Thursday, 18 September 2014

Indo-Japanese Partnership Model can Ensure Highest Quality at Lowest Cost

Introduction: Strong Historic Business Ties

Prime Minister Narendra Modi’s call to Japanese businessmen to "Come, Make in India" has laid the groundwork for a special strategic global partnership between the two great Asian nations.

India and Japan are natural synergistic partners who can mutually benefit from closer commercial ties. Japan, the world’s third largest economy by GDP, is known for its unparalleled focus on quality. India, the world’s 10th largest economy, has successfully used its low-cost advantage to emerge as a strong manufacturing destination.

Maruti Suzuki and Hero Honda have demonstrated the   immense potential of Indo-Japanese business partnerships. Started in the early 1980s, these JVs have built enormous value for both partners and shareholders besides benefitting a large pool of customers.

Indian and Japan had signed a Comprehensive Economic Partnership Agreement (CEPA) in 2011, but its potential has not been exploited fully. Though Japan is the fourth largest investor in India, the $2.8 billion of FDI it injected into our country in 2012 was only 2% percent of what it invested globally that year. Similarly, Indo-Japanese bilateral trade stood at $16.3 billion in FY14, which is quite dismal given the huge potential that exists.

Common Economic Goals

Prime Minister Modi’s recent visit to Japan has breathed new life into the economic ties between the two countries.

Both PM Modi and the Japanese Premier Shinzo Abe share a common economic ethos and vision focussed on strong GDP growth and job creation.

While PM Modi is focussed on reviving a sluggish economy and navigating India towards a path of robust and sustainable economic growth, PM Abe is also trying to boost the Japanese economy by increasing export oriented growth and reducing inflation.

Given the commonality of their economic goals, I believe India and Japan should seize this historic opportunity to forge a world-beating partnership.

India’s ‘Low Cost’ Advantage

India’s unique position between Africa and Asia makes it an ideal partner for Japanese companies to use it as the low cost regional manufacturing hub.

The Indo-Japanese JVs in the auto sector have already established India’s strategic importance as a manufacturing partner. These successful partnerships need to extend to other areas as well.

As the largest and lowest-cost producer of generic drugs, India has much to offer to the Japanese healthcare system. The Indian pharma industry has already started playing its part in making healthcare affordable in Japan, which is increasingly looking at generic alternatives to costly innovator products.

It is estimated that nearly a quarter of the Japanese people are over 65 years of age. Japan’s population is projected to shrink from 127 million to about 87 million by 2060, and nearly 40% will be aged over 65 years. A rapidly ageing population means that Japan’s healthcare costs are likely to skyrocket in the coming years. Indian pharma can certainly help Japan to address this looming healthcare challenge.

The Indian pharma industry, which accounts for 40% of US generic drug imports based on volume, has already made a big difference in the world’s largest pharma market. Data from a 2013 US Report on Generic Drug Savings (which includes generics from other countries including the US) show that generic pharmaceuticals saved the US health system and patients a staggering $1.3 trillion in the most recent decade.

‘Made in India’ Generics and Biosimilars can therefore help Japan in scaling down its healthcare spends which stood at a staggering $3,200 per person in 2013.

Japan’s ‘High Quality’ Differentiator

Japanese manufacturers have an enviable reputation when it comes to quality systems, process efficiency and productivity through techniques like Kaizen & Six Sigma, which are considered global best practice.

Indian manufacturers can significantly boost product quality levels and operational efficiencies by institutionalizing these quality principles through training and skill development, thus improving their competitiveness in global markets.

Bilateral co-operation will boost local manufacturing operations in India, creating tremendous job opportunities for the growing Indian workforce.

India also stands to gain from Japanese expertise and investments in infrastructure, especially rail & road and the renewable energy sector, which can be great economic drivers for the country.

The $90 billion Delhi-Mumbai Industrial Corridor, a mega infrastructure project for which Japan is providing financial and technical aid, points to the immense potential of similar collaborations in future.

Looking Ahead

PM Modi’s Japan trip has underscored the need for a deeper economic engagement between the two nations.

To take this promising partnership to the next level, the Prime Minister announced the creation of a special Japan cell that will include two Japanese nominees for fast-tracking investment proposals from Japan.  It will also help to allay serious investment concerns relating to regulatory and operational impediments expressed by Japanese companies at the India-Japan Business Leadership Forum.

Japan has committed to doubling its current investment in India to $35 billion over the next five years. However, this is modest in the context of Japan’s total FDI outflow that was nearly half a trillion dollars between 2008 and 2012. Clearly there are enormous opportunities that await a steady, committed and long-term Indo-Japanese economic partnership.

I sincerely believe the combination of Japanese quality & technology with Indian manufacturing experience and cost advantage will reap enormous dividends for both the nations by ensuring market leadership through the supply of world-class products at the lowest cost to global markets.

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