FREE ESSAY ON GERMANY ANALYSIS

GERMANY ANALYSIS

INDUSTRY IN GERMANY
Country Issues
Country issues related to Germany are addressed in four contexts. The areas of
consideration are (1) cultural, social, and demographic trends and concerns, (2)
political/governmental concerns, (3) exchange rate issues, and (4) macroeconomic issues.
Cultural, Social, and Demographic Trends and Concerns
Germany is the slightly larger then the combined size of Ohio, Pennsylvania, and New
York. (137,691 square miles.) Germany is a nation of 81.5 million people (Hunter, 1997).
The rate of population growth in Germany approximates one-percent per year. The head of
the government is Chancellor Gerhard Schroder (elected on October 27,1998). The official
language is German. The principal religions are Protestant (Evangelical Lutheran) and
Roman Catholic-Christianity. German workers are among the best educated, best trained,
and most productive to be found anywhere in the world.
Germany's modest population growth tends to produce market stability, as opposed to
market growth. Thus, automobile manufacturers in Germany tend to look to exports for
sales growth. Germany's chief commercial exports include machinery, automobiles
(Volkswagen, Mercedes-Benz, Audi), chemicals, iron, and steel. 
Political/Government Concerns
Germany is a parliamentary democracy. A proportional representation system assures that
smaller parties are represented in the Bundestag. The governing conservative coalition,
the Christian Democratic Union (all states other than Bavaria) and the Christian Social
Union (in Bavaria where the Christian Democratic Union does not stand), has held power
since 1982 (Hunter, 1997).
The reunification of East Germany and West Germany into a single state has produced
economic, political, and social problems. While not all of these problems have been
completely solved, they do not represent a source of instability in the country.
Exchange Rate Issues
The currency in Germany is called Deutsche Mark. The economy in Germany is the strongest
in Western Europe and is an important member of the European Union. The principals of the
social market economy guide its economic activity. Germany has pursued a monetary policy
of that emphasized the control of inflation, relatively high interest rates, and a strong
mark, often to the complete dismay of the country's European Community partners. Monetary
policy emphasizes interest rates and money supply management.
Germany is a key player in the drive toward European Monetary Union. The mark remains
strong at DM1.84/US$1 and DM3.07/61 (Financial Indicators,1998). Germany will qualify for
monetary union and the single European currency as of 1 January 1999 (Maastricht
Follies,1998).
Taxation in Germany 
The federal government and its States (lands) try to coordinate their policies through
such advisory bodies as the economic council and the finance planning council. But the
central government cannot order the States (lands) to follow its policy, largely because
it has no monopoly on taxing power. In, all the central government receives around 55
percent of all taxes but makes then 45 percent of all expenses. On the other hand the
States, spend more then they receive and the federal government makes up the difference.

