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Lack of `reliable' partners holds back foreign investment in ceramic industry

Badal Sanyal

Kolkata , April 15

THOUGH India has become a focused investment destination for European ceramics technology suppliers, they still find it difficult to come forward with specific investment plans owing to lack of serious and reliable local partners. This was highlighted at the recently concluded 3rd CERAMITEC - Round Table Talks held in Munich.

Specialists from different European countries such as Spain, the UK, Germany and the Netherlands, who participated in the talks, had observed that doing business in India without a local partner was more difficult than in China, and finding the right partner was still a major hurdle. Moreover, training of personnel also is a tough task.

Mr Rajesh Nath, Director ( in-charge of India affairs) of the German Engineering Federation (FDMA), said that one full day of the 3rd Ceramitec was devoted to India's market potential in this sector and the scope of European companies operating in the Indian market which was about Euro 1,070 million in 2003-04.

He said the specialists felt that the ceramics industry could gain through the construction boom in India, and the average growth rate of the ceramics sector at present stands at 12 per cent. A growth rate of 15 per cent is expected within a few years. Of the total sales of Euro 1,070 million, about Euro 775 million was contributed by tiles, Euro 130 million by sanitaryware, Euro 115 million tableware, Euro 35 million technical ceramics and about Euro 15 million by the heavy clay industry.

It was observed that the cost of production in India is 25-30 per cent lower compared with the US and Europe, mainly owing to labour costs. However, they identified weaknesses such as non-availability of standard raw materials with uniform properties, manpower with low technical skills and limited facilities for technical skills and for technical education in ceramics. This apart, Indian ceramics industry is highly fragmented with very few large players and a big number of SMEs face problems of poor economies of scale.

In spite of the odds, many European players in the ceramic sector have invested in India in recent years and plan to continue doing so. Mr Nath said European companies felt that the time of market entry could be interesting as import duties have decreased markedly and this trend is expected to continue.

The specialists have advised investors to begin on a small scale through joint ventures which may be controlled by local management with due importance to interpersonal relationships. The dependence of the subsidiaries on headquarters will, however, be gradually reduced. The message that comes across from the 3rd Ceramitec is that "doing business successfully in India takes time, but once a relationship is established, it pays off."

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