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OVERSEAS DIRECT INVESTMENT

Indian companies
in
the European Union
Reigniting Economic Growth

Adith Charlie

Europe India Chamber of Commerce [EICC]
69, Boulevard Louis Mettewie
1080 Brussels (Belgium)
www.eiccglobal.eu | info@eiccglobal.eu

1

TABLE OF CONTENTS
BACKGROUND 4
FOREWORD 5
EXECUTIVE SUMMARY 6

1) RISE OF THE INDIAN TNC AND INCREASE OVERSEAS FDI
11
History 12
The Third Wave 15
Slowdown in M&A activity 17

2) INDIA INC AND EUROPE 18
Bilateral Trade 20
FDI outflows from India 20
Motives 21

India Inc in Europe: Greenfield / expansion investments
22
India Inc in Europe: Mergers & Acquisitions 25

The turnaround of sick overseas units
26

3) BENEFITS OF INDIAN CORPORATE INVESTMENTS IN THE HOST ECONOMY
27
New Capital 27
Employment generation 27
Reduction in prices of goods and services 28
Enhance value for shareholders 30

4) VALUE CREATION IN KEY WESTERN MARKETS 31

Germany 31
The Netherlands 35
United Kingdom 37
Belgium 40

5) THE SOVEREIGN DEBT CRISIS AND ITS IMPLICATIONS ON INDIAN FIRMS

43

6) CASE STUDY : THE TATA GROUP 46
7) INDIAN CORPORATE INVESTMENTS: FACTORS THAT MAY INFLUENCE THE FUTURE

48

POLICY RECOMMENDATIONS 52
ACKNOWLEDGEMENTS 55

COPYRIGHT© 2012 EICC, ALL RIGHTS RESERVED
Disclaimer : Although the Author and EICC have used their best efforts in the preparation of the report, they assume no
responsibility for any errors or omissions nor any liability for damages resulting from the use of or reliance on information
contained in the report.

2

ABOUT THE AUTHOR 56

BIBLIOGRAPHY 57

3

BACKGROUND
This study has been commissioned in the background of the emergence of Indian Multinational Corporations, many of which
have impressively transformed themselves and vibrantly embraced globalization to integrate in the global economy. Recent
acquisitions by Indian companies in Europe provide ample evidence of the growing urge to expand reach beyond domestic
markets. However, the surge in Outward Foreign Direct investment (OFDI) by Indian firms gives rise to a host of novel situations
and raises interesting questions. While there have been keen debates on allowing FDI in different sectors of the Indian economy,
there has been little public discourse on the quantum of investments made by home-bred companies in overseas markets
Today, Indian companies are investing large enough sums to stand respectable in comparison to foreign capital inflows. This is
quite unprecedented as India has historical been a recipient of foreign funds. In addition to capital, the country has always been
a net importer of technology and know-how.
Till few years back, it was unthinkable to discuss the contribution of Indian companies to the fiscal health of Europe. However,
drastic changes in the global economic and financial scenario mean that Europe now needs large dollops of inwards direct
investments.
Indian companies have been making their presence felt through greenfield investments and landmark acquisitions that have
been successful on all major counts. Indian brands have proven their global competitiveness by expanding into new territories.
However, there is a growing perception in the West, particularly Europe, that Indians are taking away local jobs. EICC believes
that investments by Indian companies in Europe have boosted the local economies to wade through the debt crisis. Hence it is
important that a greater sensibility and awareness is created amongst politicians and businesses in the continent.
The Report will serve as a valuable resource for information, statistics and analysis pertaining to Indian investments between
2003 and 2012. The Report also makes some interesting projections about future outlook on investments and job creation by
Indian entrepreneurs. It also spells out ways in which Indian and European companies can partner together in order to create
more value and boost consumption at the EU level.
We have tried to highlight concerns faced by forward-looking business leaders in Europe and India. The findings contained
herein will help policymakers in taking informed decisions to address the economic and social aspects of Europe-India relations.
While the endeavour has been to put trade and investment practices into perspective, the Report does not seek to identify
fault lines in EU’s policies. Given the current climate of uncertainty, the Report explains why it is important to make the EU-India
economic cooperation “inseparable”.

FOREWORD
It is with pleasure that I introduce to you the Research Study Report entitled “Indian Companies in the European Union:
Reigniting Economic Growth” carried out by our Europe India Chamber of Commerce (EICC). The Report goes beyond its purpose
and objective of being a mere research paper, but serves as a valuable resource on India’s emerging multinational enterprises,
and provides insights into the patterns and trends of their emergence in the global FDI market. The Report also aims to create a
better understating of Indian MNCs and their role in Europe’s economic development.
This Report is unique as it offers a comprehensive review of the potentials of Europe-India trade and economic relations. The
rising presence of Indian companies in Europe is just one part of the economic relations. The Study reveals several interesting
aspects of Indian investment in Europe when both the EU and India are in the advanced stages of inking a bilateral trade and
investment agreement (BTIA). This agreement will be a watershed moment in the history of the trading partners, as it will open
up previously uncharted avenues of trade and investments.
The remarkable transformation of Indian MNC’s has altered business equation globally. The surge in outward foreign direct
investment (OFDI) by Indian firms during last few years is also raising a host of interesting questions. Today Indian companies
are investing sums large enough to stand respectable in comparison to the foreign capital flow to India. This is something quite
unprecedented as India is used to capital flow in one direction:Inwards. Traditionally India has been a net importer of capital
and technology.
The emergence of Indian multinationals as major global economic players heralds a new political and economic reality. There
is a perceptible shift in balance towards the East and India is as a key architect of this change. The kindling of entrepreneurial
and intellectual ability of the Indian business and corporate world have encouraged Indian brands to expand globally and
prove their global competitiveness – the Report reveals all these issues.
To our knowledge, this work is the first of its kind to be conducted by any Chamber at pan-European level.
Research on the subject of Indian corporate investments is of particular importance for policy-makers and social scientists
across Europe given the current economic environment in Europe. Inward investments are vital as European countries strive to
create substantive new jobs and increase economic competitiveness. Like any form of international trade, Indian investment in
Europe creates winners and losers and hence cause apprehension in certain quarters.
Our study has enabled us to set out and comment on India’s economic relationship with the major economies in Western
Europe, relating to both trade and investment; Indian multinational enterprises and their role in economic development and
job creation; Factors that could determine the future course of India’s economic relationship with the EU and its member states;
along with the author’s Policy recommendations.
I sincerely hope that the report will prove useful to a diverse readership of investors, businessmen and policy makers. I very
much hope that we shall be able to follow this in due course with a study of “European Companies in India”.

31 December 2012 Geoffrey Van Orden, MEP
Chairman
Europe India Chamber of Commerce

4

5

EXECUTIVE SUMMARY

1) Creation of new Jobs

Our study finds that Indian companies have invested $56 Billion in Europe since 2003. Of this, $38 billion was spent on
mergers and acquisitions while $18 billion was canalised for Greenfield projects. During this period, Indian investors financed
511 Greenfield projects and acquired interests in 411 companies. Majority of the M&A transactions are in the $15-$100
million range. Despite the sovereign debt crisis having a negative impact on Indian investments for 2008-09, there has been
a significant pick up in the following years. Our analysis shows that Indian companies spent $15.2 billion between 2009 and
the first half of 2012. There was a noticeable slowdown in the quantum of overseas acquisitions with only 159 deals taking
place. This drop coincides with an overall decline in the number of acquisitions pursued by Indian investors worldwide in the
last three years. Decline in M&A activity was made up for by an increase in Greenfield investments. Between 2009 and the
first half of 2012, Indian companies spent $8.7 billion for setting up 240 Greenfield projects.

In UK, Germany, France, Belgium and The Netherlands, Indian companies have a collective workforce of over 1,34,000 as
against a few hundreds in the late 90’s. For Western Europe as a whole, Indian firms generated 5,000 new jobs in 2011. A
private study by FDI Markets shows that close to 40,000 openings were created by Indian Greenfield investments. Generally,
it is difficult to determine whether M&A activity can create new employment opportunities. New jobs may be created through
upselling, cross-selling and new product development opportunities if the acquired company has a complimentary business
model. In the absence of complimentarities, the employee base can shrink. Such a scenario could happen especially if the
acquirer embarks on a restructuring exercise or decides to merge the acquired entity with itself. However, our dataset shows
that Indian companies can preserve jobs in firms that are on the brink of shutdown, and add new jobs once a troubled firm
is stabilized. The biggest pan-European employer is the salt-to-software Tata Group, which counts approximately 80,000
workers in Europe on the rolls of its 19 group companies. In UK alone, the group continues to be the largest industrial
employer, with an active headcount of around 50,000.

GEOGRAPHICAL PRESENCE
Geographically, India’s OFDI preferences look typical for a developing country, with United Kingdom, Germany, Netherlands
and Belgium in the lead. An economy’s competitive advantage, size and scale of the domestic market, investment sops,
and proximity to large customers play a major role in attracting the first time investor. Between 2003 and 2012, close to 43
per cent ($24 billion) of Indian corporate investments were directed towards the UK, followed by Germany (12.4 per cent,
$6.9 billion). UK continues to be the most favoured investment destination as Indian companies are well versed with its
strengths: Open economy, significant financial sector, key IT markets and many more. The share has been amplified by mega
deals such as Tata Motors’ $2.3 billion acquisition of Jaguar and Land Rover and Tata Steel’s $13.3 billion (final enterprise
valuation) purchase of Anglo-Dutch steel maker Corus. In Germany, Indian companies are attracted to the country’s strong
Manufacturing sector, particularly for Automotive and Industrial tools. One could also argue that the four countries also
score due to their structured approach in reaching out to foreign investors. Today, Indian companies are present in all the
major European countries. Corporate activity has also picked up in countries such as Italy and Spain, especially in recent
years. India Inc’s exposure to peripheral countries Portugal, Ireland, Greece and Spain, however, continues to be relatively
limited. Apart from country specific challenges, we also find that there is a lack of information about the opportunities that
exists in several European markets.

BENEFITS OF INDIAN INVESTMENTS IN EUROPE
Foreign Direct Investment (FDI) increases the welfare of both producers and consumers. It allows companies to explore
new markets and operate more efficiently across borders. FDI reduces reduces prices of goods and services, lends itself to
economies of scale and promotes specialization. In the case of Indian firms, we have pinned down the following economic
benefits to the host economy.

2) Pricing and Productivity Gains
Indian companies are able to competitively price their goods and services in Europe as they have mastered the concepts
of frugal engineering, reverse engineering and offshore delivery. However, only limited pricing and productivity gains can
be transferred through exports without direct presence in the target market. Three Indian sectors, IT/ITES (offshoring),
Pharmaceuticals and Manufacturing lead the pack. Indian IT Services companies are performing the important economic
task of propping up demand for goods and services by reducing cost overheads. In the longer term, their services help to
tide over the shortage of trained professionals by giving access to new pools of highly skilled labour, both in the offshore
and home market. The European Commission had recently estimated that the across Europe there could potentially be a
shortfall of 700,000 trained professionals in the IT sector by 2015. India’s talent surplus in the IT sector could significantly
help in mitigating this gap for Europe in an area that is crucial to the future competitiveness of European firms. FDI by Indian
IT/BPO (Business Process Outsourcing) companies has benefited the economies of Romania, Czech Republic, Poland and
Hungary as they are emerging as new hotspots for outsurcing. While several new jobs are being created in these countries,
they are also mastering the nuances of services through the process of technology transfer. Apart from direct employment,
offshoring and outsourcing generate employment opportunities in tertiary sectors such as construction, housekeeping,
catering, security and many more. The exchequer stands to gain, since there is an increase in indirect tax collections.
Offshoring sector employees generally enjoy higher wages in comparison to their domestic counterparts. Higher disposable
income means higher consumption which results in a GDP increase for developing countries.
Indian generic drugs are made at a fraction of the cost of a patented drug and hence they can be major major contributors
to social welfare. Indian generics are cheaper in comparison to generics made in other countries. Debt ridden countries
have a great opportunity to reduce their overall healthcare budgets without tinkering with quality and safety by opening up
to Indian generic drugs. At the moment, Indian drug makers are clamouring for a level-playing field in Europe, since there is
a union-wide tendency to label generics’ as counterfeits.

3) New Capital
Europe needs to adopt pro-growth measures and increase spending. Under normal circumstances, Governments would be
expected to fiscally stimulate the economy, which is currently not feasible. Intra-European cross-border FDI has also dried up.1
Given these complexities, external capital infusion is the need of the hour. Hence, the expanding footprint of Indian OFDI is a
positive indicator.

4) Value for shareholders
Greater investment interest from Indian companies increases the notional value for assets, thus raising the prices for
European sellers. Indian investors, especially industry leaders, have a tendency to overpay for acquisitions as they find
themselves competing with global brands. Industry captains tend to be aggressive when it comes to deal financing, not
shying away from raising external capital. Shareholders exiting a company benefit as valuations usually rise when an Indian
party enters the bidding fray for an asset.
6

1. China invests in Europe Rhodium Group, 2012

7

MOTIVES
India is investing like any other commercially motivated investor seeking access to new markets, technologies, research
facilities and economies of scale. Companies have common motives of diversifying risks and increasing profits through
their beachheads in Europe. In addition, the sovereign debt crisis has given firms the opportunity to pitch for European
firms whose values have tumbled and hence eager to sell out. In the case of Greenfield investments, factors such as skilled
workforce availability, Government support, favourable business climate and infrastructure and logistics play an important
role.
The Indian Government has played the role of a facilitator by easing norms for Overseas Direct Investments. However,
we find no instances of the Government trying to influence FDI decisions of Indian companies in Europe. The occasional
crests and troughs in India’s diplomatic situation with individual EU economies do not have a bearing on Corporate India’s
investment decisions.

SECTORAL MIX
The sectoral mix of investment in Europe is consistent with the overall internationalisation strategy of Indian companies
globally. Twenty per cent of Indian investments are in the IT/ITES space (IT services, software product development, back
office), followed by other major sectors such as Automotive, Manufacturing and Steel. We see country-specific and region
specific interests from companies operating in renewable energy, financial services and logistics.

POLICY RECOMMENDATIONS

EU should endeavour to create a ‘European Silicon valley’. This will attract Indian entrepreneurs with novel ideas. A region
wide initiative should be envisaged for creating a new home for the Electronics, Technology and Life Sciences industry,
which will attract the best talent and foster the research spirit. Many technology companies, Indian and foreign, will be
willing to invest in such an alternative as many locations in Europe have good supply of highly skilled software engineers,
who are available at globally competitive salaries. For a project of this scale to be successful, EU stakeholders will need to
implement policies for R&D and innovation, higher education and also create streams for financing risky ventures and first
time entrepreneurs.
Special focus should be placed on getting on board Indian Small and Medium Size (SME) companies who are the hotbed
of innovation. Many of them are venturing abroad for the first time and hence require specialized support. Investment
promotion units of individual countries should earmark special teams to cater to the SME sector. In addition to large cities
such as New Delhi and Mumbai, investment promotion offices should be established in SME clusters located in and around
Tier-II cities, be it Jalandhar (for sports goods), Nagpur (for powerloom and fabrication) or Coimbatore (machine tools).
European banks must be more supportive while lending to Indian SME’s trying to find their feet in Europe.
In the next 10 years, there should be a pan-European move to attract Indian investment in virtually untapped sectors such
as Tourism, Food processing industry, Environmental technology and many more. Individual countries should scout for
investors in sectors of their competitive advantage by offering attractive investment terms.
The EU should push for speedy adoption of the BTIA. Both the trading partners should stick to the timeline of finalizing
the agreement by the spring of 2013, before the India-EU Summit in Brussels. The air of secrecy around the discussions
should be dispelled so that un-necessary apprehensions are not created. All negotiating texts and positions with regards
to the BTIA Free Trade Agreement (FTA) should be made public on both sides. Comprehensive impact assessments and
meaningful consultations should take place with the most affected groups in Europe and India.

The emergence of protectionism is a major deterrent to further Indian investments in Europe. Indian investors are worried
about non-tariff barriers and other insidious moves such as red tape and increased bureaucracy. The need of the hour is a
pan-European economic policy that is free from nationalism. Europe must defend its reputation of free markets by having a
strong open door policy. Common, clear and transparent guidelines should be adopted at the individual country level and
the EU level to promote investments.
Monitoring of investing companies should be stepped up to ensure that investment aid given is not misused and that
investment norms and terms agreed upon are being followed. Steps should be taken to ensure that expensive operating
costs, rigid labour markets and heavy regulation do not disenfranchise potential investors.
Individual countries should push for the speedy adoption of the Single Permit Directive well before the deadline of December
2013. As part of the ongoing Broad-based Trade and Investment Agreement (BTIA) discussions, EU should address India’s
request for preferential treatment so that the number of work permits given to Indian professionals is hiked. The move will
also ease the numerous layers of bureaucracy that companies have to deal with while sending their employees on long-term
European assignments.
Visa and work permit regulations should be simplified for bonafide commercial investors. Taking cues from France and
Germany, other EU countries should join hands for a single “aligned” business tax rate for corporates across Europe.
Businesses want to limit regulatory costs and red tape caused by differences in regulations, standards and assessment
procedures on both sides.
Indian entrepreneurs see capital and value-based manufacturing as the next big opportunity. The European Commission
should create Special Economic Zones (SEZ) like Shenzhen which offers lower taxes, less red tape and other favourable
investment conditions to attract overseas investors. These new factories would set the tone for higher manufacturing-based
economic growth, create more jobs and propel overall GDP of the EU.

