Strongly increasing growth rates, an ever-growing middle class willing to spend and numerous government investment incentives: India is becoming more and more attractive as a location for German and European companies. If companies like Bosch, Siemens, VW and Daimler can look back on a long history in India, the subcontinent is also becoming increasingly interesting for medium-sized businesses.

What makes entering the market easier: Products 'Made in Germany' traditionally enjoy an excellent reputation locally, despite often higher prices. What are the strengths and opportunities of the world's sixth largest economy? India as a beacon of hope for medium-sized companies?

India's strengths and opportunities as an investment location

From the perspective of investors, the subcontinent scores with a broad industrial base, a Western-oriented legal system, a competitive wage level, a large number of university graduates and a reform-minded government. For Germany Trade & Invest, the federally owned company for foreign trade and location marketing, a young, consumer-friendly population - around 35 percent of Indians are younger than 25 years - the modernization of the infrastructure, investment incentives for industrial settlements and a great interest on the part of Indian companies in international cooperation and knowledge transfer are among the greatest opportunities of the location.

In addition, there is a huge sales market. According to forecasts by economic researchers, India will grow significantly faster than China in the coming years. In addition, what is now the third largest economy in Asia, with 1,38 billion inhabitants, will replace China as the most populous country in the world.

German know-how in demand in India

German-Indian trade recovered strongly last year. According to the Federal Statistical Office (Destatis) German exports to India increased by 20,3 percent to 14,7 billion US dollars, while imports from India rose by 26,3 percent to 12,9 billion US dollars. As in 2020, India ranked 23rd among Germany's trading partners as a sales market, while India slipped from 25th to 26th as a reference market.

Germany primarily supplies all kinds of machines, which contribute a quarter to exports. Airplanes are in demand, among other things, as the Indian aviation sector has recently grown strongly with its airlines Indigo, Spice and Go First. Road vehicles grew particularly strongly (47 percent) and with them automotive parts. Other important export goods include electrical engineering, measurement, testing and control technology as well as chemical products. Chemical products, especially industrial chemicals, and clothing come from India. But iron, steel, machinery and electrical engineering are also important import goods from India.

Like China, the Indian government wants to reduce the country's import dependence by increasing local production for the domestic market while establishing the country as an export hub. New Delhi also hopes to benefit from shifts in supply chains, particularly from China. The government therefore supports new settlements and expansions in selected industries with generous subsidies in the form of so-called 'Production Linked Incentives' (PLI). The economic sectors supported include primarily those in which German corporations and medium-sized companies are traditionally well positioned, such as pharmaceuticals and vehicle parts.

Another priority for government spending is the expansion of infrastructure, especially roads and rail transport. This is largely considered to be deficient Driving up transport and logistics costs.

Indian workforce at home and abroad

With more than three million square kilometers, India is the seventh largest country in the world and around nine times the size of Germany. The almost 1,4 billion people live in 28 states that are just as diverse as the European countries. But since English is the official language alongside Hindi, business people can communicate easily in all parts of the country. The children learn English in kindergarten and school. Unlike in China, there are no language barriers.

While Germany will be increasingly dependent on skilled workers from abroad as the baby boomers leave the labor market in the next few years, India benefits from a significantly more advantageous age pyramid. The Indian share of the world population aged 15 to 24 is 20,5 percent, well ahead of China at 14 percent.

Made in Germany

Since 'Made in Germany' enjoys an excellent reputation in India thanks to popular car brands, household appliances and even machines, German companies are in demand as employers. As a rule, they score points with a good corporate culture, comparatively short weekly working hours, good (private) health care, employee retention programs and, in particular, a high degree of loyalty from employers to employees. A 'hire and fire' culture, as we know it from the USA, for example, does not generally exist, especially in medium-sized German companies. At the same time, Indian professionals are considered hard-working with a high work ethic and a long-term interest in the employer.

German employers can also get an idea of ​​the qualifications of Indian skilled workers in Germany. Loud Institute of German Economy (IW) The number of people with Indian citizenship in Germany rose from 2010 to 2020 between 48.000 and 151.000. In spring 2021, almost 58 percent of Indians in Germany who are subject to social security contributions worked in positions that require a university degree or a further training qualification such as a master's degree. Indians particularly often work in areas that are particularly affected by the shortage of skilled workers, especially in MINT professions. Although Germany is in competition with Anglo-Saxon countries with their traditionally strong communities of Indian origin, it has managed to attract more and more Indian immigrants, including those who are initially starting university studies in Germany.

Market entry: step by step to India

Like the German economy, the Indian economy is also shaped by corporations, numerous smaller and larger family businesses and a lively startup scene. Thanks to uncomplicated communication in English, the official language, the Indian market may seem more accessible to newcomers than, for example, the Chinese one.

In addition, almost every second German medium-sized company has their current business situation in India described as good. This is what we published in January 2022 'WB Business Climate Index India 2021' out. At the end of the first Corona year it was only 18 percent. The positive trend is confirmed in the economic outlook. Almost two thirds of those surveyed are convinced that the economic situation will be good in the next twelve months, i.e. in 2022. The business climate we determine annually - the average of the balance of the business situation and expectations for the coming year - even rose to its highest value since the survey began in 2017.

Sales also developed positively in 2021. A large majority of respondents, 70 percent, reported sales growth; 12 percent reported sales remained the same and 17 percent reported a decline. Although all medium-sized companies are affected by the pandemic and its consequences after two hard lockdowns, companies from the DACH region are holding on to the Indian market and are seizing the potential.

Product adjustments for the Indian market

After a thorough market analysis, companies should test in practice whether the Indian market is attractive for their own products or services. First, a carefully selected local and already established distributor can distribute parts of the range through its network on the subcontinent. If the test is successful, many companies set up a subsidiary in the form of an Indian GmbH or a private limited company, which then also has its own local employees occupied. Often ask foreign Company realize that they have to adapt their products to local needs because the original ones are either too expensive or too difficult to use ('Frugal Innovation'). That's what they build for usually also own works over time on, Lahore medium term zusätzlich Deliver to customers in neighboring countries can. In addition, it is possible to consider the country in South Asia not only as a sales market, but also or only as to take advantage of the increasingly attractive procurement market. 

India's Silicon Valley - a beacon of hope for the IT industry

In Bangalore, one of the country's most important economic centers, India's Silicon Valley has established itself, with a huge supply of well-trained IT specialists. Numerous Western companies have outsourced their entire IT departments to Indian service providers or to their own development centers in the 'IT Capital of India'. With offshoring, you benefit from significantly lower salaries and a sufficient supply of skilled workers. The need for digitalization in all areas of the economy will further fuel the trend. According to the national investment agency Invest India The Indian IT industry has a share of more than 52 percent in the global outsourcing market. The computer software and hardware sectors attract the second highest foreign direct investment.

 

Part 2: Practical tips and tricks
Part 3: Challenges in India, Conclusion