18 October 2019

Cover Story

Little Germany

 

Deutsch oomph seems to be gathering momentum in the air as the stage is set for German Chancellor Angela Merkel’s second visit to this country. At a very obvious level that is a reciprocal bilateral response to Prime Minister Narendra Modi’s aggressive ‘Make in India’ marketing mission which he launched at the world’s largest industrial fair, the Hannover Messe in April this year, but also one which serves to underscore New Delhi’s growing clout on the global stage.

That understanding was therefore a given when Dr. Martin Ney, German Ambassador to India, speaking at the 59th AGM of the Indo-German Chamber of Commerce in Mumbai a few days ago, said, “Germany is an ideal trading and investment partner for India.”

 

Indeed, as with countries that reach out to one another driven by common interests – not the least because of trade and business co-operation – there is much sweetness in the air which goes beyond diplomacy.

 

Evidence of that came late last month when German pharmaceutical giant Boehringer Ingelheim announced that it would be rolling out a new class of pills used for the treatment of Type 2 diabetes at an ‘India-friendly’ price. Camaraderie apart, the launch is an extremely important one for the company because of the significant size of the market – India with its surfeit of sweetness also has the largest diabetes affected population in the world.

 

The view from Berlin for quite some time now is of India as a huge untapped ocean of business opportunities, a fact highlighted by the number of German companies doing business across a wide spectrum of activities such as engineering, transportation, electrical equipment, metallurgical industries, services sector (particularly insurance), chemicals, construction activity, trading and automobiles.

 

Most of the major German companies have already entered the Indian market. German automobile giants such as Daimler, MAN AG, Volkswagen, BMW, Mercedes Benz and Audi have established manufacturing facilities or assembly plants in India. Other major German companies that have significant operations in the country include Siemens, ThyssenKrupp, Bosch, Bayer, Herrenknecht, BASF, SAP, Deutsche Bank, Metro, Lufthansa, Merck etc.

 

Besides large companies, German Medium Enterprises (Mittelstand), which constitutes the backbone of the German economy, are also showing greater interest in India. A German Centre has been established in Gurgaon jointly by two of the Germany banks, viz. Bavarian Landesbank (BLB) and Landesbank Baden Württemberg (LBBW) to facilitate the activities of German SMEs in India.

 

Further cooperation in ‘soft areas’ like Information Technology has increased manifold. So much so that with India over the years emerging as the knowledge capital of the world with proven capabilities in IT and financial services which require a highly skilled and resourceful workforce leading news magazine Der Spiegel has cited India as the No.1 destination for offshore development by German software companies. Large German firms have been stepping up their existing investments in areas like biotechnology, renewable energy entertainment industry and several new companies have entered the Indian market. Companies like Munich Re and Allianz has entered the insurance sector and has signed a number of joint ventures in India covering Non-life Health Insurance and micro-insurance for tsunami-affected people.

 

The major new zones which hold substantial opportunities for enhanced investments are skill development, defence production, railways, renewable energy and trade and commerce and the major national programmes including 'Make in India', 'Digital India' and 'Clean India'.

 

There are also significant opportunities for 'Mittelstand' enterprises to expand their business opportunities in high-technology manufacturing in India. Germany will be a preferred partner as India looks to develop backbone infrastructure like Smart Cities, Industrial and Freight corridors and High Speed Rail Systems. The area of vocational education and training will be a high priority area for the government of India to create industry-institute linkages and provide skilled manpower for various sectors of the economy.

 

In recent years apart from becoming a service destination, India has scaled up its image as an R&D hub with the cost advantage weighing heavily in favour of the Germans. Conducting research in India is cost effective by thirty to fifty per cent while the cost of innovation is one-fifth to one seventh of world standards.

 

New Delhi is particularly keen to raise the current level of economic engagement with Berlin particularly in areas of renewables, post-harvest infrastructure, high technology, transport infrastructure including railway and ports projects, vocational education and training, water and solid waste management, the cleaning of rivers and urban infrastructure planning. Electronic System Design and Manufacturing (ESDM), photonics, IT, automotive, energy, heavy engineering, biotechnology, pharmaceuticals, space and defence manufacturing are the other crucial sectors that will engage the attention of the two partners.

