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Why is Germany so Strong in Manufacturing?
07/25/2016
https://www.protech-international.com/news/why-germany-so-good-manufacturing/
A full 21% of Germany’s economy is fueled by manufacturing. Exporting nearly $1.4 trillion dollars of German manufactured goods each year to the U.S., Asia, and beyond, Germany is inarguably the world’s manufacturing powerhouse. But what made Europe’s stalwart such a manufacturing success story?
SMALL AND MEDIUM-SIZED ENTERPRISES
Whereas more attention gets showered on multi-national juggernauts, Germany’s actually powered by their small- and medium-sized enterprises (SMEs). More than 1,000 SMEs in Germany actually lead or come second in the world in their niche industry, appealing to smaller but dedicated markets in their particular field.
THE FRAUNHOFER SOCIETY
Why are these SMEs so successful? Germany has something called the Fraunhofer-Gesellschaft (Fraunhofer Society), a non-governmental organization that essentially provides short-term research capabilities to small firms that couldn’t afford it otherwise. The organization’s research focuses on applicable, cost-efficient results and provides significant R&D innovation to German manufacturers seeking to compete on a global scale.
Across the board, the 22,000 people who actually work for the Fraunhofer Society focus on accommodating older technology to today’s market using new developments. Germany is particularly good at implementing new advancements across an industry in a short period of time, thanks in large part to the Fraunhofer Society.
THE APPRENTICESHIP PROGRAM
Vocational education is a huge priority in the German educational system. Beginning in the teenage years, German youths are allowed the opportunity to begin years-long apprenticeship programs in specific fields such as laminating, woodworking, metalworking, and machining. From there, the highly-skilled workforce of Germany is borne.
Over 22% of Germans work in the manufacturing sector, and the government also has a very successful system in place that keeps wages high (to attract talented individuals) and steady (to keep them.)
Germany’s focus on testing, innovation, and quality gave rise to its world-renowned machining industry decades ago. Commitment from both the government and the public sector has allowed manufacturing to become a valued, respected profession as well as for the country itself to flourish in the global exports market.
PROTECH IS AN OFFICIAL US DISTRIBUTOR FOR MANY GERMAN MANUFACTURERS
Protech International works with an array of German manufacturers who focus on niche, quality-driven machines. German producers emphasis on excellence and constant revolution are a big reason our clients keep turning to German-made products. For more information on the lines we carry or the products we service, contact us.
How Germany Wins At Manufacturing — For Now
The United States needs to create more manufacturing jobs: That has been a constant refrain of President Trump and was one of the goals of the corporate tax cut recently passed by Congress and signed into law. The loss of manufacturing jobs has been a problem for many countries, especially the U.S. It played a big role in Trump's election.
Germany, however, continues to maintain manufacturing as a large share of its economy. It makes up nearly a quarter of the German economy, about twice the share that manufacturing has in the U.S. economy.
How do the Germans do it? Are there any lessons for the U.S.?
Mittelstand
Yvonne Schmittenberg holds a tray of weld nuts produced by Schmittenberg Metal Works. They're used in the automotive industry.
After World War II, Germany put in place a financial and institutional structure that supported manufacturing, but the economy's emphasis on "making things" goes back much further to a tradition of very capable small and middle-size companies called the Mittelstand. In Germany, they are seen as the foundation of the country's manufacturing success.
Schmittenberg Metal Works, an auto parts maker based in Wuppertal, is a prime example. Its factory there stamps out parts by the millions for the world's automotive industry.
"My grandfather was an engineer and toolmaker and had the technologic know-how, and my grandmother supplied the money, so, I mean this was, yah, a dream team, yah," says Yvonne Schmittenberg. She's a petite woman with long blond hair; an unusual CEO in a male-dominated industry.
Schmittenberg Metal Works in Wuppertal, Germany.
Schmittenberg was working in France in the 1990s when her grandmother, who was running the family business then, called and said it would be sold if she didn't come back home and take over.
"I was working as an investment banker, which I liked a lot," she says. "But blood is thicker than water, and after all, I was very much tempted by the entrepreneurial challenge, yes."
Schmittenberg is proud of the company's history. It was founded in 1932. It survived the second World War and right afterward began supplying parts for Germany's recovering auto industry. Volkswagen was one of the company's first customers.
