GERMANY: German firms look abroad to escape cost base.

GERMANY: German firms look abroad to escape cost base. - Industrialists once groused but invested at home. Not any more. By Peter Wilsher.

Last Updated: 31 Aug 2010

Industrialists once groused but invested at home. Not any more. By Peter Wilsher.

Jurgen Strube, the chairman of BASF, was musing recently on the reasons which had led his company, one of the big three German chemical producers, to locate its latest £520-million plant, with the several thousand jobs it represents, in Antwerp rather than somewhere in the newly-unified Federal Republic. He was worried of course, he said, by all the factors which concern his fellow industrialists in the most powerful of the EC member states: its high wage bills, its generous (and expensive) social benefits, its short working hours, its long holidays, and its taxes on corporate profit which remain a clear 50% above those inflicted on competitors in France, Japan, the US and the UK. But now there is an additional threat: the cost of meeting the ever tougher rules that the Berlin government keeps devising to clean up the country's air and water and regulate its overflowing rubbish tips. It was this that finally tipped BASF over the edge. As Strube ruefully, but realistically remarked: "I cannot accept it as probable that our regular customers will continue to ignore price differences just so that they can buy production from our environmentally-sound German plants."

Similar reflections are coming out of a lot of Munich, Stuttgart and Dusseldorf boardrooms these days. The top men in Standort Deutschland (the local equivalent of Great Britain Ltd) have always groused a good deal about the size of the local cost-base, but in the end have usually invested the bulk of their money at home. But now that philosophy is eroding quite seriously, as more and more finance directors and chief executives start to vote with their cheque books and their strategic expansion plans.

BMW, for example, which has rarely strayed far from its Bavarian homeland, now freely admits that the 553,230 cars it produced last year pushed domestic capacity to its limits. The figures were only achievable by lavish resort to overtime and extra Saturday shifts, and could probably not be repeated - especially if the engineering unions get anywhere near their current target of a 9.5% pay rise and a 35-hour week. As a result, the management is looking seriously for the first time at a major move overseas, to some relatively "low-cost" area - like the US.

Edzard Reuter, the chairman of Daimler-Benz, told a Frankfurt audience earlier this spring that "the overwhelming majority of German business leaders are thinking seriously about whether impending investments wouldn't be more sensibly placed abroad". His own company no longer expects to build any significant new plants inside the German frontiers, and is having second thoughts about the already half-completed car-assembly line at Rastell, which is due to open later this year. It is currently looking much further afield, to locations like Russia and Mexico, for expansion prospects.

Robert Bosch, with its highly-regarded automobile accessories, showed the way last year when it pruned 500 jobs inside Germany as a preliminary to moving its production of car-stereo speakers to Malaysia. Since then cassette-player components have gone to Mexico, petrol gauges to Mexico and Turkey, and generators to Wales. Volkswagen has announced that more than half of the £20 billion it intends to invest between now and 1995 will go to Portugal, Spain, Mexico, Czechoslovakia and even China. Siemens is sending a growing number of its basic operations to East Europe and Turkey (where labour costs are barely one-tenth of those in the Ruhr) and the big chemical firms are even beginning to export their fundamental research.

These are far from isolated instances. The big German research institute, IFO, reports not only that more than a quarter of German companies have shed substantial amounts of labour over the past three years, but that one in three has either already shifted some output abroad, or is actively planning to do so. For both capital goods producers, and for the bigger firms employing more than 500 people, the figures are substantially greater, in some sectors getting close to 50%.

The underlying situation is far from critical but it is already serious enough to merit a stern warning from Helmut Kohl. In his first big speech this year the Chancellor roundly castigated anyone tempted to make light of the cumulative problems forcing BASF and its like, to seek their fortunes elsewhere. Their candid recognition and effective resolution, he said, would be absolutely central to "our future as a leading and competitive industrial country".

Peter Wilsher is a freelance consultant and writer.

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