Mahindra USA, a subsidiary of $22-billion-a-year Mahindra & Mahindra based in India, is launching its hybrid diesel trucks and a SUV in the United States in 2009. The company expects to set up three assembly plants in the United States, one of which is already being planned in Ohio. Mind you, Mahindra is not a unique case – literally hundreds of Indian companies are going on a buying spree in the US. Why? One, the rapid economic growth in India has loaded these companies with cash they can invest to expand their global presence and two, the cheap dollar.
According to Amit Mitra, the secretary-general of Federation of Indian Chambers of Commerce (FICCI), Indian companies invested $45 billion worldwide in 2007 with the U.S. accounting for $10.25 billion. “India is investing twice as much in the US as the US does in India,” Mitra told a select gathering at Chicago’s InterContinental Hotel on February 19th.
India’s economic miracle! One could hardly imagine Indian companies making a mark in the global economy barely a decade ago. India’s economic miracle began in the early 1990’s when the government began opening up the economy to foreign investment and liberalized trade restrictions. Since then, India’s Gross Domestic product (GDP) has multiplied more than three times from $315 billion in 1990 to $984 billion in 2007 (IMF World Economic Outlook, current US dollar measures not adjusted to inflation). Since 1990, India’s economic growth has averaged 6.24 percent, while the US’s economic growth has averaged 2.96 percent (adjusted to inflation). Cheap US dollar! In January 2003, one US dollar could buy you 48 Indian Rupees (INR). In January 2008, it only bought INR 39.5. This means that US dollar has devalued about 18 percent against the Indian Rupee in the last five years. As a result, US investment has become 18 percent cheaper for Indian companies. Investing in the US gives India a competitive advantage. The returns that Indian companies enjoy here are far greater than elsewhere. No one knows whether the dollar is going to keep on going down. Indian companies are definitely seizing this window of opportunity and putting a foot down on the accelerator. What is in it for economic development agencies? One thing is for sure, there is plenty of opportunity. Is there any difference between attracting investment from Wichita, Kansas, or Mumbai, India? Probably not. In a global economy, the origin of investment is irrelevant. Economic development agencies responsible for attracting businesses to their area to create jobs, expand their economic pie and increase the tax base of their community have a wonderful opportunity to tap into this new global economic phenomenon.
Whittaker Associates is currently studying Indian companies to better understand their investment decision-making process. Soon we will be able to predict what industries or areas will likely be a target for Indian companies. We are establishing relationships with these Indian companies to help them find communities with the right infrastructure and talent pool to serve their needs. For more information, contact Vidhan Rana at vidhan.rana@whittakerassociates.com.