(Amit roy)final research report.pdf 2


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(Amit roy)final research report.pdf 2

  1. 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 1    
  2. 2.   CERTIFICATECertified that the project report entitled “IMPLICATIONS OF JAPANESE FDI ININDIA” submitted by “AMIT KUMAR ROY (1014370005)” is a record of project workdone by him under my supervision. This project has not formed the basis for the award of anydegree, diploma, associateship, or fellowship.Internal Guide Head Of The Department    For  the  purpose  of  viva  voce    1.  2.   2    
  3. 3.   DECLARATIONI 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 notbeen submitted earlier in part or full for the award of any degree, diploma, associateship orfellowship.Ghaziabad,Date AMIT KUMARROY   3    
  4. 4.   ACKNOWLEDGEMENT I hereby acknowledge all those who are related to this work either directly orindirectly. I express my deep sense of gratitude to my project mentor Ms. Punjika Rathi forher expert guidance, stimulating discussions throughout the period of this project.I gratefully convey my utmost regards to , Under whose exhilarating, inspiring, and preciousadvice the exploration was carried out. His immutable solacing, uniform enlivening, evenmotivating and painstaking deadlines decided by him have shaped it feasible to accomplishthe 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 notexpress my indebtedness to our Department Staffs, Parents, and Friends for their support andencouragement. AMIT KUMAR ROY 4    
  5. 5.   TABLE OF CONTENTSChapter No. Subject Page No.1.0 Introduction 6 a. Objectives 10 b. Reason for Choosing the topic 102.0 Literature review 113.0 Hypothesis and Area of Study 254.0 Scope of Study 265.0 Research Methodology 27 a. Collection of Data i. Primary data ii. Secondary data b. Data Analysis 286.0 Findings on the topic chosen 297.0 Discussion and interpretation of findings 518.0 Conclusions, Implications and Recommendations 669.0 Limitations 6710.0 References/Bibliography 68 5    
  6. 6.   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 -1999Japanese Foreign Direct Investment in India 37Japanese FDI outflow into China and India 39Comparison of Japanese FDI outflow into 40Asia, China and IndiaIndia import & export from Japan 60 6    
  7. 7.  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 efficiencyinduced in the industrial sector. The firm in the country of origin is encouraged to invest inthe developing country because of the lower resource costs, a growing market and restrictiveimport policies. Foreign direct investment is, therefore, an intertwining of interests of boththe host and the home country. A firm that undertakes foreign direct investment gets involvedin the purchase of an existing enterprise or facilities, establishing and managing new onesand/or participating in the management of an enterprise in a foreign country. It thereforerequires the firm to conduct operations in the foreign country either through overseassubsidiaries or through joint ventures. Studies conducted so far have concentrated mainly onstudying trends, patterns and location issues with respect to FDI, and therefore, have dwelt onthe macro factors and policy orientations of both the host country as well as the country oforigin. Though these dominate the movement of FDI into the host country, a neglected areaof research, as pointed out by Meyer (2003), has been an analysis at the firm level of theconditions and externalities that help/deter the FDI flow.Until recently, Japanese foreign direct investment into India has been significantly lowerwhen compared with FDI in other Asian countries. At the firm level, this means that a largenumber of companies have shied away from investing in India. One reason that is oftenquoted for this is that India is not perceived as a viable destination for investment by Japanesefirms. 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 firmlevel, FDI goes through three specific phases, and to understand the firm’s experience, eachphase has to be scrutinised separately. The first phase is when a firm initiates the process oftargeting the Indian market. There are various reasons for entry into a market - for a Japanesefirm, it is primarily access to the local market and to expand it for its own product(s). Onefocus area of this study is to understand the entry strategy of Japanese firms, and especially,how they identify their Indian partners. 7    
  8. 8.  The second phase is the period of establishment and commencement of operations. Thisusually lasts for one to five years. During this period, the manufacturing unit is constructedand commercial production is started. This period is the toughest, as firms have to contendwith 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 asexamples 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, thefirms have learnt lessons from their exposure to the host country. Having harnessed theirunderstanding of the Indian market, they are now well established in their operations. It is inthis period that they venture to expand their business. However, certain policies and obstaclescontinue to bother them. Understanding the ground realities could provide an insight into theproblems 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 ahigh level of expectations for business opportunities here