 

 

INVESTMENT ZONES

 

Maharashtra is not just the biggest manufacturing hub in the country but one of the most attractive destinations for German companies in India. Volkswagen’s Pune plant currently assembles around 1,30,000 vehicles a year, generating direct employment to about 3,500 people and more in firms making ancillary parts. The state Chief Minister Devendra Fadnavis was in Germany in August to persuade Volkswagen’s minders to manufacture sub-parts and ancillaries of the car in local units in and around Pune, and to urge other German firms to raise their investment profile in the state. Mercedes Benz and BMW have announced increased investments and plans to raise localisation level to 60 per cent and 50 per cent respectively.

 

For a city once largely seen as laidback Pune is now wont to flout outstanding industrial aggro that would do a German footballer proud. If the Western Indian city has shown a change from its former staid ‘retirement paradise’ avatar, it owes majorly to the largest cluster of firms from Germany outside of Sao Paulo, Brazil – there are over 300 plus of them located in the Peshwa City and counting.

The Pune based Nord Drivesystems Pvt. Ltd., the 100 per cent India subsidiary of the €500 million Getriebebau Nord, a global leader in drive systems, recently celebrated 10 years of its hugely successful existence, along with the 50th of its parent company, and is now looking to expand the scope of its activities in line with the government’s development plans. The company is is now expanding its unit at Hinjewadi with an investment of about a million Euros. Construction has been already started and the facility is expected to be fully ready by January 2016. “We are great optimists. Despite market aberrations we have pinned our faith on the India Growth Story, and particularly on Pune,” avers PL Muthusekkar, Managing Director, Nord Drivesystems Pvt. Ltd.

 

Muthusekkar is not alone in that sentiment. Pune is home turf for firms from Deutschland not just because of the comfort they draw from numbers. The presence of large German companies serves as a magnet for the smaller firms to gravitate towards the city. The other factors that propel them are the presence of a skilled workforce, good education facilities and an entrepreneur base which permits absorption of high technology brought by the Germans. It is also a fact that firms gravitate towards Pune because it is a great melting pot for culture and has a very friendly atmosphere. Incidentally Pune is a sister city to Bremen in Germany – there is even a Bremen Chowk here as a tribute to the relations with the European industrial port city.

 

Now the dots of other industrial agglomerations of Deutschland origin are fast spreading across other states like Karnataka, Gujarat, Delhi, Andhra Pradesh and Tamil Nadu with new business linkages being established.

 

Such is the level of engagement that Germany is today India's largest trading partner in Europe, with bilateral trade in 2014 valued at €15.96 billion. There are more than 1600 Indo-German collaborations and over 600 joint ventures between the two countries currently in operation.

 

This speaks volumes of a certain level of ease. For firms from Deutschland and their local affiliates, India is now in many ways a home away from home - Little Germany.

No one can tell you that better than Thyssenkrupp, the globally diversified engineering company, counted among the ‘Big Daddies’ of the German industrial juggernaut. Sivasubramanian Natarajan, Managing Director, Thyssenkrupp Industries India Pvt Ltd (TKII) which is part of the Industrial Solutions Business Area of the German principal and plays an important role in the infrastructure, engineering and manufacturing domain, is led to say, “Pune has witnessed tremendous growth over the years. The industrial township of Pimpri Chinchwad is dotted with over 4,000 manufacturing units, thereby making it the perfect Head Office for a company like ThyssenKrupp Industries India. Apart from these, proximity to Mumbai, good and pleasant weather, robust connectivity to the industrial belt in southern India and availability of talent has made Pune the perfect destination for us.” Thyssenkrupp has now outlined plans to set up a materials plant further afield in Bengaluru for the aerospace and defense sectors.

 

Bengaluru too has now become a major hosting ground for manufacturing units of German brands. Last year the Dusseldorf based GEA group, a major supplier for food processing technology, inaugurated a new facility to manufacture hygienic valves and pumps as a part of its global expansion plans. The 25,000 sq ft built-up state of art manufacturing facility is at par with global standards of the GEA Group and will be focused on components to be used for dairy, brewery, beverage, pharma and personal care industries.

