration, management skills and human resources. So, companies from both the countries can look at aforementioned industries where these strengths can complement each other.

TDB: Does Japan look at Indian pharmaceutical industry as a potential area of interest?

KN: Elderly citizens form a huge section of the Japanese demographic. This has triggered the demand for generic drugs to ease the steep increment in social security expense in Japan. India, a low-cost producer, has been exporting raw materials to Japanese pharmaceuticals industry. Having said that, since there are stringent quality and safety regulations which govern pharmaceutical formulations in Japan, the quality of Indian products at times does not meet the Japanese standards. However, there are a few Indian pharma players that are successfully operating in Japan. If Indian companies can adhere to our quality standards, they can do well in the Japanese market.

TDB: Do you think the Indian government has been able to infuse the required amount of confidence in Japanese investors?

KN: Yes, of course! However, there remain some concerns. Firstly, the Indian business environment is far too competitive and since consumers here have a ‘value for money’ mindset, Japanese companies have been facing difficulties in realising the kind of profits that they had estimated initally. Secondly, administrative and tax systems and procedures are very complicated. Though both the central and state governments are working towards providing a better business environment, and introduction of GST is good move in this direction, Japan’s expectations from ease of doing business measures have still not been realised.

TDB: What has JETRO done to connect the automotive industries of the two countries? Have success stories like Suzuki and Honda been able to attract other Japanese firms to Indian market?

KN: JETRO has not taken any direct initiative. However, we have been conducting seminars and research in these areas. Also, we have been supporting individual companies in both markets and introducing them to potential local partners.

As for your second question, Suzuki and Honda’s success in Indian market has certainly made other Japanese companies to sit up and take notice of Indian market. But, that said, India is not an easy market. Creating a brand in the market will be vital for the success of Japanese businesses, both new and existing, in India.