"Starting with Volkswagen, the Beetle, the first Beetle was supplied by the Schmittenberg company with the first weld nuts," she says.
Weld nuts are small but critically important parts. Most are about the size of a silver dollar with a small-threaded tube sticking up. They are welded to a car's body and used to bolt on things like seats and seat belts, so they must be able to hold up against the violent forces unleashed when cars collide or smash into something.
They look pretty simple, like something that these days would be manufactured in a low-wage country; in fact, they are highly engineered parts. Christian Rieder heads up Schmittenberg's sales team. He says the weld nuts the company produces are incredibly strong.
"On this threaded plate you can hang four Mercedes-Benz S-Classes on," he says. That's the equivalent of 8 tons — you could weld this small threaded plate to a steel girder, then hang four large automobiles from it, and the threads would not strip, the part would not fail.
That attention to engineering and quality is a hallmark of German manufacturing companies. Yvonne Schmittenberg says it's what makes Schmittenberg, and companies like it, competitive: "Obviously we are under pressure and we have to fight for market share every day, but still quality is our main issue, and we would never shift to anywhere when quality is in slightest question."
This is one of the strengths of German Mittelstand companies: They're often family-owned and focus on long-term success, not on maximizing short-term profits. They pay attention to quality.
Yvonne Schmittenberg has some advice: Pay attention to your workforce. Don't presume every kid should go to college. Get them interested in making things.
"I think this so important to keep the youngsters interested in manufacturing," the CEO says. "And this starts at the schools ... to have the kids running around with open eyes being interested in technical issues, see how things get done and really get them motivated on how to do that."
Lessons for the United States
What's the takeaway for U.S. companies? Can the U.S. embrace these qualities and boost manufacturing?
Martin Baily, an economist at the Brookings Institution and a former White House economic adviser, has studied the question. He says he thinks it would be a good thing if the U.S. had more manufacturing jobs and could provide work for people who aren't highly educated, but that such an expansion would be very difficult to achieve.
"I would not advise U.S. companies or U.S. policymakers to try to replicate what's happened in Germany," he says. "In fact, I would look at Germany and say you're going to have a tough time going forward, in fact you're already having a tough time as some production shifts to eastern Europe."
Baily says a big reason is that technology is advancing so fast that it will continue to displace even highly skilled manufacturing workers.
Some Germans are also worried about this. Jeromin Zettelmeyer, a former economic official in the German government who is now at the Peterson Institute for International Economics, says Germany may soon find that it's too reliant on manufacturing.
"There is a very serious worry that we might lose our manufacturing edge over the next 10-20 years and be in the same situation the U.S. is now — except, without having grown a new growth engine like the IT sector in the meantime," Zettelmeyer says.
As Germany and the U.S. face the future they are caught in a "grass is always greener" moment, where each sees in the other the thing it does not have. Even if Germany is really good at manufacturing, maybe it needs to try to emulate the U.S. and start looking beyond manufacturing to find postindustrial jobs to drive its economy.
Meanwhile, the U.S. faces an equally difficult question: How to provide decent jobs for workers who once would have been employed in manufacturing?
Why is German Manufacturing So Good?
https://restoftheiceberg.org/posts/2019/6/4/why-is-german-manufacturing-so-good
Alister Chapman
For years, Audi advertisements have used the slogan “Vorsprung durch Technik.” Only a fraction of the millions who have read or heard the words know what they mean (“Progress through technology,” is the answer). The ad campaign works because people associate German design and manufacturing with quality, precision, and technical brilliance. Whether it’s Carl Zeiss lenses, BMW motorcycles, Bosch dishwashers, or Lamy pens, people buy German with the expectation of excellence.
How did Germany come to be so good at manufacturing? Why is it often so much better than neighbouring countries such as France and Italy? The story starts in the 1700s, when Germany wasn’t even a unified state—it was a patchwork of many different kingdoms. However, developments were taking place in one of these states, Prussia, that would help create the Germany we know today.
