In spite of the slump in global economy, the business trade-offs between India and Germany have continued on a strong note and this graph is all set to go only one way - upwards, says Huned Contractor

If any evidence was required of the increasing presence of German companies in India, one had only to visit the four concurrently held industry fairs on wire & cable, tubes, metallurgy and welding held in Mumbai from October 30 to November 1, 2012. Organised by Messe Dusseldorf and Messe Essen, the shows attracted a total of 10,500 visitors who came to view the latest technologies for these sectors. "India has always been a preferred partner in many of the industrial sectors and German companies are quite confident that there is a lot of potential that is yet to be tapped," says Heinz Rockenhauser, President, International Wire & Cable Exhibitors Association (IWCEA). In fact, the presence of German companies in India has only got stronger over the years, even at times when the global situation has been bleak.

It is estimated that the largest 120 German companies in India alone employ 1,73,000 people directly and another 3,00,000 indirectly by way of exclusive agents, suppliers, franchisees and vendors, thus making German companies a major employer in the country. The trade between India and Germany will reach Euro 20 billion very soon and the recent investments by Volkswagen in the range of Euro 580 million in Chakan, by Daimler with Euro 700 million in their truck venture in Chennai and by Siemens who are increasing their shareholding in Siemens Ltd for more than Euro 1 billion show the direction. German companies are by far India's largest trading partners from the European Union. With more than 1,500 companies from Germany present in India this strong position will grow further. According to a news report published by the Indo-German Chamber of Commerce, while initially German investments in India were mainly of the large German manufacturing corporates, now the service industry and the German Mittelstand (small and medium enterprises) have come in a big way. "In the financial services sector, Deutsche Bank is a major international player and Allianz Insurance with its Bajaj Allianz joint venture is the largest foreign insurer in the country. For a company like SAP, Bangalore is the largest hub outside their headquarters in Walldorf and without the more than 5,000 Indian software developers SAP would not be the global market leader that it is today," says Bernhard Steinruecke, Director General, Indo-German Chamber of Commerce (IGCC).

One of the reasons why Germany has managed to establish such a niche position in Indian industry is its proactive approach and innovative ways to create platforms for knowledge sharing and networking.

While the trade fairs are one example, there are many other events that foster a deep relationship between the industry and trade of the countries. For instance, 'Auto Sustain' has been a fruitful way to sensitize the automotive and auto component industry.

A public-private partnership project co-financed by DEG and implemented by UL DQS India and ASSIST in association with IGCC, the project helps the automotive industry in the country to adopt sustainability practices' benchmarking international standards like ISO 26000, IQNet SR10, Global Reporting Initiative (GRI), etc., and help the supply chain (SMEs) to align with environmental, health and safety management systems (ISO 14001/OHSAS).

Similarly, a seminar on innovations in sheet metal roll forming was held in Mumbai recently on behalf of the German firm Data M Sheet Metal Solutions GmbH that witnessed the participation of eminent speakers like Dr Krzysztof Szarowicz who has done his post-graduation in sheet metal roll forming and worked as a research engineer at the Silesian University of Technology and Albert Sedlmaier who is the managing director at Data M Sheet Metal Solutions GmbH.

Some of the topics covered included design and optimisation roll forming process and verification of roll process, productive and effective new features of Copra? software, post-operations in roll forming and its simulation, application of high-strength steels, etc.

The Growth Journey

There have been several ups and downs in the development of Indo-German trade over the last 50 years. While growth was steady at a much lower level before liberalisation, the Indo-German trade increased multi-fold post-liberalisation. 1991, the year when the Indian markets opened up, was a significant year for Indo-German trade as it marked a first-ever export surplus of DM 376 million for India.

In the following year (1992), imports grew more than exports, whereby exports and imports almost reached parity. From 1995 to 1997, imports from Germany overtook exports and trade volumes grew steadily with the impetus coming from import growth. From 1998 to 2002, the two-way trade increased significantly.

The most significant increases in the Indo-German trade, largely fuelled by phenomenal rises in imports, were recorded from 2003 onwards, where overall trade grew at over 20 per cent per annum with a phenomenal 39 per cent increase in 2006. Bilateral trade achieved its peak growth in the year 2006, when the first significant milestone of Euro 10 billion was crossed. In 2007, a new landmark of Euro 12 billion was achieved.

In 2010, bilateral trade once again grew impressively, posting a growth of nearly 18 per cent - the highest in the last three years. The trade between the two countries reached a volume of Euro 5.4 billion, adding on at least Euro 2.3 billion in 2010 over the previous year's figure.

As per a report published by the IGCC, the trade volume between India and Germany during the first half of 2011 increased by over 26 per cent over the same period last year. Indian exports grew impressively - by nearly 36 per cent to reach a figure of Euro 3,919 million. Indian imports too registered a healthy increase of 19.6 per cent to touch Euro 5,152 million during the first six months of this year. "If this growth trend is kept up, the target of Euro 20 billion by 2012 set by German Chancellor Dr Angela Merkel and Indian Prime Minister Dr Manmohan Singh may well become reality sooner than expected," the report states.