 

And Dr. Jörg Matthias Grossmann, Regional Representative India, Freudenberg Group also based out of Bengaluru is only emphasising that comfort level when he says, “We will continue to invest in India over the coming years. It is an excellent market with many companies operating and a strong middle class representing a consumer opportunity as well. For us India remains a cornerstone of success – a market with one of the world’s biggest potential which has made a substantial contribution.” The Freudenberg Group has been active across various industries from core engineering to household consumables offering a wide range of products and services in home and cleaning products, including specialty lubricants and release agents, oil seals including radial shaft seals, valve and steering seals. Today the firm operates in more than 50 locations across the country with 14 manufacturing plants, 4 R&D centers employing 2,800 full-time associates.

 

 

 

OCEAN OF OPPORTUNITY

 

“It helps encourage international business sentiment and build on the sense of home when you have a cluster of firms belonging to a particular nationality operating together in one place. India is that place,” explains Hauke Viktor Schlegel, Managing Director, VDMA (German Engineering Federation of Companies), Marine Equipment and Systems Division, based in the port city of Hamburg. “There are more than 400 German companies in the marine business that are in the equipment supply industry and some of them have a presence in India. Our firms are world champions in innovation and reliability and are naturally interested in participating in the projects being planned.”

 

The reference is obviously to the Modi government long term ambitions to develop Indian port and maritime infrastructure. In the marine sector German system vendors and engineering service providers like the Rostock based Ingenieurtechnik und Maschinenbau GmbH(IMG) are eyeing business possibilities with great interest. The company which has previously been associated with the L&T and the Lavgan Port project offers expertise in business planning and project management of plant and shipbuilding concepts along with development, design and manufacturing of heavy load transport systems for marine vessels and steel structures.

 

It is such prospects that lead giants like Siemens – the first German multinational to make the first business connection with India via a telegraph line way back in 1870 – to keenly eye the emerging frontiers in the Indian maritime sector, notably in the area of ships being powered by electricity.

 

Says Atul Kumar Chief Manager & Head, Drilling & Marine Solutions, Siemens Ltd, “Worldwide there is a shift in favour of electrically powered ships vis a vis those by diesel. The long term view from our headquarters in Germany is that India presents a very big business opportunity both in terms of commercial ships and naval vessels and we are very much focused on it.”

 

 

 

 

POWER OF CLEANTECH

 

Oktober for the Germans may spell beer-fest but Angela Merkel's visit to Modi’s constituency, and by extension Hinduism’s holiest city – Varanasi – will be focused on the tremendous water opportunity for firms involved in the water business. Modi’s Swach Bharat Abhiyaan has come on the radar of German companies who have an eye on the main chance. The Clean Ganga project has led to talk of ambitious cleanup outcomes with German authorities proposing cleaning up of part of the river. Very recently a group of Indian parliamentarians announced a study tour of Baden-Wurttemberg, Dresden in Saxony and Berlin, destinations chosen for German technology and models relevant to India's focus on clean technology, cleaning up of rivers and the environment. Based on the remarkable revival of the Rhine declared dead in the 1980s, New Delhi is keen to derive German expertise on river and water body rejuvenation strategies, capacity support for urban sanitation, setting up of standards and approaches to industrial pollution and innovative financial models for cleaning the Ganges.

 

Indo German cooperation is set to be intensified further in the areas of energy efficiency and renewable energy – an area in which the Modi government is pushing for adding as much as 175 Giga Watts of over the next seven years. The emphasis will be on the development of solar power and renewable energy on which Germany is betting big — having decided to phase out nuclear power. The ministry for development and co-operation has already sanctioned €1 billion for the project with an emphasis on development of solar power on roof tops in cities in India, besides a scheme on energy transmission from renewable sources.

 

 

MAKE IN INDIA

 

It is the ‘Make in India’ campaign flagged off by the Indian government that has got German companies hugely interested. Increasingly a large number of them are looking to invest in Indian High-Tech market.

