As Indian businesses chart their paths in an increasingly complex global environment, the recent imposition of new tariffs by the United States has prompted a reevaluation of investment strategies. With the aim of maintaining competitiveness, many Indian firms are exploring cross-border acquisitions, establishing manufacturing hubs in low-tariff nations such as the UAE and Mexico, and ramping up their presence in the US market, The Times of India reported on August 21.
The strategic decision for these companies now hinges on a fundamental question: should they build, or should they buy? These two stark choices -- none less difficult than the other -- now stare at the Indian companies that seek to Make outside India in order to alleviate Trump's tariff blow.
Setting up a new manufacturing facility can be a lengthy and unpredictable process, fraught with various challenges. Conversely, acquiring an existing facility offers a more immediate solution, yet it carries its own set of potential pitfalls, including pre-existing liabilities, outdated equipment and workforce issues.
As Indian companies navigate this new terrain marked by rising tariffs and shifting global dynamics, these strategic choices will have a major bearing on their future trajectories.
Indian firms will need to weigh these factors carefully, ToI's report (by Reeba Zachariah) said quoting Prem Rajani, managing partner at Rajani Associates.
According to Rajani, any decision to establish a manufacturing site overseas will likely be driven by the necessity to serve the US market, particularly given the shifting tariff landscape.
For instance, Pearl Global, India's largest listed garment exporter, is already adjusting its production strategy to cater to US demand. The company is relocating some of its output from India to other countries with lower tariffs, including Bangladesh, Vietnam and Guatemala.
Similarly, Titan, known for its Tanishq jewellery brand, is considering moving parts of its manufacturing operations to a Gulf Cooperation Council (GCC) nation to retain low-tariff access to the US. The company recently took a significant step by acquiring a majority stake in Damas, enhancing its retail footprint in the GCC.
The implications of relocating production are significant. The UAE, for example, has a baseline tax of 10% on imports to the US, whereas India faces a staggering 50% tariff, making it the most heavily taxed trading partner in Asia.
This stark contrast underscores the urgency for companies to adapt their operational frameworks to mitigate financial impacts.
However, the transition to new production locales is not merely a logistical change; it requires a comprehensive reassessment of various regulatory and tax considerations.
Binoy Parikh, a partner at Katalyst Advisors, told ToI that cross-border adjustments introduce complex international tax issues, alongside potential scrutiny regarding profit allocation across different operations. Firms that view this as a chance for long-term restructuring are likely to foster stable access to vital markets.
Welspun Corp, a pipe manufacturer, is actively expanding its facility in Arkansas with a $100 million investment, positioning itself advantageously against the backdrop of US tariffs. According to Welspun Corp's Managing Director, Vipul Mathur, while tariffs may be a hurdle for many, they have inadvertently created opportunities for his company.
Other sectors are also seizing the moment. For instance, pharmaceutical, electronics, energy products, and critical minerals sectors remain exempt from import tariffs, facilitating increased investments in the US.
Aimtron Electronics is eyeing the acquisition of a mid-sized North American company to enhance its capabilities and better serve its customer base; the company already operates a facility in Palatine, Illinois.
Meanwhile, Piramal Pharma is set to invest $90 million to expand its operations in two US locations, underscoring the region's significance as its largest market.
The strategic decision for these companies now hinges on a fundamental question: should they build, or should they buy? These two stark choices -- none less difficult than the other -- now stare at the Indian companies that seek to Make outside India in order to alleviate Trump's tariff blow.
Setting up a new manufacturing facility can be a lengthy and unpredictable process, fraught with various challenges. Conversely, acquiring an existing facility offers a more immediate solution, yet it carries its own set of potential pitfalls, including pre-existing liabilities, outdated equipment and workforce issues.
As Indian companies navigate this new terrain marked by rising tariffs and shifting global dynamics, these strategic choices will have a major bearing on their future trajectories.
Indian firms will need to weigh these factors carefully, ToI's report (by Reeba Zachariah) said quoting Prem Rajani, managing partner at Rajani Associates.
According to Rajani, any decision to establish a manufacturing site overseas will likely be driven by the necessity to serve the US market, particularly given the shifting tariff landscape.
For instance, Pearl Global, India's largest listed garment exporter, is already adjusting its production strategy to cater to US demand. The company is relocating some of its output from India to other countries with lower tariffs, including Bangladesh, Vietnam and Guatemala.
Similarly, Titan, known for its Tanishq jewellery brand, is considering moving parts of its manufacturing operations to a Gulf Cooperation Council (GCC) nation to retain low-tariff access to the US. The company recently took a significant step by acquiring a majority stake in Damas, enhancing its retail footprint in the GCC.
The implications of relocating production are significant. The UAE, for example, has a baseline tax of 10% on imports to the US, whereas India faces a staggering 50% tariff, making it the most heavily taxed trading partner in Asia.
This stark contrast underscores the urgency for companies to adapt their operational frameworks to mitigate financial impacts.
However, the transition to new production locales is not merely a logistical change; it requires a comprehensive reassessment of various regulatory and tax considerations.
Binoy Parikh, a partner at Katalyst Advisors, told ToI that cross-border adjustments introduce complex international tax issues, alongside potential scrutiny regarding profit allocation across different operations. Firms that view this as a chance for long-term restructuring are likely to foster stable access to vital markets.
Welspun Corp, a pipe manufacturer, is actively expanding its facility in Arkansas with a $100 million investment, positioning itself advantageously against the backdrop of US tariffs. According to Welspun Corp's Managing Director, Vipul Mathur, while tariffs may be a hurdle for many, they have inadvertently created opportunities for his company.
Other sectors are also seizing the moment. For instance, pharmaceutical, electronics, energy products, and critical minerals sectors remain exempt from import tariffs, facilitating increased investments in the US.
Aimtron Electronics is eyeing the acquisition of a mid-sized North American company to enhance its capabilities and better serve its customer base; the company already operates a facility in Palatine, Illinois.
Meanwhile, Piramal Pharma is set to invest $90 million to expand its operations in two US locations, underscoring the region's significance as its largest market.
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