Germany-Manufacturing

The German economy is essentially a processing economy. This was true of both West Germany and East Germany before unification. It will remain true in the future, although the detailed shares of GDP remain to be determined by unification and may not be clearly evident until the mid- or late 1990s.

Before unification, 40 percent of the German workforce was involved in manufacturing, with the main industries being machine tools, automotive manufacturing, electrical engineering, iron, steel, chemicals, and optics. Although the industrial sector in the former East Germany is still evolving, manufacturing in that part of Germany is expected to concentrate in the same industries over time. Thus, the future German economy will retain a powerful industrial component that will likely total well above 30 percent of German GDP.

Almost all areas of western Germany have some industry. The main industrial areas are the Ruhr district in North Rhine-Westphalia, the traditional center of German coal, steel, and heavy industry; the concentration of industry around several large cities, such as Hanover, Munich, Frankfurt am Main, and Stuttgart; the chemical production areas that stretch mainly along the Rhine River in Baden-Württemberg and farther north; and the automotive manufacturing centers, increasingly concentrated in southern Germany in Bavaria and Baden-Württemberg.

In eastern Germany, the main industrial manufacturing areas are in Saxony, Saxony-Anhalt, and Thuringia, principally concentrated in the Leipzig, Dresden, Halle, and Chemnitz regions. Before World War II, Saxony was the technology center of Central Europe. The Elbe River, like the Rhine, attracted chemical and other industry along its shores. It is uncertain which eastern German industries will survive, but the firms in the southern part of the region appear to have better chances than those farther north. Even before unification, more industry was concentrated in the south than in the north. The districts in northern East Germany had industrial employment below 25 percent, those around Berlin had industrial employment between 25 and 35 percent, and those south of Berlin had over 35 percent employment in industry. No such clear geographical delineation for sector employment existed in West Germany.

The glory of German industry is not in the big firms that are well known around the world, such as Daimler-Benz, Volkswagen, Siemens, or Bayer (see table 16, Appendix). It is in the small- and medium-sized firms that constitute what the Germans call the Mittelstand . Although that term has political and social as well as management connotations, it has been widely accepted to mean companies that employ fewer than 500 workers. Such firms constitute 98 percent of all German companies, hire 80 percent of all employees, are responsible for a significant share of exports, and provide one of the firmest foundations of the middle class.

The government has supported and furthered the Mittelstand , in part for political reasons, but also because it makes a crucial contribution to the economy. The government has established special provisions that permit those firms to cooperate if they do not thereby hinder competition. It makes available special funds to promote research and development by Mittelstand companies. After unification, the government used investment and tax incentives to encourage Mittelstand companies to invest in eastern Germany.

The single most successful German industry is mechanical engineering, with a total turnover in 1991 of DM240 billion. Unlike many industries in Germany and elsewhere, it is dominated by small rather than large companies. It includes over 4,000 firms throughout Germany. Only 3 percent of the companies have more than 1,000 employees. German mechanical engineering has a range of more than 17,000 products. Almost two-thirds of the products are exported.

The best-known industry and the second-largest, with a turnover of DM217 billion in 1991, is automotive manufacturing. Such companies as Daimler-Benz, Volkswagen, and Bayerische Motorenwerke (BMW) are known throughout the world. Almost half of all German-produced automobiles are exported, mainly to other EU members and to North America.

Electrical engineering ranks third in importance among German industries, with a turnover of DM207 billion in 1991. The biggest single firm is Siemens, although Bosch also ranks among Germany's largest companies. Products range from giant electric generating turbines exported all over the world to smaller electric engines and some consumer goods.

The chemical industry, with a total output of DM166 billion in 1991, is based principally on three large corporations that have been leaders in the field for 100 years--Hoechst, Bayer, and BASF. There are also many medium-sized companies. About one-half of the industry's products are exported.

Other important industries are the traditional German industries of steel and coal mining, both heavily subsidized and still large employers. Precision engineering remains a strong area. Aerospace is a small but growing industry, also heavily subsidized, and German companies often join with companies from other EU countries--such as Airbus and military aircraft production (see fig. 10).

One reason to believe that the eastern and western portions of the united Germany will again knit together into one large manufacturing economy is that such an economy has been part of the German tradition for centuries and that both Germanys have specialized in the same general industrial sectors. Some analysts contend that the eastern economy will even have a competitive edge later in the 1990s because of the vast sums being invested in modernizing its industrial plant.

Data as of August 1995