Machinery in Demand

With the Indian industry beginning to compete in the global arena, quality has become a defining factor and this is what has led to Indian manufacturers importing a huge number of German machinery for their production processes. Says Vienna-based Dr Kurt Eder, CEO, Eder Engineering: "We have been visiting India since several decades and have been impressed with the growing demand for German products. This has also led many of the German companies to set up their production platforms in India and you need not look further than the automotive segment to see how the biggest of the German vehicle makers, beginning from Mercedes Benz, have made their investments here." Eder Engineering specialises in making advanced drawing die tools, die processing technology and equipment.

According to the latest statistics from the Federal Statistical Office in Wiesbaden, from January to June 2011, India imported more machinery (+26 per cent) than during the same period last year. The imports of electro-technology products too grew sharply (+48 per cent) to touch Euro 726 million, while taking up 14.1 per cent of India's import basket during the first half of this year. This was followed by metal products, imports of which amounted to nearly Euro 548 million, with a share of 10.6 per cent. With respect to Indian exports, during the first half of 2011, textiles once again emerged on top with exports touching over Euro 1.0 billion, taking up 25.7 per cent of total exports, while registering a growth of 29 per cent over last year. The next most important item of exports was chemicals, which moved up a notch in the ranking from last year to second place this year.

Seeking Greater Investment

The stage is now set for a sharper increase in the Indo-German business with Prime Minister Dr Manmohan Singh making it clear during the visit of German Chancellor Dr Angela Merkel on May 31, 2011 that India would like more German participation in the areas of infrastructure, high technology, energy and basic & applied sciences. "We wish to expand our production and R&D base and encourage more technology transfers," Dr Singh said. The two countries also signed agreements in science & technology and research between some of their institutions. The agreements are expected to encourage greater exchanges in areas such as biotechnology, nano-technology and material sciences.

Since the year 2000, Germany has invested nearly USD 3 billion, accounting for 2.2 per cent of total investments into India. Geographically, with investments worth nearly USD 74 million, and a 37 per cent share, Maharashtra attracted maximum German investments during the last financial year i.e. April 2010 to March 2011.

In the previous year it was Delhi, which with nearly 51 per cent of total German investments was far ahead of the other regions. During the year of reporting, Delhi moved to the third place with Hyderabad taking up a slightly larger share (10.9 per cent) of German investments. Kanpur is a new entrant into the list of top investment locations for German companies, taking up the fifth position with investments worth USD 10.3 million and a share of nearly 5.2 per cent.

FDI Inflow from Germany

According to data received from the Ministry of Commerce, Government of India, FDI inflows worth around USD 1,363 million were received from Germany through Indian companies from April 2000 to May 2011. In the list of top investing companies during this period were:

• MHM Holding GmbH
• DKV International Health Holding AG
• Allianz Se
• Metro Cash & Carry International GmbH
• Oil Tanking India GmbH
• Deeree & Co.
• Lanxess Deutschland GmbH
• Deutsche Boerse AG
• Intel Mobile Communications GmbH
• Lanxess Deutschland GmbH.

The top three companies, i.e., MHM Holding GmbH for manufacturing printing/packaging inks, resins, enamels, adhesives, etc., with Micro Inks Ltd, DKV International Health Holding for manufacturing power capacitors with Apollo Energy (P) Ltd and Allianze SE who are insurance carriers through their Indian counterpart Bajaj Allianz accounted for nearly 39 per cent of the total amount of inflows through collaboration with Indian companies.

Indian Investments in Germany

On the flip side of the trade coin, growth in Indian firms' investments in Germany, by and large, continued to stay on a stable course between September 2010 and August 2011. An article written by Rajnish Tiwari, a research associate at the Institute for Technology and Innovation Management at Hamburg University of Technology (TUHH), states an increasing number of Indian firms are discovering the merits of using Germany's technological expertise and infrastructure for augmenting their own R&D capabilities and innovation portfolios.

According to a KPMG report, more than every fourth acquisition in Germany (27 per cent) carried out by an emerging market investor has Indian roots. The stock of Indian FDI in Germany is estimated to stand at about Euro 4.5 billion as of August 2011. At least 11 FDI projects could be monitored between September 2010 and August 2011. These projects had an estimated volume of about USD 325 million.

Interestingly, the federal state of Mecklenburg-Vorpommern saw two Indian investments by Suzlon in a joint venture with its own subsidiary REpower and by Kenersys in the field of wind energy, thus underscoring the potential that the regions in the eastern part of Germany hold for Indian firms.

Taking into consideration the investments and divestments in this period, one could count 139 India-headquartered MNCs and their 195 subsidiaries (majority stakes and wholly-owned businesses) active in Germany as of August 2011. As global economy analyst S Vaidyanathan puts it, "What has helped the Indo-German business to grow at such a rapid pace is the perfect match between demand and supply.

Indian manufacturers are in constant need of new technologies and machines that guarantee quality output while the German companies have displayed excellent capability of indigenisation when putting up plants in India. It's a marriage made in heaven."