INDIA FILE. Land of the rising yen

Look at it this way, suggests Shinya Fujii, Director General of the Japan External Trade Organisation, which set up ‘shop’ in Chennai three years ago. “During the first year about 100 Japanese businessmen a month would come calling.” The number visiting Jetro had risen to 300 a month in a couple of years. Now and increasingly so, the Japanese are arriving in Chennai with families – implying that they are coming to stay.

Today, there are over 700 Japanese in Chennai, a growing population that is making its presence felt on the social and cultural landscape of the city. Japanese language centres have sprung up and the city’s American International School has opened a centre that teaches the language; there are about half-a-dozen standalone Japanese restaurants while hotels continue to add Japanese cuisine to their menus; and on the golf courses, the city’s sporting ground for the expats, it’s no longer a surprise to find more than one Japanese four-ball group huddled around a green.

And why should it be? Data from the Japan Chamber of Commerce & Industry show that 40 per cent of all Japanese investment found its way into Tamil Nadu, most of it in and around Chennai. Of the 120 members of the chamber that collectively invested Rs 20,350 crore in India, as much as Rs 8,320 crore went to Tamil Nadu — the land of the rising yen. Clearly, the Japanese have taken Vannakam , a greeting in Tamil, to heart.

Three short years ago, there were 169 projects in Tamil Nadu; today, there are 344 and counting. From Komatsu in earth moving equipment and Hitachi for turbines to Fujitec and Mitsubishi in elevators, the Japanese have invested across the spectrum. The bulk of it, of course, has been in the automotive sector, spurred by the Rs 4,500-crore car project put up the France-Japan combine Renault-Nissan. Nissan last year exported over one lakh Micras, its small car, to a hundred countries spanning Europe, Asia and Africa (see box).

Nissan’s decision to set up shop near Chennai was spurred by the fact that the city had an already well-developed network of auto component suppliers, thanks to the entry of Hyundai and Ford in the early 1990s. “Tamil Nadu invited investment, particularly in manufacturing, and supported us. It wanted Chennai to be the Detroit of India,” says Takayuki Ishida, till recently the MD & CEO of Nissan Motor India Pvt Ltd.

Why Tamil Nadu?

But there was a geographical advantage the company had factored in as well. “TN is closer to Indonesia and Thailand. So it’s easy to get our parts from units there,” he explains. Ishida then goes on to reel off other factors that give the State an edge over others: talented, better educated people and a good labour pool, fed by the numerous engineering colleges and polytechnics TN has.

Jetro’s Fujii complements this by pointing out that labour in Tamil Nadu is around 20 per cent cheaper than regions such as Delhi. Moreover, for the automotive sector, the availability of an existing supplier base in Thailand is an added advantage.” It’s cheaper to ship goods from Thailand, which takes around five days, than from Delhi.

Masanori Nakano, the moustachioed, soft-spoken Consul-General of Japan in Chennai, is thoughtful when asked why Japan has favoured Tamil Nadu as an investment destination. Apart from the obvious reasons of logistics and geographical advantages TN has, Nakano says the Japanese have a high degree of comfort with southern India. “There are a lot of Japanese factories in China, but they still have to learn Chinese,” he says. “The younger Japanese are more comfortable with English, so ease of communication is one reason why they come to India to invest.” Of course, he adds, decisions take a long time in India, but once a decision is made according to procedures, it is stable.

More Japanese projects are in the pipeline. The big one is the Omega industrial township planned for Japanese companies by Ascendas and a consortium from Japan on Old Mahabalipuram road, 55 km south of Chennai (see box). This 1,600-acre park will house more than 60 Japanese companies when the project is complete. Sojitz-Motherson is planning an industrial park for Japanese small and medium enterprises in Kanchipuram near Chennai, where another 50 Japanese companies are expected to invest.

Recently, Japanese automobile company Isuzu announced a Rs 1,500-crore SUV and LCV project at the Sri City SEZ, 75 km north of Chennai in Andhra Pradesh. The company will be headquartered in Chennai. Yamaha has also announced a 1.8 million bikes a year facility in TN. Says Jetro’s Fujii, “There are other clusters where Japanese companies are present in India such as in Gujarat. But of all States, Tamil Nadu has the largest Japanese cluster.”

