Corporate: Destination US
Indian companies are setting up offices and manufacturing plants in the US aided by a US Trade Commission initiative.
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Think foreign direct investments (FDI) and what comes to mind are foreign investors arriving with bags full of dollars. But think again. It isn’t always about foreign companies bringing investments to India. The reverse is quite true as well. Yes, in 2018, while India received FDI worth $42, Indian companies took $13.7 billion in business investments to the US alone.
In fact, the US has been a leading business investment destination for Indian companies in the recent past. In the past three years, more than a dozen Indian companies have set shop in states across America. And facilitating these crossovers is the SelectUSA initiative backed by the US Trade Commission.
Taking advantage of the SelectUSA programme, around 300 Indian companies have so far travelled to America and held meetings with prospective partners and various state and local administration officials. According to USTC officials, some of these companies are in various stages of investing in the US. SelectUSA is helping them in successfully setting an office or a manufacturing plant, or both.
Is The Timing Right?
Today, when dark clouds are hovering over the Indian economy which has slowed down considerably in the past several quarters (declining GDP numbers in each of the past six quarters), does it make more sense for the established, well-to-do Indian manufacturers to hop over and set up base in the US?
Privately, a large number of Indian companies think so. Sample this: If you happen to be in Tuscaloosa County in west-central Alabama, chances are you won’t be able to miss this 700,000 sq ft manufacturing facility of $12-billion Samvardhana Motherson Group (SMG). This plant is owned by Samvardhana Motherson Peguform or SMP Automotive Systems Alabama Inc. Here, the company manufactures various exterior and interior components for models produced at the nearby Mercedes assembly plant.
SMG is linked to India-based Rs 62,572 crore ($9.1 billion) Motherson Sumi System or MSSL, which has set a revenue target of $18 billion for FY20, driven by both domestic and overseas businesses.
“SMP, our company that manufactures and supplies globally highly integrated modules and polymer products, was given an order by Mercedes Benz US International for manufacturing bumpers and interior polymer parts for the global production of Mercedes SUVs out of Tuscaloosa. The local bodies in Alabama have been instrumental in providing the necessary infrastructure for setting up a greenfield facility spread over 700,000 sq. ft. and we started production in 2018,” says Vivek Chaand Sehgal, Chairman of SMG and MSSL.
Sehgal thanks the SelectUSA initiative through which he and his officials could meet several Federal and state economic promotion and economic development councils. “We are thankful to Michigan state senators and members of the Congress for Alabama, all of whom have been very helpful in resolving our issues in bringing up the production facility in Alabama and supporting other growth initiatives of Motherson across the US,” Sehgal adds.
Chennai-headquartered Sundaram-Clayton (SCL), part of the $7-billion TVS Group, is another Indian company to have established a manufacturing plant in Ridgeville, South Carolina at a reported investment of $90 million. The plant will manufacture a range of high-pressure die-cast and gravity die-cast parts for the automotive industry within the US and beyond.
Once fully operational, this plant is expected to produce 1,000 tonne of castings in the first year and 10,000 tonne in five years. Reportedly, the US market accounts for about 60 per cent of the TVS Group’s exports and 40 per cent of its revenues.
Presence in the US is expected to sharply reduce delivery lead times, giving SCL a competitive advantage. Says Vivek S Joshi, President and CEO, SCL, “The need to set up a plant in the US was felt in FY15. In fact, the request came from customers for a near-shore presence. It was felt that a plant in the US would shorten the supply chain and mitigate the risks of market volatility.”
How did SelectUSA help? Joshi says SelectUSA was very helpful in facilitating the ‘matchmaking’. “We were able to interact with multiple states like Virginia, Michigan, Ohio, Indiana, South Carolina, North Carolina, Georgia & Texas. We were also able to have interactions with Federal agencies including the Department of Commerce which offered support for our project. It took us around a year for the entire process,” recalls Joshi.
The SCL factory is getting commissioned this quarter, informs Joshi. “It took us 24 months to make the plant operational. Once the plant goes full stream, we expect to employ around 230 personnel. Barring a few key support staff from India, probably 5-6 members, all other members will be US citizens,” says Joshi.
FDI From India
A survey by the Confederation of Indian Industries (CII) a couple of years ago showed that Indian companies together had collectively invested over $17 billion in the US and generated over 80,000 jobs. The US Trade Commission data shows the US attracted nearly $14 billion in FDI from India last year.
In fact, since its inception, SelectUSA has facilitated more than $64 billion in investments, thereby creating and/or retaining over 86,000 US jobs. In 2018 alone, SelectUSA facilitated $20.8 billion, the data shows.
