Tokyo drift: Japanese logistics companies eye India

Written by Nikita Upadhyay | Nikita Upadhyay | Mumbai | Updated: Dec 22 2011, 08:04am hrs
Japanese logistics providers are either purchasing or partnering Indian companies to grow in the emerging markets as a slowing economy at home dampens prospects.

On Friday, SBS Holdings Inc which purchased an 80% stake in Bengaluru-based heavy machine parts mover, Atlas Logistics, early this month said it would invest R500 crore to build warehouses, add more trucks to its fleet and purchase air cargo companies.

SBS joins a host of other Japanese firms, such as Nippon Express, Mitsubishi Logistics Corporation, Hitachi Transport System and Itochu Logistics Corporation, which already have a presence in India.

We are considering the best way to fund the expansion plans, said Katsuhisa Onodera, senior advisor, SBS Holdings Inc with sales of 119.8 billion yen (R8,000 crore). We want to build quality business in India. The need to move beyond the Japanese shores has been prompted by a series of earthquakes and a tsunami in the tiny nation, which disrupted the supply chain of companies there.

Experts said a lack of organised logistics in India and the Japanese companies strategy to bring in trading companies as anchors for large manufacturers has served as an attraction.

Once they set their eyes on a new market, first their large trading companies like Marubeni, Mitsubishi, Sumitomo and Mitsui, among others, enter that market and act as anchors for other Japanese firms to come in and do business, said Ajit Krishnan, Japanese Business Desk, Ernst & Young India.

India is far behind other Asian countries in providing logistics solutions and, hence, brings in a number of opportunities, said Seiji Ota, partner with BMR Associates, a tax and management consultant. Road and rail transportation, cold chains and inland container depots (ICDs) are the focus segments for Japanese in this space, he added.

Japanese companies paid $80 billion to purchase 620 foreign companies in 2011, according to Dealogic, a data provider on M&A deals. Japan has also been a facilitator for funding the $80-billion, 1,483-km Delhi-Mumbai rail freight corridor, which will provide high-speed connectivity to move goods.

The Indian logistics market recorded $82.1-billion revenues in CY 2010, clocking a growth of 9.2% over the previous year, consulting firm Frost & Sullivan said in a report released in February 2011.

Strong growth of key manufacturing industry sectors, such as automotive, engineering, pharmaceuticals, food processing and textiles, among others, contributed significantly to this growth... The market is likely to cross $200 billion by 2020, the report added.

India spends roughly 14% of its gross domestic product (GDP) on logistics. The Japanese have been traditionally looking outside their home markets to sustain growth.

In the mid-80s, they expanded in the US, and in the 90s, they explored European nations. In early 2000, they set their manufacturing plants in China, said Krishnan of E&Y.

However, a complicated tax structure, skilled labour and infrastructure are the three main concerns that Japan is facing in India. It is a challenge for foreign supply-chain companies to build and operate a business in India, said Vishwas Udgirkar, senior director, Deloitte India. Indian players operate a part of logistics chain. Also, industry here is fragmented, nascent and up for consolidation.

Japanese companies have been partnering Indian firms from 2007, but the trend gained momentum last year.

Nippon Express purchased JI Logistics in 2007, Mitsubishi Logistics Corporation partnered with Gateway Distriparks and South-based cold-chain logistics provider Snowman Frozen Foods, NYK bought a minority stake in TM International, a Tata Steel subsidiary.

Hitachi Transport System acquired Flyjac Logistics, a logistics company which owned warehouses, Arshiya International partnered Sojitz Corporation to provide logistics infrastructure solutions to Japanese companies like free trade warehousing zones.

A shrinking economy and an ageing population make it tough for Japanese companies to grow at home. In 2011, Japan is expected to have stagnant GDP and, even next year, they will have a flat or minimal growth in their GDP, said Manish Saigal, executive director and head of transportation and logistics, KPMG India.

Japanese have had a strong presence in China and Thailand, but due to the political sensitivity with China and floods in Thailand, Japanese firms have been pressurised to look at newer markets for growth and hedge their portfolio, he added.