German Companies Look Far Beyond Ailing Euro Zone

By NINA KOEPPEN, The Wall Street Journal

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Perrot GmbH & Co. KG

A 7.5-ton hour hand is installed on a Perrot clock on a skyscraper in Mecca in 2010.

CALW, Germany—Perrot GmbH & Co. has been making bell-tower clocks for 150 years, but the order from Saudi Arabia was on a new scale: a 140-foot-diameter clock, installed at a height of more than 1,300 feet, in the heart of the holy city of Mecca.

The family-owned company from the Black Forest is building its exports beyond its traditional European base, expanding ties with fast-growing developing countries. The geographical shift is happening at many of Germany’s 270,000 manufacturing companies, which are gaining customers in the emerging economies of Asia and Latin America and reducing their dependence on the shrinking euro-zone economy.

German firms are increasing the amount of business they conduct with emerging economies at the expense of European countries. Dow Jones’s Nina Koeppen explains why companies like car-maker Volkswagen have led the push into new markets. Photo: Perrot GmbH & Co.

Perrot’s oversize dial for Mecca Royal Clock Tower Hotel—the world’s second-tallest skyscraper, after the Burj Khalifa in Dubai—is visible from more than five miles away. But the project “has made us visible all across the Arab world and beyond,” said Johannes Perrot, who runs Perrot together with his two brothers.

For German industry, “the trend of unlocking new markets will continue, given rapid economic growth and solid capital investment in emerging markets,” said Ilja Nothnagel, a foreign-trade adviser at the German Chambers of Commerce and Industry in Berlin.

Blue-chip companies such as car maker Volkswagen AG VOW3.XE +0.29% have led the hunt for markets beyond Europe. But a growing number of small and midsize German companies, especially those operating in niche markets, are decoupling from Europe too.

“If we relied on the euro zone only, the company would be on a less-stable footing,” said Stefan Klebert, chief executive of Schuler AG, SCUN.XE +0.54% a maker of specialist presses for coins, automotive parts and other metal products.

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Perrot GmbH & Co. KG Perrot’s oversize clock for the Mecca Royal Clock Tower Hotel in Saudi Arabia has a 7.5-ton hand, installed in 2010.

German companies’ reputation for quality engineering, a sought-after mix of specialized equipment and high-end goods, and years of effort to boost competitiveness are making German goods popular in fast-growing developing countries. The so-called BRIC countries—Brazil, Russia, India and China—are expected to power global economic growth next year, while the euro-zone economy is forecast to contract again in 2013. German exports to the BRIC countries have increased almost sevenfold since 1996, totaling €121.2 billion ($156.7 billion) in 2011.

“We are currently observing a continental drift in global economics,” said Ralph Wiechers, the chief economist at Germany’s VDMA engineering federation, which represents about 3,100 midsize companies. “German engineering companies by now sell three times as much to the BRIC countries than to the periphery states of the euro zone—or Italy, Spain, Ireland, Portugal and Greece,” he said.

Sabine Herold, a managing partner at DELO Industrial Adhesives,FUL +0.95% said her company is drawn to the growth potential of markets in China and Southeast Asia. “We supply special adhesives for electronic and microelectronic industries, and they are foremost in Asia,” she said. DELO, which is based in Windach, Germany, near Munich, employs about 300 people.

German exports for this year through October rose 4.8% from a year earlier, boosted by 11% growth in exports to countries outside the European Union, according to data published Monday by Germany’s official statistics office. In contrast, exports to the euro zone fell 1.2%.

As Europe’s biggest economy becomes less dependent on its traditional markets in the euro zone, some Germans are even beginning to question whether Europe matters as much to Germany as it used to. Some euro-skeptic commentators such as the author and former Bundesbank director Thilo Sarrazin argue that Germany’s future interests lie beyond Europe.

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Most German companies say European markets are still a major part of their business. France is expected to stay Germany’s biggest trading partner in the next few years. But growth, increasingly, is coming from elsewhere. China is likely to replace France as the top destination for German exports by 2030, according to a recent report on the global trade outlook by economists at HSBC HSBA.LN -0.28% .

The euro zone’s share of total German exports fell to 37.6% in the first three months of this year, compared with 51.6% in 1991, according to Germany’s statistics office.

“Future growth will be mostly outside the euro zone,” said Mr. Klebert, the CEO at press maker Schuler. “Therefore, Asia—particularly China—the U.S. and Brazil are key markets for us,” he added. Schuler today generates about one-third of its sales in Asia, compared with just 5% in 2000.

Schuler, whose business also supplies presses for the production of aerosol cans, is counting on the huge potential of China’s consumer market. “With a population of 1.3 billion people, there’s expanding demand in China for hair spray and deodorant—that’s where we come in,” Mr. Klebert said.

Perrot also operates with much broader reach now. Over five generations the Perrot family has gone from making clocks for village churches in the Black Forest, to equipping spires in Switzerland and other European countries, to supplying far-flung global markets.

Being from Calw, a stronghold of the devout Christian Pietist movement, helped Perrot win the confidence of its Muslim customers, Mr. Perrot said. “We are very organized here. Our workshop is clean and tidy and there aren’t any pinup girls on the walls. That’s what our customers respect,” he said.

Perrot has recently supplied large clocks for cathedrals in St. Petersburg, Russia, and Brazil’s São Paulo state, as well as hotels, train stations and public buildings around the world. The company is aiming to break into the Chinese market next. It is already the unlikely export champion of the small town of Calw, previously known mainly for being the birthplace of Nobel-laureate novelist Hermann Hesse, who was an apprentice mechanic at Perrot.

As well as developing countries, the U.S. is again becoming a source of growth as its economy recovers. German exports to the U.S. rose 21% in the first three quarters of this year compared with the same period a year earlier.

Germany’s exports have been growing faster than the country’s overall economy since the early 1990s, a trend that economists expect to continue for many years. The country has become increasingly dependent on foreign customers. Exports of goods accounted for 41% of German gross domestic product in 2011, compared with 30% in 2001 and 22% in 1991, according to data from the statistics office.

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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