Germany's Allure Wanes for Companies: A Trend to Note
The Unattractiveness Factor
Germany's industrial appeal is slipping, as companies increasingly favor other locations. According to a Deloitte survey, over two-thirds of firms have initiated partial relocation of their value chain abroad. Particularly in the mechanical engineering and automotive sectors, this trend is accelerating, with a substantial number of decision-makers anticipating further decline in Germany's attractiveness as a business hub.
The Steep Descent
An unfortunate 45% of the surveyed companies expect Germany to lag more behind other industrial locations, with an ominous 65% in the mechanical engineering and automotive sectors believing the same. Nearly two-thirds anticipate a significant loss of appeal, while one-third envisions a milder descent. Contrastingly, in sectors like chemicals, construction, and transport & logistics, a majority expect the location's appeal to remain stable, with about 20% envisioning an improvement.
Reaction to the Situation
Evidently affected by this shift, 67% of firms have already adjusted their value chains by relocating. The relocations, thus far, have predominantly targeted component production. Nonetheless, perceived advantages of other locations have propelled planned relocations to encompass high-value additions like pre-assembly and general production. Sectors that historically voided relocation considerations include procurement, associated services, research, and central corporate functions.
Investment Destinations
Lower energy costs (59%), reduced labor wages (53%), a prosperous market environment (51%), and less bureaucracy (50%) are significant motivators behind investing in alternate countries. Access to raw materials, competitive investment conditions, subsidies, quality workforce availability, and better logistics connections are pursued less avidly. The mechanical engineering and automotive sectors are particularly drawn to Asia and the US, while other sectors invest predominantly in other EU countries.
Overwhelmed by Subsidies
The majority of surveyed companies perceive Germany as a potential loser in the ongoing subsidy race with the US and China. Although 36% view additional investment in this sector as crucial, most companies, especially within the mechanical engineering and automotive industries, prioritize bureaucracy reduction, competitive energy pricing, investment in education, infrastructure, and digitalization instead of subsidies and incentives.
Overview
Germany's reputation as an industrial powerhouse is in jeopardy as companies gravitate towards locations offering lower energy costs, reduced labor wages, and less bureaucracy. While the mechanical engineering and automotive sectors account for a substantial portion of this exodus, other sectors like chemicals, construction, and transport & logistics continue to favor Germany as a preferred location for operation. The future of industry lies in adapting to changing conditions for continued success.
[Reference(s):www.ntv.de]
Insights from Enrichment
Germany's high energy costs, resulting from its climate-neutral economy transition, make it less competitive for energy-intensive industries. Bureaucracy, specifically the high expenses associated with documentation and certification processes, is another significant challenge. Companies also struggle with labor costs and the availability of skilled talent in Germany, causing an attrition in talent acquisition and retention. Additionally, the uncertainty surrounding climate policies and potential policy backtracking in Germany exacerbate the general investment climate. These factors collectively contribute to the decline in industrial production in Germany and the shift towards more attractive locations for investment.
Emerging European countries like Poland, Romania, and the Czech Republic are increasingly popular due to lower energy costs, less regulatory burden, and fiscal favorability. Other European countries, such as Spain and Sweden, have been targeted for energy-intensive process relocation. Countries like China, while not a ubiquitous investment destination for all industries, leverage the Large Scale Equipment Renewal Plan, favorable loans, and subsidies for modernizing industrial equipment, thereby attracting select industries.
These factors collectively contribute to the decline in industrial production in Germany and the shift towards more attractive locations for investment. With a more proactive focus on bureaucracy reduction and investment in education, infrastructure, and digitalization, Germany can maintain or even boost its attractiveness as an industrial location.
