China-Japan strain to boost Indian IT

MUMBAI: The straining of relationships between Asia's two economic power houses - China and Japan - will be beneficial to India with Japanese firms "withdrawing from China" and intending to make India its manufacturing base, according to a report by a global IT research agency. There is a large disconnect in political and business relations between the two countries, and if tensions were to escalate, Japanese technology firms would reduce their commitment to the Chinese market, Gartner Inc said in a report released on Thursday. This would result in many Japanese firms "ultimately withdrawing completely" from the Chinese market, it said. However, as India is actively supported currently by the Japanese government, the country would become Japan's new base for low-cost manufacturing, it said. Chinese industry would suffer as its source of leading-edge technology dries up amid continuing export restrictions from US and Europe. Certain technology companies from North America, Europe and Asia would acquire Japanese assets at "attractive prices" but others would steer clear and divert sourcing away from and unstable region. Gartner expects continued uncertainty and volatility in relations between China and Japan. This would have a broad business impact with bias against each other's products becoming more widespread and pronounced. apanese technology firms would assume a lower profile in China through intermediaries and local brand strategies, it said. Moreover, Japanese investment in technology manufacturing would gradually decline due to difficulties in hiring and retaining staff, in turn, creating an opportunity for other overseas investors, it said. Meanwhile, Chinese IT service and software firms would reduce their Japanese business initiatives as they refocus on North America and Europe. These firms would meet more direct competition from established global IT service firms, particularly from India, it said. The ongoing political and business tussle between China and Japan reached a flashpoint on May 23 with the former's vice-president Wu Yie cancelling a high-profile meeting with Japanese Prime Minister Junichiro Koizumi. Gartner in its report encourages enterprises to develop contingency plans for reducing dependency on products and services from north-east Asia in anticipation of unstable relations between China and Japan for the foreseeable future. Gartner vice-president and research director Dion Wiggins said, "more than 95 per cent of the largest 2,000 companies in the world have extensive interests, investments and employees in China and Japan". "Most large global companies will have to adjust their strategies and plans if the China-Japan situation remains volatile. For many companies, it is no longer business as usual in north-east Asia," he said. Economic growth in both China and Japan would suffer with the shock enough to drive Japan into recession and perhaps act as a catalyst for business and government reform.