With a considerable rise in German investment in India and vice versa, the two countries have paved the way for extremely fruitful synergies in the recent past and present. With the Indian Government’s agenda relatively focused on foreign relations and encouraging foreign investment in India, we take a look at the India-Germany relations from an expert’s eyes. In this article, we speak with Mr. Manoj Barve, an SME evangelist with over 3 decades of industry experience and a specialty in Indo-German business setups.
Here’s the full conversation:
German investment in India has grown significantly over the years, with transportation, energy, and tech services being key areas. Which other Indian sectors can German companies look forward to investing in?
Manoj: Apart from the above sectors, infrastructure is a growth sector that German companies could increasingly engage in. Consumption in India is growing rapidly. Machine tools for manufacturing of consumer products could be another area German companies could look into.
German engineering is considered to be the best in the world, and with good reason. With a big global move towards Industry 4.0 and India being a part of this, what role do you think German companies can play in its adoption in India?
Manoj: Industry 4.0 is about mass-customization, and the fusion of physical and cyber processes. Germany and India can collaborate in an excellent manner on implementation of Industry 4.0 solutions – be it in German operations or in Indian operations. Owing to its demographic development, German industry is short of skilled manpower – in engineering and information technology. India has these skills available in abundance.
Germany knows that it cannot compete in the manufacturing industry with China and other Asian competition, unless it continues to maintain its technological edge. This has been very well understood by German industry and politicians alike. Industry, Government, industry associations, and research bodies are working relentlessly to develop Industry 4.0 solutions and applications of new technologies.
Indian ICT companies as well as Indian students and young professionals in Germany can contribute in a gig way to these efforts.
Aside from digitization, there is a goal to encourage the widespread adoption of machine learning, Internet of Things (IoT), artificial intelligence, and other such technologies that can impact manufacturing-based businesses. How do you think German companies with expertise in these areas can bring their capabilities into Indian markets?
Manoj: As I mentioned earlier, German companies are not necessarily industry leaders in these technologies. In many new technologies the USA and China are leading the way. Nevertheless, Germany has an excellent R&D base. They have a lot of research going on in universities and research institutes such as Fraunhofer, Max-Planck, and so on. They are further helped by the great cooperation between industry and academia.
At the heart of Germany’s economy are its small and medium-sized enterprises – popularly known as “the Mittelstand”. They are the real drivers of the growth of German economy and also, co-operate very well with the large companies on Industry 4.0 solutions. India can adopt such a model of cooperation between large industries, SMEs, and academia. Presently, the country should participate in such a model wherever possible.
Luxury automotive giants such as BMW and Mercedes-Benz have had a stronghold in India’s luxury car segment. At the same time, a lot of development is happening in India in the electric vehicle sector. Do you believe an investment in India’s EV sector for these brands will prove beneficial for the companies and the sector at large?
Manoj: India is already among the top 10 markets for personal vehicles as well as utility vehicles. Additionally, we are also the top market for two-wheeler industry. EV sector is being increasingly dominated by new-technology companies rather than by the incumbent automotive OEMs. These large brands, including German automotive companies, can take the support of skilled Indians, available in large numbers and at reasonable costs for developing these technologies here.
Some of them already have R&D centres in India. This, as a whole, will allow faster development of e-mobility at reasonable costs. German automobile sector is already lagging behind the USA and China in the e-mobility sector. In order to reduce the gap – they could use their Indian bases for development and experimentation of e-mobility technologies.
Has the rise of India’s rank in the Ease of Doing Business Index resulted in any change in the sentiment of German companies looking at Indian markets? Has it impacted FDI from Germany? Or any sectors in particular?
Manoj: Definitely, the improvement in the rank in World Bank’s Ease of Doing Business index affects the sentiments and creates an atmosphere which is conducive for FDI. German companies work in an environment where they, typically, are not hindered by corruption and infrastructure issues. On the other hand, these issues can bother them in India.
However, more and more SMEs have understood that they can neither ignore India as a market, nor as a manufacturing base. Besides, India’s image on protection of IPRs (Intellectual Property Rights) is much better than some of our neighbours. German companies are very cautious with their technologies – and rightfully so.
They find it more comfortable to work with India on technology transfer, innovations, and R&D as compared to our neighbours, for instance, China.
What type of collaborations and market entry strategies do most German SMEs prefer while entering the Indian market?
Manoj: In the past, the trend has been joint ventures. German SMEs felt relatively more comfortable in having a local partner who has local market knowledge and reach, as well as those who can handle local administrative situations. A befitting match with a local partner has been critical for running a successful joint venture. Having common vision and trust is critical for the Germans.
Many joint ventures failed as the partners had different interests in the joint ventures as well as different expectations about scale-up timelines. Increasingly, German SMEs are going for wholly-owned subsidiaries. They often hire a Country Manager with the knowledge of the local market, and previous experience of working in Germany or working for German companies in India. This model of them starting their own venture in India has been working well till now.
As far as market-entry is concerned, German SMEs typically go for a Sales Office to start with. In the case of capital equipment manufacturers, this is backed by Service Support. Once they get a feel for the market over 2-3 years, they go for assembly operations in India. Subsequently, after another 2-3 years, they go for full-fledged manufacturing. While most German SMEs take this conservative approach, they are patient and in it for the long-term.
