Germany Still Attractive to U.S. Industry

For months, Hewlett-Packard, the world's second largest computer maker, fought a bidding war to buy the German IT firm Triaton. At the end of February, Hewlett-Packard's efforts paid off and it acquired the subsidiary of steelmaker ThyssenKrupp for €340 million.

"We're adding about 2,000 employees here in Germany, with a great deal of know-how," Ton Harms, head of Hewlett-Packard Germany, told Deutsche Welle. "This is a level of investment that we haven't seen in ten to twenty years."

The U.S. computer maker is not alone in pursuing a strong investment strategy in Germany, according to a survey of American chambers of commerce carried out by the Boston Consulting Group and AmCham, the American Chamber of Commerce in Germany. The poll of 100 of the largest American companies in Germany found that a third of them intend on investing 40 percent of their total foreign investment here.

They cited Germany's infrastructure, access to markets and the high level of education among employees as the most attractive reasons for doing business in the country.

"The people in Germany are the most important reason," said Fred Irwin, president of the American Chamber of Commerce in Germany. "They are generally highly motivated and well educated."

With around €100 million ($122 million) and 800,000 jobs associated with it, Germany has the highest concentration of American investment in Europe. The U.S., with more than 2,000 firms on the ground here, is Germany's largest foreign investor.

Heading East?

Some are worried, however, that the rosy scenario might not last much longer. After countries in Eastern Europe join the European Union on May 1, Germany runs the danger of losing some of its attractiveness. Eastern Europe, with its lower wage costs, more flexible labor market regulations, lower tax rates and less red tape, sends out a powerful a siren song that could prove irresistible to U.S. investors, even those already in Germany.

The survey found as a place for company headquarters, where management and highly skilled workforces are located, Germany ranked number one for Americans in Europe. But as a location for production, Germany only ranked third, behind Eastern Europe and Great Britain.

The companies surveyed said if Germany wants to keep other rankings from falling, or falling further, it needs to keep moving ahead with the labor market reforms introduced by Chancellor Gerhard Schröder's government. Plans to loosen rules on hiring and firing employees and easing regulation on business start-ups are a step in the right direction, the surveyed firms said, but more needs to be done, such as a drastic simplification of the tax system.

"Germany needs to have a vision, meaning politicians must create more confidence," said Irwin. "Germans can do anything they want if they put their minds to it. They've demonstrated that again and again over the last 100 years."

Profits… but jobs?

The Americans surveyed said they were optimistic about the outlook for the current year. A majority of those asked are anticipating higher profits and more investment in 2004 as compared to the year before.

"We have the trust of our American parent companies," said Hewlett-Packard's Harms.

However, the positive outlook does not extend to job creation. Harms and his colleagues said it was unlikely the increased investment would lead directly to new jobs. On the contrary, jobs will likely continue being shed by American firms, but the pace would likely slow.