JETRO gets Japanese vendors to eye South India

In a stark contrast to the mood in the Indian automotive industry, given the lowest growth rate in a decade, the Japan External Trade Organisation (JETRO) is taking big strides in India. The agency, which operates under the Japanese Ministry of Economy, Trade and Industry to foster growth of Japanese companies outside Japan, recently brought a delegation comprising 50 Japanese auto component manufacturers and nudged them into considering Tamil Nadu and Karnataka as potential investment destinations.

The 55-member-strong delegation participated in seminars organised in Chennai and Bangalore, expressing interest to set up shop in the two most promising Southern auto hubs – Tamil Nadu and Karnataka. The delegation also visited the manufacturing facilities of a few OEMs to appraise the opportunities available in the South Indian auto sector. This focus on India is a result of JETRO's initiative in setting up the Neemrana Japanese Zone in Rajasthan. The success of this cluster of around 30 Japanese auto component vendors which supply to OEMs in and around the region has drawn interest both from Japan and from Indian states like Gujarat and Chattisgarh. Not surprisingly, Tamil Nadu, an auto hub since decades, and Karnataka, a new and fast-growing auto hub, are also vying to bring a slice of Japan to their region.

New opportunities in Tamil Nadu

In the seminar jointly organised by ACMA and the Confederation of Indian Industry (CII) in Chennai on February 27, L Ganesh, past chairman of the CII, Southern Region, and chairman of the Rane Group, welcomed the delegation on behalf of the CII and stressed the importance of trade between Japan and India. Ganesh said, “Japan has been an integral part of our ‘Look East’ policy. The 1,800 Japanese companies in India have invested more than $13 billion.” Tamil Nadu, he said, houses the maximum number of Japanese companies among various states in India with 340 companies here, “mostly related to the automobile sector.” On behalf of the Japanese Ministry of Economy, Trade and Industry, the director of its Financial Cooperation Division, Masashi Iwanaga said that “there is a lot of demand from Japanese OEMs in India to bring component manufacturers here to India.” However, he added, that it is vital to understand the needs of existing Japanese companies here before proceeding. Tamil Nadu government representatives have laid out the red carpet for JETRO through offering various incentives to foreign small and medium enterprises (SMEs). M Velmurugan, IES, executive vice-chairman of the guidance bureau, touched upon the various Japanese OEMs present in Tamil Nadu and also mentioned that there is a lot of investment needed in the state by component manufacturers, especially with upcoming projects like India Yamaha Motor’s 1,780-acre facility in Vallam Vadagal on the outskirts of Chennai.. He also revealed that the government is pushing for vendor parks to be created with every new manufacturing facility, stating the example of the Renault-Nissan Alliance plant in Chennai.

To further drive focus on the potential market for Japanese component makers, India Yamaha Motor made a presentation to the delegation explaining its plans for its new manufacturing facility to come up in Chennai. Koji Takei, senior vice-president and plant manager of the Renault-Nissan plant at Oragadam, said that of its 245 suppliers, 116 are in or near Chennai. “116 companies in Chennai provide us with 3,314 parts. Twenty-three companies send 156 parts from Bangalore, 45 companies contribute 383 parts from Pune and 61 companies deliver 630 parts from Delhi,” Takei said. He added that by 2016, production at the facility will cross the current planned 400,000 units capacity and stressed how important it is for more suppliers to be present at the vendor site. To woo the few Japanese vendors from the delegation that cater to the commercial vehicle sector, Venkat Subramaniam, executive director – strategic allied business initiatives at Ashok Leyland, mentioned that the company’s future plans in the truck and bus sector require support from Tier 2 and Tier 3 suppliers.

