Prime Minister Narendra Modi delivering remarks at the India-Japan Economic Forum, held in Tokyo on August 29, 2025. (Courtesy of the Prime Minister's Office of Japan)
India and Japan are undergoing a tremendous transformation in their bilateral relations, and MSMEs (micro, small, and medium enterprises) from both countries are expected to drive the next wave of collaboration.
The partnership between India's fast-growing mid-sized manufacturers and Japanese mid-sized enterprises known as chuken could reshape bilateral economic cooperation. It could move the relationship beyond traditional supplier arrangements toward deeper technological exchange and co-creation. This article explores the potential of these "chuken-to-chuken" collaborations and their implications for the bilateral ties.
MSMEs as the Next big thing
MSMEs are among the most critical sectors, yet a highly underexplored frontier. This includes sectors such as packaging materials, cold chain infrastructure, warehousing, dairy, aerospace, and defense.
These enterprises form the backbone of both economies through employment generation, innovation, and the enabling of inclusive growth. India has over 57 million micro, small, and medium enterprises, which contribute around 30% to its GDP and 46% to its exports. Japan's SMEs account for over 99% of all companies and employ around 70% of the workforce.
India is well-positioned to partner with Japanese firms seeking to diversify their supply chains across the Indo-Pacific. This is because India's mid-sized companies already play a crucial role as tier-1 and tier-2 suppliers for global manufacturers. They are also backed by international certifications, strong engineering capabilities, and expanding research and development capacity.
Hence, with strong research institutions and a thriving startup ecosystem, India offers Japanese small and medium enterprises (SMEs) access to data analytics, the Internet of Things (IoT), and automation innovation. This could help Japan adopt these advancements, improving operational efficiency and strengthening its global competitiveness.
Therefore, there is strong potential for technological synergy between Japanese enterprises and India's expanding information technology sector through collaborative research and technology transfer.
Ripple Effect Across Sectors
Amid ongoing geopolitical tensions, global supply chains are undergoing a significant reset. This is primarily due to economic security concerns and climate risks. In this context, MSMEs act as saviors as these firms are more agile than large corporations, enabling quicker adoption of new technologies and facilitating closer industrial collaboration. This results in a ripple effect across different sectors, thereby helping both countries build more resilient manufacturing ecosystems.
A significant milestone in the MSME collaboration between India and Japan has been Mitsui & Co, Ltd's investment in an Indian firm, Sneha Farms Pvt Ltd ("Sneha"). The latter is one of India's leading broiler producers based in Hyderabad, the capital city of the state of Telangana. It controls more than a fifth of the market share in Andhra Pradesh and Telangana with over 14 billion rupees (around $150 million USD) of annual sales.
The company has integrated operations encompassing feed manufacturing, broiler production, meat processing and packing, transportation, and retail. In fact, it is one of India's leading companies by production volume.
Rising Demand and Expansion
India has a sizable non-vegetarian population, and with the country's GDP per capita reaching $2,400, chicken consumption is about to enter an expansionary phase. Through its collaboration with Mitsui, Sneha aims to expand its market share in India and plans to double its production over the next five years. The collaboration would also allow a full-scale entry into the market for high-added-value food products, such as frozen and chilled ready-to-eat meals.
Japanese importers' interest in Indian poultry products through joint ventures is a clear success story. Furthermore, India's food processing sector is also a sunrise sector for Japanese companies to invest in. This is especially true for fruits, vegetables, and spices, making India a prospective base and export hub.
Regional Cooperation
Similarly, Japan has been working closely with the Northeastern states in India and has launched an initiative for the sustainable development of the NER in March 2022.
One of the programs includes strengthening the Bamboo Value Chain in the Northeast, with the objectives of enhancing value through value addition and processing, and developing the region as a hub of innovation and design for bamboo-based products. The other sectors include organic farming, horticulture, and the tea industry.
Recognizing the potential of NER's agricultural resources, Japan aims to help its companies view India as a production base, considering its export-focused policies and its extensive trade agreement network.
Its large domestic market, driven by its young population and increasing middle class, supports strong internal demand in areas such as healthcare, consumer electronics, food processing, and automotive components.
