Feature Article TOP 10 PROMISING COUNTRIES 2
India is garnering intense interest from Japanese companies. Given how rapidly the country is changing, perceptions must constantly be updated.
Many Japanese companies have already established operations in Vietnam. As companies from other countries rush to enter this market, it is time to consider how Japanese companies can strengthen their presence.
Expectations are growing in both countries for Japanese investment in cutting-edge fields and transfer of environmental technology.
In the FY2023 ranking of promising countries and regions for investment, India came in first and Vietnam ranked second. IMAHORI Shinichiro of JBIC Representative Office in New Delhi, and IKENAGA Azusa of JBIC Representative Office in Hanoi, along with NAKAJIMA Ryuji of the Strategic Research Department, Corporate Planning Group, which conducted the survey, discuss these two nations with so much promise.
Japanese companies should visit India to see especially the urban areas where high-rise buildings line the streets so that they can update their owned perception to the new India, says IMAHORI Shinichiro.
NAKAJIMA India came in first in the FY2023 rankings for the second year in a row. It received an even higher share of votes than last year, with about half of the responding companies citing it as promising. Moreover, 45.8 percent of the companies that cited India as a promising country said they have actual plans for operations in the country, illustrating just how high expectations are.
IMAHORI Since I assumed my post in India one and a half years ago, I have been witnessing firsthand the world’s growing interest in the country. Factors such as its young population, with an average age of 28, its competitive level of wages, talented IT human resources, government support for manufacturing through Production Linked Incentive Scheme, and the trend of increasing consumption by its growing middle-income class make it an attractive destination for investment. However, although the number is increasing, there are still only about 1,500 Japanese companies operating in the Indian market, and fewer than 10,000 Japanese residents in the whole country. So, this is just the beginning.
NAKAJIMA Because Vietnam does not have any major issues, Japanese companies feel that the country is stable, and this led to its rise from the previous year’s fourth place to second. Do you feel such momentum in Vietnam?
IKENAGA This is my fourth year in Vietnam. Sometimes Vietnam is praised for its rapid economic growth, but my impression is that with the population surpassing 100 million, this country is experiencing stable and steady economic growth, and that stability is the main appeal of Vietnam. Other positive factors such as the vibrant local market, good public safety, and balanced diplomatic stances appeal to the companies looking for an overseas base, and explain Vietnam’s high position in the survey.
Also, I feel that Vietnam stands out within ASEAN as a country with many cultural similarities to Japan. Indeed, a diverse range of companies have already established operations in Vietnam, with the Japanese Chamber of Commerce and Industry in Vietnam now having more than 2,000 member companies, and the number of Japanese residents approaching 20,000.
NAKAJIMA Have your impressions changed since you started living in India and Vietnam?
IMAHORI When Japanese people hear “India,” the first image coming to mind is still probably the Taj Mahal or the Ganges River. However, when one actually visits urban areas, a different vista spreads out.
A notable example is the city of Gurgaon near Delhi. It is a beacon of modernity with a concentration of high-rise buildings and startups. In the evenings you can see people enjoying wine and craft beer on the terraces of fashionable restaurants in the business district. Large-scale developments of office and commercial facilities are also underway in Hyderabad and Bangalore in South India. I believe the fastest way to update your perception to the "new India" is to come and experience it firsthand.
Gurgaon, a new business city near Delhi, has many Japanese and other foreign companies.
IKENAGA A lot of people from overseas tell me that their image of Vietnamese people is “down-to-earth,” but from my own experience here, what I strongly sense from the people I come in contact with are strong ambitions and positive aspirations for a better life. Most women work to increase the household income, and double-incomed families invest heavily in education, while also enjoying luxurious leisure and shopping from time to time. Through them, I can directly sense the expansion of the middle class in Vietnam. In my friends’ houses I can see the latest home appliances, imported baby goods, and many other things that I thought were still relatively expensive keeping in mind the average wage of Vietnam. But rather than being lavish, I feel that they are very discerning consumers. They will take the time to think over their purchases, taking into account the cost-performance and brand power, to see if it is worth paying the high price.
