17.03.2025 - Germany's industry is increasingly shifting abroad due to high costs. High energy and labor costs, geopolitical uncertainties, and a weak economy are putting pressure on companies and reducing Germany's appeal as a location. This is shown by a special evaluation of the current DIHK survey on foreign investments. Of the approximately 1,700 industrial companies active abroad that were surveyed, 40 percent plan investments abroad – a slight decline compared to the previous year (42 percent). The focus is no longer primarily on opening up new markets but mainly on cost reductions. “Germany is in danger of falling behind. If companies increasingly relocate abroad because high energy costs, paralyzing bureaucracy, and increasing taxes suffocate them domestically, it sends a dangerous signal,” warns Volker Treier, DIHK's Head of Foreign Trade. In fact, the motive of cost-cutting for foreign investments has reached its highest level (35 percent) since the financial crisis in 2008. “We are standing at a turning point: Germany is rapidly losing ground as an investment location,” Treier states. “More and more companies are forced to relocate their production and jobs abroad – this is a massive wake-up call for our economic policy!”

Smaller industrial firms currently face difficulties in engaging internationally: Only 30 percent of companies with up to 200 employees plan investments abroad (previous year: 31 percent). Before the COVID-19 pandemic, this proportion ranged between 35 and 39 percent. For large companies with more than 1,000 employees, the level remains high (80 percent compared to 81 percent the previous year).

Germany under pressure as an investment location

The comparison between domestic and foreign investments highlights the current challenges in Germany: While more companies are expanding investments abroad, domestic investment readiness remains poor: Two out of five industrial companies want to reduce their investments in Germany. The gap between the two trends continues to widen – a clear indication of Germany's disadvantages as a location.

Changing investment motives: Focus on cost-cutting 

Traditionally, foreign investments have long served to open up new markets. This motivation remains relevant but is only at the long-term average level of 30 percent. Large companies (1,000 or more employees) invest more often for market expansion (47 percent compared to 43 percent the previous year). Smaller firms, however, increasingly focus on expanding sales and customer services abroad (43 percent compared to 46 percent). 

Simultaneously, the cost motive has reached one of its highest values since 2008. Energy-intensive companies, in particular, suffer from high energy prices: 76 percent of these companies cite energy and raw material prices as central business risks. Consequently, they increasingly plan investments at locations offering better conditions. 

 

Shift in target regions: America on the rise 

The target regions of German foreign investments are shifting. While the Eurozone remains the most important region for investments at 64 percent, North America's appeal continues to grow. The proportion of companies planning investments there rose from 45 to 48 percent. Especially in mechanical and automotive engineering, the proportion exceeds 60 percent – a record high. Here, besides market opportunities, lower energy costs and local regulations also play a role. Although diversification into the Asia-Pacific region has recently increased, this trend is now reaching its limits. The decrease in investments in this region indicates that companies are becoming more cautious. The gradual retreat from the Chinese market continues: Only 31 percent of firms plan investments in China – down from 33 percent the previous year. The decrease is even more pronounced in other parts of the Asia-Pacific region excluding China: Here, the proportion drops from 33 to 21 percent. Reliable free trade agreements between the EU and countries like India and Indonesia are all the more important, as they facilitate access to these dynamic markets and create long-term investment security.

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Action needed for Germany as a location 

The results of the DIHK survey show that German industrial companies are increasingly prioritizing foreign locations due to high costs and uncertain conditions. Particularly concerning is the fact that companies investing abroad for cost reasons drastically reduce their domestic investment and employment plans. “If companies increasingly see their future outside Germany, more is at stake than just individual investments,” warns Treier. “It is about the prosperity and economic stability of our country. Politics must now act decisively – with lower energy prices, tax and bureaucratic relief, and better conditions for skilled workers!”