in India and activating furtherinvestments in Indian market. Recent surveys by Japan external trade organisation (JETRO)and Japan Bank of International Co-operation (JBIC) on Japanese companies operatingabroad concluded that India is considered to be the second most prospective investmentdestination abroad next to China for the Japanese business circles especially in sectors suchas automobiles, IT, infrastructure, steel, power and pharmaceuticals.The Japanese foreign direct investment (FDI) in India tripled to $5.4 billion (nearly Rs25,160 crore) in 2008 from $1.78 billion (nearly Rs 8,290 crore) in 2007, overtaking theJapanese FDI in China. The key reason for increasing the momentum of Japaneseinvestments in India is the growth potential of the local market, Japanese automobile andgeneral 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, especiallyduring economic difficulty such as the global meltdown, Need for more Japanese investmentsin India’s infrastructure companies at a time when India had proposed an investment of $500bllion. Also some more reasons includes that Japan could tap investment opportunities inpower, clean technologies, nuclear energy, energy efficiency, university linkage and humanresource development, Japan can reduce its cost of healthcare by sourcing generic drugs fromIndia, Need of more Japanese investment in India’s consumer goods industry. 8    
  9. 9.  Facts about India:India has been ranked at the third place in global foreign direct investments in 2009 and willcontinue to remain among the top five attractive destinations for international investorsduring 2010-11, according to United Nations Conference on Trade and Development(UNCTAD) in a report on world investment prospects titled, World Investment ProspectsSurvey 2009-2011 released in July 2009.India attracted FDI equity inflows of US$ 2,214 million in April 2010. The cumulativeamount 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 ofthe total FDI equity inflow into India, with FDI worth US$ 4.4 billion during April-March2009-10, while construction activities including roadways and highways attracted secondlargest amount of FDI worth US$ 2.9 billion during the same period. Housing and real estatewas the third highest sector attracting FDI worth US$ 2.8 billion followed bytelecommunications, which garnered US$ 2.5 billion during the financial year 2009-10. Theautomobile industry received FDI worth US$ 1.2 billion while power attracted FDI worthUS$ 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 whichUS$ 1,183 million came in the period April 2009-March 2010, according to the latest datareleased by the Department of Policy and Promotion (DIPP). According to investmentbankers, India may witness US$ 20 billion worth of Japanese investment by 2012. Indiasexports to Japan in the period 2008-09 stood at US$ 3025.70 million while imports totalledUS$ 7886.27 million for the period. During April to December 2009, India exported goodsworth US$ 2,479.38 million to Japan. India imported merchandise worth US$ 4823.66million from Japan during April-December 2009-10. Major Japanese funds have been cominginto India by way of offshore funds, with many Indian houses such as SBI Capital, UTI andDSP 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 projectaims to reduce its projected demand of conventional energy at the end of five years, through 9    
  10. 10.  energy efficiency measures and generation from renewable energy installations. The twosides also agreed to strengthen cooperation in research and development for promotingrenewable energy. As part of the exchange programme, a ten-member delegation from Indiaparticipated in the Japan-India New and Renewable Energy Seminar in Tokyo in January2010. Further, in May 2010, India and Japan agreed to set up a working group on civiliannuclear energy. The working group is being seen as a first step towards potential civiliannuclear cooperation between the two countriesDespite all these factors, In order to increase the Japanese FDI , Japan PM promises to linkrupee with yen to boost FDI expecting that it would allow Japanese companies to investdirectly in India, rather than the current norm of coming through Singapore and Mauritius. 10    
  11. 11.   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? 11    
  12. 12.  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.? 12    
  13. 13.   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. Japans 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 Indias 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 13    
  14. 14.   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 14    
  15. 15.   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 15    
  16. 16.   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 16    
  17. 17.   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. 17    
  18. 18.   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 worlds 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 18    
  19. 19.   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. Theres 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," Gartners 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 Japans 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 cant derive economies of scale and compete globally against packaged business and online software. Fidelitys 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 19    