Trust& relationships

D. Sivakumar, the boyish looking Director, Operations, of the Chennai-headquartered Nihon Technology Pvt Ltd, which develops software exclusively for Japanese companies, had worked in Japan for ten years. The company, which employs 160 people, has 40 stationed in Japan to service major customers there. Sivakumar, who loves sushi and speaks Japanese like a native, understands the Japanese psyche very well. “Compared to north India, the Japanese are more comfortable with south Indian culture,” he explains. Winning the trust of a Japanese partner takes years, but once they place their trust in you, it’s for the long term, he says. “I’ve been working with the Japanese for over 13 years now; they have very good ethics and work culture.”

L. Ganesh, Chairman of the Chennai-based Rane group, a major auto components maker, endorses this enthusiastically. The Rane group has tie-ups with two Japanese companies – Nisshinbo for braking systems and NSK for electric power steering columns — and has also won Japan’s Deming Grand Prize for its total quality management practices. As a people they are polite, they respect relationships, it’s not just business and profits, he explains. Once they build relationships and trust, they go on trust. “We started making products for which licence agreements are not yet signed; once they trust you it’s a different ball game. Western companies insist on a contract first but the Japanese attach a lot of value to relationships.” At the same time, the Japanese business community seems reserved and publicity shy. Business Line’s requests to visit the facilities of six Japanese companies in and around Chennai were met with a polite no!

Japan’s recent foray into Chennai and Tamil Nadu of course are part of a larger phenomenon – the emergence of India as a natural investment destination. “Industry is stagnating in Japan and they are sitting on a lot of low-cost capital. Where can they go? Only, India or China,” says Ganesh.

The Chinese option is less favoured now than earlier thanks to growing labour costs and an appreciating renminbi, leading Japan to increasingly look to other investment destinations. At the same time, other political issues – principally, the territorial dispute between the two countries that flares up intermittently – have contributed to tempting Japanese money into flowing into other areas. When Finance Minister P. Chidambaram visited Tokyo earlier this month on an investment promotion trip, he must have been acutely aware of India’s potential in attracting Japanese investment in an environment where investors are consciously looking beyond China.

As Rane group’s Ganesh suggests, the Japanese have a way of following their customers – in this case, the huge Indian market. He says the violence at Maruti-Suzuki, which left a senior official dead, has shocked people in Japan, who are coming round to the view that the north is both saturated and less hospitable than other regions such as Gujarat and southern India.

The Japanese impact

Tamil Nadu has done its bit to deepen the relationship with Japan. For instance, companies such as Rane took to Japan’s TQM practices in the last decade. Starting off with Japanese consultants, it later signed on joint ventures and went on to hire managers from the country. Says Ganesh about the impact of Japanese techniques on its manufacturing, “The experience with the Japanese shows how to plan meticulously, the long-term approach and the way they connect with customers.”

He says that the coming of the Japanese has benefited the entire auto component industry. “Starting with Maruti, the culture began changing; one of the industries that has really adopted Japanese practices and transformed is the auto industry, he says.

Of course, it’s not all hunky dory. Japanese companies still struggle with the same infrastructure deficiencies that Indian firms face. Even if mega projects such as Nissan get assured power supply, former MD Ishida points out that its suppliers face long hours of power cuts. It’s important for a car plant to get its supplies on time and using DG sets on a sustained basis pushes up costs. Jetro’s Fujii draws attention to the prolonged delay in improving connectivity to Ennore Port which Renault-Nissan, Toshiba and Toyota use to export. The delay in improving the last mile connectivity, he says, leads to pile up on the roads to the port.

But these and other infrastructural niggles have not stemmed the tide of investment. The wave of Japanese investment is set to become much larger than the Korean one that washed Chennai’s shores in the mid-1990s, sparked by Hyundai’s car project near Chennai. Today, there are over 150 Korean companies in the city and the Korean population has swelled to over 4,000.

As Consul-General Nakano says, the Japanese and Indians bring different skills to the table. “We both have advantages. I feel that Japanese people are good at paying attention to detail, the micro aspects.

“On the other hand, Indians are good at theoretical thinking; they have good presentation skills, visionary thinking; the Japanese are good at execution, punctual and pragmatic; maybe we can complement each other,” he says with a broad smile.

Eight years ago, Chief Minister J. Jayalalithaa had talked of plans to set up a “little Japan”, an exclusive township for Japanese investment. It seemed a little fanciful at the time, but with the blistering pace of investments and the contours of the Omega township taking shape, there will be a corner of Chennai that is forever Japan.