From Tokyo to Delhi: Unlocking the potential of the Japan-India business corridor

A recent gathering of top executives from India and Japan explored the potential for amplifying this corridor of collaboration. Accelerating localization efforts and trusting local leadership have emerged as key growth drivers, enabling Indian and Japanese businesses to fully leverage each other’s strengths. This is the first in a two-part series on “India’s business corridors”.

Those of us in Asia are keenly aware of the region's potential. Between 2015 and 2021, Asia accounted for 57 percent of global GDP growth. It gets more exciting when you look at regional trade, with nearly 60 percent of the value of Asia’s 2021 trade originating within the region , second only to the EU.

As these regional ties deepen, it was my pleasure to participate in a recent event on the Japan-India Opportunity, hosted by my wonderful Tokyo colleagues. It was the second time we have hosted this gathering, highlighting the interest in this burgeoning business corridor. With 32 top executives from a range of sectors, we discussed the potential for amplifying this corridor of collaboration.

As the world's fastest-growing major economy, India is reaping the benefits of its diverse assets, from a large and youthful workforce and rapidly expanding middle class, to increasingly sophisticated manufacturing capabilities and sourcing sites. And there is still more potential to be unleashed. India has gaps that investors and business partners can help address on skills, job creation, and investment. For Japanese companies, India holds particular significance as a key investment destination promising substantial returns and long-term growth opportunities. So, what are the key unlocks to ensure a thriving business partnership for companies on both sides?

Starting strong: Japanese businesses recognize India’s potential

When Japanese businesses were asked which country they considered the best business destination, India ranked first.

Japan's investment in India has been substantial, with Japanese companies pouring billions into sectors like automobiles and technology. There is little doubt Japanese companies have a solid footing: the top 15 Japanese companies in India contribute half of the revenue generated by all Japanese companies operating there, amounting to some US$23Bn.

Global multinationals are also recognizing the potential, with the number of foreign companies registered in India tripling between 2021 to 2023, compared to the three years leading up to 2021. Ease of doing business is also a key focus with the Indian government’s efforts to simplify processes by removing redundant laws, for instance. However, despite the strengths of the Indian market, there are still areas of untapped potential for Japanese companies.

Finding opportunities in innovation, medtech, and automobiles

Where exactly do these areas of growth lie? First, engineering, research, and development (ER&D) is a key strength for India , and companies are increasingly basing their ER&D functions there. The increasing share of ER&D sourcing presents a significant growth opportunity for those who tap it. India continues to be the global center of gravity for ER&D sourcing with over 20 percent of market share, estimated to reach US$130-170Bn by 2023. The number of ER&D centers in India has expanded from 1,140 in FY21 to over 1,500 currently.

Second, it is worth paying attention to the rapidly evolving medtech sector. Globally, the sector is estimated to grow by at least 50 percent to reach US$750-800Bn by 2030. India’s market is likewise anticipated to increase significantly, perhaps quadrupling by 2030 from the current US$12-15Bn. India’s contribution to medtech production is part of a broader government drive on manufacturing. More than US$26Bn has been allocated under the Production-Linked Incentive (PLI) scheme to support 14 key sectors, with one of them being the manufacturing of medical devices.

Deeper links with Japanese corporates are likely to take Indian businesses from strength to strength, too. Take the automobile market , which would benefit from Japan’s expertise. India is the world’s third largest automobile market with 30 million units of annual sales projected by 2030. The country is also targeting 30 percent of new vehicle sales to be electric by 2030, with parallel efforts to electrify up to 13 million two-wheelers. Realizing this ambition could be easier with Japanese companies’ pedigree in the automotive industry. Japanese brands have the highest market share in automotives across markets like Australia, Indonesia, Singapore, and Thailand. Japan is also a leading market for sustainable automobiles, with 50 and 60 percent of vehicle sales in the country expected to be electric and hybrid vehicles, respectively, by 2030.

Demystifying how to do business in India

Our distinguished group of senior business leaders discussed some of the challenges to realizing the clear growth opportunities of greater Japan-India partnerships.

First, to succeed, businesses need to adopt a “customized for India” mindset – from designing their products to structuring their operations. Successful Japanese companies in India have adapted to local market needs, forming strategic partnerships with Indian companies to gain insights and navigate the regulatory environment. Understanding local customer preferences, pricing strategies, and quality expectations of Indian consumers is also critical for Japanese companies.

Our discussions also surfaced the importance of partnering with committed country leadership based in India – fully supported and trusted by corporate headquarters – as a key driver of performance. One participant emphasized the crucial role of strategic partnerships, particularly through M&A, for Japanese companies operating in India.

The Japan-India business dynamic presents an immense economic opportunity for companies in both markets. To outperform, however, leaders must go in with eyes open about the challenges they face in navigating the business environment. Those companies willing to adapt and innovate will be well-positioned to reap the mutual benefits.