8

9

RECOMMENDATIONS FOR INDIAN COMPANIES

1 RISE OF THE INDIAN TNC AND INCREASE IN OVERSEAS FDIs

We advise Indian companies to stay invested in the region. There are significant cherry-picking opportunities for fresh
investments in sectors such as IT Services, Pharmaceuticals, Food processing, Value-based manufacturing and Logistics.
We are bullish on the future prospects of Europe and we value the political bandwidth that is keen to sustain the region. We
believe that the sovereign debt crisis will cause Europe to integrate even further. For the first 60 years, Europe’s integration
was a ‘top-down’ approach; the next few decades will see a ‘bottom-up’ approach. We see enough signs to believe that
the larger stakeholders of the European project; Germany, France and the UK, are committed to keep the union, albeit for
different reasons. The crisis has already compelled European nations to create a common bailout fund and agree on ways
to impose more fiscal restraint on each other. Soon, EU nations may agree on instituting a common banking regulator.

The rise of Indian Transnational Corporation (TNC’s) has attracted headlines, drawing the attention of international
policymakers and the corporate world. In the last decade, Indian conglomerates (such as the Tatas, Birlas and the Ambanis)
have displayed an insatiable appetite for mergers, acquisitions, joint ventures and Greenfield investment ventures in
overseas markets. India is expected to have the maximum number of Emerging Market Multination Enterprises (MNEs) by
2024, according to a recent report by PricewaterhouseCoopers (PwC). By 2024, India would be having 20 per cent more
multinational enterprises than China. More than 2,200 Indian firms are anticipated to invest overseas in the next fifteen
years. These developments have changed an incorrect, but commonly held perception; MNCs ought to have their origins
in a developed country.

With most EU countries trying to reduce internal and external imbalances, we think that it has become more economical
to do business in the Eurozone. Higher unemployment has resulted in a natural correction in wage expectations. Barring
Italy and Greece, unit labor costs have fallen in all crisis-bugged countries. On the other hand, Germany’s labour markets
continue to be as compressed as ever. The debt crisis has also caused a significant fall in commercial and residential
property  prices making infrastructure investments cheaper for cost-sensitive foreign companies. Indian companies love
‘fire sales’ and the crisis is a good opportunity to bag good assets (companies and other infrastructure) at discounted rates.

According to data from the Reserve Bank of India2, the stock of outward FDI from India more than doubled in 2012 to touch
US$112 billion from US$43 billion in 20113. In the 10-year period between March 2001 and March 2012, the spike in outward
FDI stock has been nearly 42-fold, growing from US$2.6 billion. Despite persistent weakness in the global economic climate
FDI outflows from India have risen by 12 % to US$15 billion in 20124. The actual figure may be higher as several FDI projects
are carried out by overseas subsidiaries on behalf of the ‘parent’ firm back home and hence not necessarily incorporated in
official Government data on the host economy’s side.5 OFDI takes two forms, namely Greenfield investments (setting up of new
production facility, delivery center etc.) and mergers and acquisitions (taking over/ taking stake in an existing facility). Post 2008,
a rise in overseas Greenfield projects, particularly in extractive industries, metal and metal products, and business services, have
compensated for a drop in cross-border M&As6.

However, investing in Europe is a long-term game. Companies need to have strong cash flow positions in order to wade
through periods of uncertainties. Companies that seek external funding must be ready to look at non-EU sources. Once
a decision is taken to invest in a particular country or region, focus should be on generating employment opportunities to
make it a win-win for all. Engaging with the local communities, through Corporate Social Responsibility projects or training
opportunities, will help in creating a strong connect with the local labour pool.

An analysis of India’s Foreign Direct Investment pattern shows that Manufacturing and Financial and Business services
were the most preferred sectors between 2006-07 and 2010-11 (see Exhibit 2). Within Manufacturing, major sub-sectors
which attracted OFDI included Agriculture Machineries and equipments, Basic organic chemicals, Drugs, Medicines &
Allied products, Refined petroleum products, Indigenous sugar and more. Similarly, within the Financial and Business
services sector, a majority of outward FDI had gone into business services (software services, back office, call centres), data
processing, financial services, Architecture and engineering, and other technical consultancy activities.

EXHIBIT 1
Greenfield investment project overview, 2005-2007 average, 2009-2011
(Millions of dollars)
Region/economy

As Destination
2005-2007

2009

2010

2011

(Pre-crisis
annual average)
India

As Source
2005-2007

2009

2010

2011

(Pre-crisis
annual average)

59796

57170

51 956

58 273

23 412

24 308

19 912

34 621

110 553

116 765

98 406

100 696

20 088

30 512

32 880

39 718

Memorandum
China
Pakistan

13 728

3 955

1 255

2 397

179

42

153

227

South Asia

76 150

77 147

62 899

68 019

28 199

30 196

20 777

35 593

Asia and Oceania

375 825

449 451

338 959

347 980

227 079

243 839

201 077

205 604

Developing Economies

550 013

670 185

547 991

568 376

247 455

277 061

239 492

242 811

World

920 067

1 051 581

904 572

904 267

920 067

1 051 581

904 572

904 267

Source: UNCTAD World Investment Report 2012

2. The Reserve Bank of India is the country’s Central Bank

10

3. RBI Annual Report 2011-12

11

1.2 HISTORY
India’s fixation with foreign shores goes back to the pre-independence era. Few Indian companies then invested in physical
assets and raw material processing facilities at other British colonies. (Morris, 1987 & 1990). In 1956, the Birla Group setup
a textile mill in Ethiopia to become the first overseas mover in independent India (Lall, 1986). Though this project did not
take off till much later, the stage was set for Corporate India to play a larger role abroad. By 1976, Indian companies had
133 foreign ventures, majority of which were in the developing countries of Kenya, Uganda, Nigeria, Malaysia, Thailand and
Sri Lanka (Morris, 1987). By 1991, this number had swelled up to more than 300.

As illustrated by Morris (1987), the development of OFDI from India can be divided into two phases; The First Wave (starting with
the investment boom in the 1970s to 1990) and the Second Wave (beginning with the adoption of the new Industrial Policy from
1991 onwards). Prior to the first phase, the only reason Indian companies were expected to internationalize was to generate
foreign exchange for the exchequer. This made it tough to acquire foreign currency to expand abroad. The Government had put
in place strict rules about ownership as well as the repatriation of profits7. Though some of these norms were eased in the first
phase, the policy aim to internationalize for the Indian external balance of payments still continued. The Government allowing
firms to pick up minority stakes in joint ventures characterized the first wave. (Morris, 1990) The major beneficiaries were familyowned conglomerates such as Tata, Birla, Kirloskar, Thapar, Mafatlal, Singhania,
Mahindra, etc. (Pradhan, 2008). Volumes during this phase were stumpy due to two main factors: restrictive Government
(regulatory and approval) policies and low level of exports (Pradhan, 2008).

EXHIBIT 2: Major Sector-wise overseas investments by Indian companies (In US$ Billion)
Period
Manufacturing

2008-09

2009-10

2010-11

2011-12*

Total

10.18

5.35

5.04

2.74

23.31

Financial Insurance, Real Estate Business & Business Services

3.55

4.41

6.53

2.53

17.03

Wholesale & Retail Trade, Restaurants & Hotels,

1.17

1.13

1.89

1

5.19

Agriculture & allied activities

2.38

0.95

1.21

0.41

4.94

Transport, Communication & Storage Services

0.31

0.38

0.82

1.34

2.85

Construction

0.35

0.36

0.38

0.37

1.46

Community, Social & Personal Services

0.39

0.18

0.7

0.18

1.45

Electricity, Gas & Water

0.14

0.84

0.1

0.04

1.19

Miscellaneous

0.12

0.11

0.18

0.1

0.51

18.58

13.71

16.84

8.73

57.86

Total
Source: Data from the Reserve Bank of India
*April 2011- February 2012

In the first phase, Government policies such as the Monopolies and Restrictive Trade Practices Act and the Foreign Exchange
Regulation Act (FEMA) were the major impediments. The Government sensed the FDI relaxations as a tool to increase
the country’s clout among emerging economies. Thus Indian companies made investments in companies operating in
developing countries such as Kenya, Uganda, Nigeria, Malaysia, Thailand and Sri Lanka in the first wave.
Moreover, not many Indian corporations felt the need to export their product and services as they were being protected from
foreign competitors in the pre-reforms period. In other words, they were not compelled to internationalize in a more active
way because of satisfactory domestic demand.
In many ways, the Indian Government’s move to ‘neo-liberalize’ the economy in 19918 shaped the overseas aspirations of
Indian corporates, ushering in the second wave of Indian OFDI. Major policy level and structural changes were put in place.
Liberalization had three integrated effects on the development of Indian FDI9.
• It provided corporations with a wider scope of activities and possibilities of financing than earlier
• As the economy was deregulated, competition increased through both local and international entrants, which enhanced
the competitiveness of Indian firms
• Deregulation boosted the rapid growth of the Indian market; an average growth of six percent was recorded from the
late 1980s to early 2000
In the late nineties, several large family businesses began the process of professionalizing their boards. The Indian growth
story, coupled with the inward FDI relaxations beginning 1991, lured several foreign companies to invest in Indian assets.
This led to the transformation of many family businesses into professional outfits harbouring high growth aspirations.

EXHIBIT 3: Indian presence in the top 100 non-financial transnational corporations from
developing countries, ranked by foreign assets (Millions of dollars and number of employees)
Corporation

Industry

Ranking By:
Foreign Assets

4

UNCTAD (2012), World Investment Report 2012, United Nations Conference on Trade and Development, New York and Geneva

5

‘Indian Investments in Germany’. Pp 2. Available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1998417

6

UNCTAD (2012), World Investment Report 2012, United Nations Conference on Trade and Development, New York and Geneva

12

Foreign
TNI*

Assets

TNI*
Sales

Employment

(Percent)

Tata Steel Ltd.

Metal and Metal Products

12

25

18 913

19 301

46 339

64

Tata Motors Ltd.

Automobile

24

42

12 585

16 931

22 226

54

Hindalco Industries Ltd.

Diversified

31

29

10 849

12 179

11 103

64

Oil and Ntaural Gas Corp Ltd.

Petroleum explorer/refiner/distributor

54

93

6 119

4 070

3 949

15

Tata Consultancy Services

Other Services

65

38

5 058

7 368

10 475

55

Suzlon Energy Ltd.

Diversified

67

23

4 563

2 496

9 064

68

Reliance Communications Ltd.

Telecommunications

Tata Chemicals Ltd.

Chemicals

86

88

3 000

1 674

3 968

21

100

67

2 020

668

1 479

39

Source: UNCTAD World Investment Report 2012
TNI3, The Transnationality Index, is calculated as the average of the following three ratios: Foreign assets to total asset, Foreign sales to total sales and Foreign employment to total
employment
Jonsson, S. (2008). Indian multinational corporations: Low-cost, high-tech or both?

7

13

Significant changes in the international policy context also played an important role. Akin to India, many of the developing and
transitional economies opened up their markets. The seeds for change were sowed at the Uruguay Round of trade negotiations10,
which encouraged Free Trade and significantly reduced the ability of developing countries to adopt protectionist policies. Since
the Round put in place stronger intellectual property laws and a robust dispute settlement mechanism, individual countries had
to strictly abide by the multilateral trade commitments they had made.

1.3 THE THIRD WAVE
From 2001 onwards, a third wave of Indian Overseas Direct Investments can be discerned. Mergers and acquisitions by
fast growing Indian companies, supported by further policy-level relaxations, mark this phase. There was a fundamental
recalibration in the role Indian companies were expected to play in the country’s economic development. ‘India Inc’ was
expected to be the torchbearer of the country’s economic prowess at the world stage. Prime Minister Dr Manmohan Singh
confirmed the commitment to overseas investments at the highest level in 2005. “All our firms, be they in the public sector
or the private sector, must become more competitive so that they can face increased competition with success from
abroad. Many Indian firms today have the managerial leadership to go global and compete at the global scale…we need to
understand how we can replicate such success stories so that more and more Indian firms go global” (Sauvant, 2005).
The scope of outward FDI increased significantly after the introduction of the Foreign Exchange Management Act (FEMA) in
2000. In 2003, Indian companies were allowed to invest 100 per cent of their net worth for overseas ventures. This was gradually
raised by 400 per cent of net worth. A progressive loosening up of the access to international financial markets followed this.
Indian corporates were permitted to use Special Purpose Vehicles (SPV) in international financial markets to finance their crossborder acquisitions. These liberalizations accelerated the pace of cross border investments in the last decade. Between 2000 and
2012, Indian companies (listed and unlisted) concluded 1995 overseas acquisitions, at an estimated investment value of nearly
US$ 116 billion11, as per data sourced from Bloomberg. During this period, Indian companies took over foreign players in diverse
sectors such as Automotive, Hospitality, ICT, Manufacturing and others.
Continuing from the second wave, nearly 83 percent of the targets of Indian acquisitions were in developed countries
(Pradhan 2010). Emerging markets attracted just 17% of the total value of Indian overseas acquisitions in this period. Indian
acquisitions in emerging markets tend to focus more on gaining access to natural resources like Oil, Gas, and Minerals
(Pradhan 2010) Deals in developed markets are pursued to get access to new technologies, markets, skillsets and scale.
For the first time in 2006, India Inc saw more outbound acquisitions than inbound, thanks to big-ticket deals such as Tata Tea’s
acquisition of Energy Brands (US), Dr Reddy’s Lab’s acquisition of Betapharm, (Germany) Suzlon Energy’s acquisition of Hansen
Transmissions, (Belgium) and many more. Total value of the outbound acquisitions stood at around $10 billion12 that year.

EXHIBIT 4: Top 10 Country-Wise Distribution of Indian OFDI (In US$ Billion)
Country

2008-09

2009-10

2010-11

2011-12*

Total

Singapore
Mauritius

4.06

4.2

3.99

1.86

14.11

2.08

2.15

5.08

2.27

11.57

Netherlands

2.79

1.53

1.52

0.7

6.54

United States of America

1.02

0.87

1.21

0.87

3.97

United Arab Emirates

0.63

0.64

0.86

0.38

2.51

0

0.75

0.28

0.52

1.55

0.35

0.34

0.4

0.44

1.53

Cayman Islands

0

0.04

0.44

0.14

0.62

Hong Kong

0

0

0.16

0.31

0.46

Switzerland

0

0

0.25

0.16

0.41
14.71

British Virgin Islands
United Kingdom

Other Countries
Total

7.65

3.19

2.65

1.23

18.58

13.71

16.84

8.86

8

India was faced with a balance of payments crisis in the early 90’s. The Indian governments initiated a host of liberalization-cum-structural adjustment as part of a bailout deal

with the International Monetary Fund. The reforms, namely industrial deregulation, trade liberalization, and relaxation of regulations governing FDI and foreign technology, was a
clear departure from the planned economic structure that India had in place since 1947.

Source: Data from the Reserve Bank of India
*April 2011- February 28, 2012

9

Jonsson, S. (2008).
In several cases, companies have not disclosed the financial terms of the acquisition hence the value of US$ 116 billion is an estimated one.

11

10

Eight year long, multilateral trade negotiations among 123 states. It is the round that transformed the GATT into the World Trade Organization.

14

M&A’s abroad now part of India’s growth story, http://economictimes.indiatimes.com/special-report/mas-abroad-now-part-of-india-growth-strategy/articleshow/5758616.cms

12

15

The momentum of outbound acquisitions showed a dramatic increase in 2007, with several high profile deals such as TataCorus (UK), Hindalco-Novelis (US), Suzlon-Repower (Germany), United Spirits-Whyte & Mackay (Scotland) etc. At over $32
billion, the value of outbound deals was more than double in comparison to the inbound deals in 2007. In several cases, the
acquiring company was several times the size of the target company.
However, many of these acquisitions faced several challenges in the second half of 2008 and 2009 because of the economic
slowdown. In their zest to acquire overseas assets, Indian companies had outbid the other interested parties. As a result
many deals were concluded at very high valuations, forcing the acquirer to raise debt. Due to the slowdown, many acquired
units were unable to generate adequate cash to service the debt. The liquidity crisis has made debt refinancing tough. The
valuations paid for acquiring companies looked higher when the stock markets crashed. The slowdown meant that acquired
businesses have not been able to meet their targets.
Other reasons for the failure of high profile Indian acquisitions are13 :
• Target companies are primarily marketing setups and their values have been significantly eroded compared to
companies with real assets and end-to-end solutions.

