German products have a good reputation and acceptability in India. Therefore, investing in India is the best opportunity to enlarge the market for its products.
By: Jesus Milton Rousseau S.
Friday, February 18, 2009: World’s third largest economy and the largest economy in the European Union, Germany is famous for internationally acclaimed high-end brands like Daimler, Siemens, Porsche, Lufthansa, Volkswagen, BMW and SAP. Its key industrial sectors are car making, electronics, mechanical engineering and chemicals. In car making, which is its strongest sector, Germany has six renowned manufacturers—Volkswagen, Audi, BMW, Daimler (Mercedes), Porsche and Opel (General Motors) and is one of the top three automobile manufacturers in the world, next to US and Japan. Its companies in the field of electronics are active in areas from electronic appliances to chip production. In 2006, Siemens registered almost 1,500 international patents, placing itself third worldwide. Germany is also known worldwide for its international trade fairs like CeBIT, Hannover Trade Fair, International Automobile Show, International Broadcasting Fair, International Tourism Exchange and AUMA.
Infineon, Wurth Electronik, Nokia Siemens, Siemens Information Systems Ltd, ADS Sensortechnik, Durag Industrie Elektronik, Embitel, Technik Euchner, VIPA and Bosch Engineering Solutions are some of the German companies which have established their manufacturing/development centres in India, says Audrey D’souza, regional director, Indo-German Chamber of Commerce.
Why India?
India is an obvious choice for German companies due to the availability of potential markets and talent pools. “High growth markets, like India and China are the obvious choice as preferred investment destinations, both from an aspect of being valuable talent pools as well as huge potential markets for goods and services,” adds Rajiv Jain, vice-president and MD, Infineon Technologies (India) Pvt Ltd.
India is an important market for German companies to expand the market for their products. “German companies are aware that India is a large market and German products have a good reputation and acceptability in India. Therefore, investing in India is the best opportunity to enlarge the market for their products. Hence, German electronic companies/industry will invest in India to enlarge the market for their products,” says D’souza. India is becoming a cost economic yet high quality manufacturing destination. Jain adds, “There are obvious synergies between what have emerged as core competencies for the two geographies in question. While Germany is one of the front runners in R&D and design, India is becoming increasingly important as a cost economic yet high quality manufacturing destination with a lot of untapped potential. The demographics of India are likely to make it an even more important market as the level of consumption increases.”
Investments in India
All major German companies operating in India have invested greatly in India. Siemens in India was founded in 1922 and incorporated in 1957. “The company completed 50 years of manufacturing presence in India in 2006. As reported in the fiscal that ended on September 2008, we made substantial investments amounting to nearly Rs 2.2 billion,” adds Dr Armin Bruck, MD, Siemens Ltd.
Rohde & Schwarz India Pvt Ltd was established in November 1995 as a 100 per cent owned subsidiary of Rohde & Schwarz. “The capital invested in India is about Rs 25 crore and still growing. Major chunk of it has gone into establishing state-of-the-art calibration facility in Bangalore, service centres at other locations and in sourcing demo/standby equipments to support our customers most efficiently,” says Yatish Mohan, managing director and head, Rohde & Schwarz India Pvt Ltd.
Infineon India commenced operations at Bangalore in 1997 as Siemens Semiconductors and was incorporated as Infineon Technologies India Pvt Ltd in 1999. “Infineon India is a major development centre of Infineon’s global R&D network playing a vital role in software development and hardware design. Infineon India currently employs over 600 highly qualified professionals, working in the area of leading-edge and innovative technology development for automotive electronics, secure smart cards and ID solutions, consumer, industrial and power electronics, mobile communication and broadband connectivity domains,” adds Jain.
Emerging Indian market
India is an emerging market in all spheres of electronics. It is now a leading market for automotive electronics, broadband, telecom, mobile communications, etc. “Infineon, like other global organisations, had originally entered India with a focus to tap the large R&D talent pool available here. While this still remains true to some extent, the greater attraction now is that of India emerging as a leading market for automotive electronics, broadband, infrastructure (high power generation and transmission), mobile communications and secured ID solutions, which are target areas for Infineon globally,” adds Jain.
