Business Week International International Business: GERMANY
GERMANS FINALLY HOP THE ORIENT EXPRESS (int'l edition)
In November, Siemens' executive board met in Singapore. In December, Hoechst Chief Executive Officer Jurgen Dormann brokered deals in Beijing. In January, Daimler Benz CEO Edzard Reuter scouted out new business in India, and on Jan. 11 the company announced $3.2 billion in Asian investments.
Corporate Germany is making its Asian move, looking for lower costs and growth (table). German executives and government officials are now determined to catch up with Japan and the U.S. in Asia. "If we don't," warns Lorenz Schomerus, director of foreign economic policy at the Economics Ministry, "we run the risk of being inward-looking and missing the chance to improve competitiveness."
Lowering costs is essential for German manufacturers, who pay out an average $28 per hour in wages and benefits to their local workers. Germany needs to lower taxes and deregulate labor markets, but managers wonder when the politicians will have the stomach to restructure. Meanwhile, Asia beckons. Labor in countries like China, Thailand, and Indonesia looks even cheaper than in Central Europe, where wages have been rising since German industry started setting up shop there.
German companies also want more market share in these booming economies. "Future growth in the chemical business is in Asia, not in Europe," says Manfred Schneider, CEO of Bayer Group. It's also one of the last frontiers for auto makers, which is why Mercedes-Benz moved into India, BMW moved into Vietnam, and Volkswagen is already a leading producer in China. Cities from Delhi to Jakarta need phone systems, power stations, and high-speed trains. China, with only two phone lines for every 100 people, plans to install 14 million digital public switches per year through 2000. "To survive as a global player, we need these markets," says Jurgen Oberg, Far East executive director for Siemens, which has 17 projects in China and is negotiating 20 more.
Germany once had a headstart in Asia--Siemens, for example, sold telegraph equipment to China in the 1870s. But in recent decades, the Germans tended to stick to Europe, where they enjoyed a brisk demand for German investment and exports. Of Germany's total foreign direct investment from 1982 to 1991, more than 50% went to countries in the European Union, more than 25% to the U.S., and only 1.7% to Southeast Asia. After 1989, companies concentrated on eastern Germany and the ex-communist economies cracking open just across the border.
"WE ARE SMALL." Moreover, while German exports account for a sizable 24% of its gross domestic product, much of that comes from the vast Mittelstand. These small and medium-size companies cannot afford a presence so far away. Gunter Baumann, head of engine-part maker Eberspacher, traveled to China last year but found prospects difficult. "We are small, and they don't know us," says Baumann, who prefers investing in Central Europe.
But now there is a shift in thinking, aided by government activism. The Economics Ministry brought the heads of 125 medium-size Chinese companies to Bonn last June to meet with German counterparts. The Ministry has made it easier for German companies to obtain export insurance to low-risk countries such as Thailand. Chancellor Helmut Kohl visited China last year, resulting in a July visit from Premier Li Peng and some $3.5 billion in deals. Bonn plans to reintroduce development aid and export credit guarantees to Vietnam.
The result of this ardent wooing is already showing up in exports from Germany. In the first three quarters of 1994, exports to the six ASEAN countries rose 30%, to Vietnam, 26%, and to South Korea, 25%. Such results will encourage more direct investment in cheaper plants in Asia. That kind of spending will make Germany's big companies more profitable--and hasten a restructuring of manufacturing in Europe's biggest economy.By Karen Lowry Miller, with John Templeman in Bonn