The Trek Abroad Quickens Pace

The threat of moving jobs to cheaper locations in other parts of the world has proven a very effective tool in wage negotiations in a country suffering from chronically high unemployment. Both Siemens and Daimler Chrysler recently gave up such plans when their workers agreed to substantial cost-cutting measures. A similar compromise may be found at Volkswagen in the upcoming wage round.

Yet the trek across the border continues unabated, albeit less visibly.

A survey by the German Federation of Chambers of Industry and Commerce, DIHK, shows that the relocation of German companies abroad may reach a new peak this year. At the same time, companies are reducing their investments in Germany - a potentially explosive combination, according to experts.

'The ratio of companies planning to invest outside of Germany this year will rise to 43 percent from 38 percent most recently,' the DIHK writes. Its study is based on a survey of 7,500 German companies. As recently as 1999, less than one-third of the surveyed companies were eyeing foreign production locations. According to the Federal Statistics Office, the foreign share of German production rose to 39 percent from 27 percent between 1990 and 2002.

In the DIHK survey, companies cited high production costs in Germany as the key reason for foreign investment plans. Another recent survey by consultancy Roland Berger showed that more than two-thirds of companies considered the quality of foreign production at least as good as the quality of products "made in Germany."

"Policymakers urgently need to solve the problem of high production costs and inflexible domestic labor markets to prevent Germany from wasting the opportunities inherent in companies' globalization strategy," the DIHK says.

The DIHK warns that any added economic impetus now benefits above all foreign investments, with the domestic economy falling behind. "Foreign locations are increasingly presenting a real alternative to domestic production," the DIHK writes. Even the booming export business is not benefiting German production locations. Germany's export-oriented companies are not planning "any meaningful capacity increases," the study says.

The Finance Ministry begs to differ. It concluded in a recent study that companies' foreign investments actually create more jobs in Germany than are lost here. The positive effect, it says, still materializes when jobs are relocated from Germany to foreign locations.

Although such moves increase the share of foreign-produced semi-finished products in German exports, the finance ministry says, they also render German exports more attractive on world markets. "The export stimulus more than compensates for the loss of value creation per exported euro," the authors of the study write. German companies are using the increased international division of labor, including production shifts and imports of pre-products, to secure or create new domestic jobs, the study concludes.