Japanese firms shift focus to India for supply chain diversification
What's the story
In the wake of the COVID-19 pandemic, Japanese firms are turning to India as part of their 'China Plus One' strategy.
The strategy aims to diversify manufacturing and supply chains, decreasing dependence on China.
Experts at Deloitte have observed that the strategy involves establishing production facilities in alternative countries, with India becoming a major beneficiary.
Investment shift
India: A key destination for Japanese companies
Deloitte Japan's CEO Kenichi Kimura said, "Post-COVID, Japanese companies have been actively exploring China-plus supply chain strategies, with India emerging as a key destination."
He also noted that some firms are seeing India not only as a manufacturing hub but also as an access point to high-growth markets such as the Middle East and Africa.
Market appeal
India's potential as a global supply chain hub
Kimura highlighted India's vast domestic market and strong business and talent networks in areas such as the Middle East and Africa.
He said, "While Japanese businesses have yet to fully tap into this potential, we see India as not just a market but a critical supply chain hub that can drive regional and global success."
Government backing
Japanese government supports shift toward India
The Japanese government is actively backing this shift by pouring in huge funds to incentivize companies to shift production either back home or to Southeast Asia.
Japanese firms are entering into strategic partnerships and ramping up operations in India, taking advantage of its huge domestic market and competitive labor costs.
Investment surge
India surpasses China in Japanese FDI
Deloitte South Asia CEO Romal Shetty confirmed that the 'China Plus One' strategy has prompted Japanese companies to look at and invest in India.
He said, "India has overtaken China as the biggest destination of Japanese FDI," citing data from Japan External Trade Organization (JETRO).
This marks a major shift in investment patterns with India now leading in attracting Japanese foreign direct investment (FDI).
Start-up interest
Japanese investment in India's start-up ecosystem
Shetty also emphasized that Japanese companies are increasingly interested in India's dynamic start-up ecosystem.
He said, "Japanese companies are showing a growing interest in India's dynamic startup ecosystem, recognizing its immense potential for innovation and scalability."
This trend marks a new focus on technology-driven innovative solutions provided by Indian start-ups.