Muscle Man

German Metalworking And Electronics Make Global Push

Steel worker in German’ys thriving metal industry
The German metal industry holds its own in the global market.
  • Why it matters

    Why it matters

    As China’s metal and electrical industry gobbles up world market share, Germany is bucking the trend.

  • Facts

    Facts

    • M+E’s share in German gross-value creation increased from 13.3 percent in 2000 to 14.6 percent today.
    • German metalworking and electrical companies had about €1,000 billion ($1,314 billion) in sales during 2013.
    • About two-thirds of all research and development spending in Germany go to the metal and electrical sector.
  • Audio

    Audio

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Once every year, German business leaders gather for a summit on the state of the nation’s industries. The annual Day of German Industry comes again September 23 with Chancellor Angela Merkel and Finance Minister Sigmar Gabriel welcoming the economic elite.

The messages likely will be similar to those a year ago: Germany has done well not to put all its hopes in the financial and service sectors, as Great Britain has done. Only flourishing industry assures success as an exporting nation – and this achievement must not be allowed to fall to rising energy prices.

In fact, Germany up to now has fought off the threats of deindustrialization that afflict many of its neighbors – due largely to the strength of its metal and electrical industry.

The industry’s employer association, Arbeitgeberverband Gesamtmetall, commissioned a recent study by the Cologne Institute for Economic Research. It showed that the industry’s share in gross-value creation increased from 13.3 percent in 2000 to 14.6 percent today. The share for the service sector, meantime, stayed about the same, at 68.7 percent.

“The trend toward deindustrialization in Germany has been halted mostly because of positive growth in metalworking and electronics,” said Michael Stahl, the chief economist for Gesamtmetall.

In all, the industrial sector now contributes about 22 percent to German gross-value creation.

In all, the industrial sector now contributes about 22 percent to German gross-value creation – a figure that many neighboring countries look upon with envy. In France or Great Britain now, industry’s share is only around 10 percent. The European Union has set a goal of increasing industry’s share in gross-value creation by 2020 from 15 to 20 percent on average.

For their part, the companies of Germany’s metalworking and electrical industry had €1,000 billion ($1,314 billion) in sales during 2013, which represents 57 percent of revenues in the manufacturing sector. The industry has grown by 3 percent annually since 2000 – about twice as fast as other industrial sectors.

On the international level, the German metal and electronics sector slightly enhanced its position as well. Admittedly, the share of China’s M+E industry in worldwide gross-value creation has increased at a dizzying pace since 2000, to almost 25 percent today – all at a cost to other industrial countries. In addition to South Korea, only Germany has been able to buck the trend. German companies slightly increased their share in global gross-value creation to 9.6 percent.

This strong position comes from several factors. First, about two-thirds of research and development spending in Germany goes to the metal and electrical sector. One example can be seen in automotive production, where 40 percent of sales are earned through new products.

Steel plant Thyssen Krupp 2012.
Thyssen Krupp, based in Essen and Duisburg, is one of Germany’s industrial power houses. Source: Reuters.

 

Second, Germany profits from being a major crossroads in Europe’s tight-knit production network. In 43 percent of deliveries that are made outside European borders, German metalworking and electrical firms share in the revenues that are generated.

Finally, German companies adapted early to globalization and opened new markets. Today, M+E exports contribute almost 15 percent to overall gross-value creation in Germany.

Although traditional producers from industrial countries have lost shares in export markets to new competitors from Eastern Europe and especially to China, they are still among the winners in globalization. Thanks to the rapidly growing world market, they have been able to further increase their exports in spite of a decline in their market shares. So the exports of traditional industrial countries to newly competitive nations exceed their imports by almost $400 billion ($525 billion).

It’s questionable how long this can continue. Up to now, developing countries have had enough to do simply with satisfying local demand. “What will happen when China, for example, has build up its domestic economy and thrusts itself onto the world market?” asked Mr. Stahl, the economist for Gesamtmetall. The answer is obvious: Competition will be even tougher for German producers.

But the overall economy and neighboring countries are evidently concerned with assuring that the German metal and electronics industry continues to flourish. When the demand for German M+E products rises by €1 ($1.31), production in Germany increases by €1.7 ($2.23) and in other E.U. countries by €0.4 ($0.52).

This article was translated by George Frederick Takis. Greg Ring also contributed. To contact the author: specht@handelsblatt.com

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