what is made in germany really worth_love aludo

WHAT IS ‘MADE IN

GERMANY’ REALLY

WORTH?

By

ALUDO, Love

Course: Introduction to Contemporary Germany Evaluated by: Anne Delouis, PhD.

January, 2016

What is ‘Made in Germany’ Really Worth? | Love Aludo

2

WHAT IS ‘MADE IN GERMANY’ REALLY WORTH?

1.0. ABSTRACT

In this study, we will be focusing on all the components that come together to

create and add value to the German manufacturing industry, the story within the

“Made in Germany” label and the factors that have given the German products

their global reputation for dependability for decades owing, a fortiori, to great,

durable and sustainable inventions.

I am hoping that these practices can be used as models in developing economies,

that SMEs can learn from the success stories of family businesses in Germany and

that governments implement unbiased policies that promote transparency in

research to favor sustainable development, as well as the growth of businesses and

upcoming entrepreneurs.

German products are generally known for high quality, excellence, especially

engineering excellence, and with the increasing climate challenges, Germany is

fast meeting milestones on its renewable and clean energy roadmap for the

environment. German brands are important to everyone’s lives, from

pharmaceuticals, to food, and production machineries, clothing and automobile.

Seeing “Made in Germany” on a product in the stores holds positive promises.

Personally, a friend of mine handed me a household product recently and said “It’s

cheap, but it’s of good quality, it’s made in Germany”.

The general perception is that German products are expensive and consumers

might hesitate to pay for a German good, and opt for a cheaper competition

instead, but in the end, consumers would rather purchase Made in Germany, for

their quality, durability and precision. This loyalty reflects in Germany’s export

success and some of the intangible and invaluable influences driving the quality of

the label will be seen in this text.


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1.1. German Economy

Germany has a population of about 80 million people, the largest European

economy, one of the largest economies in the world and one of the world’s top

three exporters.

In 2014, exports from Germany (German products) amounted to US$1.511 trillion,

up 18.9% since 2010.

Based on statistics from the International Monetary Fund’s World Economic

Outlook Database, Germany’s total Gross Domestic Product amounted to $3.722

trillion in 2014.

Therefore, exports accounted for about 40.6% of total German economic output.

Given Germany’s population of 80.9 million people, its total $1.511 trillion in

2014 exports translates to roughly $18,690 for every resident in that country.

The following export product groups represent the highest dollar value in German

global shipments during 2014. Also shown is the percentage share each export

category represents in terms of overall exports from Germany.

i. Vehicles: US$259.4 billion (17.2% of total exports)

ii. Machines, engines, pumps: $258.5 billion (17.1%)

iii. Electronic equipment: $147.9 billion (9.8%)

iv. Pharmaceuticals: $80.1 billion (5.3%)

v. Medical, technical equipment: $69.5 billion (4.6%)

vi. Plastics: $63.3 billion (4.2%)

vii. Aircraft, spacecraft: $44.1 billion (2.9%)

viii. Oil: $42.7 billion (2.8%)

ix. Iron or steel products: $33.5 billion (2.2%)

x. Organic chemicals: $30.4 billion (2%)


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1.2. German Foreign Trade

Germany has gradually become the world’s second-largest exporter, with China

being the first. Their exports have contributed two-thirds of the country’s

economic growth in the past ten years and have increased the GDP per Capita

faster than that of any other major industrialized country.

“We German’s have 1% of the Labour force of the world and 10% of the exports

of the world, that gives you an idea of how successful and how oriented towards

international markets we are.”- Norbert Walter, Former Chief Economist,

Deutche Bank

Here is a list of Germany’s Top 10 trading partner countries with export value in

US Billion Dollars:

i. France $138b

ii. United States $121b

iii. United Kingdom $105b

iv. Netherlands $98b

v. China $92b

vi. Austria $77b

vii. Italy $73b

viii. Switzerland $65b

ix. Poland $58b

x. Belgium $58b


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2.0. Common Terms for Key Drivers of the German Business Environment

2.1.0. The Mittelstand

Germany's industry growth is driven 99% by many small and medium sized

enterprises called Mittlestand.

Germany's Mittelstand usually encompasses the machinery, auto parts, chemicals

and electrical equipment sectors.

Although the term Mittelstand is not very easy to translate, we can say that they are

mid-sized firms as opposed to larger companies.

“Mittelstand companies benefit from Germany's apprenticeship system, which

provides highly skilled workers and there is a "collaborative spirit” that

generally exists between employer and employees . . . . In the post-reunification

recession, it seemed only natural to German workers to offer flexibility on wages

and hours in return for greater job security."

Most Mittlestands are family-owned companies with less than 500 employees. The

Mittlestand in Germany currently has more than 3 million companies, and employs

more than 70 percent of the country's workforce. About 99% of German businesses

have the Mittelstand status.

