Follow the Indians Wednesday, July 27, 2005
The Ruhr Area, Germany The German "Wirtschafswunder" after World War II was closely linked to the economic upswing of the Ruhr area in the West of the country. First the mining industry got back onto its feet, then more steam came from the mechanical engineering sector. In later years, "Made in Germany" became known around the world as a symbol for quality in engineering. Back in the early 1960s, almost 1.7 million people were employed by the Ruhr's mining and engineering industries. But, in the intervening decades, that's all changed. Today, less than 700,000 people remain in the Ruhr area's industrial sector. And, while unemployment was almost non-existent at the beginning of the 1960s--a mere 10,000 people were out of work--today the unemployment rate is over 10%. Millions are on the dole in Germany's most populous area. Once the center of Germany's economic steam engine, the Ruhr area now looks like an industrial museum. The German mining industry, and parts of its mechanical engineering sector, simply weren't in a position to keep up with global competition. Even the few remaining jobs in the mining industry would already be lost, if it weren't for the billions in subsidies that the German government is paying out to keep this industry afloat. Take the subsidies out of the equation, and it'd be cheaper to ship coal from South Africa to Germany than to lift the same coal from a depth of 1.5 kilometers in the Ruhr area. The crisis of the Ruhr area forced many companies to their knees, and countless formerly successful firms have vanished after declaring bankruptcy. But it's not all bad news in the Ruhr area. A number of companies did manage to adapt to changed circumstances, and some of these smarties are now more successful than ever. On a recent research trip through this region--in search of lucrative investments--a sign at the gate of a small factory in the tiny municipality of Ennepetal caught my attention. The company name--Bharat Forge CDP--struck me as oddly foreign, so I did a little research. "Bharat" originally comes from Sanskrit and means "India." How did an Indian company happen to set up shop somewhere between Wuppertal and Hagen, in the deepest provinces of Germany's former industrial heartland? In 2004, the Indian Bharat Forge Group took over a company formerly known as Carl Dan. Peddinghaus, a company with a history stretching back to 1839. Today the company supplies the automobile industry, with BMW, Volkswagen, Audi, DaimlerChrysler, VOLVO, Scania, and Ford among its customers. Last year, the new German subsidiary contributed about 20% to Bharat Forge's profit, and the prospect for further profit contributions in the future looked good. Seemingly, Bharat Forge bought the German firm to get a foothold in the German car supplier business. We've seen how German, British, and American firms have been forced to close because of cheaper competition from India and China. But there is another lesser-noted trend. Indian and Chinese firms have started to buy up know-how-intensive businesses in the West, to establish themselves in industries that their own employees still have trouble competing in. An Indian firm coming to Germany to make money--it's a unqiue situation! But Bharat has announced that it's on the lookout for more such opportunities. More German firms are likely to be taken over. This means an opportunity for smart investors to figure out in advance which listed German firms are potential take-over targets. You invest in these companies before they get "into play," and you cash out when an Indian or Chinese buyer makes you an offer. It's like a check from India or China delivered straight into your mailbox. This is what Profit Hunter is all about. In our premium service, we are constantly monitoring take-over situations such as these, and Germany is one of our special areas of expertise. If you're already one of our members, you'll hear more about the Ruhr area, the Indians, and those shares that could soar overnight thanks to a foreign bid. If you're not already a member, you can find out more here. Andreas Ettl
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Investment abroad: further resources
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