‘Corporate governance is a board issue for Japanese investors’

Foreign direct investment inflow to India from Japan has seen a sizeable leg-up over the past three-four years, growing from $1.7 billion in 2013-14 to $4.7 billion in 2016-17. Corporate investigation and risk consulting firm Kroll Inc’s regional managing director and head of Asia operations, TADASHI KAGEYAMA, has over the years worked closely with many Japanese businesses and investors and helped them shape their India strategy. He shares with Sudipto Dey the key regulatory challenges that are of concern for many Japanese investors looking at India. Edited excerpts: businesses, the ethics and track record of the promoter and the corporate governance practices at the company are key to the success of the business on the ground. In the past, these issues were considered the responsibility of the local management. Increasingly, these issues are now being flagged at the board level where Japanese investors are directly involved. Do you see any trend in Japanese businesses going for pre-deal due diligence of prospective business partners in India? Yes they are (going for pre-deal due diligence). Figures published by JETRO suggest that in 2015, only about 50 per cent of Japanese companies operating in India were profitable. This is a serious concern for several Japanese investors in India. In this environment it is critical for them to understand the true nature of their prospective partners ahead of an investment. Has there been any change in strategy from Japanese businesses when it comes to dealing with the regulatory challenges? Japanese investors are learning from their past challenges. They are becoming more nimble in developing and executing their business strategies in India as they understand that the local market, consumers and regulations evolve fast in India and they need to respond to these changes in real time. They also increasingly understand how businesses actually operate on the ground may be different from how their performance is captured in the books and records. They are trying to understand this gap better.

Finally, they understand that being successful in India requires local or Japanese management that understands the operating environment on the ground. This is different from how Japanese companies have operated traditionally in foreign markets where Japanese expats spend two-three years in a foreign market which may not be sufficient time for them to truly understand the local environment. This is slowly changing.