The European Union has been one of India’s biggest trading partners. Investors and small and medium enterprises from the EU have proved loyal partners for companies over many decades. Market entry and expansion between the regions, however, has been hit recently. First, the ongoing covid-19 crisis has curtailed travel and, second, Brexit has blocked the most important point of entry into the EU.
Partnerships and investments between the EU and India have resulted from the goodwill and faith both sides have built over the years. However, uncertainty affecting both economies, and restricted meetings in person, have meant that even sectors that were booming and attracting substantial investments two years ago no longer attract the same level of interest. Investors and technology partners are staying on the sidelines rather than taking risks.
Current market conditions have made conservative European companies more defensive, given the distances, the lack of travel and the covid-19-induced breakdown of commercial cycles. Immense potential is in the market, but the onus of acting now, not later, is on Indian companies rather than their European counterparts.
Traditional business development between the EU and India has stalled, but other opportunities are opening up. In the words of Edward de Bono, “Most … mistakes in thinking are inadequacies of perception rather than mistakes of logic”. Setting up a local base in the EU is a sound business strategy for companies looking for technology tie-ups, partnerships and joint ventures, as well as access to capital. Japanese, then Chinese, South Korean and Turkish companies have achieved success and reaped dividends by establishing local presences in their target markets.
Compared to other countries, the progressive export and international networks available to local companies in Austria are powerful incentives to incorporate and invest there. Good relations with other members of the EU, excellent treaty ties with the rest of the world and a favourable tax regime, make Austria an attractive entry point to the large and rewarding EU market for Indian companies. After Brexit, the UK, while still attractive no longer offers the market access and tax efficiency that it did when it was part of the EU. Austria’s excellent corporate governance track record, deep capital markets, high per capita income and status as the 13th largest GDP in the world allow it to combine the benefits of a developed market with the costs and operational expectations to which Indian companies are accustomed.
Incorporating a company in Austria takes just 15 to 20 days, if documentation is in order. Annual compliance is limited to publishing balance sheets at the companies house, after filing monthly and quarterly reports with the tax authorities. The country offers support for technology companies, with well-developed clusters in clean tech, biotech and IT. Many technology clusters are found in cities such as Graz, states such as Styria and in the Silicon Alps These areas readily offer grants and soft loans for startups. If the perspective were to change from European companies being willing to invest in India to it being easier for Indian-owned EU companies to raise funds, businesses could open the floodgates of investment into India.
The process is simple; Indian entrants set up companies in Austria and are then eligible to raise funds in the EU for the EU as well as for emerging markets. The Austria Wirtschaftsservice Gesellschaft mbH or AWS is the promotional bank of the Austrian federal government and supports these investments. It facilitates investments to set up and modernise companies, to grow and innovate through soft loans with fixed interest rates, and flexible loan terms and grace periods. The Austrian Control Bank supports the export of goods, as well as the purchase of shares of companies in India and the raising of venture capital. This helps with the shift of the benefit of debt and equity raising to India.
Indian companies should consider moving closer to EU companies to nurture business growth and investment possibilities through setting up local EU businesses that generate confidence and business opportunities. This leads to growth possibilities for both regions.
Gautam Khurana is the managing partner at India Law Offices and Markus Leitner is a partner at Austria-based firm Leitner & Hirth
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