Germany has long been a model export nation, successfully demonstrating to the entire world how a country with high cost of labor and very strong currency can consistently remain in the top three places among global exporters.
Apparently, Germany has been able to achieve its heavyweight status without even focusing on the fastest growing global markets. Recently, that trend has begun to shift and German industry has focused its attention on China, Japan, Russia and Brazil and begun to view those country as central to its expansion strategy. What this means to the U.S. lawmakers and U.S. exporters is that in order to even stay in the race our country needs to bring its best game. We currently have very favorable currency exchange rate – a huge advantage in helping our country maintain its strong export position. Yet, we also growing competition from China, India and other emerging countries. We have Germany – arguably the top overall exporter in the world, pursuing most lucrative global markets. We cannot afford to slow down free trade agreements, produce goods that are not competitive in the global markets and have policies, which in any way hamper our country’s export capabilities. It is hard enough to compete. Competing with one had tied behind our back, is simply not prudent and fraught with peril.
As always, I hope you enjoy the article below and welcome your comments.
With large parts of Europe still in an economic rut and struggling to cope with a debt crisis, Germany is increasingly deploying its money and energy outside the euro zone to fuel its robust growth.
The shift in focus, while still in its early stages, could have profound economic and political implications because it comes at a critical time when the rest of Europe is counting on Germany to continue its traditional role as the locomotive of the Continent’s economy.
German companies, instead of concentrating their investment overwhelmingly on countries like France and Italy, are sending a growing proportion of their euros to places like Poland, Russia, Brazil and especially China, which is already the largest market for Volkswagen and could soon be for Mercedes and BMW.
The German government is following suit, committing more diplomatic resources to its growing trade partners, particularly China, whose prime minister, Wen Jiabao, brought an entourage of 13 ministers and 300 managers when he visited Chancellor Angela Merkelof Germany last month.
President Dmitri A. Medvedev of Russia brought a similar entourage with him Monday to Hanover for annual German-Russian consultations, including Alexander Medvedev, deputy chief executive of Gazprom.
The economic shift is already having important consequences inside Europe. As Germany becomes less dependent on euro zone markets, there are signs that it is becoming stricter with its ailing partners, like Greece, Italy and Portugal, adding to the pressures already straining European unity.
“It reinforces a shift that we have seen in recent years for Germany to become rather more focused on its own national interests rather than sacrificing for some defined European interest,” said Kevin Featherstone, an expert on E.U. politics at the London School of Economics. “Germany is not giving up on Europe, but it is certainly frustrated.”
German politics are in line with the interests of German businesses like Fresenius, a health care company in Bad Homburg, near Frankfurt. Last year, Fresenius recorded a sales increase in Asia of 20 percent, to €1.3 billion, or $1.8 billion. That compared with its sales in Europe of €6.5 billion, up 8 percent.
Fresenius’s chief executive, Mark Schneider, said he expected the trend to continue, noting that China was trying to create a universal health care system that would ensure its people access to kidney dialysis and infusion therapies — the sort of products that Fresenius provides.
Germany, of course, remains deeply entwined with the euro zone, which is still its largest source of trade by far. But Western Europe’s share in the German pie is shrinking as companies focus new investment on more vibrant markets.
“I’m not sure I would call Germany the locomotive” for Europe anymore, said Marc Lhermitte, a partner at the consulting firm Ernst & Young. “It’s an engine.”
Mr. Lhermitte was one of the directors of a study in May by the firm that looked at trends in cross-border investment around the world.
Last year, the euro area’s share of German exports fell to 41 percent from 43 percent in 2008, while Asia’s share rose to 16 percent from 12 percent, according to Bundesbank figures. During the same period, exports to Asia rose by €28 billion, while exports to the euro area fell by the same amount.
Fresenius is one of many companies that reflect the trend. Corporate investment in Western Europe is still rising in absolute terms, said Mr. Schneider, but “capital spending and employment is not rising as much as we are seeing in emerging markets.”
There are also signs that Germany’s prosperity is no longer helping the rest of Europe the way it did a few years ago. On the contrary, the rest of Europe, particularly its southern half, is falling further behind as the European Union struggles to deal with the sovereign debt crisis.
The Italian economy, for example, is no longer cruising in Germany’s slipsteam.
“Italy used to produce a lot of goods that would feed the German industrial machine,” said Jens Sondergaard, an economist at Nomura in London. But much of that German business is going to Eastern Europe or elsewhere, where costs are lower and companies are increasingly able to match Italian quality. Indeed, despite the strong German economy, Italian exports to Germany were €3.2 billion lower in 2010 than in 2008.
“That is bad news for Italy,” Mr. Sondergaard said.
Where Germany puts its money is crucial to the 17-nation euro zone economy. Germany accounts for nearly a third of the euro area’s exports. Germany has a trade surplus so far this year, while France, Italy, Spain and the region as a whole have large deficits.
With decades of European economic integration under their belt, German companies still exported much more to France last year than to China — €91 billion compared with €54 billion.
But the gap is closing fast. Exports to China rose 44 percent in 2010 compared with a 12 percent increase for France. Mr. Wen, the prime minister, predicted during his visit to Berlin last month that trade with Germany would double within five years.
