Commitment of German enterprises abroad

^{Destatis, 21 April 2008}

More and more enterprises transfer economic activities to other countries. Reliable information on that phenomenon of globalisation and on its impact on competitiveness and the labour market, however, has so far hardly been available. This article shows first results of a survey conducted all over the EU; 20,000 German enterprises from nearly all economic sectors were asked on a voluntary basis for causes, extent and effects of transferring economic activities.

Transfer of activities widespread in the industry

About 14% of the larger enterprises with 100 employees or over transferred activities from their domestic location to other countries between 2001 and 2006. Especially in the industry – with a share of transferring enterprises of 20% – that phenomenon of globalisation has an above-average share. In the other sectors, just 7% of the enterprises were involved in activity transfers to foreign countries.

Main reasons: Market development and cost reduction

Reasons of transfers

Factors playing a major role in the decision-making process of German enterprises looking for a location beyond the borders are new markets development and cost issues. A share of 82% of the enterprises each indicated the presence on the foreign market and attractive labour costs as important or very important aspects of their plans. The other costs are of similar importance for 74% of the enterprises. Also, tax incentives and the company’s own strategy are important or very important criteria for more than half of the enterprises each. For the majority of the enterprises, other reasons such as product development, access to specialised knowledge or less government regulation in other countries are less crucial factors for transfer decisions.

Transfers meet expectations of enterprises

Effects of transferring

.Expectations regarding a commitment abroad are met by the largely positive experience made by enterprises which transferred activities in the past. The goal of better access to new markets is achieved for more than half of all enterprises. About two thirds of the enterprises record positive effects on labour costs and half of the enterprises also observe a reduction of the other costs as a result of a transfer. Altogether, nearly three quarters of all enterprises succeed in strengthening their competitive position by transfers abroad.
Enterprises indicate hardly any major business disadvantages in the context of transferring activities. Only rearranging logistics may involve more costs than before.

Target countries: New EU members and China

Transfers of business activities

.The attractiveness of various regions and countries as a destination for transfer differs considerably and also depends on the economic branch of the transferring enterprise. Especially the new EU member states have been a focus of business transfers over the last few years. 60% of all transferring enterprises went there, with industrial enterprises showing the largest commitment (62%). Slightly more than half of the enterprises of both trade and services chose the new EU states for their location transfers.

Contrary to that, the share of enterprises transferring activities to the old EU--European Union states in all transferring enterprises (30%) was only half of those going to the new EU member states. Also, the industry had a below-average share there (just 26% of their transferring enterprises). For trade businesses, those countries were the location for 43% of their transferred activities, while for enterprises in the service branches the share was 38%.

Outside Europe, the markets of China are the most attractive destination for transfers. 36% of all transfers went there, again with an above-average share of the industry (38%). Among the enterprises in trade and the service branches, about every third transfer decision was taken in favour of China.

Table: Target regions for transfers in the individual economic sectors

Industry transferring especially its core business

About 60% of the enterprises transferring activities to other countries, were looking for a new location for their core business and about 62% for auxiliary functions. The latter include most often functions of marketing, distribution and related services (24% of the transferring enterprises) as well as logistics and engineering including related technical services (17% each of the transferring enterprises). In part, the relevant shares differ considerably between economic sectors: About 67% of the enterprises of manufacturing that transferred activities abroad were looking for new locations for their core business, and in the less technology-intensive area the share was even some 71%. In the other economic sectors, only about 40% did so, although auxiliary functions were transferred much more often there (81%) than in manufacturing (56%).

Table: Transfers to other countries in the individual economic sectors by business functions

Jobs: Qualification is crucial

Job effects

.Generally, transferring business function involves a transfer of jobs, too. Altogether, the larger enterprises have cut 188,000 jobs in Germany through transfers over the last few years. Also in the context of transfers, however, 105,000 new jobs were created at the same time at the domestic locations, that is about 56% of the transferred jobs.
However, the qualification required for a job and the economic branch to which an enterprise belongs are crucial for the ratio between transferred jobs to new jobs. In the total economy, 125,000 low-qualification jobs were transferred and just 37% new jobs with similar qualification requirements were created at the existing location. In the industry, 95,000 low-qualification jobs were transferred and only a third of that number were created as new jobs.
The 63,000 higher-qualification jobs transferred in the total economy are contrasted by 59,000 new jobs, which is 94%. That ratio is similar for enterprises in the high-technology part of the industry. In the service sector, there were even more new high-qualification jobs than transferred jobs. Especially the knowledge-intensive service enterprises created 20% more high-qualification jobs than they transferred abroad.

Table: Job effects caused by transferring

Author:
Hartmut Höh - Federal Statistical Office
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