More and more global firms are keen to enter the fledgling Indian earthmoving and construction equipment (ECE) market through subsidiaries or joint ventures to cash in on the opportunities in the booming infrastructure sector, industry experts said.
“With the government projecting a whopping $1 trillion (Rs.1 lakh crore) investment in the infrastructure sector during the 12th Plan period (2012-17), several foreign firms are mulling to set up wholly-owned subsidiaries or joint ventures for manufacturing and marketing construction equipment and components in the Indian market,” Indian ECE Industry Association chairman Glenville da Silva told IANS here.
Though global players such as JCB from Britain, Hitachi, Kobelco and Komatsu from Japan, Volvo from Sweden and Caterpillar and Terex from the US entered the Indian market during the past decade, the revival of the ECE industry with about 30 percent growth in 2010 has attracted many firms from China, Finland, Germany, Italy, South Korea, Spain and Turkey to plan assembly and manufacturing facilities in the country.
“As potential for investment in infrastructure and allied sectors is immense, the Indian ECE industry revenue is set to grow six-fold to $23 billion in 2020 from $3.3 billion in 2010 with a CAGR (cumulative average growth rate) of 21 percent as against 18 percent CAGR registered in the past five years (2006-10) to reduce the deficit and meet the growing demand from urban to rural areas,” Silva said on the margins of the industry’s five-day international trade fair (Excon 2011) that concluded Sunday.
According to London-based global consulting management firm Off-Highway Research, the growth momentum of the global ECE industry is shifting to emerging markets like India and China from matured markets (North America and Europe), where finance has become scarce and business confidence is low due to slower growth and sovereign debt crisis.
“While the industry worldwide staged a modest recovery in 2010 from the impact of global recession in 2008 and 2009, rules of the game have changed during the last three years with India, China and Brazil making up for the declining growth in the developed countries,” Off-Highway managing director David C. Philips said at the trade conference.
Besides meeting need of the burgeoning Indian market, Japanese firms are looking at the cost arbitrage of setting up export base for South Asian markets with the mantra of 'Japanese technology at Indian cost'.
“Having a manufacturing base in India will give the advantage of selling our products and services cost effectively to local customers as well as Japanese firms' operating in South Asian countries,” Japan External Trade Organisation (JETRO) deputy director-general Osamu Taki said.
Noting that India was emerging as one of the most exciting markets in the world, Philips said the infrastructure deficit across the country would force the central and state governments as well as the stakeholders to put the sector on fast track to attract foreign and domestic investments in building and expanding roads, highways bridges, dams, ports, airports, power plants and housing.
“Global majors have started shifting production to developing countries like India so as to capitalise on the opportunities unfolding in emerging markets where pro-active government policies, access to financial and human capital and infrastructure deficit will drive the industry's growth in this decade,” Philips said.
A study by another global management consulting firm, Accenture, revealed that private sector participation in infrastructure development will increase to 40 percent by 2020 from 25 percent currently on account of growing urbanisation and government's thrust on building social and rural infrastructure for inclusive growth.
“Planned and proposed investments in the infrastructure sector will drive the construction industry to look at increasing mechanization and usage of specialised equipment to meet project deadlines and address skilled labour shortage, as workforce requirement is expected to be about two million in the ECE industry,” the study pointed out.
With demand for energy efficient products and need for product customisation growing, German companies find the business outlook promising as they have the technology and equipment developed for global markets, where emission norms are strict.
“We see a huge potential for our companies to grow in the Indian market despite competition from other global players. By setting up local plants and providing quick after-sales support, we will be able to lower products costs and promote setting up of a quality supplier base for components,” German engineering federation (VDMA) head Sebsastian Popp said.
(Fakir Balaji can be contacted at email@example.com)