1.4 SLOWDOWN IN M&A ACTIVITY
Data from Thomson Reuters suggests that Indian overseas acquisitions shrank this year with deal values amounting to
US$3.8 billion, down 55.4% from the comparable period last year (US$8.6 billion). In the third quarter of 2012 volumes
slightly increased by 9.9% to US$1.6 billion from the second quarter of 2012 but declined 50.8% from third quarter of 2011.
One of the main reasons is the absence of large deals in the mix. Typically, Indian companies borrow heavily to pay for their
purchases abroad. The current uncertain economic environment has made it expensive to raise finances abroad.
The volatility in the currency market, though not exclusively dependent on the international credit crisis, is not helping the
cause either. A year ago, the Indian rupee stood at a strong Rs 44.5 to the US dollar. At that level, the rupee had appreciated
by more than 13 % vis-a-vis the greenback over the preceding 13 months. However between August of last year and the
middle of December the value of the rupee fell to Rs 54 to the dollar, or depreciated by as much as 21 %.
Between December and early March this year, the currency regained some of its earlier strength to be valued at Rs 49
to the dollar. However, it has once again lost value and currently is above Rs 53 to the dollar, and possibly heading to its
December low.

• Several acquirers underestimated cultural issues during the acquisitions.

M&A’s abroad now part of India’s growth story, http://economictimes.indiatimes.com/special-report/mas-abroad-now-part-of-india-growth-strategy/articleshow/5758616.cms

13

16

17

2. INDIA INC AND EUROPE
Thanks to India’s colonial past, its economic relationship with the EU has been one of the longest standing ones. The farreaching influence of European colonial rulers began with the Portuguese occupation in the 16th century, followed by the
Dutch and French. In 1756, the “British East India Company”, a company chartered for trade with Asia, set its foot in India
and went on to institute the Queen of Britain’s rule in the country for two centuries. Even after India’s independence in 1947,
London and New Delhi have maintained close relations on trade, investments and development issues. India was among
the first few countries to establish diplomatic relations with the erstwhile European Economic Community (EEC) that was
formed in 1957, courtesy the Treaty of Rome.

Exhibit 5

India’s relationship with the EU touched a new level after a cooperation agreement was established in 1994. Since 2000,
annual India-EU summits have been jointly conducted. 2004-05 was a watershed year for the relationship, as India became
one of the EU’s “strategic partners”. Since 2005, the EU-India Joint Action Plan has been in place with the agenda of
‘realising the full potential of this partnership in key areas of interest to both the regions. The same year, a separate window
was established under the Erasmus Mundus programme for providing scholarships to Indian Master students.

EXHIBIT 6: Official FDI Flows Between EU And India



Year
EU Exports to India (2011)

EU Imports from India (2011)
8.23

4.13

Textiles & Clothing

18.68

5.95

Engineering Goods

6.13

Mineral Products

6.52

13.7
7.67

7.42

5.65
39.51

8.47

Chemical & Allied Products

Gems & Jewellery

Metal & Metal Products

Metal & Metal Products

Gems & Jewellery

Chemical & Allied Products

Leather & Leather Goods

Transport Equipment

11.78

Plastics & Allied Products

Transport Equipment
8.22

13.14
11.76

Engineering Goods

Agriculture & Allied Products
Others

Others
23.04

Source: Eurostat

However, the Indian reaction to different phases of the European relations has been mixed. In 1957, India protested against
formation of the common European Market, terming it as ‘convention between European countries with the sole aim
of agreeing on preferential tariffs.’1 India did not understand the European construction and its willingness to integrate
‘from below’, considering that India was constructed ‘from above’. In 1962 Jawaharlal Nehru, the Indian Prime Minister
established a diplomatic mission in Brussels, a gesture that pointed towards a new, egalitarian relation between the two
entities. This decision reflected two aims of the Government in New Delhi; ensuring better access for its products in the
Community market and contribute to the EEC’s recognition of setting up an encompassing development state

Inflows from India into the EU Outflows from the EU to India
(€ billion)
(€ billion)

2000

0.2

0.7

2001

0.1

0.4

2002

0.1

1.1

2003

0.6

0.8

2004

0

1.6

2005

0.5

2.5

2006

0.5

2.5

2007

1.2

4.6

2008

3.5

3.3

2009

0.8

3.1

2010

0.6

3

2011

0.6

12

Total

8.1

23.6

Provisional Data
Source: Eurostat

‘India and Europe in the New Millennium’, Rajendra Kumar Jain, New Delhi: Radiant Publishers, 2001,  http://www.easternbookcorporation.com/moreinfo.php?txt_
searchstring=2684

14

Taken from the thesis written by Cyril Berthod, titled ‘India and the European Union: Evolution and interlinking issues of a multi-level relationship’, defended in April 2009 at
Panthéon-Sorbonne Paris 1 University.

15

18

19

2.2 BILATERAL TRADE

2.4 MOTIVES

Trade and investment continue to be at the core of India-EU relations. India-EU trade has been steadily rising since 2001.
EU is India’s largest trading partner accounting for €100 billion in trade in goods and services in 2011. EU accounted for
20.34% of India’s total exports and 14.31% of India’s total imports. On the other hand, India accounts for 2.6% of EU’s total
exports and 2.3% of the EU’s total imports. India is ranked 8th in the list of EU’s main trading partners in 2011, up from 15th
in 2002. Bilateral trade rose by 29.4 per cent to $108 billion in 2011 from $83.46 billion in 20101.

India’s rising involvement with the European economies could be seen in line with its growing share of trade and investment
world over. Indian investments in Europe have been overwhelmingly motivated by commercial considerations alone. The
occasional highs and lows in the India’s diplomatic situation with individual countries or the EU in general do not seem
to have had a bearing on the investment preferences of investors. There is enough evidence to confirm that the Indian
Government does not interfere in the decision making of its investors. Traditional literature suggests that FDI decisions are
taken for three main reasons1: (i) Resource seeking, (ii) Market-seeking and (iii) Non-marketable asset seeking. In the case
of Indian corporates, we can condense the motives as follows:

2.3 FDI OUTFLOWS FROM INDIA
Official Data
Official data shows that values of India’s overseas investments remain small compared to Europe’s total inward FDI stock,
but the change in trend is what matters the most. Dataset pertaining to Indian overseas investment shows that Indian
outflows to Europe grew almost 10 times between 2000 and 2011. It touched an all-time high of €3.5 billion euro in 2008. In
2008, for the first time India’s FDI outflows to the EU were higher than inflows. (See Exhibit 5). However, inflows since then
have been muted, largely due to the uncertainties generated by the sovereign debt crisis. Provisional data for 2011 reveals
that Indian FDI into Europe for the year more than doubled to €1.9 billion from €0.6 billion in 2010. At the same time, 2011
saw a two and a half times increase of FDI from the EU into India, breaking all previous records and reaching €12 billion. The
average annual level of European FDI into India over the last 5 years (2007-11) has been €5.6 billion. The EU has been the
biggest investor in India with a cumulative volume of about €37.6 billion since 2000. The EU is the second largest destination
of outward investment from India – it received €10 billion cumulative investment from India since 2000

Our Dataset
Though official data is important from a historical perspective, we find that it does not paint the real picture for several
reasons. As mentioned in Chapter 1, several FDI projects are carried out by overseas subsidiaries on behalf of the ‘parent’
firm back home and hence not necessarily incorporated in official Government data. Eurostat data is published with a
significant delay. Comprehensive data is available only through 2010 (data for 2011 is provisional); a lag of almost two years.
From the Indian side, the Reserve Bank of India has publicly published India’s OFDI data only since 2007. Moreover, 60 per
cent of Indian FDI deals are routed through tax havens such as Mauritius, Netherlands, Cayman Islands and others, and
hence not captured by state agencies.
Hence, we have developed an alternate dataset which helps in analysing spends by Indian companies in Europe since 2003.
We constructed this database by dwelling into secondary sources such as the investment promotion agencies, Thomson
Reuters database, Zephyr Database, KPMG Emerging Markets Acquisition Tracker, FDI Markets, and newspaper reports.
Our dataset shows that Indian companies have invested $56 Billion in Europe. Of this, $38 billion was spent on mergers
and acquisitions while $18 billion was canalised for Greenfield projects. During this period, Indian investors financed 511
Greenfield projects and acquired interests in 411 companies. The average spend per European acquisition was $107
million. Though the sovereign debt crisis had a negative impact on Indian overseas investments for 2008-09, there has been
a significant pick up in the following years. Our analysis shows that Indian companies spent $15.2 billion between 2009 and
the first half of 2012. There was an exhibit slowdown in the quantum of overseas acquisitions with only 159 deals taking
place. This drop coincides with an overall decline in the number of acquisition deals pursued by Indian investors worldwide
in the last three years. The dip in M&A activity was made up for by an increase in Greenfield investments. Between 2009
and first half of 2012, Indian companies spent $8.7 billion for setting up 240 Greenfield projects.
Geographically India’s OFDI preferences look typical for an Anglophone country, with United Kingdom, Germany, Netherlands
and Belgium in the lead. On the other hand, Chinese investors have preferences for France, the United Kingdom and
Germany, in that order

1) Increase Profits
With the advent of liberalization in 1991, homebred companies had to face increased competition in the domestic market
from foreign players. The dwindling profitability of the home business compelled Indian firms to look for overseas markets to
sell their goods and services. With close to 500 million citizens who have a very high purchasing power, Europe is the world’s
most lucrative consumer market (market seeking). Of the top ten trading nations in the world, six are EU Member States.
A strong exchange rate (€1= 70 Indian rupees) ensures high realization for Indian exporters as they bill European customers
in the Euro but incur operational costs in the weaker Indian rupee. A lot of the value that makes up the profits comes with
greater consumer engagement. While Indian companies started with exports, they soon realised the need to be present in
the target market. In doing so, they are able to better understand customer tastes and tailor their offerings accordingly.
Many acquisitions done by Indian IT companies in Europe are targeted at getting access to larger customers or increasing
access to an existent customer. In line with this strategy, the preferred targets are companies with large number of client
facing associates.

2) Diversify Risks
Companies understand that greater wealth can be created for shareholders by diversifying operations in different new
industries and geographical markets (non-tangible asset seeking). During an economic downturn, the geographical breadth
of a company’s operation can be pivotal to survival. Indian companies have traditionally preferred trade and investments
with English speaking countries such as UK and US. The US accounted for more than 90 per cent of the export market
for Indian Pharmaceutical and Software companies till the late nineties. However, the dot-com bust and the NASDAQ
bubble that followed in the new millennium forced companies to diversify their investment portfolios. The logical progression
was to use UK as a beachhead for tapping other markets in the continent. A case in point is software services company
Infosys Technologies that setup presence in the UK 15 years ago. In the next round, it went after Germany, France and
the Netherlands. Today, it has expanded its presence even into Eastern European countries such as Romania and Czech
Republic, and services clients across Europe.

3) Access to New Technologies /Research and Development
India has never had a well-developed ecosystem for promoting innovation. The innovation ecosystem has been underfinanced with public funding of R&D activities not reaching even one per cent of GDP. India has lacked a cohesive innovation
policy as a result of which even Private Equity funds are reluctant to invest in unproven ideas. Starting a manufacturing
company in India is a difficult task considering all the bureaucracy, inspections and regulations that come into the picture2.
Starting a services company in India is relatively simple. Gubbi, Aulakh, Ray, Sarkar, and Chittoor (2009) claim that acquiring
R&D and internally developing innovation by acquiring intellectual capital are the two essential capabilities to make it possible
for Indian companies to enter higher value added segments and to compete on a worldwide scale with large MNEs. Indian
companies’ are banking on Europe’s clear patent laws and evolved research capabilities to usher in the next level of growth.
Domain specialists in the areas of High-end manufacturing, Software writing and Pharmaceutical are in high demand from
Indian companies. (Intangible asset seeking motive) Thanks to its $13.3 Billion acquisition of Anglo-Dutch maker Corus in
2006, Tata Steel today has 60-odd patents in its kitty, as against none prior to the acquisition.

4) Low Valuations
The economic crisis in Europe has significantly dented the valuation of domestic companies. Further, transaction volumes in
the geography have been impacted. Many Private Equity players who had acquired companies in European markets are at
the end of their investment cycle, looking to cash out. Given this backdrop, cash-rich domestic companies aiming to expand
in Europe are looking to acquire strategic assets at bargain prices.

16

Statistics released on 9th February 2012, ahead of the 12th EU-India summit in New Delhi

20

17

Why do firms invest abroad: An analysis of the key motives, Franco, Rentochinni & Marzetti, August 2008 http://etsg.org/ETSG2008/Papers/Franco.pdf

21

2.5 INDIA INC IN EUROPE: GREENFIELD / EXPANSION INVESTMENTS

Most Indian Greenfield investments in Europe are small operations that carry out sales and marketing activities.

Baskaran and Chaarlas (Zenith Research, 2012), define Greenfield investment as an internationalisation strategy playing
four key functions. Firstly, the role of Greenfield investment must be seen as a medium of maximizing economic gains from
the competitive assets of the Indian firms through overseas production. Secondly, firms undertake Greenfield investment
to build trade-supporting networks aboard, which may in turn allow exploitation of competitive advantages via enhanced
exports from India and lastly, a Greenfield investment is undertaken to source quality raw materials, intermediates and natural
resources which may be lacking in the host economy. Most of the Greenfield investments in Europe are undertaken for the
first two reasons. Hence, they are not as capital intensive as acquisitions. On the other hand, Indian companies conduct
sourcing of raw materials and intermediaries on a large scale in oil-rich middle-east countries and mineral rich Africa.

For Greenfield investments, we rely heavily on a database provided by FDI Markets (FT Group), as part of a report titled, ‘Indian
companies in Western Europe’. The report shows that Indian companies were behind 511 FDI projects in Europe between
January 2003 and July 2012. These projects led to a total capital infusion of US$17.52 billion, an average investment of
US$34 million per month. Indian corporates cited the following as key reasons (in that order) for FDI investments in Europe:
(i) Proximity to market or customers; (ii) Domestic market growth potential; (iii) Skilled workforce availability.

EXHIBIT 7: Greenfield FDI investments by destination country (for Indian Companis) (20022012)

EXHIBIT 8: Greenfield Investment Trends By Sector ( 2003-2012 )

Destination
Country
UK
Germany

No. of projects

244

No. of companies Jobs Created

161

Destination
Country

Capex (In US$ million)

28
30

Belgium

23

19

1,675

18

32

2,347

28.3

8,861

173

274.3

5.4

Life Sciences

44

2,067

46

857.3

19.5

Industrial

40

1,225

30

347

8.7

Transport Equipment

34

6,099

179

2,677.10

78.7

Creative Industries

32

1,324

41

575.5

18

22

2,294

104

1,472.40

66.9

45

1,532.70

15.2

1,205

36

2,455.60

74.4

1,313

42

365.4

11.8

72

861

37.4

16

16

1,744

109

668.9

41.8

15

12

2,239

149

2,003.80

133.6

Switzerland

14

14

545

38

201

14.4

Denmark

10

8

456

45

142.8

14.3

Environmental
Technology

Total

2,163.10

2,688

Spain

Other destination
countries

60

51

Italy

Sweden

Average

83

8,148.40

33

Total

Professional Services

102

31

Average

Financial Services

24,903

France

Total
33.4

Average

Netherlands

Capex (In US$ million)

7,249

Total

4,545

Jobs Created

120

Average

94

No. of projects

ICT & Electronics

Total
101

A total of 275 companies from India invested in Western Europe between January 2003 and July 2012. They created
39,799 new jobs.

