Hermann Mühleck | Head of German Business Center India | Ernst & Young GmbH

First published in M+V’s India Insight in June 2015

Trade and investment activities, between India and Germany, in the High-Technology sector have historically been very high, with Germany being the third- largest source for imports and the sixth-largest destination for exports, globally, over a sustainable period of time.

One reason for this is that both very small and very large companies in Germany are often entrepreneurially led. A  huge number of these companies are market leaders in advanced technologies which have been responsible for numerous  leading edge applications, even those not produced in Germany. India, on the other hand, is facing a significant trade deficit that is still expected to worsen. India’s young population is growing faster and faster, bringing up to 15 million young people on the labor market every year. And this young and aspiring workforce needs jobs – which cannot be created by agricultural or services sectors only. Investment into Manufacturing in India is crucial for economic and social development.

Increased collaboration in the High-Technology sector between Germany and India could be the solution for these challenges. Development and employment of the young Indian generation will boost disposable income and generate tremendous market opportunities. In order to unleash these growth opportunities, the Embassy of India in Berlin commissioned Ernst & Young (EY) to evaluate the current competitiveness of India’s manufacturing sector and to offer advice regarding policy measures promoting FDI in India.

For this purpose, EY has conducted a study that evaluates the current status of India’s investment landscape. The study – entitled ‘Prospects for Indo-German Collaboration in High-Technology Manufacturing’ – illustrates both the present status and the future potential of investment opportunities for German companies manufacturing in India. Furthermore, it identifies the most promising manufacturing sectors in India.
This selection enables the Government of India to further promote Indo-German collaborations in a more focused and highly effective way.

According to an evaluation focusing on sector-specific key performance indicators, the most relevant 13 industry sectors from an Indo-German perspective are Electronic Systems Design and Manufacturing (ESDM), Photonics, IT, Automotive, Civil Aviation and Airports, Transportation Infrastructure, Water, Renewable Energy, Heavy Engineering, Biotechnology, Pharmaceuticals, Defence Manufacturing and Space. Each sector profile considers the current status, expected growth, and sector-specific trends, taking into account the perception of 92 CEOs of High-Technology companies representing internationally-operating companies and key opinion leaders. The information will help potential investors to understand all determining factors which are critical for making investment decisions. It allows benchmarking India against other BRICS countries with regard to the perception about key performance indicators – for example, market attractiveness, key obstacles, economic potential, and market readiness for High-Technology solutions.

Both governments have outlined the relevant regulations governing export controls and dual use of items. On this basis, an assessment has been derived identifying the sectors that have had an impact on the collaboration between Indian and German companies in the past. The study was jointly released by German Chancellor Angela Merkel and Indian Prime Minister Narendra Modi during the opening ceremony, at the India pavilion, at the Hannover Messe on April 13th, 2015 – as part of the ‘Make in India’ campaign.

The basis of the study is an analysis of customer preference data of 840 million adult individuals in India. The findings indicate that investors in the High-Technology sector are facing a highly fragmented and pluralistic consumer market. Driven by the availability of global communication platforms, Indian consumers today are well informed about High-Technology products, its features, availability, and pricing. This then leads to a market multiplicity that is not ultimately determined by the growth of the middle class but by the polarization of opposing expectations, even within small consumer segments. Its reflection is crucial for investment strategies, be it for market entry or product strategy. The key to succeed in this divergent environment is smart engineering, which leads to indigenous products for accelerated growth, not only in India but also for the surrounding markets.

Based on identified challenges, the responses of the targeted companies, and on activities the Government of India has started in the course of the ‘Make in India’ program, EY has developed instruments that could serve as a roadmap for governmental bodies to achieve increased attractiveness for investments and collaboration in High-Technology sectors in India.

The study has been conducted by EY Strategy and is available for download under HighTech-India.