Japanese companies with a stomach for risk are eyeing India in hopes the south Asian giant may rival China as a low-cost production center and booming market.
Geographical distance and lagging infrastructure mean India is unlikely soon to attract as much Japanese business as China, a driving force behind Japan's recovery from its decade-long slump.
But with average annual growth of 6 percent, a huge and growing population and a burgeoning middle class, India is getting harder to ignore.
"I think we've come to the point where you can't avoid India's market," said Yuzo Kawamori, a general manager at Kansai Paint Co, which is now building its fifth plant there.
"Incomes are set to rise and potential buyers of goods could increase ... I think there is that kind of growth attraction."
It's not the first time Japanese firms have noticed India's allure. India opened its economy to greater foreign participation in 1991, spurring a rise in Japanese investment that hit a peak of ¥53.2 billion (US$472.6 million) in fiscal 1997/98.
But nuclear tests by India and Pakistan in 1998 prompted Japan to impose economic sanctions on both, chilling investment.
Those sanctions were lifted in October 2001 in the wake of the 9/11 attacks on the US. Tensions between India and Pakistan have thawed and Japan has resumed economic aid.
Japan decided in the year to March 31 to give India over ¥120 billion in loans to improve infrastructure and fight poverty.
That made India the biggest annual recipient of such loans ahead of Indonesia and China, which lost the top spot after Japan cut yen loans to it for a third straight year.
The improved environment has some of Japan's biggest firms looking afresh at India's potential.
KDDI Corp, Japan's second-largest telecoms operator, began operations in India in January.
Dentsu, Japan's biggest advertising agency, opened a second subsidiary in India in February, just months after its first.
The world's number two auto maker, Toyota Motor Corp, plans to start production of car transmissions in India around June for exports to its affiliates around the world.
The Japan Chamber of Commerce and Industry is inviting India's industry minister to visit Japan, possibly in early September, for a promotional mission dubbed "Destination India."
Still, officials say it will take time for India to grab as much of corporate Japan's attention as China.
"Japanese firms are keeping close tabs on India but such attention isn't being matched by action," said Naoyoshi Noguchi at the quasi-government Japan External Trade Organization.
While more firms were sending missions to India to assess the business climate, those that have actually increased investment were the exception rather than the norm, Noguchi said.
"When viewed as a base for production, India can't be compared to China," he said, adding that concerns about gaps in infrastructure were tempering companies' interest.
Japan, which exports mainly machinery and electrical equipment to India while importing jewels, fisheries products and iron ore, has relatively paltry business ties with the country.
Firms such as Suzuki Motor Corp and Honda Motor Co Ltd are well-established, but overall there were only 231 Japanese companies in India as of last August, according to Japan's embassy there.
The figure pales in comparison to the 13,000 to 14,000 Japanese firms Japan's Foreign Ministry estimates are doing business in China.
Data on direct investment shows a big gap as well.
Japanese investment in India totalled ¥37.8 billion in the business year ended in March 2003, while ¥215.2 billion went to China.
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