Submitted By: Jesse Dundon

From the Economist, the article “Adding Sugar” was an interesting take on the emerging trend of Japanese offshoring to India. While American and European companies have been outsourcing tech work to India in huge volumes over the past years, the Japanese market is just in its infancy. However, the market is growing not only for service outsourcing from Japan to India, but also manufacturing.

Japan’s tiny share of India’s outsourcing revenue is not only because of heavy taxes levied by the Japanese government, but also because of a distinct language barrier between the two nations. It is easy to appreciate the latter, in that service providers surely need to be able to communicate on a wide scale and Japanese and English are not exactly similar languages. To combat this, many Indian firms are making a point of training their employees to be at least somewhat conversational in the Japanese language and culture. This has benefited some companies, as service contracts are beginning to come in from Japan.

We have learned that China has built a reputation for cheap and effective manufacturing while India has built a reputation for cheap and effective services like IT. Like the rest of the world, the land of the rising sun has been offshoring manufacturing to China for years, but has been late to the game with service outsourcing. However, it has become increasingly wary of China’s growing economic and military power, and as such is actually working with India to develop a huge manufacturing zone for Japanese companies. This is part of a larger Japan-India Economic Partnership Agreement, which in turn is just one facet of a recent set of Economic Partnerships that Japan is brokering with the rest of the world. A summary of these agreements can be found here. The Japan-India EPA has gone through a series of negotiation rounds alternating between Delhi and Tokyo, the latest of which was held in January.

If you look at the summaries of these negotiations and those between Japan and other nations (see Japan’s Ministry of Foreign Affairs website Regional Affairs page) you will notice a conspicuous lack of such an agreement with China. Given the sometimes less-than-civil history between China and Japan, it is not at all surprising to notice this preference of India over China. In fact, Japan has been India’s biggest international benefactor since 1986, which speaks a great deal about the partnership between the two nations. As China continues to grow into an economic giant I would expect to see the partnership between Japan and India strengthen, so that when the giant becomes unruly, its eastern and southern neighbors will have more than a fighting chance to compete on the battlefield or the marketplace.