Many SMEs, however, have realized that the Indian market is extremely price-driven, with longer working capital cycles. This presents India as a challenging proposition. Increasingly, Mittelstand companies are realizing that even the manufacturing can quickly become profitable, if they utilize the other advantages that India has to offer.
They are leveraging India’s low manufacturing costs by making India their global manufacturing base for components, and a competence centre for engineering and IT services. This serves as a win-win for both, Indian operations as well as global operations.
There are relatively few German players which have tapped into India’s infrastructure sector. What sort of projects in India do you see getting traction from them?
Manoj: As stated before, German capital equipment companies in infrastructure sector can benefit from the growth of infrastructure projects in India. Germany’s road-building equipment companies and tunneling system companies are already present here in India. Other similar companies can increase their existing presence or enter the Indian market to anticipate enormous growth in infrastructure – roads, bridges, ports, airports, waterways, etc.
However, German construction giants are unlikely to come to India for establishing big projects, primarily because conservative German companies find it difficult to deal with the Government for allotment of projects and long payment terms.
It was reported in 2018 that 74 Indian companies generated 11 billion Euros in Germany and employed over 23,000 people. How do you see the foreseeable future with respect to Indian investment in Germany?
Manoj: Indian investment in Germany is bound to grow in the near future. Large companies, especially in automotive fields (OEMs as well as component suppliers) and the pharmaceutical industry, are increasing their presence in Germany. Post Trump-shock in the USA and Brexit-shock in the UK have been catalysts to further encourage many Indian IT companies to set businesses in Germany.
In fact, these Indian companies are trying to move towards continental Europe and Germany provides them a lucrative option within Europe.
Additionally, Indian companies are also increasing their presence in new technologies such as e-mobility, sustainable energy and waste management – areas in which Germany is a global leader.
Enjoying this article so far?
You’d also enjoy reading: How India’s Infrastructure Sector Is Becoming A Major Asset For Growth
Indian SMEs are also increasing their presence in Germany. I call them progressive Indian SMEs – who are similar to the Successful German Mittelstand – focused, technology-driven and long term-oriented. Such companies are looking for technology partners in Germany or in some cases, even looking for outright purchases of German Mittelstand companies.
India’s improved global image, China’s perceived threat to IPR, and succession issues in German Mittelstand are factors leading to new opportunities for progressive Indian SMEs in Germany.
With reports highlighting well over 1100 projects incurring FDI in Germany, how do you see Indian companies bringing their expertise and value to Germany?
Manoj: Despite high costs of operations, Germany remains an attractive location for FDI. An open market, lucrative location in the middle of old and new Europe, excellent infrastructure, skilled labour and an efficient legal system are some of the important advantages Germany offers for investors.
Indian companies can certainly bring in their expertise in not only, information and communication technologies, but also in frugal manufacturing. Many Indian companies are manufacturing world class machinery and tools at highly affordable costs. This will be extremely crucial while exporting to the future markets of Asia, Africa and South America where affordability is a huge factor. India can also play a big role in the space and satellite launching field.
What are the common challenges which German businesses face while developing an Indian market entry strategy and vice versa? In your experience, how do you resolve these issues?
Manoj: Finding the right partner in India, be it JV partner or Country Manager, and skilled personnel in India is not easy. The extreme price-sensitivity of Indian markets is another challenge in itself for foreign players, with long payment terms and unpredictability of sales pipeline being other common challenges generally faced by German businesses in India.
German players need to understand these basics first, plan a long-term strategy and involve Indo-German experts for a successful and sustainable operation in India.
How do you see the future synergies between India and Germany? For someone who’s actively involved in this space, do you see the two facilitating continental expansion for each other?
Manoj: Personally, I think that the two countries complement each other very well and that makes me feel very positive about long-term cooperation between our two countries. Also, the current geopolitical situation compels us to work together, with Germany facing an aggressive USA on one hand, Russia and China on the other and Brexit presenting its own unique challenges. Democratic India, with its demographic advantage, provides Germany enormous opportunities to cooperate. India needs technical support on infrastructure projects, automotive manufacturing, sustainability – e-mobility, waste management, renewable energy etc.
And German expertise could prove to be tremendously helpful in these growing fields. India and Germany have long-standing cultural, social and business relations and with the new Government’s approach, this cooperation should deepen further.
More About The Featured Expert:
Manoj Barve is an SME evangelist, who has been championing the cause of Indian SMEs in an effort to help them find their rightful place on the global platform. As the President of the BVMW Representative Office in India, Mr. Barve aspires to elevate the standard of Indian SMEs by supporting them to augment their technical capabilities, be inspired by the latest developments in their domains and help them connect better with potential buyers and collaborators.
Mr. Barve comes with over 35 years of global experience, with a career footprint across several countries. He previously served as the Director of Finance and Member of the Board at Alfa Laval India and held similar positions at ThyssenKrupp India, Hydro Aluminium Deutschland in Malaysia, Eaton CEAG Sicherheitstechnik, ITT Richter Chemie-Technik, PwC Germany and JMcDermott Inc. Dubai.
A Chartered Accountant and Cost & Management Accountant by profession, Mr. Barve has invaluable experience in Mergers & Acquisitions, Business Process Optimization, Finance Transformation, Restructuring, Corporate Policy and Risk Management.
