German companies are increasingly turning their attention to India due to its low labor costs, skilled workforce, and political stability—factors that make the country an attractive hub for supply chain diversification and growth. Additionally, India’s expanding consumer market presents new opportunities for businesses looking to tap into rising demand.
Understanding this shift offers valuable insights into how global supply chains are being reshaped, with lessons that U.S. manufacturers may find worth considering.
Expanding Investment in India
A key indicator of Germany’s growing interest in India is that 78% of German companies plan to expand their investments in the country by 2029, according to the German-Indian Business Outlook 2024, a survey conducted by consultancy KPMG and AHK.
This marks a significant shift from previous years and underscores India’s strategic importance in a global environment where supply chain resilience and diversification are increasingly critical. As businesses face disruptions and the need to reduce reliance on traditional hubs like China, India is emerging as a viable alternative with both short- and long-term potential.
Low Labor Costs and Skilled Workforce
One of the main drivers of this growing investment is India’s cost advantage. 54% of German companies cite India’s low labor costs as a major factor in their decision to invest. However, beyond the cost savings, India’s skilled workforce is another crucial aspect of its appeal. The country offers a combination of affordable labor and technical expertise, making it a competitive destination for industries that require precision and high-quality production.
India’s labor force grew by over 102 million people between 2014 and 2023—a 20.94% growth rate, according to World Bank data—providing a steady supply of qualified workers. This labor pool makes India attractive for sectors like manufacturing, engineering, and IT. German businesses have recognized the value of India’s talent, and recent government initiatives have been aimed at attracting skilled Indian workers to fill gaps in Germany’s labor market.
Political Stability and Supply Chain Resilience
Another significant factor behind Germany’s increasing investment in India is the country’s political stability. The German-Indian Business Outlook 2024 report shows that 53% of German companies value India’s stable political environment, which provides confidence in the continuity and reliability of their operations.
The AHK Asia-Pacific Business Outlook Spring 2024, a survey of member companies of the German Chamber of Commerce Abroad (AHK), highlights that economic policy is one of the top business risks for German companies operating in the Asia-Pacific region, with particularly high concerns in China, Taiwan, and Hong Kong. As companies reassess their strategies to navigate these risks, India’s political stability and growing industrial capacity position it as a potential destination for those seeking more resilient and diversified supply chains within the region.
India’s Expanding Consumer Market
While much of the focus on India centers around its manufacturing capabilities, the country is also becoming a rapidly growing market for goods and services. Currently, 27% of German companies view India as an important sales market, a figure projected to rise to 40% by 2029, according to the German-Indian Business Outlook 2024. India’s growing middle class and increasing purchasing power are driving demand across a range of sectors, creating opportunities for businesses to not only produce in India but also serve its expanding consumer base.
A recent example of this is Hyundai Motor India’s record-setting IPO in October 2024, which aims to raise over $3 billion—the largest-ever IPO in India. The oversubscription of shares, particularly by institutional investors like BlackRock and Fidelity, reflects the growing interest in India’s market potential. With a valuation nearing $19 billion, this underscores India’s rising economic prominence and the attractiveness of its consumer base to global companies.
As a U.S.-based company with 30 years of experience, Source Machining Specialties specializes in helping U.S. manufacturers with their manufacturing needs in India. We’re so confident in our Indian production facilities that we invite you to a site audit at our expense. Discover more about our capabilities and services, and let’s start a conversation.
