Approximately 80 Indian companies in Germany generated combined revenues of € 11.4 billion and employ a total workforce of 27,400 in 2016. This was revealed in a recent study conducted by the Bertelsmann Foundation, Confederation of Indian industry (CII) and EY (Ernst & Young), based on interviews with leading Indian CEOs.
According to the study, since 2010, nearly 140 major investment projects by Indian companies have been initiated in Germany. This includes FDI announcements as well as M&A. Between 2010 and 2016, Germany was the second-largest recipient of Indian FDI in Europe with 96 projects.
The top sectors for investment include Automotive industry; Metal and Metal processing industry; Professional, technical and scientific services, Chemical and Pharmaceutical industry; Electrotechnics and Manufacture of machinery.
The study has found that Indian companies in Germany currently generate nearly 70 percent of their turnover in the labour-intensive sectors of metals (40 percent) and automotives (29 percent). Important players in these sectors are Tata Steel, Hindalco industries and Sona Autocomp. The Indian IT industry accounts for a revenue share of nine percent.
This trend, however, is witnessing a slow shift. Access to high-tech products and the brand "Made in Germany" are also important factors which influence Indian Industry’s decision to invest in German companies.
80% of the CEOs surveyed for the study stated that access to innovation and technology are important factors that influence the decision to invest in Germany. This is borne out by the M&A activity over the past six years stated Mr. Chandrajit Banerjee, Director General CII. In fact, one-fifth of the acquisitions made by Indians were found to be in the automotive supplier sector and one-third in the mechanical engineering sector. Examples include Motherson Sumi and Bharat Forge. Moreover, the planned merger of the steel businesses of Tata Group and ThyssenKrupp has taken Indo-German cooperation to a whole new level.
The study stated that German companies can benefit from this development. Through accelerated integration with the huge Indian market, access to the innovative potential of Indian companies as well as to the large pool of Indian professionals.
Therefore, Murali Nair of Bertelsmann Stiftung believes, Germany should put more focus on Government incentives in innovation, for example tax relief for depreciation, in order to encourage long-term commitment of foreign investors. In addition, every other CEO surveyed finds the tax and social security contributions to be critical and only 17 percent of respondents do not regard it as an issue. A stronger harmonization of taxation and social security contributions in Western Europe would therefore be desirable.
How Indian investment develops in Germany in the future will depend on a number of factors such as Brexit and regional marketing in Germany. As on date, 46 percent of all Indian investment projects in Europe are made in the UK. Germany comes in second with 17 percent of these projects.
Brexit, however, could reduce this gap, says Hermann Mühleck, India expert at EY. 90 percent of surveyed Indian CEOs were of the opinion that the Brexit will increase the attractiveness of Germany as an investment location and therefore will be favorable for volume and diversity of Indian investments in this country.
To speed up this process, however, the study advises that the German promotion agencies at national and local level, should no longer advertise Indian companies with the classical arguments, such as good infrastructure and stability only. "Soft", but quite critical location factors, such as quality of life, internationality and security in German cities should be in focus.
As demonstrated from the interview results, Indian companies and their employees in Germany appreciate in particular the high quality of life at an affordable price when compared to other major European cities.