Internationalisation Strategy of Indian Businesses: A Focus on Japan
The Indian business elite has traditionally focused on the United States due to its advanced capital markets, technology, and predictable institutional environment. However, changes in the US institutional quality necessitate a diversified global engagement strategy. Japan, a mature democracy within the OECD, presents a significant opportunity for Indian firms.
Economic Context
- US Economy: Largest global economy with a nominal GDP of $28.78 trillion.
- Japan Economy: Third largest with a nominal GDP of $4.11 trillion, offering substantial opportunities for business interaction.
Japan's Economic Evolution
- Post-1945, Japan engaged in extensive industrial policy, leading to a misallocation of capital and "lost decades" by the mid-1980s.
- Recent shifts towards a market-oriented system with a fully open capital account and floating exchange rate have improved economic conditions.
- The Nikkei 225 index, reflecting market perceptions, only surpassed its 1989 peak in 2024, indicating renewed global confidence.
Demographic and Intellectual Strength
Japan's demographic decline is not a central issue for economic growth, as intellectual excellence in design, materials, and semiconductors offsets population concerns. The country has secured 14 STEM-related Nobel prizes in the past 20 years, highlighting its global capabilities.
Strategic Alignment and Supply Chains
- Japan and India share strategic interests, including concerns about Chinese aggression and US unpredictability.
- Supply chain strategies now emphasize trust over cost, with Japan being a reliable partner for Indian firms.
Business Collaboration Opportunities
- Traditional strategies, like those in the automobile sector, involve integrating business models with Japanese firms.
- New pathways include:
- Acquiring distressed industries via the Insolvency and Bankruptcy Code (e.g., Nippon Steel and AM/NS India).
- Investing in technology and infrastructure (e.g., NTT group's data centers).
- Forming joint ventures in deep-tech supply chains (e.g., Renesas and CG Power).
- Japanese financial institutions, like MUFG, actively invest in Indian credit markets.
Challenges and Strategic Shifts
Barriers such as language and cultural differences necessitate a shift in mindset. Indian firms need patience and long-term trust to engage effectively with Japanese businesses. Quick fixes typical of the "jugaad" approach will not suffice.
Conclusion
Given the issues in the US and risks from revisionist powers, Indian firms should diversify their international linkages, prioritizing Japan as a strategic response. This approach aligns with the changing global landscape and offers new business opportunities.