2.1. Family Businesses

The Family Businesses are the pillar of the German economy. This is very

important for German products and German businesses because they promise

continuity, long-term investments, independence, flexibility, very slim hierarchy,

innovativeness, strong competition, stability and customer focus.

“They account for 41% of German companies' sales and for 57% of all jobs in

the country. Between 2003 and 2005 the 500 largest family-run firms increased

their staff by 10% to 2.2 million employees in Germany, compared to a three

percent reduction for the country's entire economy. That makes family


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businesses the German job motor. Ninety-five percent of firms are run as family

businesses. Some of them have been successful for decades - even centuries.”

Up to 85% of the German businesses have at least one member of the founding

family in management. This means that a coming together of proprietorship and

management is not an exception but a rule in German family businesses. The most

important management principles in the family businesses are: securing the family

business and orientation towards long-term goals for the brand. This makes it

difficult for managers or employees to take lightly the operations or perception of

the brand, because everything around the product is streamlined towards thriving,

market leadership and continuity. Some examples are Miele, Trumpf, Beckhoff.

In reforming the country’s labor market, successive governments have been ahead

of the curve, and so have Mittelstand companies. By avoiding debt, specializing in

niche markets, developing product-related services and investing in vocational

training, the Mittelstand have remained at the cutting edge of global

manufacturing.

2.2. The Hidden Champions

Hidden champions produce products that are not well known, but in the market for

these products they are ranked among the top 3 in the global market for their

products. A lot of the Hidden Champions started their products as an innovation

and maintained this peculiar spot in the market, or were at least able to keep a

prominent position as leaders.

Hidden Champions are relatively small companies but are committed to innovation

towards exports. They have a revenue of slightly less than $4billion. They provide

complete solutions for their products, including after-sales services. Hidden

champions are very expansive in how they find their customer base. They spend

about twice the amount of money that regular corporations spend on R&D to think

creatively and develop technology to meet human needs.

Some examples are Omicron Nanotechnology, Webasto and Ottoboc.


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3.0. WHAT REALLY GOES INTO A GERMAN PRODUCT?

3.1. German History and Culture

“Germans are stoic people who strive for perfectionism and precision in all

aspects of their lives. They do not admit faults, even jokingly, and rarely hand

out compliments. At first their attitude may seem unfriendly, but there is a keen

sense of community and social conscience and a desire to belong. “-Kim Anne

Zimmerman

Gemans have long been involved in craftsmanship. They are known to have

structured professions, for example woodwork, at a very early stage in guilds, at

about the 14th Century, centralizing knowledge about those aptitudes and gaining a

high skill set in the field. Yet till this day, one would need to undertake an

apprenticeship to learn e.g. Carpentry for 2.5-3years full time, only after which one

would be allowed to offer services in this domain.

An apprentice can further go ahead to be a master, gaining ability to transfer the

skills to apprentices by oneself. Germany’s growth success in industrialization can

be said to be the result of an agreement between industrial business people and the

aristocracy who were in charge of much of the land – the production of coal and

steel, machines and machine tools, chemicals, electronic equipment, ships were

common, and, later, motor vehicles, during the late 19th – early 20th centuries.

Business, labor, and farm associations also cooperated with the government to

create a form of “organized capitalism,” different from the capitalism of Britain

and the United States which were less regulated. The strong industrialized base in

Germany saw the economy through two world wars; and yet, it is seen as a

globally recognized leader in manufacturing and technological inventions.

3.2. The German Personality Stereotype

Knowing who a person is can influence your reception or perception of what they

have to offer, and this is why, we cannot talk about the German brand without

reference to the “who” behind the “German”, that is, the traits that Germans are

associated with.


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Perfectionism, for example, is a prime German characteristic which has proven

beneficial to their auto industry. Compromise and settling for what is manageable

is not good enough. Strictly speaking, only the quintessence, the best, will do.

The average German is motivated by winning, achievement and success and this

reflects in their business environment.

Germans are honest, some say painfully honest and the most direct in the world.

This means that when you read the Nutritional Value on the pack of a ketchup

made in Germany, you can be sure of what it promises.

Germans also feel that everything needs order, Ordnung: black from white, truth

from the lie, the public sector from the private sector, definitions must be precise

regarding what is masculine and what feminine and what is neutral.

This data subconsciously goes into the mind of the consumer as they consider

German brands.

3.3. German Work Ethic

The average German is hardworking, disciplined and productive. According to the

Organization for Economic Cooperation and Development (OECD) ranking of 38

countries on the list of annual hours worked per worker, the Germans work the

least of all, yet they still have the strongest economy in Europe.

