India and Japan’s electronics industry associations have signed an agreement aimed at drumming up more Japanese investment to tap India’s rapid growth and catch up with rivals such as Samsung and LG of South Korea.

The move signals that Japan is waking to the potential of India not only as a manufacturing base for exports but also as a burgeoning domestic market.

Bilateral trade between India and Japan is “way below potential”, admitted Yutaka Kobayashi, Japan’s vice-minister of economy, during a visit to New

Mr Kobayashi acknowledged the need for Japanese companies to establish big factories in India to grab share of the growing market for consumer electronics such as televisions, DVD players, audio equipment and other entertainment products.

Japanese share of India’s consumer electronics market, excluding appliances, is estimated at 10 per cent.

However, the loosely framed agreement signed by the Japan Electronics and Information Technology Industries Association and India’s Manufacturers’ Association for Information Technology did not outline specific plans for collaboration or projections for investment.

Instead, a delegation from Japan will this week meet Indian electronics companies and government officials to merely “assess the current situation in electronics and software in India”.

Critics wonder whether Japan’s famously slow and cautious forays into new markets will put it further behind its more aggressive Korean competitors in the race to build a presence in India.

Japan has invested heavily in India’s automotive industry for more than two decades, fostering successes such as Maruti Udyog, a joint-venture with Suzuki of Japan, that is India’s largest passenger car maker.

But Japan’s investment in electronics and IT in India remains small. Japan has clung to high-end IT and electronics manufacturing and moved lower end work to factories in China.

Japan was India’s third- largest FDI contributor between 1991 and 2006.

The transport and automotive sector accounted for 55 per cent of Japan’s FDI from 2000 to March 2006; electronics and software 6.8 per cent and telecoms 4.08 per cent.

During that period Suzuki and motorcycle maker Yamaha were the largest investors in Indian companies.

Meanwhile, multinational electronics groups such as Samsung, LG, Nokia and Motorola have opened factories in India aimed at the growing domestic market.

“Everyone was surprised,” said Kazuo Kaneko, president of Jeita, of the growing dominance of Korean electronics companies in India.

“Japanese players had a decent presence in the Indian market four to five years ago,” said Vinnie Mehta, director of Mait.

“In the past few years we’ve witnessed the Koreans becoming very aggressive. They’re not just investing but capturing market share and displacing all the players.

The need to move quickly is crucial. “If Japan is not here, they lose out,” said Mr Mehta.

South Korea was India’s ninth largest FDI contributor between 1991 and March 2006.

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