News / SMEs in Germany see India as the new focus for supply chain reorientation

German SMEs are increasingly turning their attention on India as they look to reorient their supply chains – but suggestions that this forms part of a move away from China may be misplaced.

DZ Bank’s Medium-sized businesses, regional new orientation after crises: India overtaking China and the USA report notes that in the past 18 months, India has overtaken every region, apart from Europe, when it comes to supply chain realignment among German firms.

“This is certainly a result of India’s economic success in recent years, with its economy up 7.7% in 2023,” says the report.

“This growth momentum is unlikely to slow down in the next two years, but India is also benefiting as a consequence of the restructuring of global supply chains following the delivery disruptions we saw in 2021 and 2022.”

The report notes automotive, food and mechanical engineering as sectors drawn to India, with general interest by SMEs hovering around 25%, up from 15% in 2022.

However, while the focus on India may have been linked to a desire to avoid the pitfalls of the pandemic, the report seems to suggest that despite these industries having been particularly hard hit by delays, they are not switching off from China.

Where DZ’s 2022 report found 15% wanting to decouple from China, that figure has dropped to 10%, with 17% even wanting to expand their China footprint, up from 14.9%.

“This means that many medium-sized companies are again neglecting the considerable risk of too-close trade relations with China, which cannot be dismissed, given the experiences they faced with interrupted supply chains,” the report says.

“High margins and the extremely diverse offering from China – from raw materials to finished products for all industries – seem to be too tempting.”

Indeed, where China seems to be gaining interest among German SMEs, its western rival appears to be losing traction: the report suggesting 9% of German businesses are toying with the prospect of withdrawing from the US.