India becomes most-favoured investment destination for Japan

The Ranbaxy-Daiichi deal attracted a lot of interest, which was only to be expected, since it was the largest Japanese acquisition in India till date. But the Japanese business association with India has been growing for a while now.

A recent survey conducted by the Japan Bank for International Cooperation (JBIC) shows that India has become the most-favoured destination for long-term Japanese investment.

While nearly 70% of Japanese manufacturers regard India as the most attractive country to do business over the next 10 years, around 67% preferred China. Russia came third with a 37% rating, followed by Vietnam at 28%.

During 2007, which was ascribed as the Indo-Japan friendship year, Anchor Electricals was sold out to Osaka-based Matsushita and Lumax industries was acquired by Japan's Stanley Electric world leader in illumination products.

In 2006, the Poonawala Group sold its stake in Eagle Seals and Systems to Japan's Eagle Industry. And 2005 witnessed two acquisitions, one was the stake purchase in International Tractors by the Yanmar group and the other was the acquisition of Chennai's SRP Tools by Mitsubishi Heavy Industries.

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The automobile sector has been the area where the Japanese presence is the most noticeable. But their interest has now spread to various sectors like machine tools, electronics and IT. According to India Brand Equity Foundation, Japan ranks fifth in terms of cumulative FDI equity inflow into India. Japan's FDI in India is projected to be around $5.5 billion over 5 years from 2006 to 2010.

Canon India President and CEO Kensaku Konishi says: "India is a growing economy, hence a lot of Japanese companies want to invest here. However, because of less work experience in this part, in terms of not only size but language as well as culture, acquisition is one of the better alternatives to enter Indian market."

Many sectors in the developed Japanese economy, which have a negligible growth rate, do not have much scope to grow. In view of this, Japanese companies need a presence in emerging markets to grow. Ernst & Young India Head, Japanese business services Amitabh Singh points out, "Till some time ago, for Japanese companies it was mainly China, Thailand and other south east countries. But now India has become so attractive that it can't be ignored."

Moreover, there is no dearth of funds as Japanese banks are ready to loosen their purse strings to fund the acquisition plans of their corporates. A senior executive from a Japanese infrastructure company says, "Traditionally Japanese have found automobiles, IT and now pharmaceuticals in India to be attractive. But now even other sectors are also being looked at. With India's growth forecast to slow down, a final decision on entering India has not been made."

Finance seems to be one of the attractive sectors being explored by Japanese companies. While Shinsei Bank has set up its investment arm in India, Nomura Holdings, Japan's largest securities firm, has already expressed its intent to venture into Indian markets. It is open to acquiring outfits involved in broking business and investment banking among others.