Pushy unions, a pricey workforce and a rigid labor market: companies have a litany of complaints about doing business in Germany. A new study looks at why U.S. firms often do better than their German counterparts.
German carmaker Opel is owned by American auto giant GM.
German businesses, proud global exporters, regularly fume that their country’s generous welfare system and fondness for bureaucratic red tape have made the home market almost unbearable. Executives from Munich and Frankfurt often pine aloud for the flexible and friendly business conditions prevalent in the United States.
With high unemployment, sluggish growth and weak domestic demand, few can deny Europe’s largest economy has long been stuck in a rut. But much of the managerial carping fades in light of the fact that American firms operating in Germany typically make twice as many profits as comparable German companies.
A recent study undertaken by the Düsseldorf-based consultancy Droege & Comp. asked why U.S. companies apparently do so much better than their homegrown competitors.
Nearly a fifth of the 1,800 U.S. companies in Germany, predominantly from the automobile, energy and information technology sectors, took part in the survey. Droege looked at not only profit margins and raw business data, but also at so-called soft factors, such as the “Americanness” of the various firms.
“The American aspect that makes things a success is first of all the strong orientation towards profitability in all business aspects – it’s also the flat hierarchies and informal communications that speed decision making,” Droege’s Andreas Back told DW-RADIO.
Germany's largest investor
Despite the high business costs and rigid labor market, America remains Germany’s largest foreign investor. U.S. companies account for approximately €540 billion ($589 billion) in annual turnover and the estimated 800,000 employees at U.S. firms make up roughly two percent of the total German workforce.
Back said the Yankee entrepreneurial spirit even seemed to work when U.S. firms relied heavily on German managers. He also said the stereotype of the American preoccupation with customer service appeared to be a key factor.
“For American firms it’s obvious that everything will be done to make sure a customer is satisfied. They know it’s much more expensive to win new customers than sell a current customer new services,” said Back. “German companies haven’t quite gotten the service mindset yet and the American firms use that as a competitive advantage.”
Naturally one could argue that American companies that have been successful enough to set up shop overseas are by definition better than average, making a comparison to all of Germany’s domestic businesses, both good and mediocre, unfair. But operating in a foreign environment also presents a company with plenty of disadvantages, and managers are often faced with a steep learning curve as to what makes the local market tick.
Flexibility seen as key
Some Germans seem to think success depends not so much on the flexibility of a country’s labor market, but rather the flexibility of the minds of managers.
“It’s a mutual learning process. We have to learn how to deal with such types of managers, on the other hand, the Americans have to learn how to cope with the way of doing things and the discussion culture here in Germany and Europe,” said Klaus Franz, head of the worker council at carmaker Opel AG.
Opel, which is owned by American auto giant General Motors, allows workers via a work council to have input on managerial decisions beyond wage contracts and working conditions.
Franz said the American managers he’s worked with have come to appreciate worker co-determination. With some even keen to take the concept back to the United States, American businesses may just end up being just a little bit more “German” than they were.