Japanese Cos Eye India Under China +1 Move

The Japanese government has actively supported this shift by allocating substantial funds to encourage companies to relocate production either domestically or to Southeast Asia. Japanese corporations are forming strategic partnerships and expanding operations in India

New Delhi: Post the Covid-19 pandemic, Japanese companies are eyeing India as a base as they adopt the ‘China Plus One’ strategy to diversify their manufacturing and supply chains to reduce dependence on China, experts from Deloitte said.The strategy involves establishing production facilities in alternative countries, with India emerging as a significant beneficiary.

“Post-Covid, Japanese companies have been actively exploring China-plus supply chain strategies, with India emerging as a key destination. While some companies returned to Japan, others are looking at India not just as a manufacturing hub, but as a gateway to high-growth markets like the Middle East and Africa,” Deloitte Japan CEO Kenichi Kimura said.

While the sheer scale of India’s domestic market is a major draw, what makes India even more compelling is its well-established business and talent networks across these regions. “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,” Kimura said.

The Japanese government has actively supported this shift by allocating substantial funds to encourage companies to relocate production either domestically or to Southeast Asia. Japanese corporations are forming strategic partnerships and expanding operations in India to tap into its large domestic market and competitive labour costs.

Deloitte South Asia CEO Romal Shetty said the ‘China Plus One’ strategy has prompted Japanese companies to explore and invest in India, aiming to diversify their supply chains and leverage the country’s economic potential. “India has overtaken China as the biggest destination of Japanese FDI,” he said, quoting data from Japan External Trade Organization (JETRO).

Foreign direct investment (FDI) Balance of Payments Basis from Japan to China has declined significantly, from $13 billion in 2012 to around $3 billion in 2023. In contrast, India has experienced a steady rise in Japanese FDI, reaching $6 billion in 2023 -- marking the first time India has overtaken China in FDI inflows from Japan. Japanese investment in ASEAN nations has also been tapering off, as these markets have already absorbed substantial capital from Japanese corporations over the years.

India is poised to attract a significant portion of the capital being redirected from China -- a potential ‘Wall of Capital’ that could reshape the region’s investment landscape. Throughout the period from 2000 to 2024, Japan has maintained its position as a premier source of foreign capital for India, channelling approximately $44 billion into the Indian economy over two decades. Among nations investing in India, Japan holds the fifth position in terms of cumulative FDI inflows, he said.

India ranks No.1, significantly ahead of other countries in the JBIC Report on Overseas Business Operations by Japanese Companies -- indicating a shift away from being seen as a “promising” market to one with concrete business prospects. Shetty said M&A deals are also rising as Japanese companies see merits in acquisitions to scale up operations.