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Germany: Europe’s Economic Juggernaut


World-famous for its expertise in automotive manufacturing and brewing beer, modern Germany also has established itself as a media magnet, an IT hub, and a finance center.

Germany’s head of government, Federal Chancellor Dr. Angela Merkel, was named the most powerful woman in the world for the third consecutive year by Forbes magazine in August. The ranking’s criteria analyze each woman’s professional career trajectory, media coverage, and economic impact; based on this last factor, Merkel’s spot at the pinnacle of the list is not surprising. Germany’s economy is the strongest in Europe and the third largest in the world, behind only the United States and Japan. In 2007, Germany’s Gross Domestic Product (GDP) soared near EUR 2,423.8 billion, and its location on the borders of nine countries at the crossroads of Europe, bolsters the republic’s worldwide economic stronghold.

With more than three million residents, Berlin is Germany’s energetic capital city, and one of 16 geographically and linguistically diverse states. From the winding Rhine River in the west to the lush Bavarian Alps in the south, Germany’s distinct regions offer various business opportunities across many industry sectors.

Hollywood, Bollywood…and Bavaria?

MOST POPULOUS GERMAN CITIES
  • Berlin (Berlin): 3,275,000
  • Hamburg (Hamburg): 1,686,100
  • Munich (Bavaria): 1,185,400
  • Köln (Northrhine-Westfalia): 965,300
  • Frankfurt (Hessen): 648,000
  • Essen (Northrhine-Westfalia): 588,800
  • Dortmund (Northrhine-Westfalia): 587,600
  • Stuttgart (Baden-Württemberg): 581,100
  • Düsseldorf (Northrhine-Westfalia): 568,900
  • Bremen (Bremen): 527,9001

The area surrounding Munich, a culturally rich German city and home to the world-famous Oktoberfest, is becoming a strong media magnet, attracting both German and foreign communication and production companies. “This shows that Bavaria is an outstanding location with great market and business potential, especially in a dynamic sector like the media industry,” says Bavaria’s Minister of Economics Affairs, Emilia Müller. Nearly 25 of the top 100 media companies in Germany come from Bavaria, and the importance of the media and entertainment industry to the whole state’s economy is increasing steadily. According to a joint survey conducted by the Chamber of Commerce and Industry for Munich and Upper Bavaria and the capital city of Munich, there are more than 5,000 media companies in the Greater Munich Area alone, with sales revenue of more than EUR 21 billion and nearly 62,000 employees. If media-related companies are included, the number of firms swells to 14,700, generating revenue in excess of EUR 40 billion and providing over 110,000 jobs.

“Thanks to its strong position in all segments of the media industry, its dynamic growth in the field of digital media and its key location for the German-speaking and Eastern European markets, the Bavarian media sector will continue to attract German and foreign direct investment in the years to come as well,” says Minister Müller.

In 2008, a huge influx of high-caliber companies set up new facilities and invested in plant expansions in Bavaria, including Turner Broadcasting System, medienfabrik Gütersloh, Sony Pictures Television International Germany, Kyodo Public Relations Co., Glam Media, Yellow Bird, and Lambie-Nairn.

Invest in Bavaria, the location marketing initiative of the Bavarian Government, has, in the last few years, played an integral role in persuading several dozen media companies with a workforce exceeding 1,500 employees to relocate to Bavaria and stay there. Firms such as Kabel Deutschland, Discovery/DMAX, Vivendi Games, Paramount Home Entertainment, Yahoo! Deutschland, and Google all have found homes in Bavaria.

Deutschland says, “Welcome Back Home”

“The decision by many companies to bring their foreign production operations back to Germany shows that Germany, and especially Bavaria, are once again growing more attractive as top industrial locations,” says Müller, in response to a series of recent backsourcing decisions. The Kathrein Group, a communication technology company, recently returned its Korean production unit back to the city of Grassau on Lake Chiemsee, while Steiff, a toy manufacturer, has left China in favor of Giengen an der Brenz, a district town in Germany’s eastern state of Baden-Württemberg. Other smaller companies like Ghost Bikes from Waldsassen in Upper Palatinate have also moved back. The German bicycle manufacturer shut shop in the Czech Republic and returned to Bavaria.

“According to estimates made by the Fraunhofer Institute for Systems and Innovation Research in Karlsruhe, in the last eight years more than 3,500 firms from the metal and chemicals sectors alone have brought back their production operations from abroad,” says Müller. Altogether, one in every four to six companies which had relocated their production facilities abroad returned to Germany within a few years.

“I am delighted that the companies are adopting a more realistic approach to their decisions about sites. Today, all the relevant location factors leading up to a foreign engagement are being analyzed more thoroughly,” Müller says. Companies are recognizing that foreign production operations often can create greater problems in regards to quality, higher logistics costs, and less flexibility than the companies may have anticipated. “While those Bavarian firms seeking proximity to new markets will certainly continue to produce abroad in the future as well, we will make every effort to keep Bavaria as competitive as possible in a global comparison. I am therefore expecting more companies to bring their foreign production operations back to Bavaria,” Müller adds.

The ‘IT’ Factor

During the past few years, 30 companies operating in the information technology and communication services sectors have established their European headquarters or a branch office in Bavaria. In fact, more than 300 new jobs have been created in these sectors in the last seven months, according to Müller. “Many more IT and services companies are currently planning their facilities in Bavaria with the ready support and assistance of Invest in Bavaria.