  20. 20.   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. 20    
  21. 21.   -­‐ 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 industrys biggest monthly percentage fall since February 1974. Nissan Motor Cos 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 Japans 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 Japans 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 companys earnings, but said that was not on his list of priorities. "Were not thinking about numbers right now," Toyoda said at the companys 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 companys 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 21    
  22. 22.   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 Februarys 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 Japans 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 BOJs 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 worlds worst atomic crisis in 25 years. http://www.moneycontrol.com/news/world-news/japan-march-auto-sales- slumpquake-aftermath_533543.html 22    
  23. 23.   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 Japans 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 companys 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 Japans 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 23    
  24. 24.   parts. Toshiyuki Shiga, Nissans 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 Powers 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 doesnt 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 24    
  25. 25.   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 Japans 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 25    
  26. 26.  3.0: Area of study:Being interested with International business and Finance, I wished to take my dissertationtopic across the area of Operations too. And that is the main reason for electing this topicthrough which I can understand the real scenario of India – Japan relations in terms ofFinance. But when we speak about the relationship between both the companies the majorinvestments of Japanese in India are mainly through setting up their manufacturing operationsin India or either through joining hands with Indians in upcoming projects. Some basic strongfacts 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? 26    
  27. 27.  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 27    
  28. 28.  5.0: Research methodology:a. Data collection: The data required for performing the analysis on the above mentioned objectives wasgathered using the reports from the official government websites, using the discussions madein forums, latest facts and figures, using magazines and other articles as reference. Also thedetails related to the recalls and the M&A among the top Japanese companies with the Indianindustry were obtained from company websites and by interviewing personnel of Japanesecar manufacturers. In process of Data collection, the data collection is done usingi. Primary data: The primary data used for this analysis was obtained from Japanese Embassy andfrom 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 andalso will be carried out through interview with embassy people. Also the details related to therecalls 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, Articlesrelated 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 Bankfor International Co-Operation, DIPP – Ministry of Commerce and industry in India, IndiaBrand Equity foundation, Embassy of Japan in India and Economy watch. The detailsreferred from these sites include: • Cumulative FDI flows • Share of Japan in FDI flows • Sector and Year wise FDI flows into India 28    
  29. 29.  b. Methods of Analysis: The analysis will be carried through hypothesis testing when it comes for the finalobjective. For rest other objectives mentioned, it will be carried out using the graphs, chartsand tables. Will be including tools like histograms, scatter and pareto diagrams in the areasdemanding. Some of the results of analysis includes the below mentioned Graphs and tables. 29    
  30. 30.  6.0 Findings on the topic chosen:History of Japanese Foreign Direct Investment into IndiaJapan’s participation in FDI in India is conditioned by Indian foreign investment policy aswell as its industrial policy. A chronological study of Japan’s foreign direct investment intoIndia can be divided into two phases - one, the post liberalisation phase-I, that is from 1991 to2000 and second, the post liberalisation phase-II, which is from 2000 till date. In the firstphase, the Government of India had allowed a maximum of 49 per cent equity participationby foreign companies in a limited number of sectors. Over a period of time, the cap on equityparticipation by foreign companies as well as the sectors in which foreign companies couldparticipate was increased. The division of the liberalisation phases is essentially linked to thedirection taken by the Indian government towards equity participation by foreign companiesand the opening up of different sectors in which foreign companies have been allowed toparticipate.India followed a restrictive foreign private investment policy until 1991, relying more onbilateral or multilateral loans with long-term maturity. The Foreign Exchange and RegulationAct (FERA), 1974, stipulated that foreign firms could have