Japanese companies turn increasingly to India as investment in China falls
Japanese businesses are increasing investment in India as they seek new sources of long-term growth and reduce their dependence on China amid changing global supply chains.
By BBC News
Japanese companies are increasingly looking to India for investment and expansion as businesses seek to reduce their reliance on China and find new sources of long-term growth.
The shift reflects a broader change in corporate strategy as Japanese businesses contend with geopolitical tensions, supply chain risks and a shrinking domestic market.
China remains an important manufacturing and consumer market for Japanese companies, but businesses are becoming increasingly cautious about concentrating too much production and investment in one country.
Rather than abandoning China altogether, many are pursuing a diversification strategy that spreads manufacturing, suppliers and future investment across several markets.
India is emerging as one of the principal beneficiaries.
Its large population, expanding consumer market and manufacturing ambitions offer Japanese companies opportunities that are difficult to replicate elsewhere in Asia at the same scale.
Economic ties between the two countries have strengthened considerably.
India's Ministry of Commerce and Industry says more than 1,400 Japanese companies are operating in the country, while bilateral trade reached approximately $27.5 billion during the 2025/26 financial year.
Japan is also India's fifth-largest source of foreign direct investment.
The two countries have established an ambitious target of mobilising 10 trillion yen of Japanese private investment in India over a decade.
Indian Commerce and Industry Minister Piyush Goyal said in August that Japanese businesses had already invested around one trillion yen towards that target.
He suggested the pace of investment could result in the target being reached considerably earlier than originally expected.
Investment is increasingly extending beyond traditional Japanese strengths such as automotive manufacturing and engineering.
Semiconductors, artificial intelligence, data centres, renewable energy, batteries, critical minerals, advanced manufacturing and next-generation transport have all been identified as areas for greater cooperation.
Japan already has a substantial industrial presence in India through companies including Toyota, Suzuki, Honda, Sony, Hitachi and Mitsubishi.
Japanese investment has also supported major infrastructure projects, including metro systems and the Mumbai-Ahmedabad high-speed railway.
India's attraction is partly linked to the changing risk calculations facing multinational businesses.
Disruption during the pandemic exposed the vulnerability of highly concentrated supply chains, while subsequent geopolitical tensions have encouraged companies to establish alternative manufacturing and sourcing locations.
For Japanese businesses, this is increasingly a diversification exercise rather than a straightforward move from China to India.
China continues to offer extensive manufacturing infrastructure, established supply chains and a substantial consumer market, making a wholesale withdrawal unlikely.
India also presents challenges of its own.
Companies entering the country can face regulatory complexity, infrastructure differences and difficulties adapting products and business practices to a diverse and highly competitive market.
Nevertheless, its potential scale makes it increasingly difficult for multinational businesses to overlook.
The development also has wider implications for global manufacturing.
As businesses reassess where products and components are made, investment decisions by major Japanese manufacturers could influence supply chains extending well beyond India and Japan.
For British companies, including manufacturers and technology businesses, the trend is another indication that global supply chains are becoming more geographically diverse rather than remaining concentrated around China.
India and Japan are also seeking greater cooperation between start-ups, universities and research organisations, with discussions covering investment in emerging technologies and the commercialisation of research.
The growing relationship demonstrates how geopolitical risk, technology and demographics are reshaping investment decisions by some of the world's largest companies.
China remains central to Asian manufacturing, but India is increasingly positioning itself as an additional major production, technology and consumer market for Japanese businesses planning for the decades ahead.