Because Germany is becoming increasingly unattractive as a production location, many companies are moving abroad
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Declining competitiveness in Germany, as well as a weak economy, geopolitical risks, and an increasing number of trade barriers determine the foreign investments of German industrial companies. This is shown by a recent analysis by the German Chamber of Commerce and Industry (DIHK).
The special evaluation of the DIHK economic survey at the beginning of 2024 also reveals that slightly more companies want to invest abroad than in the previous year. The motive of cost savings is increasingly taking precedence over expansion.
Ilja Nothnagel
© DIHK / Werner Schuering
"The opening up of new markets generally provides additional impetus for domestic investments and domestic employment", said Ilja Nothnagel, member of the DIHK executive board, when presenting the survey, in which the DIHK has analyzed the investment plans of around 1,900 German industrial companies abroad in more detail.
"For many years, foreign investments by German companies have also benefited the German location. However, the situation is changing: More and more companies are now investing abroad because they find the German location too expensive and complicated." Nothnagel called the fact that these companies are moving abroad at the expense of the location "an alarming signal." It shows that Germany must become more attractive as a production location again.
Of the industrial companies with investment plans abroad, 35 percent cited "cost savings" as the main motive. "Such a high value was last seen in 2008," reported Nothnagel. "Among smaller companies with fewer than 200 employees, this share is almost as high as in 2004 (38 percent), when Germany was the 'sick man of Europe.' Unfortunately, this is a reaction to the deteriorating economic conditions in the country."
According to the survey, only 42 percent of industrial enterprises abroad intended to invest at the beginning of 2024. While this represents a slight increase compared to the previous year, the share was lower in 2023 (41 percent) and 2009 (40 percent) than it is currently. Companies are also showing restraint in expanding their existing foreign investments. Only 30 percent, down from 31 percent the previous year, want to increase their foreign investment budgets. On the other hand, almost one in four companies (23 percent, up from 18 percent the previous year) plans to make cuts.
"The overall investment budgets are under pressure," commented Nothnagel on the development. "High costs, structural uncertainty due to geopolitics, digitization, and energy prices leave their mark. This also affects foreign engagement."
In the target regions of foreign investments, the ongoing diversification and rearrangement of supply chains are evident. The Asia-Pacific region (excluding China) continues to gain importance. Almost a third (32 percent, up from 29 percent) of companies with foreign investments plan to invest there. Engagement in North America and China remains nearly unchanged compared to the previous year. While the Eurozone continues to be the most important target region for German companies, it loses some significance: Nearly two-thirds of companies (65 percent) plan to invest there, down from 71 percent the previous year.
Course correction is the need of the hour "Overall, our survey shows that urgent action is needed in Germany," summarizes Ilja Nothnagel. "High energy prices and labor costs, a shortage of skilled workers, but also the increasing bureaucracy are causing difficulties for companies here. A course correction is the need of the hour before the industrial structure in Germany is sustainably weakened."
The complete evaluation is available for download here:
Foreign Investment of German Industry 2024 (PDF, 652 KB)