7

7

281

40

181.4

25.9

Physical Sciences

21

2,285

108

586.5

27.9

17

15

893

52

956

56.2

Food, Beverage &
Tobacco

15

473

31

170

11.3

511

321

39,799

77

17,517

34.3

Other Cluster

5,234

106

6,046.60

123.4

56.2

511

39,799

77

17,517

34.3

Total
Source: ‘India into Western Europe’, FDI Intelligence from The Financial Times Ltd

Source: ‘India into Western Europe’, FDI Intelligence from The Financial Times Ltd

New York Times, 2012 In India anxiety over innovation, http://www.nytimes.com/2009/12/09/business/global/09innovate.html?pagewanted=2&_

18

r=2&ref=technology

22

23

Exhibit 10

Corus

London, United
Kingdom

Steelmaker

13.3

Jan-07

Zain Africa

Amsterdam, The
Netherlands

Telecommunications
Service Provider

10.7

Feb-10

Novelis

Atlanta, United States

Aluminum products

6.2

Feb-07

Jaguar and Land
Rover

London, United
Kingdom

Luxury sedans

2.3

Mar-08

RePower

Hamburg, Germany

Wind turbine

1.74

May-07

Geography wise pattern of Indian
acquisitions, 2003-2012
411

500
400
300
200
100
0

74

Sources: Media Reports / Company Balance Sheets / Analyst views

177

28

30

14

22

27

39

To
ta
l

Suzlon Energy

Announcement date

O
th
er
s

Tata Motors

Enterprise
deal value
in Billions
(US$)

ly

Hindalco (Aditya
Birla Group)

Target Business

Ita

Bharti Airtel

Target Headquarters

an
y

Tata Steel

Target

G
er
m

Buyer

pa
in

EXHIBIT 9: Top Five Overseas Acquisitions For Indian Comapnies Ever

Europe has become an important destination for cross-border investments and overseas acquisitions for Indian companies.
The first major acquisition in the new millennium was Tata Tea’s acquisition of Tetley Tea for $431 million in 2000. M&As in
Europe hit a peak of US$28 billion in 2007, from US$1 billion in 2000. The next big overseas deal was Essel Packaging’s
move to merge with Switzerland-based Propack to create the worlds’ largest manufactured of laminated tubes. Due to the
financial crisis, high valuations and lack of cheap debt, the quantum of outbound deals came down by 40% to US$17 billion
by 2009.Deal volumes came down to 29 in 2009 from an all-time high of 89 in 2008. However, the stage has been set for
a recovery with a total of 111 deals being announced for 2010 and 2011. From 2006 through December 2011, Indian firms
have spent US$37.9 billion on European acquisitions, according to data gathered for  Business Line newspaper  by research
firm Dealogic. Three of India Inc.’s largest M&A activity has been in Europe. (See Exhibit 5)

S

The top four sectors for Greenfield investments in Europe are: ICT & Electronics, Financial Services, Professional services
and Life Sciences.

As noted by Jaya Prakash Pradhan (2006), Indian service firms are pioneers in the use of M&A as a means of global
expansion. Manufacturing companies joined the fray much later. This fact about brownfield investment is in contrast with the
Greenfield investment by Indian multinationals where manufacturing firms are the pioneers. The most export oriented service
sector of Indian economy; Software & IT Services, adopted M&As in the early 1990s for building the onshore and offshore
service delivery models1. In the process, they created India’s brand names among international venture capitalists, banks,
financial advisors, etc. Their success had a positive spillover effect on Indian Pharmaceutical companies. Indian drugs firms
led the next round of M&A wave to strengthen their position in regulated overseas markets like the US, UK and Germany,
largely focusing on generics. The successful adoption of M&As by Software and Pharmaceutical firms had all round effects
on Indian firms from other sectors like Automotive, Steel and many more. The positive impression of Indian Software and
Pharmaceutical companies led many international investors to provide the necessary funding to Indian companies acquiring
overseas units.

Fr
an
ce
B
el
gi
um

In terms of company size, almost one-fifth of investing companies have an annual turnover of between US$100 million and
US$999.99 million. One-eighth of companies have a turnover of US$24.99 million or more. UK has received the maximum
patronage by Indian companies, followed by Germany and Netherlands. There seem to be regions in Western Europe that
attract more FDI from Indian corporates than the others. South East UK is the top destination, attracting the highest number
of investment with the highest total number of jobs created. Project volumes here peaked in 2008 when 20 projects brought
in US$2.49 billion worth of investment. Indian companies created 4,945 jobs in the region. West-Nederland (Germany) and
Northern Ireland have the largest project size, on average, in terms of investment and job creation respectively.

2.6 INDIA INC IN EUROPE: ACQUISITIONS

U
N
K
et
he
rl.
..

Tata Group, State Bank of India and Punjab National Bank are behind the maximum number of Greenfield FDI projects in
Europe. The top 10 Indian companies account for 29 % (148 projects) of the total FDI projects being tracked. This data
shows that banks (State Bank of India, Punjab National Bank and ICICI Bank) are increasingly investing in Europe by
opening up branches to predominantly service the needs of the Indian Diaspora.

Authors calculation based on a dataset derived from multiple sources such as Pradhan (2006), Zephyr Database, Thomson One, KPMG Emerging Markets Acquisition Tracker,
other private datasets and news reports

Authors calculation based on a dataset derived from multiple sources such as Pradhan (2006), Zephyr Database, Thomson
One, KPMG Emerging Markets Acquisition Tracker, other private datasets and news reports
One of the largest European M&A deals to be announced in 2012 was Indian software giant Infosys’ decision to acquire
Zurich-based Lodestone Holding AG for US$350 million. Lodestone, a SAP implementation and consultancy firm, has 850
employees and 200 clients across Europe.
Despite the occasional large deals, most transactions are in the $20 million to $100 million range. There is a predominant
bias towards UK because of language commonality and the “comfort” factor. Over the last five years alone, Indian
companies have been involved in M&As worth US$22.6 billion in UK. Germany is a distant second at US$3.3 billion. When
Indian companies look at Germany, it is the country’s strong Manufacturing sector, Automotive space, Industrial tools, &
Engineering that catches their attention. Suzlon Energy’s US$1.75 billion acquisition of Hamburg based RePower is the
largest deal involving an Indian multinational in Germany.
Trends and patterns of overseas acquisitions by Indian multinationals, JP Pradhan 2007

19

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WHY ACQUISITIONS?

3. BENEFITS OF INDIAN CORPORATE INVESTMENTS IN THE HOST ECONOMY

As noted in Jaya Prakash Pradhan (2006), there are four dominant ways in which overseas acquisitions can affect the
competitive strength of Indian companies. First, it can be a strategy to gain access to firm-specific assets like new products,
brands, technology and skills, thus, augmenting the competitive asset position for the firms. Secondly, it could provide
market access in foreign countries through the existing customer base of the acquired entity. Third, Indian firms can get
access to marketing and distribution channels of the overseas entity. Fourth, a lot of operating synergies and best practices
can be shared across the group.

An extensive body of literature exists on the benefits presented by domestically owned firms in host economies. FDI increases
the welfare of both producers and consumers in those markets. It allows firms to explore new areas and operate more
efficiently across borders. This in turn reduces production costs, increases economies of scale and promotes specialization22.
Consumer gains are also delivered in the form of product diversity, increase in selection and faster innovation cycles. In the
case of Indian firms, we have identified the following benefits:

Most acquisitions by Indian software companies in Europe come in the first and second category where the underlying need
is to acquire new technologies and skills through inorganic activity. An example can be given of the ICT sector in Europe.
Thanks to well-defined patent laws and evolved research and development capabilities, European firms are well ahead
of their Indian counterparts when it comes to writing original software. Indian companies, on the other hand, are good at
building a service around the established software and market it using their large workforce. By acquiring product companies
which give access to niche new technologies; Indian companies are trying to move up the value chain. Many acquisitions
are also driven by the need to break into a key customer account or increase the share of an existing customers’ portfolio.

1) NEW CAPITAL (All Sectors)

Tata Steel’s US$7.6 billion takeover of Anglo Dutch steel-maker Corus in 2006 is a good example of the four dominant ways
mentioned above coming together. Corus made Tata Steel an international steel maker, giving it access to the developed
and demanding markets of Europe, on the back of a prudent brand. Today it has 60-odd patents in its kitty, as against none
prior to the acquisition, which also made it the fifth largest steel-maker in the world. The acquisition enabled it to fully explore
the potential for significant synergies with Corus in the areas of Manufacturing, Logistics, R&D and so on

A recent research by the International Monetary Fund shows that fiscal consolidation has a much sharper negative effect
on growth than previously thought. Fiscal austerity generates recession that is made longer by tightening credit standards
in the context of high unemployment. Thus, Europe needs to adopt pro-growth measures and increase spending. Under
normal circumstances, Governments would be expected to fiscally stimulate the economy, but that is not feasible anymore.
Even intra-European cross-border FDI, one of the most important drivers creating “European multinationals” has dried up23.
Given these complexities, external capital infusion is the need of the hour. To that extent, the rising footprint of Indian OFDI
is a positive indicator.

Mumbai based-Bharat Forge is a good example of how acquisitions have given Indian firms access to new markets.
The company emerged as the world’s second-largest forging company by way of its focus on mergers and acquisitions
especially in Europe. It acquired Carl Dan Peddinghaus GmbH, (one of the largest German forging companies), in late2003, CDP Aluminiumtechnik of Germany in December 2004, Federal Forge of the US in June 2005 and Imatra Kilsta AB
of Sweden (along with its wholly-owned subsidiary Scottish Stampings, Scotland)b in September 200520.

Since 2003, Indian companies have invested $56 Billion in Europe. Of this, $38 billion was spent on mergers and acquisitions
while $18 billion was canalised for Greenfield projects. During this period, Indian investors financed 511 Greenfield projects
and acquired interests in 411 companies. The average spend per European acquisition was $107 million. Though the
sovereign debt crisis had a negative impact on Indian overseas investments for 2008-09, there has been a significant pick
up in the following years. Our analysis shows that Indian companies spent $15.2 billion between 2009 and the first half of
2012. There was a no Exhibit slowdown in the quantum of overseas acquisitions with only 159 deals taking place. This drop
coincides with an overall decline in the number of acquisition deals pursued by Indian investors worldwide in the last three
years. The dip in M&A activity was made up for by an increase in Greenfield investments. Between 2009 and first half of
2012, Indian companies spent $8.7 billion for setting up 240 Greenfield projects.

1.4 The Turnaround of Sick Overseas Units

2) EMPLOYMENT GENERATION (All Sectors)

Despite the above-mentioned factors, Indian companies have a higher success rate, at a global level, when it comes to
turning around “sick units”. Statistics show that one in two acquisitions is a failure for the acquiring company. In the case of
Indian companies, the failure rate is one in three.21

In our analysis, we restricted ourselves to look at employment generated by Indian companies in key European markets- UK,
Germany, France, Belgium and The Netherlands. We have not considered other major EU economies because of fragmented
and inaccurate availability of data. Even for the countries tracked we faced similar challenges, albeit at a manageable level.
To get a more accurate picture of the employment situation, we had to base our analysis on data provided in bits and pieces
by the various export promotion agencies, chambers of commerce, statistic offices of individual countries and Eurostat.

A corporate turnaround may be defined simply as the recovery of a firm’s economic performance following an existencethreatening decline (Pandit 2000, Walshe 2004). Khandwalla (1992) defines a corporate decline as a loss situation, and
turnaround as equivalent to reaching at least a breakeven from a loss situation. The dominant rationale behind the success
of Indian acquisitions is that Indian companies do not push for immediate changes in the acquired company very soon
by imposing their style of doing business. For instance, the Mumbai-based Tata Group chose a London suburb as the
headquarters for its global beverage business, following its acquisition of the ‘Tetley’ brand in 2000. Even the day-to-day
running of the iconic Jaguar and Land Rover brands (acquired by Tata in 2008) continues to be driven from their headquarters
in UK.Indian companies look at acquisitions as long-term bets and very few entrepreneurs will put the acquired company
on the block when the going gets tough. Indian companies have also acquired a reputation of ramping up output in their
acquired overseas entities. GHCL Ltd (formerly known as Gujarat Heavy Chemicals) acquired a controlling stake of 65 %
in Romanian soda ash firm SC Bega Upsom at US$19.50 million in December 2005. Few weeks after the acquisition, the
GHCL scaled up the production in Bega Upsom by 34%. Romgas, which is a State monopoly, was supplying gas, which is
a very critical raw material to SC Bega at the prevailing international price.  However, immediately after take over by GHCL
Ltd, an Indian Company,  the gas price was substantially increased, much more than the international price, which made
the project unviable.  This is a very peculiar case, wherein investment from India was discriminated, otherwise why should
the gas price increased substantially and that too much more than the international price after the take-over. This is also a
classic case how an Indian investment in Romania is held hostage to investment policy of the government and Romgas;
controlled by the government.
‘India Inc., the new turnaround specialists on the block,’ The Hindu Business Line newspaper online edition, November 15, 2006 http://www.thehindubusinessline.com/
todays-paper/tp-opinion/india-inc-the-new-turnaround-specialist-on-the-block/article1752942.ece?ref=archive

20

‘Indian firm’s acquisitions bucks global trend’, The Indian Express newspaper, article quoting Mr Prashant Kale Research fellow with Wharton School’s Mack
Centre for Technological Innovation, http://www.indianexpress.com/news/indian-firms--acquisitions-buck-global-success-trend/937180

21

26

By injecting capital into the European economy, either via new Greenfield projects or by taking positions in existing ones,
Indian investments will generate employment. In UK, Germany, France, Belgium and The Netherlands, Indian companies
collectively employ an over 1,34,000 people as against a few hundreds in the late 90’s. Seventy five to eighty per cent of
the workforce consists of locals. For Western Europe as a whole, 5,000 new jobs were added last year. Other studies have
shown that 40,000 new jobs have been created by Indian Greenfield investments, alone since 2003. A recent study by
the Rhodium Group says that Chinese FDI has created 15,000 jobs in Europe through 428 Greenfield projects from 2000
onwards. A strict comparison helps us to conclude that Indian companies have created jobs three times more than their
Chinese counterparts. Mergers and acquisitions do not create as many new jobs as Greenfield investments. The employee
base can shrink if the acquirer embarks on a restructuring exercise or decides to merge the acquired entity with itself.
However, our dataset shows that Indian companies can preserve jobs in firms on the brink of shutdown, and add new jobs
once a troubled firm is stabilized.
A good example is the Tata Motors acquisition of the Jaguar and Land Rover brands. After concluding a deal for two dying
brands that left Tata Motors highly leveraged, it had to cut a few thousand jobs in UK. Cut to fiscal year ended March 2012;
Jaguar Land Rover posted a 27% jump in retail sales, to sell 306,000 vehicles. The big sales jump has been the primary
driver of growth and profit for Tata Motors. In the last three years, 8,000 new jobs have been added at three JLR plants in
the UK.
China Invests in Europe, Rhodium Group, 2012
China invests in Europe Rhodium Group, 2012

22
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27

The salt-to-software Tata Group employs approximately 80,000 workers across Europe through its 19 group companies. In
UK alone, the group continues to be the largest industrial employer, with an active headcount of approximately 50,000.

3) REDUCTION IN THE PRICE OF GOODS AND SERVICES (Predominantly IT, Automotives and
Pharmaceuticals)
Indian companies have developed strong leadership positions in automotives, IT/ITES and Pharmaceuticals. They have
championed the concepts of frugal engineering, low cost production and offshore delivery of services. The influx of low cost
foreign products or services in any market reduces the overall price-points in that market, thereby contributing to consumer
welfare. We provide more details on the three Indian industries that have played a key role on this front.

a. Outsourcing / Offshoring
Outsourcing refers to any task, operation, job or process that is given out to a third party for a significant period of time
instead of being performed by a firm’s in-house employees. The contractor could perform these functions either within the
premises of the client firm or from an alternate location. Companies outsource mainly for cost savings (No need to make
investment in people, processes and facilities if a particular function is your vendors’ responsibility), freeing up of resources
(Making resources more productive by deploying them on functions core to the business), availability of talent (A third party
contractor will attract the best talent in its particular domain which will then service the client), high customer satisfaction,
risk management (specialists are able to do the job better and you have a throat to choke if things go wrong) and so on.
When the outsourced functions leave the borders and are performed or delivered from another country, the phenomena is
called offshoring. Thus, offshoring is a type of outsourcing. Cost savings are amplified with offshoring because of the wage
disparity and living costs between workers in western countries and rest of the world. Another key benefit is that offshoring
helps businesses to support operations on a 24/7 basis. This is especially true for call centre operations, back office
support, transaction processing and other critical functions where round-the-clock support Is desired.
Indian IT companies have taken the lead in IT/ITES and back office offshoring because of the following home advantages,
low labour costs, proven English language capabilities and a large pool of engineers. By bringing down the price of goods
and services and on the strength of the template business model, offshoring focused FDI creates three sets of winners.