NAKAJIMA What do you think are the expectations of Japanese companies from India and Vietnam?
IMAHORI I believe there are high expectations for technology. This especially applies to semiconductors, battery storage, electronic devices, and other industrial sectors where India is aiming for self-reliance to enhance economic security. The Indian government is eager to attract foreign investment, and I can sense their strong expectations—they want highly capable Japanese companies in these fields to rapidly set up operations and establish manufacturing bases in India.
In the energy sector, expectations are around Japanese companies in hydrogen and biofuel production, and waste-to-energy. Regarding hydrogen, with low electricity tariffs and development costs, India has the right environment to produce highly competitive green hydrogen. We are closely monitoring this trend, since there are also projects aiming to export this to Japan.
Although Vietnam has many skilled workers in IT, science and engineering fields, as well as those proficient in Japanese, competition to attract them is fierce, says IKENAGA Azusa.
IKENAGA Vietnam has maintained a high level of GDP growth since 1990, averaging around five percent annually, with foreign investment as the driving force. In order to maintain economic growth, continuing efforts to attract overseas investment and building up highly skilled domestic human resources will be crucial.
In addition, as the Vietnamese government has set a goal of achieving carbon neutrality by 2050, the development of renewable energy sources and other approaches are urgently needed. The Vietnamese government has been asking Japan to contribute to economic modernization and decarbonization through large-scale investments, and recently we see ourselves being compared to the other countries. Korean companies, in particular, have a strong presence in Vietnam; their cumulative direct investment to Vietnam is the top among the others, and about 10 times more Koreans than Japanese are living here. With U.S. semiconductor companies and others planning to expand their business in Vietnam, we feel it is now essential to support Japanese companies here in a way that makes their presence more visible and felt.
Vietnamese women actively join the workforce, increasing household incomes and showing appetite for consumption.
NAKAJIMA What kind of unique challenges do Japanese companies face, when it comes to developing operations in India and Vietnam? It’s difficult to understand this from Japan.
IMAHORI Only a few Japanese regional banks supporting SMEs (small and medium-sized enterprises) have set up operations in India, so we would like more of them to take the initiative and come here. Another major challenge is the opaqueness of the legal system and the complexity of administrative procedures.
For example, there are cases of differentiated tax rates due to different interpretations by customs officials. In addition, a considerable burden is placed on manufacturers in bringing in certain items from Japan due to the extremely complicated procedures they need to go through to acquire certification that they meet Indian standards. The Japan Chamber of Commerce and Industry in India has compiled these issues and submitted a request to the Indian government, and we are also working on various fronts to improve the situation.
NAKAJIMA That’s very important. If local suppliers procure locally, Japanese companies will not be able to compete on price. Local procurement would be about 70 percent lower in price.
IKENAGA We have a different situation when it comes to regional banks, as nearly 40 of them have staff in Vietnam. JBIC also co-finances loans with regional banks, especially for investment projects by SMEs, which are on the increase. SMEs greatly contribute to the formation of industrial clusters in Vietnam, and the regional banks’ support for them is vital.
NAKAJIMA It seems that the growing presence of Japanese regional banks in Vietnam is also linked to an increase of Japanese corporate operations in the country. Among the companies that cited Vietnam as a promising country, the percentage of SMEs has been growing. On the other hand, with regard to India, some companies pointed out issues such as the lack of human resources for managerial positions, difficulties in communicating with the staff, and the inability to meet deadlines.
IMAHORI I think language plays a significant role in these challenges. Indians are extremely proficient in English, their second official language, and discussions in English proceed at a pace similar to in the U.K. and U.S. The need for staff stationed in India being well versed in English is often overlooked.
