The fanatical crusade against Moscow by EU bureaucrats, closely allied with the United States and directed from Washington, has resulted in the collective impoverishment and economic degradation of Europe.
To sum up the current misery in Europe:
- Record inflation has eroded people’s savings and purchasing power.
- Energy commodities have been scarce, which could make life difficult during harsh winters.
- The average annual bill for heating and electricity now exceeds the monthly salary of workers in most EU countries.
- Production stops, unemployment increases and industries leave Europe.
Faced with exorbitant natural gas prices, energy-dependent industries in Europe, such as chemicals, automotive, cement and many other industries, have faced similar problems. In this desperate situation, European manufacturers are actively exploring options to relocate their production elsewhere. Thus inventing the opportunity for other countries under the name of “Europe Plus One”.
India’s low energy consumption, low labor costs and increased ease of doing business make it a suitable alternative for some European companies to relocate production.
Case Study: The Struggles of a German Company
To demonstrate the magnitude of the ongoing problem, consider Germany.
The world’s largest chemical company, Germany’s BASF, relies heavily on gas as an energy source and raw material. Every year it consumes about as much as the whole of Switzerland.
actively involved in ensuring that a significant portion of this gas is imported from Russia at affordable prices.
Chemicals produced by BASF are used to make everything from toothpaste to vitamins, building insulation, painkillers to diapers.
This will have disastrous repercussions for the entire European continent and trigger a new global supply chain crisis.
Indian sectors that can benefit :
Energy-intensive and export-dependent industries in Europe would be hardest hit during the energy crisis which is expected to worsen in the coming months.
A prolonged crisis (high gas prices) would force European companies to collaborate (technology transfer) or move energy-intensive industries out of Europe or outsource until the situation stabilizes.
Producers of castings, steel components, forgings and machined components are all energy-intensive industries likely to relocate outside of Europe.
Indian chemical companies involved in commodity chemicals such as ammonia, ethylene and propylene from crude oil refining companies could also benefit in the medium to long term.
Indian Industry Commentary: Real or Hype?
In recent months, the leaders of many Indian companies have become aware of recent developments in Europe. We’ve collected their views below and have also included an in-depth discussion on the subject by
one of the leading manufacturers of precision bearings and metal components.
- Schaeffler India Concall Q2CY22
Moving from the EU to India :
Schaefler has put in place a strategy for the future, in which some of the products produced in Europe would be transferred to India. Accordingly, appropriate restructuring is underway within the parent company (Europe).
Management believes that the Indian company would be exposed to more export opportunities due to the energy crisis in the EU.
As a result, strong demand is expected for its exported goods as, unlike the EU, India is not currently experiencing an energy crisis.
India’s Cost Competitiveness and Benefits?
India offers a degree of cost competitiveness based on the product profile and current proficiency to produce various items.
Axles, ball bearings and stacked bearings are among the goods for which India is the most affordable location in terms of global cost competitiveness. Increase Schaeffler India’s chances of becoming one of the world’s hubs for standard and midsize bearings.
Although India is not the only country in this lowest cost basket, management says that for certain product lines, India has an advantage over other lowest cost countries such as Vietnam.
Moreover, these factories in India have 2-3 years of production experience and don’t have the problem of rising costs like Europeans.
Future roadmap for India?
According to management, India currently has the intellectual foundation for new product development, and Schaeffler India may eventually offer products for the rest of the world under the Schaeffler World brand.
Total Capex dedicated to India Business
It would invest about INR 1,000 crore in capex over three years, from 2021 to 2024. 200 crore was spent in CY21, 400 crore is expected to be spent this year and 400 crore will be spent in CY2023.
Schaeffler India Q1 CY22:
India has expertise for a particular range of products within the Schaeffler group as a whole. Therefore, these products are localized. Although these products are also produced in other parts of the world, they are outsourced to India due to this skill.
However, management highlighted a similar trend underway for other country-specific products. Denying that not all products would be localized in India, to achieve overall cost and skill efficiency, the group locates manufacturing in different countries respectively. That’s why Schaeffler has targeted various relocations across the Schaeffler world.
The management of several major Indian multinationals have commented on the real opportunity that could arise from the European crisis, as shown in the infographic below.
Two Sides of One Coin – The Antithesis (against India)
The oil crisis of the 1970s previously demonstrated Europe’s vulnerability to the importation of fossil fuels from outside the continent.
Given the disastrous effects of the energy crisis of the 1970s on European economies dependent on energy imports, the United States chose this path to then break its main economic rival, Europe.
Once again, sharp fluctuations in energy prices and persistent problems in supply chains threaten to usher in an era of European deindustrialisation. While European industrialists are actively exploring relocation options, they are mainly attracted to countries that are not dependent on energy imports, more stable energy prices and strong government support.
In order to attract European industries, it is the United States which has recently become increasingly active in attracting European industries to its territory.
According
The Wall Street Journal,
- The managing director of an Amsterdam-based chemical company, OCI NV, already announced in September “the expansion of the plant” to produce ammonia in Texas.
- Danish jewelry company Pandora and German automaker Volkswagen have also announced “expansions” in the United States, while
- Tesla is suspending plans to produce batteries in Germany and expand into the United States itself, using the Cut Inflation Act signed into law by President Biden in August.
- Many other European industrialists from various EU countries have similar intentions.
According to analysts and investors, countries other than the United States are also interested in attracting European production. In particular, energy-rich countries in the Middle East, as well as countries in Asia, Africa and Latin America, which still have cheap labour, are already showing interest.
When and how the war would end, no one knows. One thing seems certain: European industry is fragile and its loss would be someone else’s gain.