equity holdings only up to 40percent. The government could use its discretion to make exemptions. The law alsoprohibited the use of foreign brands. However, one did see some hybrid domestic brands likeHero Honda operate in the Indian market. By the 1980s, some relaxation was made in theforeign investment policy, and this saw the setting up of Maruti, a central government jointventure with Suzuki Motors of Japan, in 1982. A crop of Japanese companies followed, whogained entry through technical collaborations or by getting exemptions. Sanyo and JVC usedthe technical collaboration route.The Post Liberalisation Phase-I:In 1991, with the initiation of the industrial liberalisation policy, a significant change cameabout 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 bysouth-east Asian countries through foreign investments, benchmarked its own policies to helpattract FDI. Over the decade, India permitted foreign investment in almost all sectors. 30    
  31. 31.  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 515.5Source: Government of India StatisticsThe cumulative FDI inflow received from Japan during the period 1991-1999 was US$2.6billion. This placed Japan in the fourth position among the countries which were investing inIndia. A closer look at the top ten investing countries in India (Table 2) shows that a fifth ofthe investment came from the US alone. Mauritius and the U.K. put together, made up almost 31    
  32. 32.  another one fifth of the total investment. Thus, Japan with a 4 per cent share of the total FDI,had not taken advantage of the opening up of the Indian economy.     Japanese FDI inflow into India (US$ million) 515. 5   254.9   150.8 149. 125. 139.   6   9 8       200 200 200 200 200 200 1 2 3 4 5 6Only by totaling 27 FDI projects reported in Japanese media, Japan’s FDI to India willamount to around US$ 5.5 billion over 5 years from 2006 to 2010Only by totaling 27 FDI projects reported in Japanese media, Japan’s FDI to India willamount to around US$ 5.5 billion over 5 years from 2006 to 2010. The major FDI projectsare 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) 32    
  33. 33.   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 DelhiIndia maintained its 2nd rank among “Promising countries/regions For businessdevelopment in the Medium term for Japanese Manufacturers’ overseas businessoperations 2006 2005 2004 2003 2002China China China China ChinaIndia India Thailand Thailand ThailandVietnam Thailand India USA USAThailand Vietnam Vietnam Vietnam IndonesiaUSA USA USA India VietnamRussia Russia Russia Indonesia IndiaBrazil Korea Indonesia Korea Korea 33    
  34. 34.  Table 2: Top Ten Investing Countries in India 1991-2000Rank Country/ Region % Share in FDI inflow1 US 20.42 Mauritius 11.93 UK 6.44 Japan 4.05 South Korea 3.96 Germany 3.47 Australia 2.78 Malaysia 2.39 France 2.110 Netherlands 1.9Source: Handbook of Industrial Policy and Statistics, 2001The importance of Japan and East Asia was realised during the first stage of the initiative ofliberalising in India. Dr. Manmohan Singh, the then finance minister, launched Indias ‘LookEast’ policy in 1992 to seek out and develop economic ties with the members of ASEAN andmajor East Asian economies. The policy was a natural extension of the reform programmewhich aimed to open up the Indian economy and expand its participation in the globaleconomy. There was also the hope that closer ties with the East Asian economies that hadachieved 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 tostimulate Japanese investment into India. Although in the beginning, there was a surge inJapanese companies arriving in India through joint ventures as shown in Table: 1, the flowdid not gain momentum and actually hovered around US$300 million. The sectors thatattracted Japanese investment were automobiles, telecommunications, fuel, chemicals and 34    
  35. 35.  trading. Though the number of approvals steadily increased, the average investment wasdefinitely low. The only silver lining was that the major approvals were technicalcollaborations (around 668 approvals), which meant that that Japanese companies weretesting Indian business partners.Honda in the automobile sector and Sony in the electronics sector were the two importantJapanese brands that made their entry in 1991. Taking advantage of the movement of thezipper industry from being a small scale industry to becoming a large scale industry, acompany like YKK made its entry too. By the end of the decade, important brands likeToyota, Toshiba and Panasonic had also entered the Indian market. There was also aproliferation of companies in auto parts, fuels and chemical and industrial goods.Figure 1: Share of Top Sectors Attracting FDI Inflow from Japan 1991-1999Source: Government of India Statistics 35    
  36. 36.  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 EastAsia region, one would find that India had attracted only 2 per cent of the Japaneseinvestment flow into Asia in the first phase (Fig: 2)Figure 2: Cumulative Outward Flows of Japanese FDI into Asia: 1990 -1999Source: JETRO, Statistics: Japan Outward / Inward Foreign Direct Investment StatisticsOverseas subsidiaries of Japanese firms in South East Asia and its neighbouring states weremainly in consumer durables manufacturing, industrial products and natural resources sector.In the 1980s, the Government of Japan had taken positive interest in developing this regionwith economic assistance. This had enticed Japanese FDI to this region, as among otherreasons, labour here was cheap and disciplined. By the 1990s, this region was growingrapidly and providing greater opportunities. Moreover, the ease of operations due to Japan’slong associations with these countries had generated a certain level of comfort. India, with adiverse culture and complex socio-economic factors was a challenge to Japan. This wasreinforced 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. 36    
