The Narendra Modi government's focus on the growth of Indian defence sector seems to have had an impact on the global aerospace and defence (A&D) industry as more number of companies are looking at the country, along with China, as a low-cost manufacturing destination and a high potential market.
Global consultancy firm KPMG International's latest survey report 'Global Aerospace and Defense Outlook: The dawn of a new day' points out that the future investment strategies of A&D sector are driven primarily by their desire to move closer to customers and to gain access to new markets.
"The evolution of China and India from low-cost destinations to thriving markets in their own rights has had a significant impact on overall investment flows. Capital from North America and Europe is moving to the emerging markets while, at the same time, capital from the emerging markets is moving to lower-cost destinations," notes Doug Gates, KPMG International Global Chair, Industrial Manufacturing and Global Lead, A&D . "Over the coming years, we expect to see significant interest in western assets, as emerging suppliers in China and India look to acquire and integrate the production systems, quality systems, processes and capabilities required to build to western standards."
According to KPMG, close to two-thirds of the senior executives who participated in the survey say they are confident or very confident about their companies' growth prospects over the next two years. Similarly, 66 per cent of KPMG's US-based respondents said they will invest into India. "Aircraft OEMs and major defence contractors seem particularly upbeat about their growth strategy with 100 per cent of the respondents from larger organisations (those with global annual revenues of more than $10 billion) feeling optimistic about their growth prospects," states KPMG report.
"Given the pro-reform approach of the Indian government and recent changes in policies related to defence procurement and FDI, India is the place to be. The large orders placed by leading commercial carriers will lead to increased pressure by the Indian government on global OEMs to enhance their manufacturing and sourcing footprint in India, a la China. KPMG's Global A&D Outlook provides key insights about the risks to watch out for and the likely mitigation tools," Amber Dubey, Head of Aerospace & Defence at KPMG in India said.
According to the survey of 76 senior A&D executives from around the world, 41 per cent believe that growth will be an extremely high priority over the next two years. This is up from just 13 per cent last year.
KPMG's 2016 Aerospace and Defense Outlook is based on a survey of 76 senior A&D executives conducted in early 2016 by Forbes Insights. Around half of the respondents are based in Europe and 21 per cent are based in the Americas. Almost one-third of the respondents represent companies with annual global revenues of more than $5 billion and 8 per cent represent organisations with revenues of more than $25 billion.