3.4. Years of Apprenticeship and Technical Schooling

German excellence in production owes partly to years of apprenticeship and skills

acquisition. Apprenticeship is defined as:

“A combination of on-the-job training (OJT) and related classroom instruction

under the supervision of a journey-level craft person or trade professional in

which workers learn the practical and theoretical aspects of a highly skilled

occupation.”

Germany’s education system, focuses on vocational, or skills-targeted training that

incorporates a wide range of professions.


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These Berufsschules (vocational school, technical school) are sponsored and

overseen by the Federal government in association with manufacturing groups

(Chambers of Commerce) and Trade Unions. For a product to be tagged “Made in

Germany”, it must have gone through the hands of highly trained personnel who

have survived highly regulated apprenticeship.

3.5. Research and Development

Innovative capabilities allow companies to re-invent themselves and have a

competitive advantage. German commitment to Engineering, Science and research

is prominently laudable. Research forms and integral part of the German economy.

The Germans have a very healthy appetite for success and are hardly prepared to

settle where they are. To keep the German reputation at its peak, German

companies spend billions on research. Industry-based and -financed investments

account for more than two-thirds of all R&D funding in Germany. Companies are

particularly involved in applied research and work closely with universities,

universities of applied sciences and non-university research institutes. One of such

successful technology transfers is found in the areas of environmental research,

resource-efficient production and new materials. In all, there are more than 800

publicly-funded research institutions in Germany, as well as research and

development centers run by industrial corporations.

In 2014, the annual budget for R&D stood at approximately 56.1 billion euros

(internal R&D expenditure) and in 2013, companies spent about 54billion euros to

strengthen Germany as a business location, in the international competition.

3.6. The German Labor Force and Management Models

German products are the final outcome of well-trained, loyal employees. Some of

them work for decades thus improving their chances to gain more expertise in their

field. In times of recessions in the firm or in the economy, the Mittelstand, for

example, would rather consider offering flexible hours to employees and more

training than lay off staff.


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The German Management Style hinges on attention to details, leaders act based on

a plan, they do everything to eliminate risks, they avoid surprises, they give a

certain autonomy to subordinates to be part of the decision-making process, hence

decision making is slow, this may be seen as a weakness or a strong point but

Management does not rush into decisions. German leadership styles are sometimes

said to be full of regulations and of less compassion but this is a contributing factor

to discipline in the workplace. Work hours are work hours, there is zero tolerance

for frivolities in the work place, still the Germans play hard as they work hard and

they have a steady work-life balance.

3.7. German Government Roles in Driving Quality

Achieving the glorified status of Made in Germany has its hurdles of regulations,

bureaucratic procedures and standards which must be tested and certified. The

government also operates a welfare state which engenders ‘motivated’ employees,

the government creates an atmosphere for efficient economy, good road network

and transportation.

It is a system that makes the most resourceful use of every means. They operate a

Social Market Economy, sometimes classified as a coordinated market economy.

This ideology has some elements of a free market economy (free foreign trade,

private property, exchange of goods, and free formation of prices) but the state is

active, especially in implementing regulative measures and social policy.

People in poorer countries work hard, but they don't produce very much because

the system most times, is dysfunctional. Workers are much more productive in a

system with an efficient bureaucracy and well-organized economy.

3.8. Concern for Environment

Buying Made in Germany is buying environmentally friendly products. The

environmental policies in the country are geared towards energy-efficient goals

and Germany is a home to many energy-intensive products.

Germany’s Renewable Energy Act gives renewable energy precedence on the

network of environmental targets and guarantees that investors in renewable

energy reap its benefits irrespective of electricity prices. This both reduces red tape


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and an increases investment and even further lessened the price of renewable

energy.

““Tax bads, not goods” is the slogan of a tax that puts a high price on

environmentally unfriendly activities, specifically fossil fuel use. Germany has had

a petroleum tax since 1951, and when it was updated in 2007, it was raised to 65

cents per liter. The money collected through the tax is used to offset costs

elsewhere. In the case of the “eco-tax” funds are used to lower payroll taxes with

the goal of making German workers more competitive internationally. The eco tax

is applied not only to gasoline and diesel for vehicles, but to heating oil and fossil

fuels used to generate electricity.”

With its Energiewende, Germany is ahead in renewable energy policies. By being

sustainable, Germany has created more than 370,000 new jobs, establishing the

world’s leading green technology sector, and has brought to a minimum its

dependency on the import of fossil fuel. Germany's Energiewende creates a global

market for renewable energies, such as wind and solar, by encouraging the speedy

development of these technologies through a steady policy structure. As a result,

the cost of both wind and solar has dropped ‘dramatically’ over the past few years.

