New Delhi/Gütersloh, September 22, 2016. A recent study published by the Bertelsmann Stiftung shows that German companies have still not managed to take full advantage of India's significant research and development potential (R&D). While other industrialized Western countries are already relying extensively on India's multifaceted innovation potential, many German firms still see the world's second-largest emerging economy principally as an expanding market for German goods. The study was carried out by the global strategy consulting firm Roland Berger, which interviewed companies and executives in both countries. Their findings show that Germany's economic and political sectors must act fast if they want to avoid being left behind in India and other Asian markets.India is home to more than 1,000 R&D centers and often forms an essential and integrated part of the global innovation networks of many multinational companies. For the most part, French, British and U.S. firms have already been tapping this potential much longer than have German companies. In fact, the Indian R&D centers operated by French, British and American companies are among the largest outside their respective home countries. Bosch, Siemens and SAP are three of the German corporations undertaking specific R&D operations exclusively in India and profiting from the innovation ecosystem there.
Tapping India's research capabilities to create a competitive advantage
One of India's exceptional strengths is the development of goods for emerging markets. German companies – especially manufacturers of products often considered too high-tech and too expensive for such markets – could benefit tremendously if they were to draw on India's R&D capabilities to create a competitive advantage. Thanks to its large customer base, India is also an ideal location to develop and test affordable goods for new markets and emerging middle classes.
According to experts, a key prerequisite for economic success in India is the accelerated expansion of India-based R&D centers belonging to German companies. These centers would employ global talents and hire local specialists from the existing pool of roughly 1.5 million Indian engineers, especially in the fields of IT and engineering.
As Liz Mohn, Vice-Chairwoman of the Bertelsmann Stiftung's Executive Board, notes: "Our future in Germany depends on how we handle the changes taking place in Asia. We have to make better use of India's innovation potential for our economy. We need to continue learning from the world, especially with regard to our work as global partners. When we engage in cooperation, collaboration and investment, our economies intertwine, allowing us to profit from one another."
Barrier: Immigration policy
Enhanced cooperation between the two countries could involve the transfer of well-educated and experienced international experts from India to Germany, which could play a key role in addressing Germany's skilled labor shortage. In addition, the study shows that Germany's universities would be well advised to attract more Indian students and encourage them to pursue careers in Germany. According to many executives surveyed for the study, the German federal government's immigration policy has proven to be the fundamental barrier in both cases.
The study also concludes that German-Indian cooperation in the area of R&D lags behind German-Chinese cooperation. In light of decelerating economic growth in China, it would appear all the more urgent that Germany take greater advantage of opportunities to diversify. Other industrialized nations have already started doing precisely that. Last year, for the first time ever, more foreign direct investment flowed into India than into China. Experts are interpreting this as a sign of growing confidence in the Indian economy.
This study "Innovation in India" is the first in a series on innovation in Asia and Israel published by the Bertelsmann Stiftung. It is based on interviews and workshops involving 80 companies and more than 150 representatives drawn from politics, business and various interest associations. The interviews were conducted in Germany and India in 2016.