EUROPEAN COMPANIES THAT LEVERAGE OFFSHORING
A European Internet service provider was able to save $30 million every year by outsourcing its call centre operations to a
Bangalore-based company. For every corporate dollar spent on offshoring, additional income of $1.25-$1.3 is generated.
Cost savings differ from industry to industry, but most industry experts estimate a range between 30 and 60 per cent24. EU
companies can re-direct these savings in sustaining their core businesses through innovation and research. In the longer
term, these companies will also gain access to new pools of highly skilled labour, both in the offshore market (courtesy
the process outsourced) and the home market (due to onsite presence of offshore employees). Interestingly, the European
Commission estimates that up to 700,000 jobs in the ICT domain could go unfulfilled by 2015 due to want of talent.
The second sets of winners are the ultimate consumers of products and services. St Jude’s was able to reduce the cost of
its pacemaker by close to 35 per cent because it offshored a chunk of the product development work to a Mumbai-based
company. Lower product costs stimulate higher sales, benefiting both the producers and consumers.
Though Indian companies prefer rendering services from low cost locations such as India and China, they cannot move
every chunk of work outside of Europe. There are regulations that prevent sensitive tasks from leaving EU shores. Moreover,
Indian companies are not adept at offering support in languages other than English. Firms have found a way out of this
conundrum by setting shop in Eastern Europe, where labour costs may be higher than India but are much lower than core
EU countries. Hence Romania, Czech Republic, Poland and Hungary have emerged as the third set of winners.
Indian IT companies, including BPO entities, which have set up operations in Eastern Europe, include Infosys, Wipro,
TCS and Genpact. Most of these facilities have multi-language capabilities. Wipro has a 250-seater centre in Bucharest in
Romania while Infosys has 450-seat unit in Brno, Czech Republic. TCS has a delivery centre in Budapest, Hugary since
2001 which employs over 900 local nationals.
Outsourcing & Offshoring: Pushing the European model over the hill rather than off the cliff, 2005, Working Paper Series, Institute of International Economics

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The new supplier countries see immediate benefits such as FDI inflows and jobs generated and long-term gains in terms
of technology and skill transfer to the local labour force. Once new destinations are recognised as mature outsourcing
destinations, the number of jobs added can be doubled every year (going by the example of India). Offshoring creates
employment opportunities in tertiary sectors such as Construction, Housekeeping, Catering, Security etc. Even the
exchequer gains as there is an increase in indirect tax collections. Those employed by the offshoring sector generally
enjoy higher wages than their domestic counterparts. Higher disposable income means higher consumption resulting in an
increase in GDP for developing countries.

b. Automotive
To better understand the low-cost model promulgated by Indian automotive companies, one needs to look at the history
of the Indian manufacturing sector. The sector developed in a resource-scarce environment where prohibitive import duties
curtailing global inputs until 1991. A premium has developed on engineering skills that fully utilize cost-effective work-round’s
already in the design1. Thus, ‘frugal engineering’ capabilities developed as an indigenous part of engineering across India.
Several global automotive manufacturers such as Renault and Nissan have established Design and Manufacturing presence
in India to pick up the skills of frugal engineering43. Though cost is the key competitive advantage of Indian automotive
manufacturers, it does not mean that India churns out inferior quality automobiles.
Automotive major Mahindra & Mahindra for instance reportedly invested less than $150 million develop the ‘Scorpio’, its
multi-utility vehicle, from concept to production. In Italy, M&M launched the Scorpio XUV variant (rechristened Mahindra
Goa) at a competitive pricing in the range of 22,400-24,600 euros. M&M has been present in Europe since 2002. It sells
cars in Italy, Spain, Macedonia, Hungary, Greece, Croatia, Bulgaria, Slovakia, and Serbia. Going forward, M&M is planning
to expand into other European countries such as the UK, France, Poland, The Czech Republic and Romania with new
product launches like the Genio Pickup & Quanto. The company is also planning to introduce its all-new Electric Vehicle,
the Mahindra Reva NXR in Europe during 2013. In 2005, Mahindra Europe Srl. (ME) was setup in Italy as a joint venture
between M&M and a local Italian partner in May 2005. Since then, M&M has sold more than 6,400 vehicles.
The best example of frugal engineering is Tata Motor’s Nano, touted as the world’s cheapest car for five passengers. The
car, which retails at Rs 1,00,00 (or euro 1430) in India, will be launched in select European countries in 2013.

c. Pharmaceuticals
India’s prowess in the Pharmaceutical space is a prime example of an industry going global with local expertise. Today, India
exports 50 per cent of its annual generic medicine produce of $12 billion, making it the ‘pharmacy of the world’. Till 1995,
Indian pharmaceutical companies grew by reverse engineering drugs and manufacturing these for the local market. The
Indian Patent Act of 1970, which allowed patenting processes rather than end products, aided them. After signing on to the
World Trade Organisation (WTO) in 1995, India had to make commitments to change the patent regime by 2005 to align
itself with TRIPS (give the full form of trips) and honour product patents. Although India shifted to the product patent regime,
the capabilities developed during the past two decades became a competitive advantage for the Pharmaceutical industry.
The rising healthcare costs are forcing many European economies to adopt the cheaper generic drug option1. Indian
generic drugs are made at a fraction of the cost of a patented drug. Indian generics are cheaper than generics made in other
countries. Cashing in on the generics opportunity, Indian Pharmaceutical companies first started with medicine exports (to
UK, Germany and other European countries) before moving in with trading subsidiaries.  Further, these companies went
about augmenting existing skills in production capabilities and process R&D by acquiring technology focused firms.    All
major Indian pharmaceutical players like Ranbaxy (when it was under Indian promoters), Unichem, Dr Reddy’s, Piramal,
Unichem and others have investments in Europe. Companies such as Glenmark have Piramal Healthcare initiated programs
of developing new drugs by drawing on their frugal engineering skills and leveraging the advantages of Europe as an R&D
location.
In 2009, Brazil and India had initiated proceedings against the EU for confiscating Indian generic drugs transiting through
European ports on their way to other developing countries. India and Brazil have been seeing these instances as attempts
by developed countries to club counterfeits or copies of patented drugs with fake or spurious ones.
S, Jonnson, Swedish Institute of Policy Studies

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4) ENHANCE VALUE FOR SHAREHOLDERS
Greater investment interest from Indian companies increases the notional value for assets and thus raises prices for European
sellers. Indian investors, especially industry leaders, do have a tendency to overpay for acquisitions as they compete with
global brands. They tend to be aggressive when it comes to deal financing, not shying away from raising external capital.
Selling shareholders benefit as valuations often go up when an Indian party enters the bidding fray for an asset.

4. VALUE CREATION (INDIAN COMPANIES) IN KEY WESTERN MARKETS
1. GERMANY
Exhibit 11: Germany-India: A snapshot
India-Germany bilateral trade

€20 billion (2012)*

Number of Indian companies in
Germany

208 (2012)**

Employment generated by
Indian companies

Estimated 22,500 ** (2012)

*Publicly stated estimate for calendar year 2012, by SM Krishna, India’s External Affairs Minister
** Data available in ‘Indian investments in Germany: A win-win proposition’, a report by Rajnish Tiwari
This figure does not include the approx. 3,600 employees of the Luxemburg-based Mittal Group

Germany has emerged as an FDI hotspot in a cooling Europe. Its economic strength, coupled with a well-established prowess in
engineering, are major attractions for investors. In May 2011, a survey by consultancy firm Ernst & Young declared Germany to
be “the” most attractive FDI location within Europe. Germany has all the ingredients to continue its domination over inward FDI.
Germany’s strength lie in having the world’s fourth largest GDP at nearly €2.5 trillion, a domestic base of 82 million consumers
with relatively high purchasing power, and the successful “Made in Germany” brand.

Exhibit 12: Indian Investments In Germany (January 2003- July 2012)
Number

Value

Greenfield investment projects
(Indian companies)

101

$1.53 billion

Acquisitions by Indian companies
(January 2000-December 2011)

74

$6.91 billion

Total

175

$8.44 billion

Source: FDI Intelligence by Financial Times, Author’s database constructed from multiple sources

Indo-German economic relations date as far back as the 16th century. Jakob Fugger, a merchant and banker from Augsburg,
financed the voyage of the first German ships to Goa, thus opening up trade routes between the two countries. Between the
16th and the 18th centuries, a number of German companies were established with the aim of trading with Indian and other
East Asian countries. In the 19th century, German company Siemens built the first telegraph connection between Kolkata and
London, via Berlin.

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Exhibit 13

As per the Emerging Markets International Acquisition Tracker report published by KPMG in April 2012, an Indian company
was behind every fourth acquisition carried out by emerging market investor between 2005 and 2011. India Inc acquired
41 German companies in that seven-year period. One fourth of the 176 acquisitions in Germany were carried out by an
emerging market investor.

Acquisition of German firms by emerging country investors
(2005-2011)
12

Our dataset shows that Indian companies have invested in 175 FDI projects, spending a total of $8.5 billion since 2003.
Seventy four acquisitions were made for $6.91 billion. Ninety-four Indian companies were driving a total of 101 Greenfield
investment projects, spending $1.53 billion in the process

3
18

3

South & Central America
Central & Eastern Europe

Germany enacted a new law in 2009 that covers mergers and acquisitions of German companies by investors from non-EU
countries27. The Federal Ministry of Economics and Technology (BMWI) can review foreign investments and also prohibit
or suspend transactions which are perceived as a threat to national security or public order. The groundwork for this law
was done before the financial crisis and it was inspired by US legislation. Though the requirements of the security review
are quite strict, there are no indications of the German Government having applied this regulation to intervene in any Indian
investment in the country.

China
India

7

22

Middle East & North Africa
Russia & CIS
South Africa

12

South & East Africa

23

Exhibit 15: Major Indian Companies In Germany

Source: Indian investments in Germany, A report by Rajnish Tiwari

In the 2012 edition of Ernst & Young’s ‘Europe Attractiveness Survey’, 35% of investors rank Germany as the most attractive
country in Europe, and 13% see it as the most attractive country in the world for investment projects. After UK, Germany
is the most sought after destination for Indian OFDI in the continent. Europe’s largest economy provides ample market
foray opportunities given its established technological prowess, high-quality infrastructure and reliable institutional set-up.
Germany is considered an excellent investment target by many Indian firms in their pursuit of modern technologies and
commercially viable cutting edge innovations.
India tops the list of emerging market investments in Germany, followed by Russia and China (see Exhibit 13). India ranks
12th in Greenfield and brownfield projects in Germany. Seventy-three out of the 208 Indian firms present in Germany are
from the Software services sector. The second most investing sector is the Automotive industry, which accounted for 41
firms (20 per cent) followed by Consultancy firms (9 per cent), Pharmaceuticals (7 per cent) and Wind energy (7 per cent)1.

Company Name

Sector

Tata Steel (Corus)

Steel

Hindalco (Novelis)

Metals, Manufacturing, Recycling

Sona Group

Precision Forging

Suzlon Energy (RePower)

Wind Power

Mahindra Forgings

Castings and Forgings

Kalyani Group (RSB)

Wind Turbines

Tata Consultancy Services

ICT and Back Office Services

Rolta

Engineering & Geospatial Services

KPIT Cummins

Engineering and IT Services

Rain Commodities (Ruetgers)

Cement, Calcined Petroleum Coke and Power

Ten important Indian companies that have invested in Germany since 2003 are Suzlon Energy, Kalyani Group, Jet Airways,
Hexaware Technologies, Firepro Systems, Dabur India, Veauli Engineers, Ensoft Informatics, Orient Autocom Stamping, and
Bharat Fritz Werner. These companies are spread all over the 16 federal states of Germany.

Exhibit 14: Business Functions Performed In Germany By Subsidiaries Of Indian Firms
Business functions being performed in Germany by
subsidiaries of India firms
113

Other Activities

85

Distribution

Source: Indian investments
in Germany, A report by

52

R& D

Rajnish Tiwari
71

Production
0

Tiwari, Rajnish 2012

26

32

20

40

60

80

100

120

‘Germany, Merger control,’ available at http://www.globalcompetitionreview.com/reviews/47/sections/164/chapters/1836/germany-merger-control/

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REASONS FOR INDIAN INTEREST IN GERMANY
1) Low per unit labour costs
Low per unit labour cost, which translates into low per-unit production cost, has been a German feature, thanks to labour
market reforms it adopted in the late 90s. This has enabled the German industry to maintain competitiveness even in the
face of export competition. The German Government correctly targeted the labour market with respect to its limited fiscal
stimulus.  Recognizing that German wages tend to be sticky in the downward direction (like it happens in most unionised
countries) Government subsidies were designed to keep workers on payroll at reduced wages28. Under the plan, companies
reduce worker hours but keep them on the payroll, with the Government contributing for some of their lost  wages and
providing social security assistance.  Instead of the Government  subsidising  the jobless, it is paying  individuals  to retain
their jobs, and is encouraging companies to hire more such workers. Indian companies have understood this trend and are
looking to benefit from it by acquiring German workforce through acquisitions. This explains why an Indian firm buys one in
four companies that sells out.

2) Out-performance Of the Manufacturing Sector
Indian investors are bullish on the following sectors of the German economy: Machinery manufacturing, machine tools,
automobile spare parts, engineering machinery, and alternative energy (wind and solar). In these arenas, the world’s most
advanced technologies and IPR’s are with German companies. Indian companies seek access to new technologies and
solutions that can be replicated in the home market. German manufacturing companies are thus ideal investment targets.

3) Strategic Location
Germany is located at the heart of Europe, bordering Scandinavia in the North, Austria and Switzerland in the South and the
growing Eastern European markets to the East. To its west are Netherlands, Belgium, Luxembourg and France. Thanks to
its location, Germany guarantees swift access to the whole of Europe. Most European cities are within a two to three hour
reach from Frankfurt Airport. German highways and rail routes connect the country with all major cities in Western Europe.
German companies are spread across Europe, even in Eastern European countries such as Hungary, Czech Republic and
Poland. Acquiring a German company means access to all these markets.

4) Culture Of small and medium businesses
Germany has a large number of firms with 1,000 and 4,999 employees in the Manufacturing sector. They form the backbone
of the German economy. Many of them are being sold, resold, or inviting fresh investments, for various reasons. This
presents a a good opportunity for Indian firms. Conversely, sound prospects of consumption in the Indian domestic market
raises valuation expectations for German sellers. At the same time, non-monetary values and the acquirer’s future plans for
the company are often very important. In other words, the owners of these companies not only look at the financial package
when choosing a buyer but also consider the long-term impact on the company and the local community. A reasonable,
well-argued concept might outweigh the higher price offered by a competing bidder. Since many Indian companies are
themselves family owned, they form a strong cultural connect with their German counterparts. Hence, acquisitions and
mergers of small and medium-sized enterprises constitute an important part of India’s investments in Germany.

5) The German Education System and R&D
Germany has many well-known technical universities, such as the Technical University of Darmstadt and Aachen University.
Since the opening-up of overseas study opportunities, many Indian students can be seen on these campuses. Indo-German
co-operation has also been enhanced in the realm of Education. Germany has relaxed the criteria for the issue of the “blue
card” that provides permanent resident status to migrants. Now any Indian, who completes education in Germany, can stay
for one more year even without a job. There has been a 25% increase in Indian students in Germany in the last two years.
The German system does not require students to pay for education. It is not difficult for Indian companies in Germany to find
Indian engineers and technicians that are familiar with the German culture and can speak a bit of the language. Germany has
managed to attract over 6,000 Indian students and this number is expected to grow every year29. The German educational
system is known for producing practical-minded, diligent, and hard-working graduates. Many Indian companies are willing
to set up their R&D centres in Germany to benefit from the German talent pool.
A 2009 Survey conducted by Rajnish Tiwari31 confirms the positive employment effect of acquisitions for Germany. 189 jobs
were moved from India to Germany, 155 from Germany to India. (More than 100 Indian firms with operations in Germany
were contacted for this survey). In half of the cases (50%), the initial investments did not exceed €5 million. The largest initial
investment reported was between €30-50 million. Participants reported that they have plans to further invest around €270
Million in the next few years.

LATEST NEWS ABOUT INDIAN COMPANIES IN GERMANY
1. Sundram Fasteners Limited, part of the $5-billion TVS Group, has entered into a 50:50 joint venture with Wolfgang Walter
Naumann of Germany. The Indian company will invest €3 million by way of equity capital and loans in order to set up a new
plant for the manufacturing of fasteners for wind energy generators. (August 2012)
2. Mobile advertising company InMobi has setup a new office in Hamburg with an investment of roughly US$3 million. The
office, which will drive business from Germany and Austria, will create 10 new jobs. This is just to give an example of how
even small investments in Germany are important to Indian companies. (July, 2012)
3. Life sciences major Piramal has taken over Bayer Health Care’s molecular-imaging pipeline. Since then, it has been
continuing research and development work on the acquired PET radiopharmaceuticals in its labs in Berlin. (April 2012)

THE NETHERLANDS
Exhibit 16: Netherlands-India: A Snapshot
India-Netherlands bilateral trade

€5.3 billion* (2011)

Number of Indian companies in Netherlands

Around 135 ** (2012)

Employment generated by Indian companies

Estimated 3,200** (2012)

*Central Bureau of Statistics, Netherlands
**Netherlands Foreign Investment Agency annual results for 2011

‘Indian students need not pay for higher studies in German universities’. India Today. Online Edition, Available at http://indiatoday.intoday.in/story/indian-students-higherstudies-german-universities/1/225651.html

29

‘Data shared in an interview by the acting German Ambassador to India, available at “Every Fourth acquisition in Germany is from India”. Financial Chronicle. Online edition.
(2012) Available at http://www.mydigitalfc.com/news/every-fourth-acquisition-germany-india-429

30

‘Rajnish Tiwari is a Research Associate at Institute of Technology and Innovation Management at Hamburg University of Technology, Germany. His work is available at http://
www.global-innovation.net/team/tiwari/PDF/Tiwari_BusinessGuide_2011.pdf

31

“Failures of Macroeconomic Theory,” Charles Rowley’s blog, available at http://charlesrowley.wordpress.com/category/failure-of-macroeconomic-theory/page/3/

28

34

35

Netherlands is gradually becoming an attractive destination for investments from India. It has emerged as the third largest
destination for Indian FDI in Europe after the UK and Germany. Between 2009 and 2010, the Indian Government cleared
proposals worth US$11.5 billion for investments by Indian organizations in the Netherlands.  Some of India Inc.’s biggest
names such as TCS, HCL, Wipro, Infosys, Mahindra, Satyam, Moser Baer, Suzlon, ONGC Videsh have impressive business
portfolios in the Netherlands.

