Why is Germany Welcoming Indian IT Companies?
In recent few months, the leading Indian IT companies such as Wipro, Tata Consultancy Services (TCS), and Infosys have observed a huge amount of deals coming their way from German companies. Now, this is obviously a good thing for the Indian market as it will allow Indian businesses to grow more and expand in the International world.
India And Germany’s Relations
1. Bilateral Relations
The relations between Germany and India grew stronger in the 1990s after the Indian Economic Liberalization and post Cold-War. India and Germany have signed a ‘strategic partnership’ since the year 2001 which was later on supported by rounds of Intergovernmental Consultations (IGC), one that happened in New Delhi in May 2011 and the second that happened in Berlin in April 2013. The fourth IGC took place in Berlin in May 2017. There is also an Indo-German parliamentary group in Germany which was started in 1971 and which mainly focuses on strengthening ties between the parliaments of the two countries. For Defense, a bilateral Defense Cooperation Agreement had been signed in the year 2006. This shows that the political relations between Germany and India are pretty good.
2. Economic And Commercial Relations
Now let us talk about the Economic and Commercial relations between the two countries. As far as one can tell the commercial relations date back to the early 16th century when German trading companies established a sea route that went around Africa as they continued their search for stones and spices. Soon after that, quite a few German companies started establishing in India for trade. In 1870, a telegraph line was set up between London and Kolkata. In 1886, “Farbenfabriken Bayer and Co. Ltd.” was established in Mumbai. The kind of items that Germany exported from India included metal goods, iron steel, pharmaceuticals, chemical products, leather goods, etc. and the kind of items that Germany exported to India included aircraft, measurement and control equipment, gear equipment, synthetic material, complete fabrication plants, machine tools, steel sheets, auto equipment, etc. and now Germany is the 7th largest foreign investor since 2000. India stood at the 25th position in Germany’s global trade in the year 2018. German FDI in India during 2018-19 had a value of 886 million USD. However, its effective FDI in India from April 2000 to September 2020, was valued at 12.39 billion USD. India is also said to be the 6th biggest recipient of FDI from Germany.
3. Cultural Relations
Germany has seen to have a lot of interest in Indian films, dance, music, literature, TV industry, and particularly Bollywood. In Germany, they feature Indian films and artists at the very renowned Berlin International Film Festival as well as at other festivals that take place in Germany. About 200 restaurants serve Indian food in Berlin itself as Indian food is very popular there. There is also something called The ‘Deutsch-Indische Gesellschaft’ which is an Indo-German Society set up only to bring people of the two countries together to create awareness in the minds of the German public about modern India. The first chair of Indology was set up in the University of Bonn in 1818 as more and more German public were interested in the Indian language and philosophy. The government of India has seen to be funding many rotating chairs for Indian studies in the universities of Germany. This must have given us an idea about the cultural relations of the two countries.
India and Germany have had a history of investments and acquisitions together for quite a long time. Germany is ranked to be one of the largest acquisition targets for the Indian industry in the growing world. No one in their wildest dreams would have predicted the arrival of this COVID-19 pandemic in recent times. German companies had to cut costs for the very same reason and eventually had to turn their heads towards the Indian IT industries. According to the principal analyst of ISG which is an IT advisory firm, Mr. Mrinal Rai, he said that in the last six months, deals amounting to 14.7 billion USD were signed with Annualised Contracts Value (ACV) worth 3 billion USD.
The Reason Behind This Acquisition Drive
There always had been a trend of acquiring the client’s company at the time of crisis, few of the finest examples that we can have as of now are- when the company TCS took over CitiGroup’s captive BPO, Wipro which took over Citi Technology Services Ltd., Cognizant took over the Swiss firm UBS in October in the year 2009.
Germany is said to be the fourth-largest economy however with the pandemic and everything, they have recently started outsourcing.
The reason for this outsourcing are:
1.They had to cut costs and bring in operational efficiency due to the pandemic which has now made them turn to Indian IT companies which are proving to be very beneficial for the Indian IT market.
2. To compete with the US market, they are trying their hands in the digital transformation to modernize their IT industry.
3. Also, the fact that there have been various investments by the IT firms and Indian firm’s flexibility in joining venture partnerships has also helped.
What Will The IT Firms Get From This?
Although India and Germany have strong trade and commerce relations, their IT sector relations are not so strong however we can not deny the possibility of the huge potential that they carry for the future. Germany has an outsourcing potential of about 40-50 billion USD for the Indian market but if taken into consideration the large deals made by companies such as Wipro, TCS, and Infosys in the last few months, the number is most likely to change.
Also, with Brexit, Germany can provide a stronghold in the market to Indian firms in Europe. Although it has many for the Indian IT firms, we cannot possibly deny the number of challenges that come along with it.
One of the challenges could be that even if the German market is open to various MNCs, it will favor more German representation in the market and this could seem like a hurdle for the growth of Indian IT companies in the country. Other factors such as heavy competition and labor laws could also play a big role in deciding the growth of Indian IT companies in Germany.