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Home > Debates Last Updated: 14:34 03/09/2007
Comment (June 16, 2005)

Rejoinder to Khanchandani's Comment on "Japan and India Need Each Other"

Anthony P. D'Costa (Professor, University of Washington, Tacoma, and Abe Fellow, Chiba University of Commerce, Japan)

Mr. Khanchandani is absolutely right that China must be included in any discussion of Asian economic dynamism, especially when they concern India and Japan. In fact the timing of my research coincided eerily with the strong anti-Japan sentiments in China, which de facto tilted popular Japanese perceptions sympathetically toward, but without a deep understanding of, India. In a seminar I delivered a week ago at the International Center for South East Asian Development in Kitakyushu, a colleague brought up the same issue, noting that including China would provide a richer understanding of how India participates in the Japanese economy. The point is well taken but I must hastily add that China is very much part of the IT equation. In the survey that I carried in four cities in India covering 30, mostly, Indian IT firms who had some links to the Japanese market, there were three questions that pertained to China. They all had to do with Chinese competency in the IT industry and their cost competitiveness. This was aimed to understand whether outsourcing practices by Japanese companies would favor China or India. Furthermore, the evolving trilateral arrangements would indeed be significant in a political economic way. After all, India and Japan are allies in seeking a seat in the Security Council. China and India are good countervailing forces to US hegemony in the region, and Japan and China have an ongoing regional division of labor in economic production.

This contextual understanding is important in gauging how India and Japan might be engaged with each other. But lest my enthusiasm is misread, I must add Koizumi's visit must be seen for what it is "a visit" thus far and nothing more. To make a long story short, Japanese business practices, closely tied to Japanese industry structure, nationalistic sentiments, and general inexperience with global outsourcing make the Japanese market hard to crack, whether China is included or not. At the risk of simplification, Japan is still a highly insular society. For all its outward affluence and associated consumption patterns, foreign travel, and entertainment, Japanese remain quintessentially Japanese. Very few Japanese speak English let alone another foreign language. That does not mean that there are not tensions. Their perception about foreigners, to say the least, is curious because the working assumption is that the Japanese are unique and cultures do not change. That may be true in the eyes of the beholder but the ground on which the Japanese stand is perceptibly shifting. For example, the intergenerational gap between young and older Japanese is massive but no one is sure how to bridge the gap. But the most serious challenge for Japanese society, business, and polity is how to break away from a system, which worked so well and cope with the impending foreign influences of economic globalization, the movement of people, and uncertainty.

This detour was necessary to make the point that India-Japan relationship is not automatically on the go. More than government initiatives Japanese thinking will have to change, certainly in business enterprises. Nor is India embracing Japanese language en masse. It cannot since the bilateral relationship between the two countries is generally weak. It is not like the US-India or UK-India relationship, where even when governments disagree there are exchanges of people and ideas. There is little cultural exchange between India and Japan. There are few Japanese tourists visiting India and few Indian students studying in Japan. Although the growing popularity of Indian food in Japan is perhaps a healthy sign! Whereas Indian IT companies are concerned that there are not enough European language speaking personnel in India so instructors must be brought from Europe, there is no such concern in the Japanese IT industry, which does not have too many English speaking engineers.

Whether Chinese workers are better than Indians cannot be conclusively settled here. But Chinese workers, products of a command system, are likely to be more disciplined. Their engineers and scientists are excellent but their project management skills in IT are behind India's. India has its own share of challenges. China could very well catch up as its IT costs are lower than India's. Thanks to US-led Indian growth of software services, Indian IT salaries are rising far too rapidly. There are immense possibilities for macroeconomic instability via exchange rate movements and high labor turnover leading to lack of depth in project experience. Many Japanese companies have outsourced to Chinese companies and the command system culture of China fits well with Japanese expectations of order. Furthermore, according to one informant the "entertainment" industry in China makes it a preferred destination of Japanese businessmen and the lack of it in India makes India less attractive. But not all Japanese outsourcing projects in China have been successful. Cheapness after all does not mean good. So, while at the low-end Chinese are at an advantage and this means India will have to move up the value-chain, Indians can still provide high-quality IT work to the Japanese.

Trade between India and China will be a good thing. But in the medium term Indian companies will have to withstand the competitive pressure from far more efficient Chinese firms in the manufacturing sector. This is something that India may not be able cope with. China has the added advantage of scale economies and their FDI-driven exports are far ahead of Indian manufacturing capabilities. So the trilateral arrangement may be good on paper, in actual practice it is not at all clear how the winds will blow. More specifically, China has good manufacturing especially at the low-end, hardware capabilities, and low-end software; Japan has high-end uncompetitive manufacturing and poor software capabilities, India has low-end manufacturing and strong software skills. In this scheme, Japan and India are likely to be complementary partners, while China more of a competitor. Japan's demographic dilemma and India's talent supply are clear cases of complementary relationship. China could fit this role for Japan as well. But all of these are moot until Japan itself alters its business practices, reduces the vertical industry structure that often keeps foreign firms at arms length from the Japanese market, accepts non-Japanese as co-residents and citizens, and adapts to a more of internationalized environment. After all it takes two to tango. The ball is in Japan's court. The question is will Japan be quick enough to play. Perhaps more noises in China might push Japan reluctantly in India's favor.

The comment by Mr Khanchandan can be accessed by clicking the word "Comment" in the title, effectively at the following URL:
The original article by Professor D'Costa can be accessed by clicking the words "Japan and India Need Each Other", effectively at the following URL:

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