- By Region
Can German brainpower win against Chinese muscle? A feature of the coming decade will be whether Germany’s world-renowned “Mittelstand” engineering companies can maintain their competitive strengths in the face of the drive by their counterparts in China to expand globally.
A signal of intent was the €525m acquisition in January by Sany, a fast expanding Chinese construction equipment producer, of the German company Putzmeister, until recently the world’s biggest maker of concrete pumps. Sany intends to use its German acquisition to reach new markets in the western world, as well as to accelerate development of its own technology and design.
Bernd Venohr, an expert on the privately controlled industrial groups that form the spine of German industry, says many of these companies face a “serious challenge” over the next few years from Chinese businesses.
Gordon Styles, managing director of Star Prototype, a China-based metal parts producer, says: “The Chinese have a huge desire to improve and compete on the same level as top global players. In 20 years’ time, my impression is that China will be similar [in terms of technology and engineering prowess] to Germany.”
Among the Chinese companies attempting to expand overseas are Ningbo Haitian, a big maker of injection moulding machines which bases much of its globalisation drive on a Germany-based subsidiary, Zhafir Plastics Machinery, which it started in 2006. Dalian Machine Tool Group Corporation, another Chinese company, has also made inroads into Germany through its purchase of F.Zimmermann, a German machine tool group.
Like Sany, these companies hope that by recruiting German engineers and working for more customers based in this country and other western nations, they will absorb new technical ideas and so improve their products’ sophistication.
Xia Yibao, chairman of Chengdu Chengliang Tools, a company in Chengdu that makes equipment for cutting metal in industries such as cars and aerospace, says that the benchmarks in his industry are set by western groups, including German competitors. “We know we have a long way to go before we catch up but we are intensifying our efforts to do so.”
Last year Germany was one of the few countries in the developed world not to see a fall in its share of world manufacturing output, with this figure rising slightly to 6.4 per cent from 6.3 per cent in 2010, according to data from IHS Global Insight, a consultancy. The strong showing from manufacturers based in Germany fits in with the country’s record as having emerged in reasonable shape from the 2008/09 recession, in contrast with much of the rest of the Eurozone.
However, the data indicate that factory output in China continued to power ahead – with the country increasing its proportion of world factory output to 19.9 per cent last year from 17.7 per cent the year before. The high growth meant that China took over from the US as the world’s biggest manufacturer by output, with Germany being the fourth biggest country and Japan in third place.
But the Chinese efforts to improve are not going unchallenged. While Chinese manufacturers are using strong growth at home as a springboard for global expansion, German manufacturers have been among the leaders in setting up their own operations in China, in part to sell to the fast growing local market but also to learn new production techniques and gain access to lower cost supplies.
Peter Löscher, chief executive of Siemens, the big German engineering group, says: “The amount of investment by German companies in China is many times the sums Chinese companies are spending in Germany.”
He says while some Chinese companies – for instance Huawei, the telecoms equipment producer which over the past five years has become a global force – have moved very fast, many of the established German industrial companies “have a reasonable chance of maintaining their competitive positions” as a result of strong investments in technology and design.
According to Klaus Winkler, chief executive of Heller, a privately owned machine tool maker based near Stuttgart, the average productivity of workers in his industry in Germany remains about two-and-a-half times higher than the equivalent level in China, in spite of steady improvements in China over the past decade.
Thomas Koch, chief technology officer at the China operations of BSH, a joint venture between Siemens and the privately owned Bosch industrial group which is one of the world’s biggest domestic appliance businesses, makes a similar point.
In the past eight years, BSH has invested €200m on equipment to make washing machines and dryers at its large plant in Najing but Mr Koch points out that the advantages China used to have from lower production costs are beginning to be eroded.
“While labour costs in Germany are rising 2-3 per cent a year, our equivalent costs [in Najing] are going up 12-15 per cent a year,” he says.
Another German company that has expanded in China as part of a strategic effort aimed at taking advantage of what the country has to offer is Stihl, one of the world’s two largest makers of chainsaws.
Bertram Kandziora, chief executive, says Stihl has taken advantage of lower costs there to develop and make in China a series of cheaper, “entry-level” products that complement the higher-price, more sophisticated chainsaws that it continues to produce in Germany.
Hartmut Jenner, chief executive of Kärcher, another privately owned German company that concentrates on industrial cleaning equipment, says his company’s focus on innovation and new products should mean it can stay ahead. “We have 600 development engineers and now sell 3,000 products, which is 50 per cent more than 10 years ago. I think this provides a good base for the next few years.”