  37. 37.  On India’s part, no image building exercise was carried out to project India as an industrialhub.The Post Liberalisation Phase-IIIn the second phase, 2000-2008, though there was a substantial increase in Japaneseinvestment in 2002, it fell to a pathetic low of US$94.4 million in the year 2003 (see Figure3).There was some improvement between 2004 and 2006 though it was only in the last twoyears of this phase that there was a significant improvement to levels above US$600 million.Figure 3: Japanese Foreign Direct Investment in IndiaSources: Compiled from data of Department of Industrial Policy and Planning, Govt. ofIndia, Monthly FDI fact sheet 2008.If one looks at the country-wise flow of FDI into India, then one finds that Japan has slippedfrom the fourth position in the previous decade to the sixth position in this decade. It isnoticeable that even with more liberal policy changes; Japan’s percentage share has become3.27 per cent, while a country like Singapore, which did not figure as an investor in India inthe last decade, has taken second position to Mauritius. This shows that whereas the “lookeast” policy of India did find takers in countries like Singapore, it did not impact the mind setof Japanese investors. 37    
  38. 38.  Table 3: Top Ten Investing Countries in India 2000-2009Source: Fact sheet on Foreign Direct investment (FDI) April 2000-July 2009, Department ofIndustrial Policy and PromotionThe year 2000 saw a major policy change with foreign participation being allowed up to 100percent in most sectors. Following this, the government rapidly relaxed conditions andenacted FEMA. In 2005, a significant change was brought about when foreign companiesalready operating in one sector were allowed to re-invest in another sector, through theautomatic route. This permitted the foreign company to be treated as the equivalent of adomestic 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 suchJapanese companies in India. According to the current publication (2008) of the Japaneseembassy in India, there are 550 Japanese companies operating in India through jointventures/subsidiaries. The sectors in which Japanese companies are operating have notchanged much from the previous decade (Table: 4). Japanese companies have made theirpresence 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 latestfigures are given below: 38    
  39. 39.  Table 4: Share of Top sectors Attracting FDI Inflow from Japan 2000 -2007Source: Department of Industrial Policy and Promotion, India: A brief note on foreigncollaboration with Japan.Comparison of Japanese FDI inflow into Asia and India in Phase-IIA comparison between India and the countries in Asia which attract FDI from Japan showsIndia in an even poorer light until 2005. As Fig: 4 and Fig: 5 show, India did not find favourwith the Japanese investor. India lagged substantially behind China which was the mostfavoured destination for Japanese FDI. In 2005, India attracted only US $266 million ofJapanese investment against the investment of US$6575 million in China. This was only 1.6per cent of Japan’s total FDI flow into Asia.Figure 4: Japanese FDI outflow into China and India: 39    
  40. 40.  Figure 5: Comparison of Japanese FDI outflow into Asia, China and India:Source: JETRO, Statistics: Japan Outward / Inward Foreign Direct Investment StatisticsAfter 2005, however, the picture is quite different (Table: 5). India’s share in FDI flows fromJapan has increased from 1 per cent in 2006 to 2 per cent in 2007 and to 4.2 per cent in 2008.It now ranks second among the Asian countries. The more popular destinations like Malaysia,Hong Kong, Thailand and the Republic of Korea have slipped considerably.Source: JETRO, Statistics: Japan Outward / Inward Foreign Direct Investment Statistics 40    
  41. 41.  FDI SYNOPSIS ON JAPAN - (as on 31.10.2009):Cumulative FDI inflows during 1991-2009 (up to October):FDI equity Inflows is US$ 124.2 billion, including amount on account of acquisition ofexisting shares (upto 1999), RBI’s- NRI Schemes, stock swapped & advance pending forissue 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%. 41    
  42. 42.  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 foreigncompanies 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 October2009. However, this amount does not include inflows received through acquisition route priorto April 2000. Further, the inflows data on Sector specific in respect of Japan is available 42    
  43. 43.  only for the period April 2000 to October 2009. The amount of FDI inflows project specificin 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 from01.04.2000 to 30.09.2009 shows that the highest inflows have been in the AutomobileIndustry which accounts for over 31% of FDI inflows from Japan. Electrical Equipments withabout 14% is in the second place and Telecommunications with over 9% is in the third place. 43    