Indians also make good use of social media in both their private lives and business, particularly WhatsApp. Not only through emails, but close communication by phone, social media, and in person is also essential. I believe it is crucial to localize management and supply chains as much as possible while making the best of outstanding young Indian talent.
IKENAGA In the Vietnamese public sector, decision-making takes time, and delays in issuing permits and approvals have become major issues for the companies doing business there. I believe that this is partly due to the sociocultural factors unique to Vietnam, such as the tendency to pursue personal accountability for the institutional decisions that they made in the past, which makes it hard for decision-makers. And the bureaucratic administrative procedures still rely on paper-based documents. As JBIC, we strive to understand these aspects of Vietnam, and based on that, we are trying to improve the business environment for Japanese companies through our dialogues with the ministries and agencies, as well as individual projects.
NAKAJIMA Meanwhile, aren’t there companies that are considering India and Vietnam as a stepping stone for the development of further overseas operations?
IMAHORI There are initiatives underway to utilize India as an export hub for expansion of operations to East Africa. Aside from being geographically close, there is a considerable population of people of Indian heritage in Kenya, Tanzania, and other East African countries. Leveraging these Indian sales and distribution networks in Africa can prove to be beneficial.
IKENAGA We hear from companies that they wish to strengthen the role and function of their Vietnam base within the ASEAN region’s supply chain. There is also a noticeable trend of shifting production capacities from China to Vietnam. Indeed, I believe that Vietnam’s promising prospects are due not only to its economic growth but also to its balanced geopolitical position.
Political and economic stability, as well as the presence of low-cost and outstanding talent are strengths common to both India and Vietnam, says NAKAJIMA Ryuji.
NAKAJIMA I hope the results of the survey and these local views will also be reflected in JBIC’s work.
IMAHORI JBIC's loan and equity investment in India surpassed JPY500 billion in the last two years, and momentum is growing. JBIC provides support in line with the needs of Japanese companies. This includes involvement in the development of the Dholera Industrial Area, a high-tech production base for semiconductor companies, and the launch of an India-Japan fund with the Indian government. I hope that companies will first make it a point to visit and experience the new India.
IKENAGA In Vietnam, Japanese companies are expanding their operations from city centers like Hanoi, Ho Chi Minh City, and Da Nang, to more suburban areas and other provinces. To support the long-term operations of Japanese companies all over Vietnam, not only do we provide loans to manufacturing companies in Vietnam, but we also support projects that contribute to strengthening the electric power infrastructure, or contribute to supplying renewable energy to these companies, as a way to improve the business environment.
Both India and Vietnam have seen a rapid expansion of direct investment from Japan since 2005, and their share of votes has increased. Although India shows fluctuations by year, the government has been strongly promoting market entry. In Vietnam, companies centering on the manufacturing industry have been steadily setting up operations, while recent years have seen an increase in non-manufacturing industries.
Representative
JBIC Representative Office in New Delhi
IMAHORI Shinichiro
Joined JBIC in 2020 after working for TEPCO and JERA. Assumed his current position in 2022 after engaging in loans for resource projects in the Energy Solutions Finance Department. On weekends, he studies at the Indian School of Business MBA program. Graduated from Keio University, Faculty of Economics.
Representative
JBIC Representative Office in Hanoi
IKENAGA Azusa
Joined JBIC in 2010. Assumed her current position in 2020 after assignments including the Country Credit Department and the Strategic Research Department. In Vietnam, she is engaged in project formation support, local policy dialogues, and field research. Now, she lives away from her husband with her daughter in Hanoi. Graduated from Kyoto University, Faculty of Law.
Division 1, Strategic Research Department
Corporate Planning Group, JBIC
NAKAJIMA Ryuji
Joined JBIC in 2023. At the Strategic Research Department of the Corporate Planning Group, he engages in collecting and analyzing information on the overseas business development of domestic manufacturing companies. Graduated from Keio University, Faculty of Business and Commerce.
