Money from Germany
March 23, 2010
Recovering from its worst slump since World War Two, German industry plans to step up investments in international sales and distribution networks as well as production facilities in key foreign markets.
According to a new report by the German Chambers of Industry and Commerce (DIHK), 44 percent of the 9,000 companies surveyed said they intend to make investments in foreign countries, up from 40 percent last year. More than a third (37 percent) of the companies said they had plans to invest in China, up from 32 percent.
"Need to start investing again"
“After experiencing a drop in exports of as much as 80 percent in some cases, German industrial companies see signs of a recovery,” Volker Treier, chief economist at DIHK, told Deutsche Welle. “Many recognize a need to start investing again to maintain their presence abroad; they don't want to lose what they've built up.”
Financing is an issue, Treier conceded. He pointed to the reluctance of numerous banks stung by the global economic crisis to lend money to industrial companies - especially those planning investments in projects far away from Germany.
“This is definitely a problem but it is one where the banks, the government and other groups have been working together with industry to find solutions,” Treier said. “There are some measures underway to ensure the flow of credit.”
Today, 100 of Germany's largest publicly-listed companies generate more than two thirds of their sales outside the country. A sizable chunk of these sales still come from products that are “made in Germany” and sold in China.
German exports to China rose by 7 percent in 2009, the Federal Statistical Office reported Monday. The increase bucked the trend in a dismal year for Germany, where overall exports slumped by 18 percent. The exported goods were valued at 36.5 billion euros.
Building logistics networks and new factories
Cheap labor is no longer a key driver of foreign investments by German industry, according to the DIHK survey; only 28 percent of the polled companies cited low production costs as a reason for their investments abroad – and only 20 percent for their investments in China.
“That was the reason about five years ago but German manufacturers have since done much to increase productivity in their domestic operations,” economist Treier said. “The investments that are being made today or are planned in the near future are all about building up local sales and logistics networks and even new factories to take full advantage of huge emerging markets such as China, India and Brazil”
German car manufacturing, perhaps more than any other industry in the country, is racing ahead to win market share in these emerging markets. Volkswagen, for instance, is currently expanding its local production facilities in China and India as well as in the US.
“German carmakers really don't have an alternative,” said Thomas Kautzsch, a manufacturing consultant with the management consultancy Oliver Wyman in Munich.
Jobs in Germany will go
Martin Haubensak, a consultant with AT Kearny agrees. “VW tried to build everything in Wolfsburg and then ship everything around the globe,” he said. “Now they realize it makes more sense, from an economic and competitive perspective, to build regionally.”
Investments in new production facilities abroad, however, will come at the expense of jobs in Germany in the long term, experts agree.
“We are definitely going to see some adjustments,” said Ferdinand Dudenhoeffer, a professor at the University of Duisburg-Essen and an expert on the German car industry.
“German carmakers need to manufacturer cars abroad for a number of reasons, including low labor costs and import duties. The number of jobs in Germany will definitely go down.”
Dudenhoeffer expects Germany's auto industry to shed 50,000 of its current 700,000 jobs by 2015. “The future is in the new markets,” he said. “Production is already moving there.”
Author: John Blau
Editor: Sam Edmonds