MUMBAI – Companies are rushing to set up operations in India, eager to secure a foothold in the market of 1.2 billion people.
The number of Japanese firms operating in the country totaled 926 as of Oct. 1, up from 438 in early 2008 and 812 in 2011, with most of them in the automotive industry, according to data compiled by the Japanese Embassy in India. The figure looks set to exceed 1,000 by mid-2013.
Still, Japanese firms’ China presence is far greater, with some 22,000 companies operating there as of late 2010. However, a growing number are considering shifting some manufacturing to other countries, including India, as the Senkaku Islands dispute hurts operations in China.
Japanese firms currently in India are mainly large manufacturers with a wealth of managerial expertise and the funds necessary to build factories and other infrastructure on their own. Of these companies, Suzuki Motor Corp. cuts the most prominent figure, dominating the local car market.
Toyota Motor Corp. is also expanding there. Since carmakers are bringing in a raft of parts suppliers as well, they are the vanguard of Japanese firms entering the Indian market.
Many are setting up shop around New Delhi and western India, which has a vibrant automotive industry. Bangalore in southern India and Chennai in the southeast also host companies, including Toyota, Nissan Motor Co. and Toshiba Corp.
Meanwhile, just a handful of smaller Japanese firms have cracked the Indian market, in part because there are few manufacturing plants they can lease.
And while the Indian economy is slowing, this paradoxically is providing an incentive for Japanese companies to do business in India since the government there is enacting fresh measures to attract foreign firms to revive economic growth.
Among the measures, the government has relaxed restrictions on foreign investment in local retail businesses. Delhi-Mumbai Industrial Corridor, a $90 billion joint Japan-India project to develop infrastructure linking India’s political and business centers, could become a bonanza for firms taking part.
Nonetheless, investment in India is fraught with risk. In July, a scuffle between an Indian supervisor and subordinate escalated into violent rioting that left on supervisor dead and shuttered Suzuki’s plant in Manesar in the state of Haryana for about a month. The incident frightened prospective corporate investors and some Japanese companies are reported to have reduced their staff in India.
Other countries, including Myanmar, which is in the midst of a transition to democracy and is a significant untapped market, now appear to be stealing India’s thunder as a promising investment target.
Still some Japanese firms that remain upbeat about the business outlook for India.
“The Indian market has considerable potential. There is still room for growth despite the negative effects of the economic slowdown,” a senior official with an Indian unit of Honda Motor Co. said.
“Considering the future of our company, India is an important market we just cannot disregard,” one Japanese corporate executive said, echoing the sentiments of several others.
Auto and electronics makers are rapidly expanding their marketing and other operations in the country because Indians’ newfound wealth is boosting their purchasing power.
Still, challenges abound for companies trying to make it in India. Bureaucratic red tape remains one of the major obstacles, with obtaining a local corporate entity license sometimes taking more than six months.