This internal resilience acts as a buffer against global market volatility and provides a solid base for sustained business growth. Furthermore, its strategic geopolitical positioning further enhances its appeal for targeting markets in the Middle East and in Africa. Japanese firms that establish manufacturing units in India can capitalize on these global connections to expand their international footprint.
New Horizon to Look For
India-Japan economic relationship has come a long way, demonstrating immense strength. The bilateral trade and investment are recording significant growth. It has expanded by nearly 48% from $16.95 billion in FY20 to $25.17 billion in FY25.
Foreign direct investment (FDI) from Japan has also been significant, making Japan India's fifth-largest investor. This totals to $44.40 billion over the past two decades, with over 1500 Japanese companies operating in India.
During Prime Minister Narendra Modi's visit to Japan in August 2025, the India–Japan Joint Vision for the Next Decade was adopted. It encourages cooperation among SMEs by fostering visits by Japanese SMEs to India and by expanding downstream industries.
Furthermore, in November 2025, the India–Japan SME Forum was inaugurated, marking a major step forward in the India–Japan Next Generation Economic Partnership. The India–Japan SME Business Council and the India–Japan Startup-hub platforms have also served as catalysts for entrepreneurship and innovation.
Several new sectors have been identified where cooperation between the two countries could accelerate in the coming decade. Semiconductors and electronics are among the most promising areas. Japan's strengths in upstream semiconductor technologies align with India's rapidly expanding electronics market and strong government policy support.
This could lead to joint development of OSAT (outsourced semiconductor assembly and test) and ATMP (assembly, testing, marking and packaging) facilities for semiconductors and deeper integration of electronics supply chains. Hence, Japan's shifting investment focus towards services and high-tech sectors aligns with India's modernization of its financial and digital infrastructure, reinforcing the bilateral potential for long-term trade collaboration.
Expanding Exports
A significant export opportunity for Japanese businesses operating in the country opens with India's current and upcoming free trade agreements and bilateral partnerships with major global economies. India offers a stable base for production, innovation, and regional market access, backed by export-friendly policies, strong domestic demand, and strategic global ties.
There are sectoral complementarities, particularly in areas such as leather, textiles, agro-processing, electronics (including semiconductors), critical and emerging technologies, and others. It is necessary to enhance awareness among MSMEs of the distinct strengths and competitive advantages of both India and Japan.
Fostering collaboration across services such as construction, agriculture, manufacturing, transport, finance, and information technology is key to transformation and plays a critical role in supporting and enabling growth through targeted MSME cooperation to unlock new value chains.
What Lies Ahead
India and Japan have entered a decisive phase, backed by strong trade flows, rising investments, an expanding consumer market, rapid infrastructure growth, industrial reforms, and closer policy alignment. They are uniquely placed to co-create innovation-led, resilient, and sustainable supply chains for the next generation of global industries.
India's globally competitive manufacturing supply chains have been enhanced by leveraging initiatives like Make in India and Atmanirbhar Bharat, and Japan is a leader in semiconductors, mobility systems, advanced manufacturing, and specialty materials.
Furthermore, Indian talent and scale, when combined with Japanese technology and process excellence, could create globally competitive SME enterprises. India's solid network of skill development institutions and Japan's emphasis on quality and precision make them ideal partners in this grassroots transformation.
The partnership between Japanese "Chuken" companies and Indian mid-sized manufacturers could unlock new opportunities for technological collaboration and production integration. As global supply chains realign, India must be viewed as a long-term strategic investment destination, with competitive export potential embedded at its core, and Japan stands to benefit significantly, with MSME partnerships playing a critical role in enabling the shift.
The two countries are well-positioned to build the next generation of global supply chains. The intent exists, and the time is right to scale, diversify, and institutionalise the India-Japan skill partnership in a manner that makes it a cornerstone of a new global model of inclusive growth, alongside the bilateral ties.
RELATED:
- Investing in Security and Success: Analysis of the US-Japan $550 Billion Strategic Investment Fund
- United on Rare Earths Needs, Nations Can Move Away from China
- Rare Earths and Japan's Deep-Sea Economic Security Test
Author: Varuna Shankar
Dr Varuna Shankar is an associate fellow at India's World Magazine and a Non-Resident Vasey Fellow at Pacific Forum.
