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Business

Keeping Production in Germany, But For Less Pay

With Germany’s high labor costs, many companies are relocating their production to cheaper places. But one Swabian firm has found a solution to keep manufacturing close to home.

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Germany leads in exports, but the labor market is suffering as a result

It was a painful decision for Metabo’s 2,600 employees. But less money for the same work was still better than no money for no work.

Metabo’s management needed to cut costs, as many German companies do. Last fall, the power tool manufacturer made the options to its workers clear: either gradual cutbacks in production in Germany or strengthening the Nürtingen facility through lower wages and massive investments.

"We were also told that if we didn’t agree, then relocation to China would begin," said Peter Teubel, head of the works council. The threat at gunpoint was effective and the workers agreed to renounce part of their wages. It was a difficult decision, but at least it ensured their jobs for the time being, Teubel said.

Several measures, including a move from incentive to time wages, as well as the end of special work breaks, meant 20 percent less labor costs for Metabo. In return, the management said it would not cut jobs in Germany until at least 2008. It also documented its commitment to Nürtingen with a €14 million ($17.8 million) investment volume.

The competition has long moved east

Germany, the euro zone's largest economy, has just been named the world's leading export champion in 2004 -- for the second year running.

Werkzeugmaschine aus Zerbst

A worker at tool factory Zerbst assembles machinery

But the high demand for German goods and services worldwide has also led to higher unemployment in Germany. Many people have lost their jobs because companies choose to relocate their manufacturing abroad, where it’s cheaper.

Three Swabian tinkerers founded Metabo in 1924, producing hand-powered drills. Today, the product range includes 200 power tools of numerous types. The company manufactures some 10,000 electric drills, angle grinders or saws -- daily.

They produce almost solely in Germany, while the competition has long since migrated to the Far East for manufacturing.

The "Mercedes" of the power tool sector

"Our lodestar is quality," said Metabo's outgoing CEO Martin Bertinchamp, who is leaving the company on Nov. 1, 2004.

In order to maintain its reputation as the "Mercedes" in this sector, Metabo regularly trains 80 apprentices and offers all employees additional instruction. They also invest significantly in development and the corresponding quality control, he said.

And it’s profitable, said Bertinchamp, without disclosing exact revenues. Last year, sales were down slightly from €395 million to €380 million. Exports to over 100 countries make up for 80 percent of this amount.

Bauarbeiter auf der Baustelle

Germany's construction sector is in a deep crisis

But the CEO is worried about the Central European market. The downturn in the construction sector has led to less demand for professional power tools, he said. In addition, many do-it-yourselfers have turned from handymen into computer lovers.

These developments leave the rapidly growing Asian markets as potential customers. But they are also home to many competitors. So, in order to continue to be in the black, Metabo simply had to lower its labor costs, said Bertinchamp.

"It’s going to get worse"

Bertinchamp said regardless of these measures, many changes are needed to ensure Germany’s position as an industrial stronghold. Politicians needed to radically clean up social and tax systems, as well as environmental and industrial safety regulations, he said.

"We need more flexibility in working hours and the protection laws against dismissal need to be relaxed," said Bertinchamp. "We need to have the opportunity to keep certain activities here, but to pay less wages for this, as is the case in other countries, too."

The CEO doubts, though, that these changes will be implemented in time. His skepticism is directed mainly towards politicians.

"It’s going to get worse before everyone in Germany realizes that we need real reforms and that these must be implemented quickly," he said. "I think that the next two years will be decisive to show whether we can succeed or not."

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