India – R&D Destination for Global Manufacturers

Mr. Nath, why India is the preferred export market for German manufacturers?
India’s GDP is currently US$1.3 trillion, making it the eighth largest economy in the world. However, in PPP terms, which recognizes India’s low cost base, the GDP notionally rises to three times this amount (US$3.8 trillion) which places it on a similar size to Japan and, by 2013, it will become the third largest economy in the world after the USA and China in PPP terms. India’s economy is currently growing by 8.75% per annum (in 2010) and this GDP growth rate is expected to increase to 9–10% per annum for each of the next 10 years. The Indian economy offers investors exposure to a wide range of opportunities from consumer goods and pharmaceuticals to infrastructure, energy and agriculture. India is one of the youngest countries in the world, with an average age of 25 years and likely to get younger. India’s working–age population will increase by 240 million over the next 20 years.
With a savings rate of 37% of GDP, India’s domestic savings fuel most of its investment requirements and only 20% of India’s total public debt is sourced from foreign borrowing. India’s domestic consumption, generally led by the private sector, has played a significant role in India’s growth and is expected to remain firm as more people enter the workforce and the emerging middle classes. India has a robust, diversified and well regulated financial system which has allowed it to weather the global financial crisis without any major difficulties and present an image of quality, resilience and transparency. Hence the growing Indian market and the investment in core sectors offer optimal opportunity to the German machinery manufacturers and technology suppliers.
Which are the industry segments the German manufacturers have significant market share?
Indo–German trade increased by 18% during January–September in 2010, over the same period in 2009, to reach Euro 11.2 billion. The total Indian exports were at Euro 4.5 billion (+ 4.2%) and that of imports were Euro 6.7 billion (+19.5%) in the first three quarters of 2010.
In 2009 among the machinery, major demand of German equipment was for Power Transmission at 10.3%, Machine Tools was 8.5%, Textile Machinery at 5.9%, Construction Equipment & Building Material Machinery was 5.8% and Printing & Paper Technology was 5.2%. In 2009 out of approximately Euro 13.3 billion of machinery imported by India, Germany’s share was 18 %.
It is learnt that a number of component manufacturers from India are exporting to the German industry. Can you name this export is basically for which industries?
Germany has now become India’s favourite investment destination; when businesses from the sub-continent decide to set up shop in EU region. Germany tops the list for its state-of-the-art technology which helps Indian companies enormously. In the recent times a lot of Indian companies have invested in Germany and the trend is ongoing. Germany is now India’s 3rd most important suppliers excluding Oil & Petroleum Exporting Countries (OPEC).
With India becoming an important outsourcing hub, we find German companies increasing sourcing components and castings for various industries like construction machinery, valves, process equipment, pumps etc.
During period January – September 2010, the exports from Germany to India increased by around 10% in comparison to the corresponding period in 2009 to attain a figure of approx 220 Million Euros.
Why German manufacturers prefer ‘Made in India’ components/spare parts?
‘Made in India’ may well be espoused in the future by consumers around the globe.  While the pace of change in the Indian manufacturing sector has been blistering over the last decade, there remains a significant challenge ahead for the industry to achieve world–class prominence. Competing in Global Manufacturing and Service Networks, overcoming these hurdles is well worth the effort and will help manufacturing in India to thrive by fostering further expansion of domestic enterprises and boosting investments by global manufacturers from abroad. In India, domestic and multinationals, need to rethink their operating models to take advantage of the spectacular growth rates. The research also indicates that many leading manufacturers in India today enjoy an average annual revenue growth of nearly 20%.
While there is still a long way to go for Indian manufacturing to transform itself through innovation, India as a destination for research and development (R&D) is well recognized. And the recent trends support this with many multinational companies in all manufacturing sectors, including automotive, life sciences, process and industrial products, establishing or increasing investments in R&D centers in India. Due to the availability of low–cost, well–educated and highly skilled talent, in some sectors, the cost of R&D in India is as low as a third of what would be spent in a developed country in the west making India an attractive destination.
Can you mention some of VDMA’s initiatives in strengthening Indo-German trade relationship?
The German Engineering Federation (VDMA) is the largest industry branch association in Europe. Founded in 1982, it now looks back on a 118 year long history. This non–profit association, with a workforce of 400 employees worldwide, consists of 3,000 member companies active in 39 engineering sector. VDMA is a real representative of small and medium–sized enterprises in Germany.
VDMA reflects the production process itself, from components to plants, from system supplies or integrators to service providers.
VDMA extended its services with nodal office located in Kolkata and having regional offices at New Delhi/ Noida and Bangalore. VDMA India team assists the German member companies by their endeavour in Indian market. Further local assistance is provided to the Indian Industry in establishing contact with the German companies. VDMA India office acts as a “bridge–head” between the German and the Indian Industry and helps to foster the Indo–German trade in the engineering sector.

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