(The author is co-founder, StockEdge)
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
The fanatical crusade against Moscow by EU bureaucrats, closely allied with the United States and directed from Washington, has resulted in the collective impoverishment and economic degradation of Europe.
To sum up the current misery in Europe:
- Record inflation has eroded people’s savings and purchasing power.
- Energy commodities have been scarce, which could make life difficult during harsh winters.
- The average annual bill for heating and electricity now exceeds the monthly salary of workers in most EU countries.
- Production stops, unemployment increases and industries leave Europe.
Faced with exorbitant natural gas prices, energy-dependent industries in Europe, such as chemicals, automotive, cement and many other industries, have faced similar problems. In this desperate situation, European manufacturers are actively exploring options to relocate their production elsewhere. Thus inventing the opportunity for other countries under the name of “Europe Plus One”.
India’s low energy consumption, low labor costs and increased ease of doing business make it a suitable alternative for some European companies to relocate production.
Case Study: The Struggles of a German Company
To demonstrate the magnitude of the ongoing problem, consider Germany.
The world’s largest chemical company, Germany’s BASF, relies heavily on gas as an energy source and raw material. Every year it consumes about as much as the whole of Switzerland.
actively involved in ensuring that a significant portion of this gas is imported from Russia at affordable prices.
Chemicals produced by BASF are used to make everything from toothpaste to vitamins, building insulation, painkillers to diapers.
This will have disastrous repercussions for the entire European continent and trigger a new global supply chain crisis.
Indian sectors that can benefit :
Energy-intensive and export-dependent industries in Europe would be hardest hit during the energy crisis which is expected to worsen in the coming months.
A prolonged crisis (high gas prices) would force European companies to collaborate (technology transfer) or move energy-intensive industries out of Europe or outsource until the situation stabilizes.
Producers of castings, steel components, forgings and machined components are all energy-intensive industries likely to relocate outside of Europe.
Indian chemical companies involved in commodity chemicals such as ammonia, ethylene and propylene from crude oil refining companies could also benefit in the medium to long term.
Indian Industry Commentary: Real or Hype?
In recent months, the leaders of many Indian companies have become aware of recent developments in Europe. We’ve collected their views below and have also included an in-depth discussion on the subject by
one of the leading manufacturers of precision bearings and metal components.
- Schaeffler India Concall Q2CY22
Moving from the EU to India :
Schaefler has put in place a strategy for the future, in which some of the products produced in Europe would be transferred to India. Accordingly, appropriate restructuring is underway within the parent company (Europe).
Management believes that the Indian company would be exposed to more export opportunities due to the energy crisis in the EU.
As a result, strong demand is expected for its exported goods as, unlike the EU, India is not currently experiencing an energy crisis.
India’s Cost Competitiveness and Benefits?
India offers a degree of cost competitiveness based on the product profile and current proficiency to produce various items.
Axles, ball bearings and stacked bearings are among the goods for which India is the most affordable location in terms of global cost competitiveness. Increase Schaeffler India’s chances of becoming one of the world’s hubs for standard and midsize bearings.
Although India is not the only country in this lowest cost basket, management says that for certain product lines, India has an advantage over other lowest cost countries such as Vietnam.
Moreover, these factories in India have 2-3 years of production experience and don’t have the problem of rising costs like Europeans.
Future roadmap for India?
According to management, India currently has the intellectual foundation for new product development, and Schaeffler India may eventually offer products for the rest of the world under the Schaeffler World brand.
Total Capex dedicated to India Business
It would invest about INR 1,000 crore in capex over three years, from 2021 to 2024. 200 crore was spent in CY21, 400 crore is expected to be spent this year and 400 crore will be spent in CY2023.
Schaeffler India Q1 CY22:
India has expertise for a particular range of products within the Schaeffler group as a whole. Therefore, these products are localized. Although these products are also produced in other parts of the world, they are outsourced to India due to this skill.
However, management highlighted a similar trend underway for other country-specific products. Denying that not all products would be localized in India, to achieve overall cost and skill efficiency, the group locates manufacturing in different countries respectively. That’s why Schaeffler has targeted various relocations across the Schaeffler world.
The management of several major Indian multinationals have commented on the real opportunity that could arise from the European crisis, as shown in the infographic below.
Two Sides of One Coin – The Antithesis (against India)
The oil crisis of the 1970s previously demonstrated Europe’s vulnerability to the importation of fossil fuels from outside the continent.
Given the disastrous effects of the energy crisis of the 1970s on European economies dependent on energy imports, the United States chose this path to then break its main economic rival, Europe.
Once again, sharp fluctuations in energy prices and persistent problems in supply chains threaten to usher in an era of European deindustrialisation. While European industrialists are actively exploring relocation options, they are mainly attracted to countries that are not dependent on energy imports, more stable energy prices and strong government support.
In order to attract European industries, it is the United States which has recently become increasingly active in attracting European industries to its territory.
According
The Wall Street Journal,
- The managing director of an Amsterdam-based chemical company, OCI NV, already announced in September “the expansion of the plant” to produce ammonia in Texas.
- Danish jewelry company Pandora and German automaker Volkswagen have also announced “expansions” in the United States, while
- Tesla is suspending plans to produce batteries in Germany and expand into the United States itself, using the Cut Inflation Act signed into law by President Biden in August.
- Many other European industrialists from various EU countries have similar intentions.
According to analysts and investors, countries other than the United States are also interested in attracting European production. In particular, energy-rich countries in the Middle East, as well as countries in Asia, Africa and Latin America, which still have cheap labour, are already showing interest.
When and how the war would end, no one knows. One thing seems certain: European industry is fragile and its loss would be someone else’s gain.
(The author is co-founder, StockEdge)
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)