German Media: German Companies Moving Abroad – Is It More Harmful Than Beneficial?

The trend of German companies relocating operations overseas is slowing down. However, due to the high cost pressures at home, the industrial sector continues to make substantial investments abroad. Yet, the positive effects on the domestic economy are fading.

The trend of German firms investing overseas persists and involves enterprises of various sizes. The Ulm-based garden equipment manufacturer Gardena announced plans to cut 250 jobs in Germany, with part of its operations being transferred to the Czech Republic—equivalent to a 10% reduction in its total workforce in Germany.

The chemical giant BASF is also continuing its overseas investments. According to a report by *Die Welt* in February this year, the company plans to relocate service department positions to India, meaning significant job cuts will occur in Berlin.

The Situation Is Not Clear-Cut

Last November, the online magazine *Finanzmarktwelt* painted a grim picture: "Germany is sinking into an industrial crisis." The author analyzed data from the Federal Statistical Office covering the years 2018 to 2023—the most recent available data.

According to this analysis, around 1,300 German companies with more than 50 employees relocated parts of their operations overseas between 2021 and 2023. This accounts for 2.2% of all such companies in Germany in 2023. It is estimated that Germany lost approximately 50,800 jobs as a result.

However, in June this year, the research department of KfW (Promotion Bank) stated in a press release: "Many medium-sized enterprises are pulling back from overseas operations." It was reported that the share of medium-sized firms active abroad dropped from 23% in 2022 to 20% in 2023.

If we look at information from the German Chambers of Industry and Commerce (DIHK), the situation appears different. According to a survey conducted at the beginning of this year, about 43% of industrial companies plan to invest abroad—up 3 percentage points from the previous year. "The reasons are clear: rising costs, structural issues, and sluggish economic performance," said Volker Treier, DIHK’s foreign trade spokesperson.

What Are the Effects on the Domestic Economy?

So far, overseas investment has brought more benefits than drawbacks to Germany's domestic economy. In particular, foreign investments aimed at expanding markets, increasing sales, and enhancing customer service often generate positive impacts domestically. However, DIHK data show that the share of overseas investments primarily driven by market expansion has declined from 30% to 28%.

Treier said: "The traditionally positive impact of overseas investments on the domestic economy has disappeared, because companies are now forced to invest abroad mainly due to cost concerns. This severely weakens production sites within Germany."

Overall, the trend of overseas investment remains unclear. Steffen Müller, professor at the Halle Leibniz Institute for Economic Research, noted that current levels of direct foreign investment by German companies are far below their historical peak.

Investment Destinations: Asia Wins, Europe Remains Top

The survey shows a noticeable shift in destinations for German overseas investments. North America has become less attractive, with the share of companies planning investments there dropping from 48% to 44%.

Meanwhile, engagement in Asia has increased. According to the DIHK survey, the share of companies investing in China rose from 31% to 34%. For other regions in the Asia-Pacific area, the proportion climbed from 21% to 26%.

Treier said the Eurozone remains the most important investment destination, with 64% of companies planning investments there. The stability of the Eurozone, the existence of a common internal market, and a shared currency provide a reliable framework. Especially during periods of geopolitical uncertainty, these factors play a crucial role in investment decisions.

Source: DW

Original article: toutiao.com/article/1870510445811724/

Disclaimer: The views expressed in this article are those of the author.