Moreover, in 2009, German manufacturers for the first time invested more in China — €11.6 billion, a 50 percent increase from 2006 — than they did in France, which, along with Italy and Spain, is drawing markedly less German industrial investment than a few years ago.
This profound shift is visible at the Trumpf factory complex in Ditzingen, near Stuttgart. Not long ago, Trumpf was considered part of the Mittelstand, the midsize, family-owned engineering companies that power the German economy. But these days, Trumpf is a global powerhouse.
From humble prewar beginnings, Trumpf, a maker of machines that use lasers to work metal, has grown to the point where it now employs about 2,000 people in Ditzingen and 6,000 at other locations around the world. That is not counting the robotic lawnmower prowling outside the executive office building — a sign of the scarcity of labor in southwestern Germany, where unemployment is less than 5 percent.
There are a number of reasons for Trumpf’s growth from workshop to multinational, but one stands out: China. As at many other German companies, sales to China and other developing markets have made up for declines in traditional export markets that followed the recession in 2009.
“In three to five years, China will be our biggest market,” said Mathias Kammüller, a member of the company’s management board and head of the machine-tools division.
In 2009, Trumpf opened a factory of 15,000 square meters, or 160,000 square feet, in Taicang, near Shanghai. Less than two years later, the company ran out of space and expanded the plant by another 10,000 square meters. There are so many companies from southwestern Germany in that part of China that it is known as Little Swabia, referring to a region of Germany.
Trumpf has hired about 450 employees in China, more than half the number it has in the euro area outside of Germany, where by contrast employment has been flat.
“We are not producing in China to be less expensive or to export to Europe,” said Nicola Leibinger-Kammüller, the president of Trumpf, who is married to Mr. Kammüller. “We are producing for the Chinese market.”
Trumpf is by no means alone. China is by far the biggest market for Germany’s crucial machine-tool industry, as manufacturers abroad equip their factories with precision technology from Bavaria or the Ruhr Valley.
The success of German exports in emerging markets reflects its manufacturers’ strength in making things that go into the kinds of products that a modernizing economy needs, like trains, steel factories, and electronics assembly lines.
“Our newest plants are in Russia, China and India,” said Heinrich Weiss, chief executive of SMS Group, a company in Düsseldorf that builds and equips steel and aluminum plants. “Western Europe and the United States are very quiet — very quiet.”
Another example of a company that has prospered with the rise of emerging markets is Multivac, based in Wolfertschwenden, in southern Germany. The company makes machines for packaging perishable goods, a business that is possible only in countries where food can be kept cool from the factory to store shelves. So Multivac is something of an indicator of the advance of reliable electrical power and rising incomes.
Hans-Joachim Boekstegers, the president of Multivac, said he spent 150 days away from home in the last year, visiting new markets like Azerbaijan, Chile and Turkey.
Mr. Boekstegers said he still had plenty of business in Europe, even Greece. “People always need to eat,” he said. But that is not where the big growth is found.
“I can only recommend,” Mr. Boekstegers said, “that everyone not be dependent on European business and expand abroad.”
Even within Europe, there is a shift from west to east, with German manufacturers concentrating more of their investment in countries like Hungary and Slovakia.
Germany’s shift toward developing markets has been brewing for a long time, but it accelerated after the 2009 downturn, when Asia recovered much more quickly than Europe or the United States. “In China the crisis lasted only half a year, followed by extreme growth,” said Mr. Kammüller of Trumpf.
Germany’s lessening dependence on the euro area economy appears to have given Mrs. Merkel more leeway to be assertive with her European allies, clashing repeatedly, for example, with President Nicolas Sarkozy of France on issues like Greece and Libya.
When Mrs. Merkel was first elected chancellor in 2005, she rarely invited German executives to accompany her on trips to China, Russia — or anywhere else, for that matter. Now Mrs. Merkel frequently leads trips abroad, particularly to Asia. At the end of May, she made a three-day trip to India and Singapore, with a retinue of top executives in tow.
Mrs. Merkel has used her influence to open doors and help companies deal with the hazards of developing markets, which remain much riskier than Europe. Managers have urged Mrs. Merkel to criticize poor protection of intellectual property rights in China, and she has obliged. At one meeting with German and Chinese executives, she wondered aloud whether parts of a new Volkswagen model had already been counterfeited.
But Mrs. Merkel is not just an exponent for German business. She has annoyed executives by criticizing human rights violations by China. German managers were furious with her after she met with the Dalai Lama, the exiled spiritual leader of Tibet, in 2007. Despite threats by the Chinese authorities, there was no major effect on trade, however, and Mrs. Merkel has not said much about Tibet recently.
Some analysts warn that Germany is focusing too much on developing markets, and setting itself up for a shock if the Chinese economy slows down. China is also trying to build up its expertise in cars and machinery and become a competitor as well as a customer. Business people are aware of the risk.
Still, said Mrs. Leibinger-Kammüller of Trumpf, “it is riskier not to be there.”
Judy Dempsey reported from Berlin.
First in a series on Germany’s changing role in Europe and the world.
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