Exhibit 17: Indian Investments In Netherlands (January 2003- July 2012)
Number

Value

Greenfield investment project (Indian
companies)

33 (28)

$2.45 billion

Acquisitions by Indian companies (January
2000-December 2011)

28

$2.61

Total

61

$5.06 Billion

REASONS FOR INDIAN INTEREST IN NETHERLANDS
1) Robust infrastructure and logistics network
The country has a robust transport infrastructure with sound logistics and is within a 400-mile radius of half of Europe’s
major markets. Even within Europe, Netherlands has been acting as the front door for Indian companies providing them with
access to markets across Northern, Central, Southern and Eastern Europe. Many Indian companies have pan European
operations in the country. While it is a European headquarters for some, it is a shared services centre, a customer care
centre, a distribution and logistics operation, or an R&D facility for others.

2) Low tax rates
The environment for corporate taxation has become investment-friendly in recent years after the introduction of incentives
such as the innovation box. The corporate tax rate has been lowered to 25%, which is well below the EU national average.
For small firms, the tax rates stand at 20% for the first €200,000 of taxable profits. Dividend tax has been reduced from 25%
to 15%. A patent box, with a 5% tax rate on income from innovations, was also introduced1.

Source: FDI Intelligence by Financial Times, Author’s database constructed from multiple sources

3) English speaking workforce
Inward M&A activity also has been significant-the US$7.6 billion acquisition of Corus by Tatas, acquisition of Dutch tyre
maker Vredestein by Apollo Tyres (deal size undisclosed) and the US$23 million acquisition of Nederlandse Radiateuren
Fabriek (NRF) by the Indian auto components company Banco Products. There are around 140 Indian companies in
Netherlands that operate through 161 establishments in the country.

Indian companies have a penchant for countries where the workforce can speak English. Netherlands boasts of one of
the most highly educated, flexible and motivated workforces in Europe. Dutch professionals are seen as one of the most
multilingual in the world. The literacy rate in the country is 99% and 87% of the population speaks English. 

Exhibit 18: Major Indian companies in The Netherlands

LATEST NEWS OF INDIAN COMPANIES IN THE NETHERLANDS

Company Name

Sector

Dishman Pharmaceuticals & Chemicals

Pharmaceuticals

Nucleus Software

Software Products and Services

Tata Consultancy Services

ICT and Back Office services

Infosys Technologies

ICT and Back Office services

Tech Mahindra-Mahindra Satyam

ICT and Back Office services

United Phosphorous

Chemicals

India Infrastructure Finance Company

Infrastructure financing

Tata Steel (Corus)

Steel

State Bank of India

Banks-Public Sector

Sun Pharmaceuticals

Pharmaceuticals

Tata Steel will invest €12 million in new manufacturing facilities in Ijmuiden, in a bid to enhance production of specialised
corrosion resistant steel. “The company is building a new finishing line for hot-dipped galvanised steel, which is used in car
body panels. The new facilities will open in 2014,” it said, in a statement. (October 15, 2012)
The overseas arm of United Phosphorus has acquired Netherlands-based SD Agchem Europe, a 100 % subsidiary of
Punjab Chemicals and Crop Protection for an undisclosed amount. (July 16, 2012)
India Infrastructure Finance Company Ltd (IIFCL) plans to move its overseas base from London to Amsterdam to take
advantage of the favourable tax regime. Resources can be raised as efficiently in the financial and business capital of
Netherlands as in London. Moreover, the outgo on account of taxation on resources raised and income earned will be less,
Mr S. K. Goel, Chairman and Managing Director, IIFCL, was quoted as saying in the Indian media. (July 10, 2012)

3) UNITED KINGDOM
In a single month of March 2012, three Indian companies- KPIT Cummins (ICT), Value Labs (ICT) and Tata Asset Management
announced plans to open new offices in Amsterdam. Infosys, one of India’s largest ICT companies, has also been discussing
the possibility of establishing a European education and training centre in Amsterdam. The University of Amsterdam would
be closely involved with the Infosys project. These four companies could together create another 100 jobs in the country
this year. Since 2006, Amsterdam has worked hard to attract Indian businesses to the region.

For several decades, UK has been the most favoured investment destination for Indian companies after the US. The reasons
are several: colonial connection, a common business language, increasing number of Indian expatriates in UK, multicultural
environment of London, two-way tourism. India gets the second highest number of tourists from the UK. The UK’s largest
visa operation worldwide is in India. In 2011, half a million-visa applications were processed. Indians constitute the largest
ethnic group in UK with around two million people of Indian origin living in the country. Both countries are members of the
Commonwealth of Nations and their relationship has been largely friendly since 1974.

In an example of growing Indo-Dutch community relations beyond business, the keynote sporting event of the City of
Amsterdam – the TCS Amsterdam Marathon is sponsored by Tata Consultancy Services, which also helps build the mobile
applications technology around the event. The company had chosen Amsterdam as its European Headquarters in the early
90s and used it as a base to grow it operations across continental Europe.
Data from Netherlands Foreign Investment Agency, Data available at http://www.nfia-india.com/why_favourable_tax_climate.html

32

36

37

Exhibit 19: UK-India: A snapshot
India-United Kingdom bilateral trade

€20.17 billion (2011-12)*

Number of Indian companies in United Kingdom

Around 700 (2011)**

Employment generated

Estimated 1,00,000 *** (2012)

*Ministry of External Affairs website (www.mea.gov.in), Government of India
**Data provided by the British High Commission in India
*** Authors estimate

In 2011, the UK attracted 81 new projects from India that resulted in the creation of 5,454 jobs. India is now the 5th largest
investor in the UK. India also happens to be UK’s largest non-EU market1. As per statistics from the Indian Government,
50% of India Inc.’s European investments are directed towards UK2. While these investments are canalised into different
sectors, the ICT space accounts for a lion’s share. Increasingly Indian companies are seeing traction in domains such as
Chemicals, Engineering, Financial services, Life sciences, Logistics, Manufacturing, Media and Entertainment, Retailing and
so on.
Indian investments in UK account for more 43 per cent of the Indian investment position in Europe. Our research finds that
Indian companies have invested €24.75 billion in UK since 2003 through 421 investment projects. While the number of
Greenfield projects (244) are higher than acquisitions (177), a major chunk of the spend (67 per cent) was directed towards
inorganic growth.

The UK and India are among the top investors in each other’s economies bringing significant long-term benefits and
economies of scale. In 2011, UK-India Bilateral trade grew by 26 % to €20.17 billion from €16 billion in 2010. In the last 12
months, bilateral trade has gone up by 30 % as per official estimates. (Exact figures have not been released). The UK aims
to double its bilateral trade with India by 2015.

Exhibit 20: Indian Investments in UK ( January 2003 to June 2012)
Number

Value

Greenfield investment projects by Indian
companies (companies)

244 (161)

$8.14 billion

Acquisitions by Indian companies (January
2000-December 2011)

177

$16.61

Total

421

$24.75 billion

Today, Indian companies employ around 1,00,000 workers, a majority of them locals in the UK. Of this, 50,000 are staffers
of the multiple businesses of a single Indian conglomerate, the Tata Group, thanks to its 2007 takeover of Anglo-Dutch
steelmaker Corus and the 2008 acquisition of Jaguar & Land Rover. This is a far cry from the 892 jobs that all Indian companies
put together were responsible for in 2003- 20043. Job creations have come through both, big-ticket acquisitions and local
Greenfield operations. Other marquee brands owned by Indian entrepreneurs include Tetley Tea, Grosvenor House Hotel
and several others. Jaguar Land Rover is set to create 4,500 new manufacturing jobs in the UK over the next five years. In
2011, Tata Consultancy Services was certified by the CRF Institute as the UK’s top employer based on its performance over
11 parameters of human resources.

Exhibit 22

Investment into the UK from the BRICs, 2002 - 2010

Source: Authors’ database, FDI Market (Indian companies in Western Europe)
60

The UNCTAD World Investment Report shows that that the UK remains number one in Europe for FDI. The current standing
investment stock in UK is at US$1,198 billion, the second highest in the world1. Overall investment into the UK from the
BRIC countries has remained relatively flat in recent years. In 2011 India represented the UK’s third-largest source of FDI
projects, but the UK’s market share of European projects from India fell from 47% in 2010 to 38% in 20112. This can be
attributed to the growing interest among Indian business to explore other high growth markets such as France and Germany.

Percentage of Projects

50

Exhibit 21: Origin of Investment Projects into the UK

Germany

20

0

India
France
282

30

10

US
160

40

2002

Brazil
China

China

2003

2004

2005

2006

2007

2008

2009

2010

2011

India
Russian Federation

Canada

18

Japan

19

Netherlands

19

Spain

21
21

Australia
22

Other
28

29

Many British blue chip companies (about 30) and some smaller companies have off-shored work to India creating over
60,000 jobs. Conservative industry estimates show that British businesses now save upwards of £1 billion every year due
to offshoring, the bulk of which is accounted for by India38.

60

Source: Ernst & Young, European Investment Monitor 2012
33

36

34

37

‘DUNCTAD (2012), World Investment Report, United Nations Conference on Trade and Development, New York and Geneva.
‘Ernst & Young 2012 Attractiveness Survey, UK
35
‘‘India-UK relations’, British High Comission Delhi, available at http://ukinindia.fco.gov.uk/en/about-us/working-with-india/

38

Data from the Ministry of External Affairs website, Government of India
Indian companies still investing in UK in droves, available at http://articles.economictimes.indiatimes.com/2009-06-23/news/27645847_1_uk-trade-and-investment-new-jobs-new-projects
Indian High Commission in London, http://hcilondon.in/economicreview.pdf

38

39

Indian businesses own some of the most iconic British brands. Car companies like Jaguar Land Rover that
are selling cars all over the world. What a great combination between Indian capital and British labour that’s
actually producing a world-beating car. I want to see more Indian investment into Britain and I want to see
more investment from Britain into India.
- David Cameron
British Prime Minister 1

REASONS FOR INDIAN INTEREST IN UK
1) Major domestic market and Gateway to the EU: The UK’s open and internationally focused economy is one of
the most sophisticated globally. It is a proven gateway for those interested in capturing the US$17 trillion European Union
market (IMF, 2012) and the local English-speaking market
2) Multicultural labour pool: Over half a million full-time and part-time students graduate each year from the 170 universities
and higher education institutes of the UK. Ten per cent of all students who opt to study abroad select the UK.1 Migrant
workers from over 200 countries have made UK their home. it is easier for Indian companies who are looking for specific
language or cultural skills to find them in abundance.
3) Strong business environment: The UK is the best location (among the larger ones) for ‘Ease Of Doing Business’ in
Europe according to an independent assessment by the World Bank. The World Bank considered a host of commercial
operating factors such as setting up and running a business, labour regulations and obtaining finance.

RECENT NEWS INVOLVING INDIAN COMPANIES IN UK
Delhi-based Dion Global Solutions, a software solutions provider for financial markets, has acquired the entire issued
share capital of UK’s Investmaster Group Limited for an undisclosed sum. Investmaster is a specialist provider of wealth
management and stock broking software (November 29, 2012).
Tata Consultancy Services was selected by the UK Government’s Home Office for a multi-million pound engagement to
modernize their systems. The company is setting up a new delivery center in Liverpool to cater to this. (November 28,
2012)
The FMCG arm of Indian conglomerate Wipro Limited has acquired the UK and Europe business of popular personal care
brand Yardley for an undisclosed sum (July 25, 2012).
Security company Topsgrup has acquired 100 % stake in its British counterpart The Shield Guarding Company Limited for
Rs 167 crore (£19.5 million) (July 16, 2012)

Belgium is one of India’s most important trading partners in the EU. Trade in Gems and Jewellery constitutes around 70%
of the bilateral trade41. India’s top Information Technology companies are present in Belgium. Several Indian companies in
the Chemical and pharmaceutical sector have also established offices, warehousing and production facilities in Belgium. In
2011 JBF decided to set up a production plant for PET in Geel (Flanders). This new plant, which will be largest in Europe in
its kind, represented an investment of over 160 million.
Belgium has emerged as the gateway for Indian businesses seeking to enter Continental Europe. Known as the cradle of
logistics, a beachhead in Belgium enables Indian companies to further penetrate into Europe. Indian companies active in the
automotive sector, food processing and metal industry have taken advantage of this and established distribution centers,
particularly near the port cities of Antwerp and Zeebrugge. Belgium’s superior position in transportation and logistics is
exemplified by the recent memorandum of understanding signed with the Indian Railways to modernize the latter’s rail
network.
The importance of Brussels as the European Union’s seat of power also plays a decisive role in a investment decision.
All major Indian Banks, State Bank of Indian ICICI Bank, Bank of India, Bank of Baroda are having offices in Antwerp or
Brussels..
For a country of Belgium’s size, Indian M&A activity has been substantial.

Major Indian companies in Belgium:
TATA CONSULTANCY SERVICES | HCL | WIPRO | JINDAL POLYMERS | STATE BANK OF INDIA | ICICI | JBF CROMPTON GREAVES
DY PATIL GROUP | JET AIRWAYS | INTERGARDEN | BINANI GROUP

Taking advantage of the logistics and attractive investment environment that Belgium offers, during last ten years many
Indian companies have entered into joint venture/M&A in Belgium. The most important of these are Crompton Greaves
and Binani Group. In May 2005, the Crompton Greaves in a $32.1 million deal acquired the Belgium based transformer
group Pauwels, which has activities in 7 locations worldwide. Part of the US$ 4 billion Avantha Group, CG is a leader in the
management and application of electrical energy.
Since then, more than €50 million has been invested in capacity extension and for creation of centers of excellence and other
acquisitions. The company is active in the domain of transmission and distribution in Hungary, Ireland, France, Sweden, and
recently in Spain. It has created hundreds of jobs across Europe. CG is active in the global power transmission & distribution
(T&D) arena, and is amongst the world’s top ten transformer manufacturers.
Last year, Binani Industries acquired Belgium’s fibreglass products and technologies company 3B from US-based private
equity firm Platinum Equity for €275 million. The acquisition gives Binani Industries full ownership of 3B’s global operating
capacity of 1,50,000 tonnes per annum and provided access to its established customers, technologies, marketing network
and manpower. In 2012, the Binani Group had also acquired Luxembourg-based Project Bird Holding SARL.
3B’s portfolio of products includes chopped strands, direct rovings and continuous filament mats. It is a leading manufacturer
of fibre glass for reinforcement of thermoplastics and thermoset polymer applications. The acquisition is part of Braj Binani
group’s strategy to expand presence in the global fibreglass market.

BELGIUM
Exhibit 23: Belgium-India: A Snapshot
India-Belgium bilateral trade

€13 billion (2011)*

Number of Indian companies in Belgium

65 (2012)**

Employment generated by Indian companies

Estimated 3,500 ** (2012)

Although the acquisition came during the heigh of the economic crisis in Europe,the group has not retrenched a single
staffmember.

*Media Reports
** Data from the Europe India Chamber of Commerce

39

Interview by Karan Thapar on “Devil’s Advocate” CNN-IBN TV channel, 11 March 2012.
Data from UK Council for International Student Affairs

40

40

41

Embassy of India to Belgium, Luxembourg and the European Union,http://www.indembassy.be/india_relations_with_belgium.html

41

REASONS FOR INDIAN INTEREST IN BELGIUM

5. THE SOVEREIGN DEBT CRISIS AND ITS IMPLICATIONS ON INDIAN FIRMS

1) Strategic Location: All the major European hubs such as Paris, Strasbourg, London, Amsterdam, The Hague,
Luxembourg, Cologne, Frankfurt, Munich or Geneva, are accessible in only a few hours by road, train or plane. Brussels
has direct connections with all of Europe’s decision-making centres. With 60 per cent of EU’s purchasing power within a
mere 500 km radius of Brussels, Belgium is at the political and physical heart of Europe.

Major Western economies are still under the cloud of the 2008 credit crisis. What turned into out to be a sovereign debt crisis
in 2011 has snowballed into a bigger liquidity crisis, engulfing the region’s banking systems. Little or no new job creation,
public spending cuts and increase in taxation has further ebbed down confidence. Increased pressure on households
means less spending and more savings, thereby drying up consumption, and consequently imports, in the economies.