 

Electronic and electronics manufacturers such as Bosch, Infineon Technologies, Rhode & Schwarz, Coriant GmbH and ZVEI German Electrical have shown interest in investing in India giving a fillip to the ambitious push to promote local manufacturing. These players are eager to cater to the demand for mobile phones, SIM cards, smart cards and smart cities in India, created by the ambitious Rs.1.13-lakh crore 'Digital India' initiative of the new government which seeks to transform India into a connected economy, attract investment in electronics manufacturing and create millions of jobs.

 

Firms related to construction materials too are now upping their ante to introduce quality and durability to the end products. In June this year Henkel AG, a global market leader in adhesives, sealants and surface treatments for consumers, craftsmen and industrial applications, announced an investment of about €30 million to set up the largest adhesives plant at Kurkumbh, near Pune, with an annual capacity of manufacturing about 80,000 tons of adhesives and surface treatments. The new 20,000 sq m plant which will cater to various end user segments such as automotive, metal and industrial sector is expected to start production by early 2017. Jeremy Hunter, President and Country Manager, Henkel Group, is led to say, “India is a key emerging market for us. We see the new plant as a key foundation for our growth plans over the next 30 years.”

 

MC-Bauchemie (I) Pvt Ltd, counted among the leaders of the construction chemicals business in the country derives its product and systems solutions strength from technical and financial collaboration with MC-Bauchemie, Germany. The firm manufactures its products from its state of the art plants in Goa and Gujarat. Sunny Surlaker, Head Admixtures Division, MC-Bauchemie (India) Pvt Ltd says, “These states are already home to other German construction chemical manufacturers. The current scenario indicates an increasing interest among companies to invest in these locations.”

 

 

A similar vote of confidence is seen in the construction equipment industry. Underlining the growing importance of India as a marketplace for road construction equipment, the Wirtgen Group opened up a new Rs.80 crore plant for crushing and screening equipment outside Pune recently which will cater to global requirements. Explains Ramesh Palagiri, Managing Director & CEO, Wirtgen India, “With road projects getting a thrust from the government we see a very big business opportunity.”

 

 

So it is with Putzmeister Concrete Machines Pvt Ltd which has established a very strong footprint in the Indian construction equipment market for concrete machinery and boom pumps. With the support of its parent company in Aichtal, Germany, Putzmeister India with its base in Verna Industrial Estate, Goa has developed advanced technologies and high quality services across India, deploying its pumps at various prestigious real estate and infrastructure projects. Says Wilfried A Theissen, Managing Director, Putzmeister Concrete Machines Pvt Ltd, “Putzmeister is in India to last and we will continue to support our customers with the best products, services and application technologies. We intend to increase our product range in concrete technology but also in other technical fields like mortar, industrial pumps and underground technology.”

 

The Bengaluru based Lapp India, a 100 per cent subsidiary of the Lapp Group, Germany, and a leading supplier of integrated solutions and branded products in the field of cable and connection technology, expects to benefit out of the Make in India campaign even though it is a player operating on the periphery of the power sector. “We feel India has a great potential to be a manufacturing hub. Our belief got reinforced when the government announced the ‘Make in India’ campaign. The initiative will be our primary focus and we will use this campaign in line with our expansion plans,” says Marc Jarrault, MD, Lapp India Pvt Ltd.

 

 

FAIR GROUND INDIA

 

Thanks to the development thrust in recent years the consumer’s market that is India has ensured the popularity of international trade exhibitions. Markets are fast moving, dynamic and more and more international. The attractive aspect for exhibition organisers is definitely the huge business potential across different industries and verticals and the continuous growth taking place in India. There is however a need for more professional and state-of -the-art exhibition centers in India which would help the exhibition industry in general to expand and become a driving force of the economy. India has been one of the markets in which organisations like Messe Müenchen had invested at an early stage, anticipating its global significance. Since then the successful establishment of several spin-offs of major trade shows have proven the growing importance of the Indian market to the company. Igor Palka, CEO, bC Expo India Pvt Ltd, a young fairs veteran who has successfully designed and orchestrated a series of fairs in India for his parent organisation, Messe München like bC India, is led to say, “India is a place where you have to be, especially looking at the forecasts of development in the future. We as Messe Müenchen are already here where the market will grow or new potential industrial segments for exhibitions will come up. We will continue investing in a corporate strategy that is based on global thinking and acting, expanding our position as one of the world’s leading trade fair companies, adding continuously new trade shows to our local portfolio.”