But why do Indian companies prefer the US for investment? “There is no shortage of reasons why business investors choose the US – from the business-friendly environment and quality of life considerations to a specific technology, supply chain, infrastructure and workforce factors. Our nation’s diversity and openness are what truly allow businesses from all countries and industries to find their place in the market – and thrive,” explains Darrel Ching, Principal Commercial Officer (North India) in the Department of Commerce in the US embassy in Delhi.
In fact, for the next SelectUSA Summit, to be held in the US in mid-2020, Ching talks about the SelectUSA Tech programme where early-stage and startup technology companies will be able to connect with partners for advancement in the US market. “High-growth Indian technology companies that are less than eight years old, with up to $10 million in revenue, and up to 40 employees are encouraged to apply to attend,” says Ching thereby calling upon hundreds of tech startups that are currently operating in various Indian cities.
As per the data, the top six Indian industry sectors based on FDI into the US include software and IT, business services, pharmaceuticals, metals, industry equipments and plastics. Majority Indian-owned firms in fact employ nearly 67,000 US citizens, as per the data from 2016 (the numbers may have crossed 90,000 by now). And the value of exported goods from the USA made by Indian-owned companies stood at $1.4 billion in 2016. The numbers have obviously gone up since then. New York, Texas, Los Angles, North Carolina, Michigan, Washington, Arizona and Georgia are among the US States having a significant presence of majority India-owned US companies.
Experience In USA
Take the case of Mumbai-based Daxter Tools, the manufacturers of automotive and industrial injection moulds and a recent entrant into the USA. In 2017, the Daxtor Tools had expanded its Mumbai facility by bringing in the latest German and Japanese technology machines. “With these Hi-Tech machines, our capacity and speed were increased by nearly 40 per cent. That’s the point we felt like we should have a sales office followed by a new plant in the USA,” says Dax Vyas, the founder and CEO of Daxter Tools. “The US market is almost 2.5 times bigger than the Indian automobile market,” adds Vyas. The company will soon open a manufacturing plant in the US.
Sharing the experience of being part of the SelectUSA 2018 Summit, Vyas recalls how his team had nearly 15-meetings and gained confidence. “We are sincerely thankful to US Department of Commerce and the entire SelectUSA team for helping us to connect with the key officials and giving us an opportunity,” Vyas adds. “And during SelectUSA 2019 we were pretty confident that we should have a sales office in America followed by a manufacturing plant,” he says. The company is now looking forward to commencing actual manufacturing and production from 2021 in the US.
Joshi of SCL terms the SelectUSA as a one-stop-venue for ‘matchmaking’. “It offers a boutique of assistance at both the state and federal level. The summit also offers an organized network of site selection consultants. Overall, it is a pro-business and investor-friendly climate throughout the engagement,” adds Joshi.
But there are challenges too that one should keep in mind, Joshi advises. “Some of the challenges may include the availability of ready sites for one’s unique requirement. Then finding the right technical and managerial skills around the plant could also be a challenge. Then, there can be challenges in the free-movement of company employees flying into the US from India to support the initial project of setting up a plant or an office,” Joshi says.
Sehgal of Motherson Sumi terms investing in the US as “smooth” with the ease of processes facilitated by the state governing bodies and supported by federal systems. “Initiatives like SelectUSA helped us on ease of doing business. It provided the interface with the key stakeholders,” says Sehgal thanking the US government for strengthening local manufacturing and helping provide a seamless process for investors like SMG. But there were challenges too. “While ramping up the facility in Alabama we faced challenges pertaining to availability of skilled manpower resources given the increased presence of manufacturing companies in the region and declining unemployment rate,” recalls Sehgal.
How Does Select USA Work?
“President Trump’s pro-growth policies have helped the US retain and expand its leadership in the global business environment. The Investment Advisory Council will help us further develop, adapt, and expand policies to help US and international firms recognize there is no better place to do business, grow, succeed, and create jobs,” US Secretary of Commerce, Wilbur Ross had said some months ago when talking about the success of SelectUSA.
What is SelectUSA? It is a US government programme to promote and facilitate business investment in the US. It works with companies and US economic development organisations to provide information, facilitate direct connections, and resolve questions regarding federal regulations. It also provides a promotional platform for the US state and local governments.
The 2019 SelectUSA Investment Summit saw thousands of people from all over the world converge at the Washington Hilton in Washington, DC to turn business potential into a business opportunity. More than 3,100 people attended the summit. These included 1,200 global business representatives from a record 79 international markets and over 700 economic development professionals and service providers from 49 states and territories.
In 2020, the SelectUSA Investment Summit will once again return to the Washington Hilton. It will take place on June 1-3, 2020. It will build on the success of this year’s event, including a return of the SelectUSA Tech programme, Industry Row, and the dynamic mobile networking app.
With more developed countries seeking out and inviting Indian companies to invest and set up base in their backyard, especially at a time when domestic companies have virtually stopped making any local investments in India, should the government be worried or happy?