2) A cost efficient test market: One third of Brussel’s inhabitants are foreigners. A successful test of any product or
service in Belgium is a good indicator of similar successes in other European markets. Belgium imbibes Latin as well as
German cultural habits. Indian companies should take cues from their global counterparts and look at Belgium as the test
base for soft-launches of products and services. The country’s infrastructure, skilled workforce and the IT opportunities it
affords make it an ideal location from which to conquer the European market.

At the heart of the crisis was prolonged overspending by the Governments, inertia in reaching out to new and emerging
markets, stagnant Manufacturing sector, declining populations-especially of the productive category and so on1.

3) Multicultural Setting: Brussels is home to some 1,700 companies. The vibrant mutli-cultural setting of Brussels makes
it easier for expatriates to relocate. Brussels offers 21 international schools delivering an education to several children of
international managers, executives and civil servants.
4) Ease of doing business: According to the 2010 European Cities Monitor Survey, conducted by Cushman & Wakefield,
Brussels remains one of the leading cities to do business. The survey lists qualified staff, easy access to key markets,
telecommunication quality and excellent transport links as the city’s strengths. It amounts to - including social security -57.3
percent for a single earner41. Changes in corporate taxation are making Belgium an increasingly interesting place from an
investment point. Belgium offers a wide range of tax benefits and fiscal grants, from tax exemption and rulings to beneficial
tax regimes for R&D. Other recent appealing measures include notional interest deduction, VAT grouping and patent income
relief42.
Belgium disposes also of a social security with India. The Belgium-India Social Security Treaty, signed in 2006 is considered
to be a landmark agreement as it was the first to be negotiated by the Indian authorities. Under this treaty an Indian
employee can remain subject to the Indian system and be exempt from paying Belgian social security contributions.

Exhibit 24: Indian Investments in Belgium (January 2003-July 2012)

The sovereign debt problem started off in the peripheral economies (Portugal, Ireland, and Greece) of the Eurozone, but
today it has become a region-wide problem, threatening the future of the Euro currency. Such a situation is a far cry from
the optimism that had marked the launch of the Euro in 1999.

Exhibit 25: Current Account Balance, % of GDP (Select EU countries)

Number

Value

23 (19)

$861 million

Acquisitions by Indian companies (January
2000-December 2011)

14

$1.3 billion

Total

37

$2.16 billion

RECENT NEWS INVOLVING INDIAN COMPANIES IN BELGIUM
1) Tata Consultancy Services and HCL Technologies are said to be in discussions with KBC Group to buy the offshore
information technology arm of the Belgian banking firm (November 2012)
2)Hyderabad-based Rain Commodities Ltd has bought Belgian chemicals maker  Rutgers NV from investment firm
Triton Partners for around $915 million crore in the biggest overseas acquisition by an Indian private company this year.
(October 2012)
3) JBF invests 160 million euro in a new PET plant in Geel.

42

Amcham Connect, April 2011 Issue

43

Doing Business Guide in Belgium, PWC, Available athttp://www.pwc.be/en/doing-business-guide/index.jhtml

42

2009

6

2010

2011

%

H1-2012

6

6

4

6

2

6

0

6

-2

4

-4

6

-6

8

-8

10

-10

12
Greenfield investment project (Indian
companies)

Current account balance, % of GDP*

%

GR

IT

IR

PT

SP

-12

* H1, seasonally adjusted
Source: Adjustment in Euroland: A progress report, Deutsche Bank Research

The Eurozone crisis has also had an impact on Indian businesses, especially those that service European markets either
through direct presence or exports. The Eurozone slowdown has played a major role in cooling India’s exports which
contribute 22 per cent to the Gross Domestic Product. In June 2012, the Indian Government reported growth in the first
three months of the year at the slowest pace in the past nine years, up 5.3 % from the year-earlier quarter, but well below
the 8% rate of previous years. While the Eurozone crisis did pan out to the detriment of India’s export sector, other structural
issues with the Indian economy have also had a part in slowing growth
Earlier this year, the Federation of Indian Chambers for Commerce and Industry (FICCI) conducted a survey among Indian
companies with business operations in Europe to assess the impact of the current economic turmoil on them. The survey
showed the following results
• 53% of the surveyed companies believe that the ongoing crisis has adversely impacted their businesses prospects in the
region

44
“Current Economic scenario in Europe and its impact on Indian industry’, A survey by the Federation of the Indian Chamber of Commerce (FICCI), August 2011, available at http://ficci.com/
SEDocument/20150/ficci-Survey-Report-Europe.pdf

43

• In terms of business generation, over 75% of the surveyed companies have quoted a loss of 10-15%
• Over 30% of the respondents have started looking beyond Europe. Greener pastures are being sought in North Africa,
West Asia, South Asia and North America
Over 25% respondents have pointed out that during the current economic turmoil respective Western European Governments
have themselves become deterrents to facilitating foreign investments and trade. The biggest roadblocks are the increase in
scrutiny for obtaining and renewing long-term visas, work permits, family and employment visas. The overall ease of doing
business in the region has come down.

Exhibit 26: The Unit Labour Cost gap
Unit labour cost, index 2000=100

Index
140

GERG

IRE

RE

ESP

ITAP

Index
TG

140

130

130

120

120

110

110

100

100

00

00 01

02

03

04

05

06

07 08

09

10

11 12f 13f

Luxembourg-based ArcelorMittal, promoted by India-born billionaire Lakshmi Mittal, will invest €180 million at its steel plant
in Florange, France. The announcement came after a long stand-off with French government and labour unions. France had
threatened to nationalise the company’s facilities in Florange, following Mittal’s decision to shut down a blast furnace at the
site. Amidst calls by the UK inviting Mittal to invest in London and investment loss fears, a compromise deal was thrashed
out. ArcelorMittal employs 20,000 workers in France and 3,600 in Germany.
Tata Steel has cranked up the pace of investment in Europe. Tata Steel will invest in excess of £1.5 billion (nearly Rs 13,000
crore) in its European operations till 2015-16 to spruce up its existing equipment and bring out new products, among
others46.
Investing in Europe is a long-term game plan. Companies need to have strong cash flow positions in order to wade through
periods of uncertainties. Companies that seek external funding must be ready to look at non-EU sources. Once a decision
is taken to invest in a particular country or region, focus should be on generating employment opportunities to make it a winwin for all. Engaging with the local communities, through corporate social responsibility projects or training opportunities, will
help in gaining the goodwill of the local workforce.

00

Sources: Haver Analytics and DB Global Market Research

5.2 CAN THE CRISIS BE AN OPPORTUNITY?
Crisis stricken countries (Portugal, Ireland, Italy, Greece and Spain) have managed to make considerable progress in reducing
external and internal imbalance. In terms of external adjustment, countries have been able to reduce their Current Account
Deficits substantially. With the exception of Italy and Greece, this has been achieved by both a reduction of imports and
increase in exports1. In terms of internal imbalances significant progress has been made. According to a projection by the
International Monetary Fund, the Current Account balances of Greece, Portugal and Spain will turn into surplus between
2013 and 2017. Only Italy is expected to retain a deficit at the end of the surplus period.
Given these recent country specific adjustments, we think that doing business in the Eurozone has become more economical.
Barring Italy and Greece, unit labour costs have fallen in all countries that are the heart of the crisis. Apart from wage rates,
the recent downturn also resulted in a significant fall in commercial and residential property  prices making EU economies
more attractive for cost-sensitive foreign companies. Germany’s labour markets continue to be as tight as ever.
The key is to treat Europe not as one giant block but as a collection of nations and companies.
As we have explained in the next section, we are bullish on the future prospects of Europe and we value the united effort
that is going into sustaining the region. Firms could take cues from several Indian and global TNC’s that are goading on this
path.
US-headquartered Dow has expanded its presence in Europe by allocating €10 million, or about $13.2 million, for a new
water-desalination research centre on Spain’s eastern seaboard, about 50 miles southwest of Barcelona. Over 100 engineers
hope to develop new ways to produce cheap, clean water.
45

Adjustment in Euroland: A progress report, Deutsche Bank Research,

44

46

“Tata Steel to invest Rs 13,000 crore in Europe till 2015-16,” Available at http://www.moneycontrol.com/news/business/tata-steel-europe-to-invest-15-bn-pound-till-2015-16_770125.html

45

6. CASE STUDY: THE TATA GROUP

Corporate Social Responsibility

In a span of 12 years, the US $100 billion worth Tata Group has become the most recognizable face of Corporate India
abroad.

The Tata Group has a unique shareholding structure. 66% of Tata Sons shares, the holding company of the Tata group, are
owned by charitable trusts. Hence the Tata Group scions do not figure in the list of global billionaires. The group is actively
driving several Corporate Responsibility projects in the continent. For several decades, the group has been operating two
trusts in London- Lady Tata Memorial Trust (supports cancer research) and Lady Meherbai D. Tata Education Trust (for the
education and development of women). Every year, the trust disperses funds of around £300,000 for blood cancer research
every year. In order to further aid cancer research, Tata Consultancy Services (TCS) has become the title sponsor for the
TCS Amsterdam Marathon with VUmc Cancer center Amsterdam.

The group today is present in 80 countries worldwide with major operations in European states such as UK, Germany,
Italy, France, Spain, Netherlands and several others. It has seven major lines of businesses; Information systems and
Communications, Engineering, Materials, Services, Energy, Chemicals and Consumer products.
The Tata Group is a typical Indian-bred corporate, but with global ambitions. Jamsetji Nusserwanji Tata, the founder, began
his business career in China and England. The Tata Group’s first brush with the overseas markets was in 1907 when an
outpost was opened in London for its Indian operations. The Tata’s first UK focused venture was a one-man operation for
Tata Consultancy Services (TCS), a leader in the concept of outsourcing to India. Since those early days, TCS has expanded
into a global and European IT powerhouse, accounting for over 26% of its global revenues from Europe. Since 2001, it
has invested in creating several IT delivery centers in the UK, Hungary, Netherlands, Luxembourg and Germany. Currently
the firm has 50,000 software engineers catering to its 350 European clients worldwide and employs 14,000 professionals
across the continent.
The Tata Group has been the largest Indian FDI investor in Europe. 63 of its 220 global projects have been in the continent.
21 of its 70 global acquisitions have been on the European soil. In UK alone, the group employees 50,000 employees, from
a few thousands in the early part of the decade. The group has embarked on a conscious drive to localize its employee
base.
The group’s first aggressive move overseas was in Europe. In 2000, Tata Tea bought Tetley, a well-known beverages brand.
This was just the first of its 70-odd acquisitions till date. The Tata’s preferred acquisitions to taking up Greenfield operations
during the first five years of its overseas quest, primarily because of the advantage to ‘scale up ‘or ‘scale down’ quickly.
The buyout of British luxury car brands, Jaguar and Land Rover for US$2.3 billion was instrumental in establishing the Tata
brand internationally. Many felt the Indian company was biting more than what it could chew. The deal was billed ‘suicidal’
by several analysts because of the high premium paid by the Tata’s for a company that was on the verge of bankruptcy. The
takeover by an Indian company would dampen the prestige of the British brands, according to popular perception. Mr Ken
Gorin, Chairman of the Jaguar Business Operations Council (which represents Jaguar car dealers in the US), told the Wall
Street Journal in December 2007, “I don’t believe the US public is ready for ownership out of India of a luxury car maker.
And I believe it would severely throw a tremendous cast of doubt over the viability of the brand.”
The buyout happened amidst a slowdown in the European Manufacturing industry. The European division of Tata Steel,
dating from its US$13.1bn purchase of Corus in 2008, has also been under severe stress. Outgoing group Chairman
Mr Ratan Tata alluded to this in the group’s annual report. “[Tata Steel’s] operations in Europe will continue to be under
enormous stress for the next year or two until the Western European economy recovers.” A depressed Europe is Corus’
biggest market. Realizations have been wobbly given the unpredictable demand from user industries such as Automobiles,
Consumer Durables and others. The steelmaker is facing the brunt of the high costs of iron ore and coal, which go into
making steel. As with many steelmakers, gross operating margins were dire last quarter; a small loss was booked.  Yet, the
group has cranked up the pace of investment in Europe. Tata Steel will invest in excess of £1.5 billion (nearly Rs 13,000
crore) in its European operations till 2015-16 to spruce up its existing equipment and bring out new products, among
others1. On the flipside, the company had earlier announced that it would retrench 1,500 workers in Europe, mainly in
Northern England. In 2012, it announced one more round of layoffs leading to a net loss of 900 jobs in the UK.
Today, Tata’s global beverage business is driven out of its headquarters in a London suburb. In other parts of UK, the
workforce of the plants where the ‘Evoque’ is made has doubled to 3,000. JLR is building an engine plant in Wolverhampton.
Tetley is now sold as a premium brand in India and other emerging markets. Tata’s Indian hotel chain has teamed up with
Charme II Fund, an Italian fund managed by Montezemolo and Partners SpA to buy over Orient-Express Hotels. However,
its $1.86 billion bid was reected by the Orient-Express board.

47

“Tata Steel to invest Rs 13,000 crore in Europe till 2015-16,” Available at http://www.moneycontrol.com/news/business/tata-steel-europe-to-invest-15-bn-pound-till-2015-16_770125.html

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7. INDIAN CORPORATE INVESTMENTS: FACTORS THAT MAY INFLUENCE THE FUTURE
Balance sheets of Indian companies are as strong as ever. India Inc. is said to be sitting on almost Rs 150,000 crore (US$33
billion) in cash and bank balances48. Many top companies, especially those providing services in the ICT space, have been
debt free since their inception. Our study shows that the following factors could have a positive or negative impact on Indian
investor sentiments over the next 10 years.

1) The future of the Eurozone (-/+, depending on the outcome)
Economists concur that the Eurozone crisis could have four possible outcomes on the union itself. Greece moves out of
the Eurozone, a substantial break up of the Eurozone (Portugal, Spain, Ireland leave the Eurozone and launch their separate
currencies), complete break up of the Eurozone (each country reverts back to its earlier currency) or greater integration.
The whole of Europe will plunge into a chaos if Greece were to exit the Eurozone. Media reports have pegged the cost of a
Greece exit at $1 trillion49. If all countries were to go their separate ways, the Eurozone will be splintered. Governments will
start defaulting on their debts, leading to a total collapse of the banking system.
The cost of unwinding is more than the cost of going forward for all EU members. We believe that the sovereign debt crisis
will cause Europe to integrate even further. For the first 60 years, Europe’s integration was a ‘top-down’ approach; the next
60 years will see a ‘bottom-up’ approach. We believe that the larger stakeholders of the European project-Germany, France
and the UK-are committed to keep the union. The crisis has already compelled European nations to create a common
bailout fund and agree on ways to impose more fiscal discipline on each other. In September, a proposal for common bank
supervision in Europe was mooted. This would be the first step towards a banking union50. The idea of a banking union
would not have been contemplated had it not been for the crisis. One of the lessons learnt by political leaders is that it
is hard for a common currency to work in a fragmented economic and financial system. The costs of unwinding the Euro
and the benefits of doing so are probably impossible to quantify, but the risks are massive and it is not in the nature of
policymakers to embark on grand experiments.

2) The rise of protectionism (-ve)
For the last decade, the EU and its individual member states have been among the strongest advocates for free trade,
claiming that it would boost economic growth and welfare for all concerned. Even when protectionism would raise its
head, it would be in the form of pre-election rhetoric every four years. However, in a post-2008 world, this is no longer the
case. The shift in European stance on international trade was evident last summer, when struggling German solar panel
manufacturers and the Socialist French government of François Hollande  urged the EU to launch protectionist measures
against Chinese competitors and suspend a recent FTA with South Korea.