“Bavaria is a top address in Europe for ICT and services companies,” Müller continues. “It offers not only an innovative environment and a well-qualified labor force, but a wide-ranging, dynamic, and international corporate landscape with attractive customer potential. Bavaria’s strategic position at the center of Europe and its excellent infrastructure offer first-class opportunities for opening up markets, and not only in Germany.”

This was precisely the reason why the French IT company Geensys, specializing in embedded systems, recently set up facilities near the first-rate Bavarian automobile industry in order to look after its customers in Germany, Austria, and Switzerland.

Financial service providers also greatly value the market opportunities offered in Bavaria. Alongside Frankfurt am Main in the state of Hessen, Bavaria is a hub for financial services in Germany. On average, one new company operating in the financial sector locates in Bavaria every month. One of the biggest universal banks in Scandinavia, Svenska Handelsbanken, currently is expanding and has had offices in Munich since January 2008. With its cross-border competencies, the bank can keep track of the local and international business of export-oriented, Bavarian companies, in keeping with its motto: “Banking is global-business is local.”

Frankfurt is Central Germany’s “Main” Event

Frankfurt am Main is the largest city in Hessen, a historically colorful state in western-central Germany. Frankfurt has Germany’s tallest skyscrapers and highest GDP, and is considered continental Europe’s financial capital-home to Germany’s stock exchange, the Bundesbank, and the European Central Bank. Frankfurt has earned its financially funny nicknames “Mainhattan” and “Bankfurt.”

Frankfurt lures numerous international corporations such as General Electric, Canon, Motorola, Honda, Procter & Gamble that want to be headquartered in the core of the European Union. Moreover, Frankfurt attracts 20% of Germany’s overall foreign direct investment to Hessen.

The city also hosts a number of major international trade fairs, featuring everything from consumer goods and books to automobiles. Frankfurt’s central German location (as opposed to Berlin and Hamburg in the north and Stuttgart and Munich in the south) makes it the heart of the country’s road and rail traffic. Its international airport processes more travelers than any other airport in Germany.

Hessen Hooks Huawei

Huawei Technologies, a leader in providing next generation telecommunications network solutions for operators around the world, recently opened its new Innovation and Demo Centre in Darmstadt, Germany. The Centre creates an environment where Huawei customers and partners can experience, develop, and test Huawei’s latest innovative solutions.

HESSEN FAST FACTS

  • Capital: Wiesbaden Area: 21,115 square kilometers
  • Population: 6,070,400
  • GDP per capita: EUR 35,701
  • University graduates per year: 20,335 (2006)

Darmstadt is located in Hessen, not far from Frankfurt. Huawei’s investment decision brings jobs and technical expertise to an area that is already the home of both German and international companies in telecommunications. There are 10,000 ICT companies in Hessen, including industry leaders such as Amazon, Daewoo, Dell, and Hitachi, among others. The industry employs 90,000 people in Hessen and brings in more than EUR 30 billion in annual revenue. Therefore, Darmstadt was a logical location for Huawei’s further investment.

“This Innovation and Demo Centre reinforces our long-term commitment to the German market. It houses Huawei’s latest products and solutions in a fully operational test environment, all of which meets the latest operator requirements for network migration. It will be a place for close collaboration with customers, where they can find the solutions needed for their future growth,” says Haifeng Ling, vice president of Huawei Technologies in the European region.

Broadband services for the home and office are essential for increasing operator revenues, and an enhanced user experience is vital. Seven hundred square meters in size, the Centre consists of three experience zones with end-user application scenarios for businesses as well as consumers to experience services at home, in the office, and in transit.

“Darmstadt is a significant site for telecommunications operators. Germany is one of the largest telecommunication markets for us, and the Centre is an important step to fortify our focus on this market. We have highly qualified specialists in the Centre working closely with customers to develop solutions based on their business needs. This strengthens our growth not only in Germany, but also throughout all Europe,” Ling adds.

Can’t Forget the Autos

Germany’s well-known automotive market is number one in Europe by production and sales, with 5.4 million cars produced and 3.5 million new registrations in 2006. Twenty-five vehicle assembly plants are in operation, more than 1/3 of Europe’s installed capacity. In sum, Germany nets EUR 254 billion in annual combined revenues for its automotive manufacturers and suppliers. Forty-five percent of all newly registered vehicles in Europe and 20% of new vehicles sold globally carry a “Made in Germany” label, and more than EUR 100 billion was invested by the German auto industry over the past 10 years. The country also is the world’s top auto innovator, with 3,600 patents in 2006 and more than 32 new auto clusters.

Sumitomo Metal Industries, Ltd. recently announced that it is entering into a joint venture with German company Voith Turbo to establish a presence in the German automotive market. The joint venture will be headquartered in Heidenheim, in the Baden-Württemberg state of Germany. The initial capital investment is EUR 1.1 million.

The goal of the joint venture is to expand sales of one of Sumitomo Metal’s leading products, the permanent magnetic retarder (pmr) which is a unique secondary brake for commercial vehicles like trucks and buses. The joint venture also aims to develop a new model of the pmr by making full use of Sumitomo Metal’s technology.

In Europe, most trucks and buses weighing more than 16 tons use a hydrodynamic retarder produced by Voith Turbo. There is not, however, a suitable product available for medium-sized trucks and buses that weigh between 7.5 and 16 tons. The two companies will work together through the joint venture to develop a smaller retarder to fill this gap in the European market.

“Sumitomo’s decision is a strong testimonial for Germany’s performance as a business location. Germany’s leading position in cutting edge technologies, high quality standards, and productivity makes it the location of choice not only for automotive suppliers, but for leading companies in all industries,” says Oliver Seiler, director of mechanical and electronic technologies at Invest in Germany.

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