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Foreign investment: Cost-saving" motive on the rise again

Volker Treier: Companies are investing less overall
Drei Containerschiffe am Terminal

The latest DIHK special evaluation shows worrying developments

© Westend61 / Getty Images

Due to higher energy prices and the slowdown in the global economy, German industrial companies are currently investing less abroad. At the same time, almost one in three industrial companies with investment plans abroad plan foreign investment mainly to save costs.

"Strong foreign investments by German companies are basically a good thing. After all, with the German economy internationally closely connected, they also secure the domestic business location," says DIHK Chief Executive of Foreign Trade Volker Treier.

"However, we are currently seeing two worrying developments: With only 41 percent the share of industrial companies currently wanting to invest abroad is on the lowest level since 2009. And among the motives, cost savings are once again on the rise, in addition to the classic motives such as customer service and market development."

Signs of a creeping relocation of production

Of the industrial companies with investment plans abroad, 32 percent named "cost savings" as main motive - a jump compared to the previous year (26 percent). "We last had such a high value in 2008," said Treier. "Among smaller companies with fewer than 500 employees, this share is almost as high as in 2004, when Germany was still considered the 'sick man of Europe', at a good third. That is why we should take these figures very seriously. They are signs of a creeping relocation of production."

Among smaller companies with fewer than 500 employees, 33 percent cite cost savings as a reason for investment, up from 27 percent last year, almost as many as in 2004 (36 percent). Among large companies (more than 1,000 employees), the cost motive is also becoming more important (30 percent after 26 percent previously), although it is still far below the record figure of 44 percent in 2004.

"Almost every third company that wants to invest abroad is reacting to the deteriorating cost structure in Germany. This should be a wake-up call to policy-makers to improve the location conditions in Germany," says Treier. "According to our findings, industrial companies that invest abroad to save costs also have lower plans for investment and employment at home than the average industrial company overall. This distinguishes them from companies whose motives for investing abroad are market development or customer service. These invest more at home and plan with higher employment than the average."

Foreign investment declining overall

Overall, the companies indicated that at the beginning of 2023 only 41 percent of the industrial enterprises intend to invest abroad. This is the lowest figure since 2009, when 40 percent did so. "The Russian war in Ukraine and the significant increase in energy prices, but also the difficult years of the Corona pandemic, are having a particularly negative impact on companies. These current crises have put a strain on investment budgets as a whole and are having a strong impact on foreign investments," says Volker Treier, assessing the results.

Smaller companies in particular are also finding it difficult to invest abroad at the moment. Only 33 percent of the companies with up to 500 employees are planning investments outside Germany. This is a new low. Foreign activity is declining particularly sharply among manufacturers of consumer goods. At 33 percent (after 38 percent in the previous year), fewer than ever before want to invest abroad.

Companies are also holding back on expanding their existing foreign investments. Only 31 percent (down from 39 percent last year) want to increase their foreign investment budgets. On the other hand, almost every fifth company (18 percent after 11 percent in the previous year) plans to cut back. German industry is particularly affected by the high energy prices, especially in Germany. 43 percent of the companies suffering from energy prices will have to cut their foreign investments.

"Overall, the results of the survey do not bode well. There is a slowdown in investments at home and abroad," is Volker Treier's summary. "High energy costs, long approval procedures, a shortage of skilled workers and often inadequate infrastructure are weighing on the position of companies in Germany. Policymakers must address these structural problems, otherwise the industrial foundation in Germany will begin to crumble."

New hurdles at home and abroad

Weakening foreign investment is increasingly being compounded by international trade barriers, according to the recently published DIHK survey "Going International". At 56 percent, more companies see trade barriers than ever before. These include additional checks as local certification requirements, increased security requirements and local content regulations, such as the Inflation Reduction Act in the USA.

But domestic requirements for cross-border business, such as the German Supply Chain Due Diligence Act, are also perceived by companies as such new cost factors. They throw additional sand in the gears of international business. This could stall not only capital movements of German companies, but also trade.

The complete evaluation is available for download here:
Foreign Investment of German Industry 2023 (PDF, 640 KB)


Porträtfoto Dr. Jupp Zenzen
Jupp Zenzen Director Economic Analysis, Business Surveys