The 10 Trillion Yen Dream: How Can Indian SMEs Capture Japan’s $67 Billion Opportunity?

Kaveri Jain |  Doctoral Scholar on Japan, Amity Institute of International Studies, Amity University, Noida | 

The bilateral relationship between India and Japan has progressively matured over the last decade, building upon the robust Special Strategic and Global Partnership established during the Shinzo Abe era. It has shifted from traditional infrastructure lending towards comprehensive strategic cooperation. This evolution was most recently underscored during the July 2026 bilateral summit in New Delhi. During the summit, Prime Minister Narendra Modi and Japanese Prime Minister Sanae Takaichi agreed to make economic security a central pillar of bilateral cooperation. The leaders set an ambitious objective of attracting 10 trillion yen in Japanese investment into India over the next ten years, with the specific aim of doubling the number of Japanese enterprises operating in the country. Their joint roadmap emphasises the development of resilient supply chains in critical next-generation sectors, including semiconductors, clean energy, and quantum technology, in order to address the vulnerabilities associated with global economic weaponisation.

The Demographic and Structural Asymmetry

Despite these high-level macroeconomic commitments, a significant microeconomic disparity persists on the ground. According to an analysis by Naoyoshi Noguchi and Ashish Kumar, trade promotion organisations such as the Japan External Trade Organization (JETRO) have recorded a historic surge in routine inquiries from Japanese Micro, Small, and Medium Enterprises (MSMEs) regarding Indian market regulations and demographics. However, this intellectual curiosity rarely translates into localised factories or joint ventures. For decades, smaller Japanese firms have hesitated to relocate capital and talent because of perceived administrative complexities, cultural differences in business negotiations, language barriers, and the considerable challenge of managing a distant workforce. This hesitation has resulted in a demographic asymmetry within Japan’s corporate footprint across Asia. To understand the scale of this disparity, one must first examine Japan’s domestic landscape. There are approximately 3.4 million Small and Medium-sized Enterprises (SMEs) in Japan. These businesses represent 99.7% of all companies in the country and account for roughly 70% of the private-sector workforce. Yet this domestic dominance is not reflected in India. According to a joint knowledge report by Invest India (the National Investment Promotion and Facilitation Agency of the Government of India), the Federation of Indian Chambers of Commerce & Industry (FICCI), and Shardul Amarchand Mangaldas & Co., Japan has a substantial corporate presence in China and the ASEAN region, with approximately 13,000–15,000 companies in China and around 13,000 in ASEAN. SMEs account for an estimated 40% to 60% of these firms. In sharp contrast, of the 1,439 Japanese companies operating in India, only 15% to 20% are SMEs. As reported by Sanjeev K. Ahuja in Asian Community News, Takashi Suzuki, Chief Director General of JETRO India, identifies this disparity as a critical institutional concern, noting that efforts to address it over the past decade have largely underperformed.

Source: Why India as an Investment Destination for Japanese SMEs & Large Corporates, Joint Report by FICCI

The “Chuken-to-Chuken” Paradigm

To bridge this gap, a new operational framework is emerging. An analysis by JAPAN Forward emphasises the immense potential of “chuken-to-chuken” collaborations—partnerships specifically between Indian mid-sized manufacturers and Japanese mid-sized enterprises (chuken). This model shifts bilateral engagement away from traditional, top-down supplier arrangements towards genuine technological exchange and co-creation.

India’s demographic dividend is rapidly shifting domestic demand from frugal to value-based consumption, creating an urgent need for the precision embedded in Japanese monozukuri. Underexplored sectors such as cold chain infrastructure, dairy, aerospace, and food processing represent significant opportunities for collaboration. One notable example is Mitsui & Co.’s strategic investment in Sneha Farms Pvt. Ltd., a leading broiler producer in Telangana, aimed at doubling production and entering the high-value frozen food market. Additionally, regional cooperation initiatives in the Northeast Region (NER), such as the Bamboo Value Chain Project, demonstrate how Japanese technical expertise can elevate local agricultural resources into sophisticated, export-ready products. According to the joint knowledge report mentioned earlier, India’s MSME sector is already a major economic engine, contributing approximately 30% of national GDP and 45% of total manufacturing output. Integrating highly specialised Japanese SMEs into this existing domestic framework could significantly strengthen India’s production capabilities.

