Magazine article Management Today

German Firms Look Abroad to Escape Cost Base

Magazine article Management Today

German Firms Look Abroad to Escape Cost Base

Article excerpt

Industrialists once groused but invested at home. Not any more.

Jurgen Strube, the chairman of BASF, was musing recently on the reasons which had led his company, one of the big three German chemical producers, to locate its latest [Pounds] 520-million plant, with the several thousand jobs it represents, in Antwerp rather than somewhere in the newly-unified Federal Republic. He was worried of course, he said, by all the factors which concern his fellow industrialists in the most powerful of the EC member states: its high wage bills, its generous (and expensive) social benefits, its short working hours, its long holidays, and its taxes on corporate profit which remain a clear 50% above those inflicted on competitors in France, Japan, the US and the UK. But now there is an additional threat: the cost of meeting the ever tougher rules that the Berlin government keeps devising to clean up the country's air and water and regulate its overflowing rubbish tips. It was this that finally tipped BASF over the edge. As Strube ruefully, but realistically remarked: 'I cannot accept it as probable that our regular customers will continue to ignore price differences just so that they can buy production from our environmentally-sound German plants.'

Similar reflections are coming out of a lot of Munich, Stuttgart and Dusseldorf boardrooms these days. The top men in Standort Deutschland (the local equivalent of Great Britain Ltd) have always groused a good deal about the size of the local cost-base, but in the end have usually invested the bulk of their money at home. But now that philosophy is eroding quite seriously, as more and more finance directors and chief executives start to vote with their cheque books and their strategic expansion plans.

BMW, for example, which has rarely strayed far from its Bavarian homeland, now freely admits that the 553,230 cars it produced last year pushed domestic capacity to its limits. The figures were only achievable by lavish resort to overtime and extra Saturday shifts, and could probably not be repeated -- especially if the engineering unions get anywhere near their current target of a 9.5% pay rise and a 35-hour week. As a result, the management is looking seriously for the first time at a major move overseas, to some relatively 'low-cost' area--like the US. …

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