Made in Germany Again

Researchers at the Berlin-based German economics institute have found that especially in small and medium sized businesses, which are the backbone of the German economy, every fifth relocation abroad fails within the first two years. The alleged promises of moving production are often outweighed by the costly side effects of setting up shop in foreign lands and cultures.

Eginhard Vietz is the head of a German company that specializes in welding technology and pipeline equipment. Some three years ago he moved part of the company’s production to China in the hope of getting a foot in the door towards what’s believed to be a rapidly expanding market.

Only one year and a wealth of experience later he repatriated production to Germany after finding out that his Chinese workers were looking after their own business.

"One day we decided to see what they do after work," he said. "We came up to a factory about 10 kilometers away in which they were setting up an identical production line for a Chinese manufacturer."

The bad experience made by the Vietz company in China seems typical of a country where even the multi-billion-euro Transrapid magnetic-levitation train from Germany has been copied recently. Michael Hüther, economist at the German Economics Institute in Berlin, says that especially smaller companies are likely to suffer when venturing abroad.

Companies forced to move back after just two years

"In the sector of small and medium-seized businesses some 50 percent of their offshore ventures end up in failure," Hüther says. "And some 20 percent of these companies were forced to move parts or all of their production back to Germany within the first two years."

Patent violation as a result of an unbridled capitalism like in China is only one of the reasons. More often companies feel lost without the close partnerships with other businesses that have made them successful in Germany. And sometimes differences in culture and work ethics are to blame, as in the case of the N-Tec company which recently repatriated its main-frame computer production from the Czech Republic.

"There were always delays in deliveries from our Czech factory," says Sven Meyerhofer, the N-Tec CEO. "They used all sorts of excuses to explain the difficulties. We were never able to establish the same reliability which we are used to from our German plant."

Germany attractive again to businesses

Frank Wallau, representative of the German Association of Small and Medium-Seized Businesses, says that years of economic stagnation in Germany have slimmed down workforces here, making the country attractive again as a place to invest in and repatriate business.

"Quality of production, on-time delivery and absolute reliability are German qualities that are re-emerging," he says. "Companies here are also more aware of their German roots. Most importantly, however: the cost pressure has substantially reduced as a result of restructuring and years of wage restraint."

Economists here say that repatriating production is already becoming a matter of do or die for some small and medium-seized businesses. Ignoring the basic economics for fear of admitting a past error, they say, could become a costly if not fatal mistake.