Mumbai: In 2005, the Japanese Exchange and Trade Organization, or Jetro, a trade body to facilitate Indo-Japanese investments in both India and Japan, operated out of a 2,900 sq. ft office in New Delhi.
Last year, Jetro shifted to a swanky 7,000 sq. ft five-room office. It added what it called an “incubation centre” to help Japanese investors choose businesses in India. It’s a gamble that is starting to pay off.
On Wednesday, Daiichi Sankyo Co. Ltd, Japan’s third largest drug maker, voted with its wallet by offering to pay as much as $4.6 billion (Rs19,734 crore) to buy India’s largest drug maker by sales, Ranbaxy Laboratories Ltd. The proposed purchase has eclipsed the $671 million worth of investments made by Japanese firms in India last year, and is also a telling sign of Japan’s ambition to keep its recent economic growth on track.
For a start, Japan’s fate, tied loosely to that of the US, its largest trading partner, is starting to look wobbly because the US economy is scaling back on consumption after being hit by a credit crunch which is one of the worst in its recent history.
Worse, the yen is gaining against the dollar, hurting the export-driven economy—the second largest in the world. And Japan, much like other oil consuming nations, is grappling high oil prices and higher inflation stoked by it. Companies such as Nissan Motor Co. that export cars the world over expect profits to dip because of a stronger yen and weaker demand in the US, their most profitable market.
Naoyoshi Noguchi, Jetro’s director general stationed in India for three years, must have every reason to plot for a bigger office. While the economy here too faces the challenges of oil-stoked inflation and slower growth, it is expected to continue growing much faster than larger ones such as the US—a bet worth taking. The cost of production here is much lower, and as Japan expands its ties with India, it can use it as a hub for goods for exports, say industry analysts.
Noguchi says the Indian market for certain sectors is very interesting and he expects more cheques to be signed for sectors ranging from auto components to electronics, pharma, construction machinery and process industries. And the Japanese government is taking India seriously. It plans to invest $90 billion to build a dedicated rail freight corridor that connects the eastern to western and northern parts of India.
An investment banker who worked closely with Ranbaxy Laboratories in the past, says Japanese companies always enter at the end of a bull market. From strategy to execution, they typically take more than two years. But in the Ranbaxy deal, it just took 45 days to complete, showing their eagerness to buy a big player in the generics business.