Indian market for the test and measurement industry has shown a steady growth, which stems from its necessity in all spheres. The setting up of the Indian defence and space research labs during the 60s and 70s saw a steady demand for test and measurement equipments. This development prompted Rohde & Schwarz to have a presence in India through a distributor. With the advent of several semiconductor companies in India during the 80s, the need was to have a strong technical team along with sales and marketing. This led Rohde & Schwarz to conceptualise and then establish a full-fledged subsidiary in India. Basically, the growth in the Indian industry necessitated the expansion of Rohde & Schwarz in India, adds Mohan.
“In the fiscal that ended September 2008, we recorded a turnover of Rs 82,955 million and we are optimistic of achieving profitable growth in future. We have put in place a definitive strategy to sustain profitable growth. We will continue to tap key growth opportunities in the domestic as well as export markets. And we will be the sourcing base of products and services for regional and global markets. This will also include R&D,” says Bruck.
Growth factors
There is a rapid growth in the Indian market due to the increasing consumption of goods/services and competition. “The two factors which are applicable to all target verticals of Infineon in the Indian market are increasing per capita consumption of goods and services and increasing competition especially in automobiles, communications services, consumer durables, power and security solutions, in order to differentiate and get an increased market share, while attempting to manage cost pressures. For e.g., in the automotive sector, while on one hand, the number of units consumed is increasing with the growth in production volumes, on the other hand, the requirement for Infineon products deployed per platform is also increasing due to trends such as implementation of Euro III/IV emission norms and increasing demand for security and safety systems like ABS, Air Bags and EPS,” adds Jain.
Due to large population and continuous high GDP growth rates that India has experienced in the recent years, it registered an exponential growth of mobile phone users. The spurt of demand for mobile phones has definitely had a positive rub-off on the test and measurement industry. The Ministry for Communications and Information Technology has approved the release of 3G and WiMax spectrum to BSNL/MTNL. The department of telecommunications has also decided to allocate and auction 2.3 and 2.5 GHz frequency bands to private vendors. With the introduction of these new technologies, India is poised to move to its next phase of evolution. “This rapid growth will be further facilitated by the rapidly proliferating rural market. With a tele-density of just 8 per cent in rural India, as opposed to 50 per cent in urban centres, the hinterland offers good scope for expansion. Telecom, R&D and production are the main segments where we at Rohde & Schwarz would like to concentrate most in the coming years,” says Mohan.
Pluses and minuses
The advantages of having business in India are many—an emerging market, low cost-high quality model, pool of young talents, low cost of living, etc. “The advantages are obvious—a receptive and growing economy, world class technical/managerial graduate/post-graduate level education, a huge talent pool and a growing market with a lot of ‘as yet’ untapped potential,” adds Jain.
However, according to Mohan, “A lot of factors make India an attractive destination for foreign investors. Quoting ‘India in Business’, India’s low cost-high quality scalability model is what gives it an edge over other emerging destinations. Due to the relatively low cost of living in India, it has a good cost advantage compared to other Asian cities. India is also one of the few countries in Asia, where there is no language barrier as most of the Indians graduating from universities speak English. A high quality pool of knowledge workers, who have English speaking and relevant domain skills, give India an edge over other countries.”
However, the disadvantages are shortage of qualified skilled professionals, fragmented industry and lack of infrastructure. “On the flip side, there is a growing gap between demand and supply. Despite its enormous manpower, there is a shortage of qualified skilled professionals due to lack of adequate public education system. The wage rates are, therefore, going higher and higher, eroding the cost advantage that has served India for a decade now. Lack of adequate infrastructure also discourages foreign investors from doing business here. Not up-to-the-mark airports, roads, power supply, communication system, healthcare and other facilities act as major deterrents,” cites Mohan. Jain adds, “The typical nature of the Indian market, such as an extremely high level of cost consciousness and a large amount of industry being fragmented needs to be considered. Also, sensitivity to geo-political and cultural issues needs to be addressed due to the multi-faceted nature of the country.”
German products are well accepted by the Indian market. So, this is the right time for German companies to invest in India and flourish.
Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine
