Germany Industrial Policy

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UNIVERSITY OF NATIONAL AND WORLD ECONOMY

Germany Industrial Policy

June, 2012 Prepared by:
Sofia, Bulgaria Dimitar Vutkov F.N. 286153 1. Germany’s international competitiveness

Barely a short decade or so ago, Germany was considered to be downright uncompetitive compared to its international counterparts. Described as a “laggard” and “the sick man of Europe”, its supposedly rigid and outdated economic structures were blamed for the country’s ills. Many experts advocated adopting the Anglo-Saxon economic model. One of the remedies prescribed, in particular, was a stronger focus on the services sector. Fast-forward to today and the general consensus has changed radically. International companies are lining up to sing the praises of Germany‘s competitiveness and the former ‘sick man’ now ranks as one of the best locations for doing business. The German economy, which has proven to be comparatively resilient in the face of the current crisis, is viewed by other countries with a mixture of suspicion and admiration. All eyes are on German exports: only China, a country with a much larger population, has higher overseas sales than Germany. Germany’s competitiveness stems from several successful reforms and a relatively high level of specialization in industrial manufacturing. Compared to other countries, Germany’s manufacturing sector is a key factor in its macroeconomic performance. According to data compiled by the OECD in 2008, industry accounted for 23.1% of the gross value added in Germany. This figure was considerably lower in France (11.9%), the United Kingdom (12.3%) and the US (13.3%). According to the German Federal Statistical Office (Statistisches Bundesamt Deutschland), industry’s share of gross value added fell to just fewer than 20% in 2009 due to the economic and financial crisis. However, it still far exceeds the figure for comparable economies. Thanks to its competitive industrial sector, Germany can benefit from the megatrends that have been emerging for some time now. These trends include environmental and climate protection, future- proof mobility and energy solutions, state-of-the art health technologies and everyday goods geared to- wards an ageing population. German industry is well placed to help tackle these challenges by producing a wide range of products: in addition to a capacity for innovation (industry accounts for almost 90% of commercial R&D expenditure), it has a broad variety of sectors and diverse range of company sizes. Finally, there is a strong impetus for growth within German industry: this will be vital in enabling Germany to emerge from the current crisis in a stronger position than other advanced industrialized countries.

2. Factors determining German industry’s competitiveness

Germany has managed to safeguard its strong industrial base, even in this globalization age – with international locations competing with each other, and companies responding to unfavorable conditions by relocating first production and even business sites they. This is because of the multiple geographical advantages that make industrial production in Germany attractive from an international perspective. These advantages include: * A large domestic market at the heart of Europe and a mainly modern energy, transport and telecommunications infrastructure (rated first in the world by the World Economic Forum) 
 * A motivated and skilled workforce plus a diversified and productive research environment. * A high number of businesses per capita and a varied structure in terms of size and sector, with an efficient industrial SME sector including leading lights in many niche areas (“hidden champions”); Thus enabling the formation of networks and clusters * A very high percentage, by international standards, of...
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