  44. 44.  As far as technology transfer is concerned, total numbers of 879 technical collaborations havebeen 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 theTransportation Industry followed by Electrical Equipments (including computer software &electronics) and Chemicals (other than fertilizer) 44    
  45. 45.  Another aspect of growing India-Japan investment relations is the increasing number ofprojects in India where the Japanese are involved, especially in the automobile sector. RecentFDI 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 Indias top banks, the State Bank of India. The tie-up will include cooperation in various areas including syndicated lending and infrastructure finance. • The $63 billion Toshiba Corporation has entered into a joint venture with the JSW group to manufacture turbines for large power plants. The Indian government has established the Foreign Investment Implementation Authority (FIIA) to facilitate implementation of FDI projects by helping investors get the required clearances. The Indian government has also set up a dedicated “Japan Cell” in the Department of Industrial Policy and Promotion to promote and facilitate Japanese investment in India. 45    
  46. 46.  Cumulative amount of FDI flows into India: 46    
  47. 47.   47    
  48. 48.   48    
  49. 49.  As per the World Investment Prospect survey of UNCTAD, Japanese TNCs, like thoseof the United States, show lower levels of internationalization than their Europeancounterparts. Respondent TNCs, in particular, indicated relatively low levels ofinternationalization for some business functions, such as R&D, headquarters and back-officeactivities. On the other hand, they have a fairly wide geographical spread, with a presence in4.6 regions, on average. Compared to other TNCs,, they focus more, in terms of actualpresence, on their own region: South, South-East and East Asia, and also on “otherdeveloped”; but a large percentage of them are also present in EU-15 and North America.Regarding future FDI plans, respondents expressed less preference for Europe than average,and a greater preference for Asia in their location strategies. Japanese TNCs also reportedtheir intention to increase their focus on developing regions (notably South, East and South-East Asia, Latin America, and, to a lesser extent, Africa) and on transition economies overthe next few years. These results are largely consistent with those of a survey of JapaneseTNCs conducted by the JBIC.According to the data from the Ministry of Finance in Japan, bilateral trade between Japanand India has been on the steady rise since the year 2003, and the amount was more thandoubled from US$ 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 Japanlike Toyota, Honda, Nissan, Mitsubishi and few more.Before the hue and cry, perhaps a raised eyebrow: There are a few strange thingsabout Toyotas worldwide recall of 1.7m vehicles, announced on January 26th.First, the breadth: no fewer than 21 different models are affected. Second, the dates: rangingfrom 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 onexactly 6,175 Daihatsu mini-trucks in Japan. The recall comes just as Toyota retained itscrown as the worlds biggest carmaker, having sold 8.4m vehicles in 2010 despite the dent toits reputation. American sales were largely flat, at 1.8m cars, European sales dropped 11%,but sales in Asia outside Japan roared ahead by 24%. 49    
  50. 50.  In Tokyo, Toyotas shares barely budged, falling a mere 1.9% on a day that the overall marketdropped 0.6%. The Japanese might be excused for feeling a bit more uneasy. Unlike a yearago, when Toyotas recalls mostly affected cars in America and the Japanese comfortedthemselves that domestically-produced vehicles were manufactured to higher standards withJapanese 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 fromNissan which lead to the market fall of both the companies..Hero Honda Split – Honda Exits Joint Venture:Its finally splitsville for Hero Honda, one of corporate Indias oldest and most successfuljoint ventures , with the two founding partners—Indias Munjal family and Japans HondaMotor Corp—agreeing to part ways and terminate the 26-year-old relationship due tounresolved differences and ambitious independent plans. Sources in the know said most ofthe terms of the deal, which will see Honda selling its 26% stake to the Munjal family, havebeen finalized and the matter will now be taken up by Hero Hondas board on Thursday. Topofficials 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 offmarkettransactions by giving the Munjal family—that currently holds 26% stake in the company—an additional 26%. Honda, which also has an independent fully-owned twowheelersubsidiary—Honda Motorcycle and Scooter India (HMSI)—will exit Hero Honda at adiscount and get over $1 billion for its stake. The discount will be between 30% and 50% tothe current value of Hondas stake as per the price of the stock after the market closed onWednesday. The Munjal family plans to compensate Honda through high royalty payouts,which could double to nearly 6% of net sales. However, key financial institutions haveobjected to this move, saying that the deal could favour the Munjals but be detrimental toother shareholders. Spokespersons for Hero Honda and the Munjal family refused tocomment 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 anoverseas-incorporated special purpose vehicle (SPV) to buy out Hondas entire stake, whichwill 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 sporta new name," the sources said. 50    
