Quality and Reliability Bring Manufacturers Back to Germany

11/19/2009

Berlin – Increasingly more industrial manufacturers are choosing Germany as a production site, rather than relocate production to sites abroad. In the past three years, the number of companies that outsourced manufacturing decreased by 40 percent, according to a recently published study by the Fraunhofer Institute for Systems and Innovation Research (ISI) on behalf of the Association of German Engineers (VDI).

German companies recognize the potential and advantages available in domestic production, especially when confronted with a global recession. Between mid 2004 and 2006, roughly 15 percent of manufacturing companies chose to move production abroad. Currently this figure is only 9 percent, making it the lowest level since the mid-1990s. The Fraunhofer Institute surveyed approximately 1,500 companies for the VDI study.

Quality problems and a lack of well trained skilled labor are the decisive reasons for German companies to concentrate production activities in domestic sites. The lower cost of labor abroad, which often serves as the main reason for shifting production, does not always prove to be a sustainably profitable solution. A highly qualified workforce and specialized expertise in Germany guarantee high standards, especially for makers of quality-oriented products.

Almost 70 percent of manufacturers cite quality as a decisive aspect for returning production activities to Germany. For every third outsourcer, one company returns to Germany. This development highlights the decreasing attractiveness of production locations in Eastern Europe and China.

Flexibility and delivery capacity of German locations play an equally central role in the decision to return to Germany. The competitive German logistics and transport industry and the reliability of local suppliers create more productive and cost effective solutions. At the same time, labor costs in a number of countries have risen rapidly.

Germany also shows strong long-term potential as a production location. For the coming three years, the study predicts that outsourcing of production will decrease by up to seven percent.