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  More than 30 percent of US companies in Germany anticipate hiring in 2006; 44 percent want to increase investment; 72 percent view the recent change in government as positive; the automotive and pharmaceutical industries give Germany only middling grades: competitiveness must be ensured.
Consulting-Times E-zine

Germany becomes more attractive to US Investors

The year 2005 was good for US companies in Germany: 58 percent saw increased revenues, and 76 percent expect further growth in 2006, according to a survey of 150 US investors conducted by The AmCham Germany and The Boston Consulting Group (BCG).

The AmCham Business Barometer 2005/2006 suggests cautious optimism among US investors. For the third year in a row, US companies operating in Germany were asked for their opinions on the country as a business location in comparison with other countries in Europe.

Their responses from early 2006 are more positive than those of previous years: 36 percent of investors indicated that their view of Germany as a place to do business had improved over the previous 12 months. At the beginning of 2005, only 22 percent reported a perceived improvement.

With 120 billion euros in investments and 850,000 direct jobs, Germany is a center of US investment in Europe and has gained in attractiveness relative to Great Britain. London is burdened by its high cost of living in addition to rising wages — a result of low unemployment. Among centers of competence for marketing, sales, and development, Germany, named by 54 percent of the respondents, is well ahead of Great Britain (26 percent) and the unchallenged leader as the location of choice for US company headquarters. Germany is also being chosen more often than ever before as a location for European administrative and financial centers.

Polarization Concerning Jobs

“Until now, Germany's problem was that companies invested without creating new jobs. But here, too, the AmCham business barometer is showing positive signals for the first time,” said BCG Senior Vice President Martin Koehler.

Three out of ten companies intend to hire again in 2006 – a trend that was already evident last year. By the end of 2005, US investors had created more jobs than they had expected to at the beginning of the year.

However, Koehler warned against too much optimism regarding jobs, since polarization can be observed: while 31 percent of companies have hiring plans, 28 percent intend to continue cutting employee numbers in 2006.

“Those who have decided to operate in Germany see a gap and are hiring again,” Koehler said. “But we expect US investors to let more employees go, in some cases by shifting business units out of Germany.”

More than every fifth company is planning to relocate operations to other European countries — ideally those of Eastern Europe. Another 13 percent of the companies want to invest more outside the European Union. The software and communications sector especially is drifting gradually toward China and India.

Germany faces ever-stronger inter-European competition; therefore, more favorable business conditions need to be created through the right political decisions. US companies (31 percent) particularly single out Germany's high personnel costs for criticism. Labor market deregulation (mentioned by 22 percent) and taxes low enough to be competitive in Europe (10 percent) are also among their demands for improvement.

Structural Change: “Think Tank” or Simply “Sales Counter”?

“When the factory is moved to Cracow to save costs, and nothing but the sales department is left in Cologne, this is a warning sign for Germany's high-tech aspirations,” Koehler said. “We have to guard against becoming nothing more than a sales counter for US companies and retain our standing as a think tank.”

In fact, 44 percent of US investors plan to expand their German sales units, and 29 percent want to strengthen their marketing. This contrasts with cuts in administration (anticipated by 38 percent) and production (24 percent).

“Only by retaining research and development for the long term do we have a chance of keeping the vital components of production, and thus jobs, in Germany,” Koehler said.

Warning signs can be seen in pharmaceutical research, for which Germany gets a mediocre ranking: four out of five pharmaceutical companies give R&D; “made in Germany” poor grades. Even in the automotive industry — traditionally a German strength — only 25 percent of suppliers and manufacturers intend to expand their R&D; activities in Germany, and 13 percent even plan to reduce them.

But despite this criticism, Germany is still an acknowledged location for R&D.; Many companies praise their German employees' scientific education and expertise, as well as the traditionally strong foundation for basic research.

The Annual AmCham Business Barometer surveys the satisfaction of US companies in Germany. For the third year running, AmCham Germany and BCG asked US investors for their opinions on Germany as a business location relative to other European countries. This year the focus of AmCham Germany's survey of 150 companies was Germany as a research location. Conducted for the first time in 2003, the survey enables annual comparisons and early recognition of trends. In January 2006, 78 US companies participated, for a response rate of 53 percent.
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