German Quality

Making the grade

British companies carry out more foreign direct investment (FDI) projects in Germany than in any other European country – and by far. Between 2008 and 2013, the latest reporting period, 402 FDI projects were carried out by UK-based firms in the country, fDI Markets data shows. This compares with 293 projects in France and 270 in Ireland. BP, British Telecom, Vodafone, GlaxoSmithKline, British Airways, EasyJet as well as a diverse range of British software companies have all invested in Germany in recent years.

Preliminary reports suggest that UK companies continued to invest heavily throughout Germany in 2014 as well, with Berlin proving popular for business services and the state of North-Rhine Westphalia attracting investments across the board. And with good reason: Ernst & Young’s 2014 European Attractiveness Survey found that Germany continued to be seen as the most attractive country in which to establish operations in Europe. Berlin, Frankfurt, Munich and Hamburg all featured in the top 10 list of Europe’s most attractive locations. The Markus database shows that as of April 2014, around 5,300 British companies were operating in Germany, accounting for around 300,000 jobs.

Weathering the storm

Investing in Germany makes sense for British companies from an economic standpoint. The country’s economy is Europe’s largest and it is proving robust, despite continued turbulence in global markets. Record employment levels, a balanced budget, and stable debt policies have led market observers to be upbeat about the prospects for 2015.

“The country’s economy is Europe’s largest and it is proving robust, despite continued turbulence in global markets.”

The closely-watched Ifo Institute business climate index for industry and trade in Germany rose for the fourth consecutive month in February. At the same time, the ZEW indicator of economic sentiment for Germany increased for the fourth consecutive time to its highest value since February of 2014. The federal government expects both GDP and exports to grow again in 2015, with consumption expected to be the main driver of the domestic economy. Furthermore, the low oil prices are likely to both stimulate growth and have a beneficial effect on the country’s current account.

Industry focus

Whilst Germany is an attractive business location for British and international companies across the board, there are certain branches that are more minded to invest in Germany than others. The clear majority of British FDI projects in Germany are in the business and financial services sector. The branch accounted for 34 percent of investments between 2008 and 2013, followed by ICT and software at 19 percent and textiles at 10 percent. This is reflected in the activities of UK companies in Germany: fDi Markets data shows that two-thirds of the projects between 2008 and 2013 involved supplying services or opening sales and marketing offices. Production accounted for 7 percent.

Services and IT are set to maintain their prominence among British FDI projects in the Federal Republic in the coming years. Berlin, for example, is fast becoming a major hub for young and dynamic IT startups that are keen to take advantage of the low cost of living and the highly skilled workforce in the city.

Revolution, not evolution

Perhaps the biggest opportunity for British IT companies, however, is the sea change taking place in German manufacturing. Touted as the fourth industrial revolution, “Industrie 4.0” involves modern ICT being incorporated into highly automated and networked production processes that are blurring the boundary between the real and the virtual worlds.

The factories of the future are interoperable, modular, self-adapting, decentralised and work in real time – in short, they are smart factories. The workers control production processes via cyber-physical systems while the machines monitor themselves and communicate with each other to optimise production processes, resource use and maintenance work.

Factory walls are no longer the boundaries they used to be: plants in different locations are connected in peer-to-peer networks, know what the others are doing, and adapt accordingly. Suppliers, manufacturers and customers are brought closer together than ever before. The products are more individualised and are linked with high-quality services to create innovative hybrid products.

Hocus pocus? Not in Germany. Engineering and plant equipment are traditional strengths in the country’s economy. However, these are experiencing increasing competition in global markets, especially from China. The government is keen to keep its edge and is working closely with industry organisations such as BITKOM, VDMA, and ZVEI, as well as research organisations such as the DFKI, acatech and the Fraunhofer Society to ensure Germany becomes an Industrie 4.0 leader.

Help is at hand

As the country’s inward investment promotion agency, Germany Trade & Invest seeks to identify new market trends early on. To this end, the agency employs a broad range of industry experts that can help British investors set up a presence in the country in any branch – and perhaps to become part of the next industrial revolution.