Relocation of Production Abroad Drops for First Time
The wave of German companies relocating production activities to foreign countries appears to have crested. For the first time since 1995 the Fraunhofer Institute for Systems and Innovation Research ISI, Karlsruhe, has identified a decline from 30 percent to 21 percent. At the same time the number of German companies repatriating production activities from abroad has remained stable at 7 percent. The ratio of those relocating abroad to the number of companies bringing production activities back into Germany has thus dropped continuously since 1997 to reach its current level of about three to one. These facts are illustrated by a representative survey conducted by the Fraunhofer ISI covering 1 630 companies in the German manufacturing industry. According to the study, a third of all those companies interviewed maintains at least one production facility in a foreign country. Two thirds of the companies produce exclusively in Germany. As could be expected, the third of those companies surveyed that have already established production activities in foreign countries are primarily large companies: The share of companies with production abroad in addition to German production facilities ranges from 85 percent for large companies to around 50 percent for medium-sized companies and down to 16 percent for small companies. According to the Fraunhofer analysts, establishment of production facilities abroad does not necessarily occur at the expense of the domestic employment situation. Quite the opposite: Companies maintaining production facilities abroad and at the same time still transferring production capacities to foreign countries exhibit a clearly positive employment balance. These companies account for 16 percent of those surveyed and, seen from the point of view of the manufacturing industries as a whole, created more than 80 000 additional jobs annually in the years 1999 and 2000. This is the highest value when seen relative to the number of companies. Thus the combination of domestic and foreign production facilities does indeed result in enhanced market opportunities. Western Europe enjoys the highest popularity as a location for foreign production activities. Half of the German companies producing abroad have established a production presence here. At a level of 45 percent, Eastern Europe and Central and North America lag slightly behind. A third of the companies maintains production locations in Asia, an area continuing to gain in importance; in contrast, South America plays a subordinate role. The preferred location for small businesses with less than 100 employees is Eastern Europe. Turning to the question of which motives play a substantial role in the establishment of foreign production, cost factors and market acquisition immediately come to the forefront. Taxes, surcharges and subsidies are however not among the most important considerations. For production facilities in Eastern Europe, cost reductions play the leading role as a motivating factor (85 percent). For production sites in Asia, North and Central America, however, as in Western Europe, market acquisition is the primary driver behind the establishment of production facilities. Pursuit of new technologies is only relevant in Western Europe and in North and Central America, although even here this factor remains of secondary importance (10 percent). According to the analysis by the Fraunhofer researchers, the rate at which large companies (with 500 or more employees) have been returning production to Germany has been steadily on the rise since 1997, increasing from 14 percent to its current level of 23 percent. This means that for every second large company relocating production abroad we also find one company which has returned its production activities to Germany. The Fraunhofer Institute for Systems and Innovation Research ISI complements the techno-scientific spectrum of the Fraunhofer Society with economic and societal aspects, analyzing technological developments, their market potentials and their impacts on economy, state and society. The Institutes interdisciplinary teams focus their work especially on the fields of energy, environment, production, communication and biotechnology, as well as regional research and research policy.
Countries
Germany