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).
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.