German Companies Eye Moving Production Back Home

Tag : production companies

The flight of German businesses has long been a favorite topicamong hosts of the country's political talk shows. Experts andpoliticians keep pointing out that high labor costs and tax burdensforce companies to relocate abroad. Asia attracts entrepreneurs whoplan ahead, and China's the big market of the future, they say.

That's why many eyebrows were raised in Germany this week whentoymaker Steiff announced that it will be shutting down productionin China by 2009. The German Engineers' Association (VdI) followedsuit by announcing that Steiff was not the exception. According toa study commissioned by VdI, almost one in five companies thatrelocated production abroad returns to Germany after a few years. While every 11th company still moves production to other countries,it's a receding trend, according to VdI officials. "The numbers show that the 'made in Germany' label continues to bea quality seal," Bruno O. Braun, VdI's president, said in astatement.

It's a view that's not shared by Volker Treier, the chief economistof the Association of German Chambers of Industry and Commerce(DIHK), who said that the VdI numbers were "clearly too high."Treier added that there have always been companies that havereturned production to Germany. The number has remained relativelysteady over the last few years.

Treier bases his view on an annual DIHK survey among 8,000companies.

"There's still a strong trend to invest abroad -- which shouldn'tbe confused with moving production abroad," he said, adding that athird of those companies surveyed still see China as a primemarket.

Saying that an increasing number of companies is leaving China iswrong, Treier said.

While companies indicated that the need to move production abroaddeclined between 2003 and 2007, the rise of the euro has again madeproduction facilities abroad more attractive for those firms thatwant to sell their goods in dollars, Treier said. He added that shutting down production abroad was a short-sightedreaction on the part of some firms.

"Start-up periods, the need for local networks or costs forsupervision and quality controls are often ignored," Treier said.

He added that some companies are also unpleasantly surprised by thelack of skilled workers at a foreign location. Product safety isespecially a concern for companies in China and a reason to leavethe market again, Treier said.

This seems to have been the case with toymaker Steiff, whereofficials cited a lack of quality and long transportation routes asthe main reason for returning to Germany. They also said thatemployees would quickly change jobs if they found work elsewherethat was paid slightly better.

Rising energy costs could also become a reason for companies toreturn home in the future. While computer and car producers arecurrently still getting parts where they are cheapest and ship, flyor truck them to where they need them for assembly, transportationcosts may end up playing a bigger role in the equation in thefuture.