Other countries are following the trend, especially the United States. Germany

considers this achievement prideworthy, as it will in turn be beneficial to further

technological and innovative breakthroughs from other countries in this field. This

practice will also help launch the Japanese energy transition. It lays a strong

foundation for responding to the challenges of climate change.

The German Federal Government has proposed an ambitious greenhouse gas

(GHG) emissions reduction target, in which by 2020 and 2050 GHG emissions will

be reduced from 1990 levels by 40% and more than 80%, respectively. The

decrease in German energy ensures sustainable developments.

In spite of economic recession throughout many parts of the European Union,

Germany’s economy is doing great. Germany’s manufacturing industry is

competitive worldwide, and energy consumption data as well as her productivity in

the energy sector rank among the highest in the world. China, Jordan, the

Philippines and The US can take advantage of Germany’s breakthrough in clean


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production and recycling, productivity promotion, quality control and precision in

product design, in the manufacturing sector.

4.0. GERMAN INNOVATION AND CHINESE EXPORTATION

While China remains the world’s number one exporter, there stands to be a huge

difference between the products manufactured in both countries.

China is the world’s most populous nation, with a population of 1.3billion

inhabitants, Germany would hypothetically not seem to stand a chance with its

approximately 80million people, but in true terms, German export in billion USD

amounting to $1,492,000,000,000 was still worth more than half of the Chinese,

which was $2,343,000,000,000 in 2014.

Athar Hussain, Director and Professor at Asia Research Centre, London School of

Economics and co-author of a number of books including Transforming China's

Economy in the Eighties, is of the opinion that if China is to upgrade its economy,

it has to copy Germany's manufacturing model in place of the UK's financial

services model, according to him:

"While the share of manufacturing in China is still high, I still think there is

great potential there. Germany is a good role model for China. Even though the

German car industry was quite advanced in the 1960s, it has kept investing and

investing. They may be a high-cost producer but because of technical innovation,

people are prepared to pay high prices for BMWs."


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4.1 GERMAN INNOVATION AND OUR WORLD

German labels and inventions play very prominent roles in our everyday lives.

Below is an array of very few of the inventions that have modified and shaped the

way we live that were actually invented by the Germans. The list is almost endless:

Adidas shoes, the Airbag , Aspirin, Automobile, Bacteriology, which was a mega

success in the micro-world, the Beer, Bicycles, Book Printing, an evolution in the

art of reading, the C-leg by Otto Bock, (a Hidden Champion), the Chip cards, an

almost indispensable part of our IT world, the Christmas tree, the first fully

functional, programmable computer, used in 1941.

Contact lenses, an evolution from the eyeglasses, the Gummi bear candy,

helicopters, the timeless Jeans, the Kindergarten, also known as the crèche,

motorcycles, the MP3 format, the music record player, the refrigerators, the small

format camera, the end of big photographic machines, tape recorders, the

Televisions, Thermos flasks, Toothpastes, the X-ray technology for looking

beyond the skin through a transparent procedure, it is argued that Heinrich Göbel

invented the lightbulb 25 years before Thomas Edison but did not patent his work

and lost claim to the invention of incandescent light, but we are sure of Fanta,

which has remained a globally recognized refreshing drink for decades.

The most anticipated innovation is the Industry 4.0 manufacturing model, a

high-tech automation technology where raw materials and machines will interact

with each other to cooperatively drive production. This is the fourth industrial

revolution that includes self-configuration, self-optimization, self-diagnosis of

machines and intelligent support of workers in complex work.


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5.0. CONCLUSION: Passion for Detail

It is said that the Germans make the thing that goes inside the thing that goes inside

the thing.

In an era when most industrialized economies ship manufacturing tasks to lower-

cost countries, especially Asian, Germany manifests that a present-day economy

can still flourish on building things.

Other countries may quake in the face of competition from Asia, but not Germany.

Its luxury manufacturers sell posh cars to the new Asian rich. They make machine

tools and equipment that Chinese firms use to make consumer goods. Through

their researches, the Germans are constantly innovating, adapting and evolving.

The returns for possessing or merely looking at a wonder of German

manufacturing can be very rewarding and assuring both psychologically and

materially. From mp3 format to contact lenses and automobile, the Germans have

carved a niche for inventing the things that humans crave most, like shoes and

refrigerators, high-end appliances, X-ray machines, industrial equipment, music

production equipment used all over the world and calculators.

Speaking of calculators, it is impossible to analyze the value of German-made

goods or models in numbers, the products might be relatively expensive when

compared with products from other origins in the markets, but you can be sure that

they are worth more than figures. Made in Germany symbolizes trust. It is

appreciated by consumers who know the German’s devotion to precision, their

ingenuity and like the Volkswagen plant in Chattanooga motto goes; Passion for

Detail.


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what is made in germany really worth_love aludo

Economy & Finance