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  Study finds that 57 percent of US companies intend to increase their investments in Germany, and 40 percent plan to create new jobs.
Consulting-Times E-zine

US companies show renewed confidence in Germany as a business location

US companies are increasingly confident about their business prospects in Germany, according to the fourth annual AmCham Business Barometer, a survey conducted by the American Chamber of Commerce in Germany and The Boston Consulting Group (BCG).

Of the 86 companies surveyed, 57 percent intend to increase their investments in Germany, and 40 percent plan to create new jobs, the study found. And 80 percent expect continued sales growth this year, despite increases in the value-added tax.

The survey, which was supplemented by in-depth interviews with senior executives, elicited responses from almost 80 percent of Germany's 50 largest US companies in terms of revenue. Those companies that responded represent total annual revenues of 130 billion euros and 266,000 jobs in Germany.

More than half the respondents (53 percent) said that Germany has made further gains in attractiveness as a business centre since last year. Respondents ranked Germany as their first choice in Europe for locating administrative centres (up from second choice last year) and as their top choice for "centres of competence" for marketing, sales, and business development (the same as last year).

"Germany has continuously gained in attractiveness for US companies over the last several years," says Fred B. Irwin, president of the American Chamber of Commerce in Germany (AmCham Germany). "Seventy-two percent were able to increase their revenues in 2006."

Almost half the US companies hired in 2006

With 130 billion euros in investments, Germany is a favoured location for US businesses in Europe. From 2005 to 2006, the share of US companies increasing their investments in Germany rose from 32 percent to 56 percent. This year's AmCham Business Barometer indicates that this trend will continue, albeit at a slower pace.

The number of direct jobs — currently more than 800,000 — at U.S. companies in Germany is also expected to rise. Last year saw the first indication of a positive impact on the job market from increased revenues. At the beginning of 2006, only 31 percent of companies anticipated hiring new employees, but by the end of the year, considerably more — 45 percent — had actually created new jobs.

Hiring targets for 2007 look even better. Far more US companies plan to hire (40 percent) than dismiss (24 percent) employees this year.

"We have achieved an emotional turnaround. Growth and growing confidence in Germany are proving to be mutually invigorating," says Martin Koehler, a BCG senior vice president based in Munich.

Production relocation is slowing, and some jobs are returning

One reason for the expected job growth is a slowdown in certain types of outsourcing and offshoring. Eastern Europe is still by far the most attractive investment location for US companies. However, there is a slowdown in outsourcing and offshoring production. In 2006, 24 percent of U.S. companies in Germany planned to reduce their production capacity, whereas only 16 percent anticipate doing so in 2007. Every fifth US company hopes to expand production capacity. "We have even seen the first cases of complex production and administrative activities returning to Germany," says Koehler.

With regard to less complex processes and R&D;, Germany still finds itself in ferocious international competition. "US companies see German labour laws as a problem child," stresses Irwin of AmCham Germany. "Nearly one in three wants to see a more flexible labour market in order to be able to respond to short-term demand peaks." At the same time, however, lowering personnel costs in Germany is considered urgent by only 27 percent of US companies, a smaller share than last year.

"German engineers are the best in the world"

Highly skilled employees are Germany's greatest strength, the companies indicated. Without exception, respondents gave German education and subsequent on-the-job training high to very high marks — especially for the country's engineers. "German engineers are the best in the world and are therefore in the highest demand," says Koehler. "But when it comes to putting a business plan behind their good ideas, German graduates lack real-life experience and business know-how."

Germany's good education system can contribute only so much to competitiveness in the globalized economy. Otmar Debald, vice president of AmCham Germany, says, "In high-tech manufacturing, Germany is still the leading production location thanks to its excellent skilled-worker training. But when production processes and technologies become simpler, the main thing that counts is cost. Wage costs are lower in Eastern Europe, and costs of small electronic parts are lower in China."

US companies seek readiness to take risks

US companies not only consider labour costs in their decision making, but they also factor in such so-called soft skills as dedication, initiative, teamwork, and willingness to assume responsibility. In the survey, respondents gave their German employees only middling marks on these qualitative skills, which they say are more important than the "typical German" virtues of reliability and exactitude.

At the management level, willingness to take risks (73 percent), interdisciplinary thinking (59 percent), and willingness to assume responsibility (41 percent) are in high demand, but these are characteristics that from the U.S. perspective are not among German strengths. With regard to willingness to take risks, for instance, German managers garner only "satisfactory" ratings.

The AmCham Business Barometer documents the satisfaction of U.S. companies located in Germany. For the fourth year, U.S. companies were faxed a survey soliciting their views of Germany as a business location relative to the rest of Europe. Of 180 companies, 86, or nearly 50 percent, responded. This year, the topical focus was human resources. Conducted for the first time in 2003, the study reveals early trends and produces year-on-year comparisons.

AmCham Germany is the largest bilateral business association in Europe. The companies organized under its auspices represent about 130 billion euros in investments and 800,000 direct jobs. The Chamber sees itself as a bridge to investors in the United States. Its activities focus on the promotion of German-American business relations and Germany as a business location.
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