It started with a religious revival. In the Prussian city of Halle, people frustrated with the spiritual sluggishness of the Lutheran church formed a new group known as the Pietists. They were earnest in their faith, and took seriously Jesus’ command to care for orphans. Before long, they were looking after hundreds. The Pietists wanted these children to know God through the Bible and to be useful to society. So they set up schools and technical colleges, which with their rigid timetables became the basis for the educational systems we know today. The Pietists also founded a publishing house, a brewery, and a pharmaceutical company that supplied all of central and eastern Europe. The result was that Prussia became one of the most educated and entrepreneurial places in Europe—vital foundations for Germany’s later industrial success.
The German Enlightenment gave education a further boost a century later. Prussia became one of the first states to make education compulsory for all children. Science became more popular as people read the exploits of Prussian explorer Alexander von Humboldt. Humboldt’s brother, Wilhelm, opened a new university in Berlin. Meanwhile, the Prussian king passed a series of reforms that made the state bureaucracy one of the most efficient in Europe.
All this meant that Prussia was ideally placed to become the world’s second great industrial power. Great Britain got there first, but Prussia was close behind. Indeed, it helped that Prussia started after Britain. They could see what the British had done and then do it better. For example, Prussian mines used more machinery and were more productive than British ones. And while Britain’s manufacturers rested on their laurels, their Prussian counterparts were establishing new industries. British scientists made many of the key early discoveries in chemicals and engineering, but it was German firms such as BASF, Bayer, Siemens, Bosh, and AEG that did most to develop and profit from these new technologies. Germans also pioneered new industries: for example, the world’s first car was built by Daimler and Benz. By the late 1800’s, German engineering was rapidly gaining the reputation it enjoys today.
In 1871, Prussia united with the other German states to form Germany. More people, more coal, and more iron helped to make the new country the world’s industrial leader. By 1914, Germany was producing twice as much coal and steel as Britain. Its second biggest coalfield produced more coal than all of France.
This German manufacturing miracle in the 1800s was followed by a second one in the 1900s. Manufacturing dwindled in former industrial powerhouses such as Britain and the United States, but Germany retained its factories and its technical skill. 19% of jobs in Germany are still in manufacturing, twice the percentage in Britain and the US. And most people would rather drive a BMW than a Buick.
Losing two wars is part of the explanation for this second miracle. After the First World War, the victors prohibited Germany from having an air force. All the aeronautical firms and engineers had to move to different industries: BMW stopped making aircraft engines and started on motorcycles and cars. After British and American bombers had destroyed hundreds of factories during the Second World War, Germany built new and better ones. Britain and America also took billions of dollars’ worth of intellectual property, which spurred innovation among German manufacturers. By contrast, victorious powers such as Britain were prone to be complacent.
Defeat in the war helps explain another characteristic of modern Germany that has proved decisive for its industry, namely the willingness of its workers to accept modest wages. In France and Britain, striking for higher pay was the norm, and as earnings rose business decided to move production elsewhere. By contrast, factory workers in Germany accepted lower wages, which they saw as necessary for keeping their jobs. Why Germans were more moderate in their demands is not clear—some have pointed to a national culture that honours responsibility over entitlement and risk. But it’s likely that the humiliation of losing the two world wars has helped entrench that way of seeing the world.
Low wage bills have meant more money to invest in research and development, which has helped German firms keep their technological edge. This is true both in large firms such as Volkswagen and Bayer and the smaller family firms, or Mittelstand, that make everything from music stands to medical devices.
Germany also benefits from its history as a collection of smaller states. There is no German equivalent of London, with its oversized place in Britain’s economy. Many German cities have enormous local pride. Most people go to the university closest to their home. The result is a country where education and skill, and therefore successful industries, are spread widely.
And centuries after the Pietists in Halle, Germany continues to excel in education. There are schools for those who wish to study science and the humanities, but there are also excellent institutions that provide technical training. Germany has a culture of apprenticeship that results in a highly skilled workforce. The government invests in people—while US companies laid off workers after the financial crash of 2008, many German companies were able to send them on government funded training schemes. They then brought their employees back when the economy recovered.
However, while many enjoy the goods Germany makes, Germans are growing frustrated by how little money they make. Most rent their houses in a country which is one of the most unequal in the world. There is evidence that the golden age of German manufacturing is coming to an end—already, only three of Mercedes’s thirteen plants are in Germany. At least we can hope that Germany continues to excel in the design and engineering that have given us so many beautiful and functional products.