  51. 51.  Japanese FDI inflows picking up at slow pace:Foreign direct investment by Japan in India has been extremely modest in comparison withJapanese investment elsewhere in Asia, notably China, but has shown signs of picking upsteam 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 fouryears 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 trendin Japanese businesses interest in India–permission had been granted for 878 suchtechnology collaborations through May 2009, placing Japan third in the list behind Germanyand the United States.Car manufacturer Maruti Suzuki is the bestknown success story among Japanese firms tyingup with Indian partners. Now in its 29th year in India, the company makes one in every twocars sold in India. Other big hitters among the approximately 700 Japanese firms withoperations in India are Asahi Glass, Honda, Marubeni, Mitsubishi, Panasonic, pharmaceuticalmaker Ranbaxy (bought for $5 billion by Daiichi Sankyo in 2008), Sony and Toyota. AmongJapanese small and medium-sized enterprises with a presence in India, rice-milling machinemanufacturer Satake is prominent.Potholes, Power Cuts and PaperworkThe long-standing hesitancy of Japanese firms to invest in India can be put down to four mainproblems: bureaucratic red tape, in the shape of complicated taxation, customs clearance andland acquisition and utilization systems; backward infrastructure, including unreliable powersupply, 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. 51    
  52. 52.  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 increasinglyturning their attention to such (emerging) markets as India and Vietnam," JBIC economistToshiharu Mimura told Kyodo News agency. The survey conducted in the summer of 2010shows that 74.9 percent of the 605 Japanese companies selected India as their investmentdestination over the next 10 years, while 71.7 percent chose China. Last year, China was inthe first position followed by India.The survey reflects increasing aversion among the Japanese manufacturers to invest in Chinadue to some frequent strikes last year in Chinese auto manufacturing units followed by bitterdiplomatic row between the two nations over the disputed Senkaku islands in the East ChinaSea which both claim. But in an annual survey conducted by JBIC, India for the first timetopped the list as the most attractive destination, overtaking China. The new ranking wasmade in the 22nd survey carried out by JBIC in 2010, said a release on Thursday. The reasonfor China lagging behind was attributed to increasing labor cost and recent anti-Japan protestsin China in the wake of the boat incident in the Senkaku islands in September, and Chinasmove 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 tradestands at $12 billion and hoped that the target of bilateral trade of $20 billion by 2014 wouldbe achieved on time. As regards, Japanese FDI in India, it stood at $8 billion in 2008, the yearwhen it surpassed Japanese FDI in China, and since then it is continuously growing.Comprehensive Economic Partnership Agreement (CEPA) between India and Japan wassigned in February this year. Past one decade has witnessed qualitative and also quantitativemovement forward in the relationship between India and Japan. He expressed that Indian –Japan CEPA would cover various areas including Trade in Goods, Investment, Trade inservices, and Movement of Natural Persons to Intellectual Property, Competition,Improvement of the Business Environment and Bilateral Cooperation. India is on a steadygrowth path of 8.5% to 9% GDP and invited Japanese enterprises to participate throughincreased trade and investment for mutual benefit. 52    
  53. 53.  Forth coming India-Japan Global Partnership Summit in September this year aims atstrengthening economic ties between Indian and Japan and would lead to greater regionalintegration and multilateral trade. Six sectors has been identified for cooperation betweenIndia and Japan: Energy, Clean and Green Technologies, Infrastructure, Small & MediumEnterprises, Agriculture Services (ICT, Healthcare, Education & Banking)The number of Japanese companies with business operations in India has doubled in threeyears. Japan presently ranks sixth in cumulative foreign direct investment flows intoIndia.According to latest available statistics Japanese companies have made actualinvestments of US$ 4.083 billion between April 2000 and May 2010. The sectors attractingJapanese investment are automobile industry, electrical equipment, trading, service sector(financial & nonfinancial), and telecommunicationsNumber of companies in India:Source: Embassy of Japan, IndiaJapan ranked seventh in terms of cumulative foreign direct investment (FDI) inIndia, accounting for US$ 3,714 million in the period from April 2000 to March 2010, ofwhich US$ 1,183 million came in the period April 2009-March 2010, according to the latestdata released by the Department of Policy and Promotion (DIPP).According to the Japanese External Trade Organisation, (JETRO), Japanese firmsincreasingly prefer India as an investment destination over China. The number of Japanese 53    