 

 

CHALLENGES AND PRESCRIPTIONS

 

While the minders of government will doubtless be looking at policy changes to draw individuals, institutions and governments to invest in the 'Make in India' campaign, more initiatives need to be taken by the powers that be to get the environment and ecosystem ready to support the growth. Right now things are at the exploratory phase for the various stakeholders as they look to jump into the manufacturing fray. While the intention of the government to spur manufacturing and industrial growth is generally well received there is not much clarity on the specifics of how to get things done on the ground. That needs to be addressed for the 'Make in India' vision objectives to be achieved fully.

 

But there is a lot more required to be done to raise the Indo-German business engagement profile. There are several on the ground realities which will be required to be urgently addressed. Like infrastructure, for example. There is a pressing need to create basic supplies like water and electricity, good roads and transport systems. At a policy level too there are expectations in terms of clarity on land acquisition, timeframe on environmental clearance and financing or in relation to PPAs with various electricity grids or consumer generation companies. GST and RBI regulations are also urgent matters to be dealt with coupled with the lack of skills of available contractors.

 

The other areas that require to be addressed by New Delhi to raise the level of trade and business transactions with German companies would be to smoothen and simplify areas like bureaucracy, administration, taxation, regulations and to dismantle other growth hurdles. With huge German involvement in various sectors Merkel and her team will doubtless be seeking a level playing field in India for German companies and this includes a stable and predictable tax regime to help them take investment decisions, given the concerns about retrospective taxation.

 

Says Palka, “All those and more will be necessary to invest German involvement and campaigns in India with more life. Getting those vital gaps filled will only mean that eventually more and more German companies and products will be encouraged to Make in India.”

 

Logic dictates that such change will doubtless happen. For the moment though it is time for the Indo German partnership to bring out the beer.

 

It’s Oktober and in India’s Little Germany one must allow happy fizz to flow.

 

 

INDO-GERMAN BILATERAL TRADE (IN € BILLION)

 

2012

2013

2014

2015 (Jan-June)

Total Trade

17.37

16.10

15.96

8.82

Indian Exports

6.99

6.91

7.03

3.91

Indian Imports

10.38

9.19

8.92

4.91

Balance of Trade

-3.39

-2.28

-1.89

-1.0

 

 

VITAL STATS

  • Concrete German commercial association with India began as early as in 1870 when the first telegraph line between London and Kolkata (about 11,000 km) was laid by Siemens
  • It is the 8th largest foreign direct investor in India since January 2000
  • Germany is India’s largest trading partner in Europe
  • Germany is the 8th largest foreign direct investor in India since January 2000
  • German FDI in India in 2014 was to the tune of $1.15 billion

 

 

GERMANY’S LITTLE INDIA
Indian corporate entities have invested over $6 billion in Germany, mainly through Mergers & Acquisitions (M&A). There are more than 215 Indian companies operating in Germany. Sectors like IT, automotives, pharma, biotech and manufacturing have received a chunk of Indian Investments. The penetration of Indian software companies in German market is growing and major Indian software providers like Infosys, Wipro and TCS have operations there. Companies like Suzlon, Bharat Forge Ltd, Ranbaxy, Samtel, Hexaware Technologies, NIIT, Graphite India Ltd, Hinduja Group, Piramal, Sona Group, Essar, Kirloskar, Dr. Reddy's Laboratories, Biocon, Hindustan National Glass, Mahindra & Mahindra and others have either acquired German companies or started their own subsidiaries. Major clusters of Indian companies are in the states of North Rhine Westphalia, Hesse, Bavaria and Indian Baden-Württemberg.

 




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