Unconventional Entry Vehicles: Strategic Acquisitions

To overcome the traditional barriers to entry, industry experts have advocated unconventional and highly strategic approaches to market access. One such approach, proposed by Takashi Suzuki of JETRO, suggests that Indian conglomerates should actively acquire technologically sound, even if financially struggling, Japanese SMEs. Suzuki cited the example of the Indian conglomerate Vedanta, which successfully acquired the Japanese LCD glass substrate manufacturer AvanStrate Inc. This reverse-integration strategy enables Indian companies to secure valuable intellectual property while simultaneously providing Japanese technologies with a well-established gateway into the Indian market.

For Japanese SMEs preferring direct entry, the “anchor-client” ecosystem presents a highly viable, lower-risk alternative. The Indian government’s “Make in India” initiative and the accompanying Production Linked Incentive (PLI) schemes have encouraged major global Original Equipment Manufacturers (OEMs) to localise their supply chains. As noted in the FICCI report, these PLI schemes cover 14 key sectors, including electronics, pharmaceuticals, textiles, steel, and automobiles, and have already approved hundreds of investment applications. By establishing localised workshops near these major anchor clients, Japanese SMEs can bypass the need to navigate the broader, unfamiliar consumer market, as their primary buyers are already established.

In addition, India has actively developed a favourable infrastructure and regulatory environment to support incoming foreign investment. The joint analysis by FICCI emphasises the utility of the National Single Window System (NSWS), a digital platform that consolidates business approvals across numerous Central and State departments, thereby significantly streamlining the establishment process. Physical infrastructure has also been tailored to Japanese preferences. State governments have established dedicated Japanese Industrial Townships (JITs) across major industrial corridors. These plug-and-play environments offer ready-made factories and single-window clearances, effectively replicating the reliability of industrial zones in Japan. Industry data indicate that there are currently 11 such JITs housing major manufacturing entities. Concurrently, India has modernised its legal framework by consolidating 29 labour laws into four unified labour codes and introducing the Mediation Act, 2023, to provide the regulatory predictability and out-of-court dispute resolution mechanisms that Japanese corporations value.

Mitigating Friction Through Sub-National Diplomacy

The most significant barriers to entry are rarely financial alone; they are also human and administrative. To address these challenges, both governments have established institutional support mechanisms, most notably through the launch of the India-Japan Small and Medium Enterprises Forum. India’s Ambassador of India to Japan Nagma Mohamed Mallick has highlighted that the India-Japan SME Forum reflects the shared commitment of both nations to deepen trade and investment, advance technological collaboration, strengthen resilient supply chains, and expand people-to-people linkages.

This demonstrates that the challenges of entering a foreign federal system are being actively managed through sub-national diplomacy. Direct economic and cultural partnerships between Indian states and Japanese prefectures are helping to clear bureaucratic bottlenecks at the local level. Over the past year alone, chief ministers from eight Indian states, including Uttar Pradesh and Maharashtra, have engaged directly with Japanese counterparts, building upon longstanding sister-state partnerships with prefectures such as Yamanashi and Wakayama. This decentralised approach enables Japanese firms to negotiate directly with localised and highly motivated state administrations.

Ultimately, bridging the gap between ambitious macroeconomic targets and micro-level corporate realities requires a fundamental shift in how both nations approach economic integration. While the robust architecture of the Special Strategic and Global Partnership has provided essential macroeconomic stability, the current geopolitical landscape demands a sharper focus on practical execution and localised resilience. By embracing decentralised, sub-national corridors alongside unconventional entry strategies, such as strategic cross-border acquisitions and the anchor-client ecosystem, smaller Japanese enterprises can effectively bypass traditional bottlenecks. In doing so, they will not only secure their own long-term commercial viability but also become key drivers in achieving the 10 trillion yen investment target and strengthening the economic security of the broader Indo-Pacific.