Markets like India would have been less crucial for Japan Inc had its home market not become increasingly unreliable. Across many consumer product categories, from cars to cameras, Japan's domestic market is shrinking rapidly. Japan's macro-economic problems that started after the 1980s bubble burst are well known. But the shrinking domestic market has a dimension that can't be righted by policy correction.
Japan is ageing fast, the average age is 40, compare that to India's under 30. One in four Japanese today is over 65. A decade back, about one third of Canon's business came from Japan. Today the domestic market contributes just 10% of Canon's sales. But Asia minus Japan buys 30% of Canon's products, up from 5% 10 years back. 
An even more dramatic illustration: car sales in Japan in 2011 dipped by 15%. Japan experts say preference for public transport (for environment and cost reasons) combined with an ageing population is impacting car sales in Japan.
Global M&As
Domestic market performance has brought home the message to Japan Inc that the future of their businesses lies outside. This realisation is already showing up in numbers. Last year, Japan saw a record number of outbound mergers and acquisitions transactions, the highest in its history, valued at $88 billion-plus. And this M&A figure is not just quantitatively impressive, the qualitative dimensions of outbound Japanese investment in 2011 tell an even more interesting story.
India Over China
As in almost everything to do with India and business, there's the India-China debate. India now appears to have some advantages vis-a-vis China, which of course remains the bigger market for Japanese products.
The first Indian advantage is the already huge presence of Japan Inc in China. There are 8,000 Japanese companies in Shanghai alone compared to 1,000 in India. Second, India has a political advantage over China. Sino-Japanese ties are marked with distrust and suspicion. Indo-Japanese ties aren't.
In 2008-09 and 2009-10, Indo-Japanese trade was stuck at around $10 billion. In 2010-11, the figure moved up to $14 billion. Bilateral trade is likely to cross $16 billion in 2011-12, and the target for 2014-15 is $25 billion, according to Ficci.
The third reason India looks more favourable than China is that Japan Inc can build things that India desperately needs. Japanese companies can contribute significantly in infrastructure like the Delhi-Mumbai industrial corridor.
Invest in India?
The big questions though are will Japanese companies set up local manufacturing bases and significantly scale up their managerial presence? Bar the auto majors who are in India, most Japanese companies still aren't talking about investment in plants here. Most of them are importing products from China, Thailand and Japan.
But Investing in India may be the next stage, say Japan Inc watchers.
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