This is further corroborated by another study which says that the EU has been using protectionist policies ‘that fly below
the World Trade Organization’s radar’, ever since the financial crisis began. The study was conduced on the basis of seven
major economies and 869 non-macroeconomic trade policies adopted by the EU since 200851. Not only did the EU try to
protect its economies against foreign competition but often “picked winners” among their own firms, leaving the rest to bear
the brunt of the crisis, the study says52. The economies that resorted most to discrimination tended to rely most on policies
where the WTO rules were weakest, such as bailouts, trade finance and investment incentives - in 84 % of cases in the EU.
No major economy is without a blemish when it comes to this ‘New Protectionism’. Recently, EU accused Indian authorities
of protectionist moves such as a higher duty on imported vehicles, ban on cotton export and stipulating a local sourcing
norm for telecom equipment.
An increasingly popular method these days is to strangle traders with insidious moves, such as red tape and increased
bureaucracy, which cannot be easily identified by a watchdog. These steps are justified as short-term corrective actions in
response to the global downturn.
A case in point is the new set of norms stipulated for Indian pharmaceutical exports to the EU. A clause says that the Indian
drug regulatory authority must certify products exported by companies in order to maintain quality and follow manufacturing
practices laid down by the EU drug regulators53. Domestic drug makers say the Drugs Controller General of India is neither
authorised under the law nor conversant enough with the EUGMP Standards to issue such a certification. Though the
directive is promoted with the stated aim of protecting people from falsified medicines, Indian players see it as a protectionist
measure to save the EU bulk drug industry54.
In 2009, Brazil and India had initiated proceedings against EU for confiscating Indian generic drugs transiting through
European ports on their way to other developing countries. India and Brazil have been seeing these instances as attempts
by developed countries to club counterfeits or copies of patented drugs with fake or spurious ones.
In the case of Services, protectionism takes a more subtle form. The Indian Services industry, especially IT, ITES, and
Professional services, have been facing challenges in the EU with respect to visa regulations and procedures. Problems
include the proposed caps on skilled worker visas, and increasingly complicated visa procedures that require significant
investment in time and cost. Another area of concern is artificially imposed minimum wage requirements on foreign skilled
professionals that do not reflect market principles. This makes exports and investment in IT and other professional services
untenable.
Some of the statements emanating from the European Council have not been accommodating. One of the defining moments
came In June when the Commission said it was in favour of discriminating against firms based in countries where European
companies are excluded from the public procurement market. EU has been pushing India to approve the Government
Procurement Bill pending before its parliament so that foreign parties can pitch for state contracts. AS part of the EU-India
BTIA, it also wants a condition for greater transparency in state purchases.

A new study by the Overseas Development Institute has confirmed the fears of the Indian industry by warning that the
European Union is increasingly choosing a more protectionist stance in trade policy. The first reform of the EU’s Generalised
System of Preferences (GSP) in 30 years will see richer developing countries, such as India and Vietnam,  lose trade
concessions of up to €257 million.51

51

“Available at http://www.odi.org.uk/news/details.asp?id=604&title=eu-trade-policy-international-development-global-challenges

52

48

“Tata Steel to invest Rs 13,000 crore in Europe till 2015-16,” Available at http://www.moneycontrol.com/news/business/tata-steel-europe-to-invest-15-bn-pound-till-2015-16_770125.html

49

“Banking Union explained, European parliament news, http://www.europarl.europa.eu/news/en/headlines/content/20120921STO51985/html/Banking-union-explained

50

“The Future of the Euro: Jack Ewing Answers Readers’ Questions, International Herald Tribune

48

‘EU seeks protection from emerging economies’, Inter Press Services news agency, September 28 Study conducted by Vinod Aggarwal, professor of political science at Berkeley and Simon Evenett,
professor of international trade and economic development at the University of St. Gallen, available at http://www.ipsnews.net/2012/09/eu-seeks-protection-from-emerging-economies/
53

A news report, based on the study, available at http://af.reuters.com/article/commoditiesNews/idAFL5E8LMKQL20121022

54

Business Standard 2012, http://www.business-standard.com/india/news/drug-makers-criticaleu-non-tariff-barrier/471368/

49

3) Manufacturing sector based partnerships (+ve)
Indian Manufacturing has contributed only about 15% to the GDP compared to services (about 57%55). No major economy
has become a world power without going through long periods of manufacturing dominance. This is true of the US, Western
Europe, Japan and now China. India cannot be an exception. The Indian Government is pushing its corporates to get into
value based and capital based manufacturing.
Europe may have suffered a decline in its industrial base in recent years, but continues to be a world leader in several
industrial sectors. India has ambitious plans to expand its Manufacturing base, as evident in the 2011 National Manufacturing
Policy56. India can become a formidable force in Manufacturing only with access to improved technology, to serve its
domestic market &compete in the export markets57. There is a major win-win opportunity here for both Indian and European
companies that could be explored with more support on the policy front.

4) A supportive ecosystem for new ideas (+ve)
One of the reasons why the US still holds a dominant position in international affairs despite the fragile economic situation is
its ability to spot and finance next-generation ideas. The contribution of Indians to creating and sustaining Silicon Valley in the
US is well known. Students and immigrants from India have founded iconic firms such as Sun Microsystems (Vinod Khosla),
Brocade (Kumar Malavalli), Cirrus Logic (Suhas Patil) and Hotmail (Sabeer Bhatia). Pivotal contributions to technology
innovation, include Ehernet (Kanwal Rehki), Fiber Optic (Narinder Kapany) and the Pentium chip (Vinod Dham) From 1995
through 2005, 15 % of Silicon Valley startups were launched by Indians – the largest number for any immigrant group. All of
them were attracted by two common messages, easy access to venture funding and external economies of scale.

Both EU and India are keen to finalise the BTIA for altogether different reasons but there is a binding strand of commonality;
growth. India’s GDP growth rate recently fell to 4.1% (the lowest in a decade) and the EU continues to be embroiled in a debt
crisis.The proposed BTIA is expected to reduce duties on over 90 per cent of the trade between the two blocks. According
to a report by the Federation of Indian Chambers of Commerce and Industry (FICCI), the BTIA could result in 92 per cent
spike in bilateral trade between India and the EU to $207 billion by 2015 from $108 billion in 2011. It will also help in restoring
high levels of FDI flows into India. FDI flows to the country (from around the world) fell from US$18 billion to US$10 billion,
partly as a result of shrinking market-seeking FDI to the country59
India and the EU have missed at least four deadlines to complete negotiations largely because both parties were not able
to achieve a consensus on several issues. The conclusion of the agreement has been delayed as serious differences still
remain over issues like tariffs cut in automobiles and luxury goods, public procurement, market opening and movement of
skilled professionals. However, recent developments have confirmed the seriousness of both sides to bring the agreement
to its logical conclusion. Recently, Indian Heavy Industries Minister Praful Patel Monday said his Ministry is agreeable to
cutting duty on luxury cars imported from Europe as part of BTIA2. On the other hand, India is expecting that the EU would
safeguard India’s interest of small car exports to Europe60.
It does not help that the negotiations between India and the EU have been conducted in secrecy. In fact, the progress made
in successive rounds is not being officially divulged on the Indian side. Selective news leaks in the international media have
been damaging. The non-transparency has raised suspicion among Non-Governmental Organizations that the interests
of the millions of poor people are endangered because, for example, access to affordable life-saving medicines will be
denied.

5) Attracting small and medium enterprises in Europe (+ve)
Small and Medium Sized companies are the backbone of India’s industrial sector. Many SME’s are taking rapid strides
towards corporatization. One third of investments in Europe are made by small and medium businesses. Many of these
SME’s are family- owned export businesses keen to charter the next level of growth, by setting up onshore presence. Given
the significant cost advantages of producing in India, significant synergies can be explored by SME’s in Italy and Germany.
Opportunities could be explored in sectors such as Auto-components, Food processing industry, IT/ITES and Plastics.
The changing profile of Indian investors calls for local partnerships and improved facilitation services. Indian SME’s are less
familiar with European business practices and culture. Many of them have little experience operating in an overseas climate
and so mistakes, especially in the first few years, are common. If young firms are to survive near-terminal mistakes and wade
through macro-economic vagaries, they require the flexibility of scaling up and scaling down. The complexities of hiring and
firing people in Europe are a big concern for these firms. The cost of paying out large severance packages (six months of
severance pay is typical even for very recent hires) can be a huge drain for a small company58. The inflexible labour markets
create a tendency of shipping jobs to the home economy for protecting margins. This tendency is challenging, given the
powerful labour unions that foreign investors have to deal with. Also, peripheral countries need to make it easier for SME’s
to do business. In Greece, it takes 77 days just to get electricity hooked up, according to the World Bank.

6) EU-India Free Trade Agreement (+ve)
India’s burgeoning relationship with the EU is set to be institutionalised by a comprehensive investment agreement that
will establish a legal framework to encourage mutually beneficial investment flows. Since 2007, India and EU have been
negotiating a free trade pact, officially known as Bilateral Trade and Investment Agreement (BTIA) Though mainstream
economic theory believes that Free Trade Agreements lead to economic inefficiencies through the process of trade diversion,
a broader view is that FTAs bring about a net gain to the countries involved and promotes free trade between the contracted
parties. Moreover, FTAs are easier to negotiate given the few number of players involved in the discussions. One of the
biggest criticisms of multilateral trade agreements is that it takes sometimes several years to negotiate, as evident from the
Doha Development Agenda of the WTO.
55

“Indian manufacturing: Making it work, A report by Indian School of Business, available at http://www.isb.edu/isb/File/ISBInsight_Volume9Issue3.pdf
“Wall Street Journal, http://online.wsj.com/article/SB10001424052970204777904576652474175973718.html
“Investing in France, An untapped opportunity: A report by PWC
58
“Les Miserables, The Economist, http://www.economist.com/node/21559618
56
57

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59

‘Global Investment Trends Monitor,’ UNCTAD Report released on October 23, 2012, No.10, pp 2 , Available at http://unctad.org/en/PublicationsLibrary/webdiaeia2012d20_en.pdf

60

‘Praful Patel for import duty cuts on luxury cars from the EU, DNA, November 26, http://www.dnaindia.com/money/report_praful-patel-for-import-duty-cuts-on-luxury-cars-from-eu_1769856

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7. POLICY RECOMMENDATIONS
The future scope of Indian investments in Europe is positive. However, there is still some degree of scepticism among
companies. So, policy attention is crucial for Europe to attract and benefit from these new avenues of capital. After two
years of grinding austerity measures, the good news is that European officials and politicians have shifted their rhetoric
toward reviving growth and luring private investment. A lot more needs to be done. Individual countries should try and
incorporate learning’s from UK and Germany, two of the largest playgrounds for Indian investors.
1) There should be a pan-European economic policy that is free from economic nationalism. Europe must sustain its
reputation of openness by having an open door policy. Common, clear and transparent guidelines should be adopted
at the individual country level and the EU level to promote investments. There should be a zero tolerance policy towards
any kind of indiscrimination. Protectionism, which could come in myriad forms ranging from higher tariffs, costly import
licences and customs controls, to increased bureaucracy, should be nipped in the bud. At the same time monitoring of
investing companies should be stepped up to ensure that investment aid given is not misused and that the investment
norms and terms agreed upon are not circumvented. Steps should be taken to ensure that expensive operating costs, rigid
labour markets and heavy regulation do not disenfranchise potential investors. The EU should address India’s request for
preferential treatment so that the number of work permits given to Indian professionals is increased. Visa and work permit
regulations should be simplified for bonafide commercial investors. Individual countries should push for the speedy adoption
of the Single Permit directive as it would allow the EU “to deal to a degree with the shortage of European labour51” and
facilitate checks and balances in migratory flows.

5) Lot of ground has been covered in the pursuit of creating inclusive and flexible labour markets in Europe. Yet, much has
to be done. We support the adoption of pro-growth measures over grinding austerity. The weak growth prospects and
the time lag between economic and employment recovery means that there is no prospect of immediate or automatic
improvement in the labour market situation1. However, developing flexible working arrangements, aligning wages with
productivity, and stepping up “active labour market policies” such as support for job seekers and entrepreneurs and quality
traineeships should help to improve the situation. We advocate longer working hours at the same wages rather than a
cut in the salary package of workers. Peripheral countries will attract Indian investments only if they go through the overall
economic overhauling process.
6) At the beginning of the new millennium, Indian investments in Europe were being largely driven by IT, professional services,
Manufacturing and Automotive companies. In the last five years Indian companies have been venturing into newer sectors
such as Renewable energy, Value-based manufacturing, Financial services, and creative industries. Individual countries
should scout for investors in sectors of their competitive advantage.
7) The EU-India BTIA will accelerate Indian investments in Europe. It will also open up hitherto shackled sectors of the
Indian economy such as luxury cars, wines, multi-brand retail and so on. The EU should push for speedy adoption of the
BTIA; both trading partners should stick to the timeline of finalizing the agreement by the spring of 2013, before the IndiaEU Summit in Brussels. All negotiating texts and positions with regards to the FTA should be made public on both sides.
Comprehensive impact assessments and meaningful consultations should take place with the most affected groups in
Europe and India.

The Directive, which enables foreign workers to obtain work and residence permits in identical procedures, will also ease
the numerous layers of bureaucracy that Indian companies have to deal with while sending their employees on long-term
European assignments. EU States have time till December 13, 2013 to align their national laws with this directive. Taking
cues from France and Germany, other EU countries should join hands to form a single “aligned” tax rate for corporates
throughout Europe. The move would act as a major boost for businesses since they want to limit regulatory costs and red
tape.
2) The European Commission should create ‘Shenzhen’- like special economic zones that offer lower taxes, less red tape
and other favourable investment conditions to attract overseas manufacturers. These new factories would set the tone for
higher manufacturing-based economic growth, create more jobs and propel overall GDP of the EU. The move will especially
benefit crisis-plagued countries such as Greece, Spain and Portugal in stirring up their economies. Tax discounts and
investment sops should be offered to potential investors in return for long-term investment commitments.
3) Indian product companies still have limited capabilities to develop the next big technology or product at home. Europe
is still preferred by Indian Pharmaceutical companies for conducting clinical trials of drugs. Software engineers are paid 70
per cent lesser in Europe than in California (US). An-EU wide initiative should be envisaged for creating a new home for
the electronics, technology and life sciences industry in order to foster the spirit of research and attract the best talent in
the industry. European countries need to implement policies that accelerate R&D and innovation. Special impetus must be
placed on creating new finance channels for riskier ventures.
4) European banks must be more supportive while lending to Indian SME’s trying to find their feet in Europe. Several Indian
companies feel that relationships with European banks are only ‘fair-weather’ and not ‘all season’ relationships.

61
‘‘Common Rights and single work and residency permit for non-EU workers’, European Parliament press release dated 13th December 2011, available at http://www.europarl.europa.eu/news/en/
pressroom/content/20111213IPR33946/html/Common-rights-and-single-work-and-residence-permit-for-non-EU-workers

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‘Labour Market Development in Europe 2012, European Commission, http://ec.europa.eu/economy_finance/publications/european_economy/2012/2012-labour-market_en.htm

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ACKNOWLEDGEMENTS
EICC and the report’s author would like to thank the following people for their significant contributions towards the report :

Sanjay Dalmia, Chairman, Dalmia Group of Industries
Dileep Patil, Cheif Executive Officer, CG Power
Vinod Juneja, Managing Director, Binani Group of Industries
Raoul Ascari, Chief Operating Officer, SACE
Sudin Apte, Chief Executive Officer, Offshore Insights
Abhinav Kumar, Chief Communications Officer – Europe, Tata Consultancy Services
Alessandro Terzulli. Senior Economist, Global Markets Analysis, SACE
BG Srinivasan, Head of Europe and Global Head of Financial Services, Infosys Technologies
Gour Saraff, Associate Dean, Valencia Business School, International University of Southern Europe
Ashoak Upadhyay, Associate Editor, The Hindu Business Line
Murali Gopalan, Business Editor, The Hindu Business Line
PT Jyothi Datta, Senior Assistant Editor, The Hindu Business Line
Vidya Ram, Europe Correspondent, The Hindu Business Line
Charuta Patwardhan,KPIT Cummins
Harsh Kabra, Cognizant
Elisa Creperio, Universita Cattolica Del Sacro Cuore
Mohan Gawde, Deputy Director, Confederation of Indian Industry (CII)
Taresh Arora, CII
Priyanka Kapoor, Royal Bank of Scotland
Kamlesh Mukunde, PPMS Merchandising Services
Mahendra Wadkar, Starbox Advertising
Neha Rahgunath, NDTV
Ishaq Rawuther, Cheers Interactive
Abellon CleanEnergy
The entire team at Flanders Investment & Trade Agency, Brussels

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ABOUT THE AUTHOR

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Twenty-seven year old Adith Charlie is a business journalist and writer on international affairs.
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Secretary General
Europe India Chamber of Commerce
69, Boulevard Louis Mettewie (bte. 18)
1080 Brussels (Belgium)
Phone: 0032-2-4692677
Fax: 0032-2-469-2677
E-mail: sunil.prasad@eicc.be or info@eicc.be

Branch Offices
Spain
Gour Saraff
Resident Director
Calle Jose Chabas Bordehore 3
Bl 1, Esc 1, Pta 32
Valencia, Spain 46019
Phone: 0034-936660979
Fax: 0034-936520744
E-mail: gsaraff@hotmail.com
Web:http://www.eiccspain.com
The Netherlands
Vikas Chaturvedi
Resident Director
Crystal Tower, 24th Floor, Orlyplein 10
1043 DP, Amsterdam
The Netherlands
Phone: 0031 6 2083 9904
E-mail: info@eiccnetherlands.com
Web:http://www.eiccnetherlands.com
Italy & Luxembourg
Filippo Santececchi
Resident Director
Via Cristoforo Colombo n. 436
00145 - Roma
Italy
Phone: 0039 6 5416800
Fax: 0039 6 59601838
E-mail: filippo.santececchi@eicc.it

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