  54. 54.  companies in India has grown three fold over the last three years from approximately 100companies in 2006-07 to 300 in 2009-10. "More Japanese companies would enter the Indianmarket in the coming years," said Naoyoshi Noguchi, retired director-general of JETRO.According to investment bankers, India may witness US$ 20 billion worth of Japaneseinvestment by 2012. Indias exports to Japan in the period 2008-09 stood at US$ 3025.70million while imports totalled US$ 7886.27 million for the period. During April to December2009, India exported goods worth US$ 2,479.38 million to Japan. India importedmerchandise 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 manyIndian houses such as SBI Capital, UTI and DSP Blackrock raising money from the Japanesemarkets to invest in India.India and Japan have decided to jointly develop one city in India as a solar city. The projectaims to reduce its projected demand of conventional energy at the end of five years, throughenergy efficiency measures and generation from renewable energy installations.The two sides also agreed to strengthen cooperation in research and development forpromoting renewable energy. As part of the exchange programme, a ten-member delegationfrom India participated in the Japan-India New and Renewable Energy Seminar in Tokyo inJanuary 2010.Further, in May 2010, India and Japan agreed to set up a working group on civilian nuclearenergy. The working group is being seen as a first step towards potential civilian nuclearcooperation between the two countries.Government InitiativesDuring Japanese Prime Minister Yukio Hatoyamas visit to India in December 2009, theprime ministers of India and Japan discussed cooperation in infrastructure projects, climatechange and security and renewable energy. The two countries also agreed to work outfunding and logistical issues relating to the Dedicated Rail Freight Corridor. 54    
  55. 55.  In the course of the visit, the governments of India and Japan also agreed to relax visa rules ina years time in order to facilitate improved trade and widen cooperation between the twonations. In the last week of December 2009, India and Japan signed two importantagreements for implementing the ambitious US$ 77.16 billion Delhi-Mumbai IndustrialCorridor (DMIC) project which seeks to create integrated investment regions and industrialareas across six states.The agreements included collaborating in the development of eco cities that areenvironmentally and ecologically sustainable along the corridor and setting up of a projectdevelopment fund to undertake activities like master planning & feasibility studies, preparingproject reports and obtaining approvals and bid process management for projects. TopJapanese consultants, including Mitsubishi, Nikken Sekkei and IBM Japan, have joined handswith three state governments and the Delhi-Mumbai Industrial Corridor DevelopmentCorporation (DMIDC) to develop eco-friendly infrastructure for new cities planned along theDMIC.The first phase of the project which was launched in 2006 will be completed by 2018. Thecorridor 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-friendlycities in Manesar-Bawal region of Haryana, Dahej, Changodar in Gujarat and Shendraindustrial region in Maharashtra, as per the agreements entered into by them, the three stategovernments and the DMIDC.In the first phase, seven cities, each entailing an investment of around US$ 9-10 billion, willbe 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. BigJapanese companies like Toyota are already here, and the Chennai area is also attracting a lotof Japanese investments. We will soon work out the exact amount of financial assistance theJapan government will provide for this project,” he said at the 33rd annual general meeting ofthe 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 55    
  56. 56.  drugs and machinery—are expected to be traded either without duty or at substantiallyreduced 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 setup a 1,000-acre Japanese village which will house Japanese industrial and businessestablishments. The proposed village would be set up near Tumkur.Investments & deals• The initiatives of the Ministry of Trade and Economy, Japan and the Japan ExternalTrade Organisation (JETRO) have helped rope in Japanese companies into investing inIndias first exclusive industrial parks for Japanese firms in Rajasthan. The companies includemajors such as Daikin Industries Ltd, Nissin Kyogo Ltd and Mitsui Chemicals.• Tata Steel, Indias largest steel producer, has entered into a joint venture (JV) withJapans Nippon Steel for production and sale of automotive cold-rolled flat products atJamshedpur. The JV is expected to invest US$ 400 million towards setting up of anautomobile venture in India.• Hitachi Transport System, an offshoot of Japans Hitachi, has acquired FlyjacLogistics for nearly US$ 54.61 million, giving it a firm footing in Indias logistics andwarehousing sector. The deal propels Hitachi to the top 10 Indian logistics companies.• Japans JR Kyushu Group and Patni Computer Systems, have announced a 51:49venture to provide information technology (IT) and product engineering services to theJapanese 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 economyinclude: • 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 56