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Countries

Businesses returning to Germany

Many German businesses moved to Eastern Europe in search of cheap labour from the 1990s, in particular to the Czech Republic, Poland, Hungary and Slovakia:

Manufacturing bases requiring skilled and low-skilled labourers were relocated to Eastern Europe. It was estimated that in 2006 alone, 50,000 jobs in Germany were lost to neighbouring countries. Distribution facilities were also established to take advantage of growing Eastern markets.

Businesses are returning to Germany, partly due to Germany’s attractive business environment and also because expectations of profits have not been met as costs in Eastern Europe are rising:

In 2007, one in five businesses in the metal and chemicals sector moved or are moving back to Germany.

Importance

Germany introduced a number of reforms in 2005, which have started bearing fruit. The unpopular Hartz IV reform, for example, put harsh restrictions on unemployment benefits, which have acted as a stimulus for the long-term unemployed to find jobs. These reforms in combination with a cyclical upswing have improved the business environment:

Real GDP growth rose from an annual average of 0.6% between 2003 and 2005 to 2.7% in 2006;

As a result, the unemployment rate is at its lowest since the early 1990s. In 2007 alone, the rate shrunk from 9.2% in February to 7.9% in September;

In the World Economic Forum global competitiveness index 2007-2008, Germany improved its rank from 7th in the previous year to 5th out of 131 countries;

Germany has built up technology hubs, in particular in Eastern Germany, where know-how and technology are clustered.

The Eastern European business environment is not what many German companies had hoped for:

The economic boom in Eastern Europe has caused wage pressures, which have driven up labour costs;