Karnataka beckons

The same positive mood was reflected in the seminar jointly organised by ACMA and Karnataka Udyog Mitra (KUM) in Bangalore on February 28. In his opening speech, Naoyoshi Noguchi, chief director general, JETRO, New Delhi, said: “Japanese auto component manufacturers, primarily SMEs, are keen to establish production units in Karnataka and Tamil Nadu.” The seminar titled ‘Advantage Karnataka: Destination for Auto & Engineering Sector’ also attracted 75 Indian auto and allied companies, which have interacted with Japanese counterparts for potential business opportunities. Noguchi said that of India’s three auto clusters – Bangalore-Chennai, Pune-Gujarat and Delhi – the Bangalore-Chennai industrial corridor is emerging as the most promising destination for Japanese auto companies to set up manufacturing units. (In fact, the finance minister made a reference to this as part of his infrastructure proposals in the Budget 2013-14). While Toyota Kirloskar Motor already has operations at Bidadi, near Bangalore, Honda Motorcycle & Scooter India is setting up its third two-wheeler plant at Narsapura in Karnataka. The road connectivity (a national highway connecting Bangalore-Chennai) and port connectivity, particularly Mangalore and Chennai, are added advantages. In addition to Toyota and Honda, Noguchi said component supplier Aisin and other Japanese companies like Sony, Komatsu and Hitachi are also intensifying their activities in the state. Toyota Kirloskar Motor’s (TKM) managing director Hiroshi Nakagawa said, “Currently the Indian market is slightly slow but it will pick up. India is a very important market that Toyota is looking at.” Nakagawa's view is that both Karnataka and Tamil Nadu will grow in a big way. Since its inception 10 years ago, TKM has grown exponentially to achieve its current production capacity of 310, 000 vehicles a year. He said the company currently has 6,500 employees. Nakagawa added that several Japanese companies are interested in investing in India, but they also have their own concerns related to business model, infrastructure, law and order, government, human resource, labour and industrial relations. Referring to human resource, he said that Karnataka, in particular, has a high potential labour force. He also elaborated on the facilities extended by TKM to employees to maintain cordial relations between management and employees that has resulted in the carmaker witnessing much growth in the past decade in Karnataka. He said the Bangalore-Chennai industrial corridor is one area where the Japanese government is also trying to put lot of efforts.

Industrial corridors

According to Raj Kumar Khatri, secretary, Infrastructure Development Department, government of Karnataka, the development of the Bangalore-Chennai and Bangalore-Mumbai infrastructure corridors will attract a massive level of investment to Karnataka. “Japan has shown a lot of interest in developing the Chennai-Bangalore Corridor and the United Kingdom also wants to contribute in building the Bangalore-Mumbai Corridor. We also want to propose extending the corridor to Mangalore,” he added. He also said these industrial corridors require ‘clean power’ to run the industrial units. Already, he said the natural gas pipeline has been laid from Dabhol in Maharashtra to Bangalore by Gas Authority of India Ltd (GAIL) and tested last month. Toyota Kirloskar Auto Parts (TKAP), which has its production facility near Bangalore, is the first industrial unit in Karnataka to get natural gas through the Dabhol-Bangalore gas pipeline to run its captive power plant. So, Khatri said, the source for natural power is available on the national highway connecting Bangalore-Mumbai and will be a positive factor for prospective investors. M Maheswar Rao, Commissioner for Industrial Development and Director of Industries and Commerce, government of Karanataka said Karnataka is the fourth largest state in automotive production in India. Regions like Hoskote, Bidadi, Ramanagar and Dharwad are existing auto clusters while the state government is developing new auto clusters in Shimoga and Belgaum and Hubli-Dharwad.

He said Karnataka is the manufacturing hub for Toyota, Volvo, TVS, Tata Marcopolo, L&T Komatsu, Mahindra Reva Electric Vehicles, Bosch Ltd and JK Tyres. As advantages, he said the state has one of the country’s largest foundry industry clusters at Belgaum and it is the second largest state housing iron reserves and the country’s third largest producer of steel.

He said the state has been offering special package of incentives for high-value investments in the auto sector. The offers include investment promotion subsidy to MSMEs, exemption from stamp duty and concessional registration charges, refund of conversion fee, exemption from entry tax and electricity duty, incentives for export oriented units, and interest-free loans on VAT. The Indian tour of Japanese delegates included a visit to the Toyota Kirloskar Motor plant and Bill Forge in Jigini industrial estate, near Bangalore. Some of these SEMs are already supplying parts to Toyota in Japan. If there is an opportunity, they may set up their shops near Bangalore to cater to the needs of TKM, said Deepak Anand, a JETRO official in Bangalore.

Japanese auto and allied sector SMEs are also assessing the feasibility of setting up their units in the upcoming Special Economic Zone (SEZ) promoted by the GMR Group in Hosur, 40km from Bangalore. Hosur, which is where OEMs and suppliers like Ashok Leyland, TVS and Avtec have manufacturing facilities, is one of the major automotive ancillary hubs in South India. As per JETRO’s estimate, at present, Bangalore has 230 Japanese companies, a majority of them catering to the auto industry. Around 50 companies were added last year and on an average, the number of Japanese companies is increasing at above 20 percent every year. According to JETRO’s statistics, Japanese companies have, in the past decade, contributed 15-20 percent of the $9.3 billion which has come into Karnataka via foreign direct investment (FDI).

Overall, the mood at both the seminars seemed to suggest that the short-term blips in the Indian economic scenario are nothing to worry about when it comes to future planning.