Why SMEs in Germany are increasingly turning to India

By Alexander Sturm, dpa I Saturday, July 27, 2024

 

BERLIN – Germany’s small and medium-sized enterprises (SMEs) are increasingly looking to expand their supply chains to India, while the US is losing popularity as a business location, a new survey has shown.

Following a couple of tumultuous years which saw a global pandemic, Russia’s war in Ukraine and skyrocketing energy prices upend global trade, some 40% of German SMEs are planning to restructure their supply chains, according to the survey conducted by DZ Bank made available to dpa.

Particularly larger companies with an annual turnover of €50 million ($54.3 million) are considering expanding trade relations with India, it said.

Some 15% of German SMEs plan to turn to India to expand their supply chains over the next five years, up from some 10% in 2022, according to the survey.

The result indicates that India has become “the most interesting non-European country for SMEs realigning their supply chains,” said DZ Bank, which surveyed more than 1,000 managing directors and decision-makers.

Many companies have recognized the strong growth momentum in the world’s most populous country, it said.

China is also gaining popularity again among SMEs – despite tensions with Taiwan, according to the representative survey conducted between March 5 and April 2.

“The fact that India and also South-East Asia are becoming more important is mainly due to the companies looking to diversify their supply chains amid growing political uncertainty,” DZ Bank analyst Claus Niegsch said.

US losing importance

After low energy costs and massive subsidies attracted German businesses to the US for years, SMEs are now starting to turn their back on the country, according to the survey, which found that only some 12% plan to focus on the US market in the future, down from 15% in 2022.

Some 9% are looking to withdraw their operations from the US entirely, with SMEs from the chemical sector in particular increasingly turning to Germany again after energy prices normalized at home, the survey found.

The prospect of another Donald Trump presidency as well as higher tariffs and a possible European countermove could also be weighing on German SMEs, DZ Bank believes.

“Such a development would make the US significantly less attractive as part of the supply chains,” it said.

China to remain important

Some 17% of those surveyed also felt that China would become more important for their business over the next five years.

Partly due to low production costs, China remains indispensable for German SMEs, said Niegsch. At the same time, around 10% are planning to reduce trade relations with the country.

Europe, meanwhile, remains the most important trading region for the German firms, with 21% looking to expand their supply chains in Western Europe and 24% in Central and Eastern Europe, according to the survey.

At the same time, some 10% are planning to relocate their supply chains to regions outside of Europe, according to DZ Bank.