Macroeconomic Issues
Per capita gross national product is US $28,760, gross domestic product is US $2.1
trillion (Hunter, 1997). Germany's GDP growth in 1997 was 2.4 percent Economic
Indicators, 1998). 
Foreign Trade remains the essential pillar of Germany's prosperity. It is one of the
world's leading export accounts for over half of it manufacturing jobs. Germany is very
sensitive to world economic climates because, its GDP is made 38 percent of exports. 
Germany's international trade balance is traditionally in the black (Hunter, 1997).
Exports typically exceed imports by approximately five-percent. Germany's international
trade balance is compared with that of Japan and the United States in Table 1.
Table 1
International Trade Balance Comparison: Germany, Japan, and the United States [billions
of US$]
________________________________________________________________
Country January-March 1998 April 1997-March 1998
Germany + 4.62 + 70.5 
Japan +8.79 + 103.8
United States -18.80 - 199.4
[Source: Financial Indicators, 1998]
________________________________________________________________
Germany's exports 46.4 percent of total exports to members of the European Union, these
include top two: France at 11.2 percentage and the United Kingdom 8.7 percentage. The
United States receives 9.2 percentage of Germany's exports.
Germany's imports the most from France 11.2 percentage of total imports and then followed
by the Netherlands at 8.4 percentage. The United States imports 8.1 percentage of the
total imports of Germany. 
German monetary and fiscal policy emphasizes the control of inflationary pressures.
Consumer prices in Germany have risen by an average of approximately 1.5 percent over the
past five years (World Bank, 1997). Industrial activity employs 43 percent of Germany's
workforce; while 54 percent are employed in the service sector of the nation's economy,
and the remaining three-percent are employed in agriculture.
Taxes in Germany are unified (Hunter, 1997). Taxes are collected by a central authority,
and then are distributed to the federal government, the lander (state) governments, and
the local authorities. Taxes are levied on personal income, corporate income, capital
gain, turnover and trade (value added), and insurance and accounts. Additionally, excise
taxes are levied on most products. German governments (federal, state, and local) do not
engage in deficit financing. 
Market and Industry Issues
Market and industry issues are addressed in four contexts. The areas of concerned
addressed are (1) demand conditions, (2) the competitive structure of the German
automobile industry, (3) production costs in the automobile industry, and
automobile-specific tariffs and trade restrictions. Germany is a part of the European
Union. The EU is a union of fifteen independent states based on the European Communities
and founded to enhance political, economic, and social co-operation. Members include:
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden, and United Kingdom. Germany is among the largest
and technologically advanced produces of iron, steel, coal, cement, chemicals, machinery,
vehicles, and machine tools. 
Demand Conditions
Germany's infrastructure is among the most highly developed among the nations of the
world (Roby, 1994). Infrastructure development varies, however, by region. No
infrastructure major problems exist in the old West German states; however, some problems
continue to exist in the old East German states. Germany's distribution system is among
the most highly developed among the nations of the world (Hunter, 1997). The Western
European automobile market increased to 12.7 million passenger cars in 1997, maintaining
its position as the largest new automobile market in the world (Upper Segment Cars in
Western Europe: A Market Under Siege, 1997).
Competitive Situation
Competition in the automobile manufacturing industry in Germany is not limited to Germany
automobile manufacturers. Because Germany is a member of the European Union, all
automobile manufacturers within the Union compete on an equal footing within Germany
(Short-Term Prospects for the German Motor Industry and market, 1997).
Mercedes-Benz has recently experienced sales difficulties for the company's passenger car
line in the United States. One action taken by the company to reverse this sales decline
is the introduction of a new, smaller, and less costly passenger car line in the United
States (Martin, 1997).. 
Volkswagen, Germany (market share: 15.4 percent), Fiat, Italy (market share: 14.2
percent), and Peugeot, France (market share: 12.9 percent) hold the first three places in
the European automobile market (Phelan & Feast, 1997). General Motors is the fourth
largest seller of automobiles in Europe (market share: 11.8 percent), while Ford in
number five (market share: 11.6 percent). Unlike the United States, where Japanese
automobile manufacturers hold 27 percent of the market, the Japanese manufacturers have a
market share of only 11.6 percent in Europe (Woodruff, 1997).
Industry Production Costs
A major labor-related problem for industries moving into Germany is the fact that Germans
by and large are unwilling to accept jobs in industries where the wages are relatively
low and the working conditions poor by German standards. Unemployment, however, is high
in relation to traditional post-war German standards. Therefore, labor wage rate
increases have been moderate. Labor stability is higher in Germany than in the United
States. The turnover rate in German manufacturing firms is quite low (Feast, 1996). For
years, Germany had a shortage of labor and even brought in guest workers from Southern
Europe and Turkey. 
Germany has on of the shortest workweeks at 35 hours per week. The average America worker
works longer hours and receives twelve days of paid vacation verses six weeks and 13 to
16 days of vacation (holiday) for Germans. 
Strong industrial unionization and legislation in Germany create job protection and
security for German industrial workers. As a consequence, both strikes and unauthorized
absenteeism among most German workers is low in relation to most other industrial
countries (Feast, 1997). 
German employers are encountering difficulties in effecting changes among the German
workforce. The tradition of strong worker social services and strong labor unions in
Germany strengthens the will of employees to resist such changes suggested by management
(Feast, 1997). 
Growth in manufacturing labor productivity in Germany and the United States are compared.
Relevant data are presented in Table 2, which may be found on the following page.
For both Germany and the United States, manufacturing multifactor productivity (MFP) is a
more important explanatory factor than capital-for-labor substitution in explaining labor
productivity growth. The differences in labor productivity growth between the two
countries is another question (Lysko, 1995). The contributions to manufacturing output
growth in Germany and the United States by labor, capital, and MFP are compared. Relevant
data are presented in Table 3, which may be found on page 8.
While hours worked were declining in German manufacturing at the rate of 0.6 percent per
year, hours worked in the United States increased at the rate of 0.8 percent per year.
The net result was that, although the use of combined factor inputs increased more in
Germany than in the United States (an annual rise of 2.4 percent versus 1.6 percent),
German multifactor productivity grew marginally faster over this 17-year period; the
average difference was 0.4 percentage points per year (Lysko, 1995, p. 52).
Table 2
Sources of Manufacturing Labor Productivity Growth, 1956-93 
(Percent)_______________________________________________________________ 
Output Per Capital-Labor multifactor
Country Hour Substitution Productivity 
United States:
1956-90 3.0 1.0 2.1
1956-93 3.1 1.0 2.1
1956-73 3.8 0.8 2.9
1973-90 2.3 1.1 1.2
1973-79 .8 1.1 -.2
1979-90 3.1 1.1 2.0
1990-93 4.0 1.1 2.8
Germany:
1956-90 4.7 2.0 2.6
1956-93 4.4 2.0 2.3
1956-73 6.5 3.1 3.4
1973-90 2.9 1.1 1.8
1973-79 4.3 1.7 2.6
1979-90 2.1 .8 1.3
1990-93 1.2 1.7 -.4
[source: Lysko, 1995]
_______________________________________________________________ 
Table 3
Contribution of Labor, Capital and MFP to Manufacturing Output Growth, United States
Versus Germany, 1956-93 (Percent Annual Change)
_______________________________________________________________ 
Manufacturing Labor/Capital MFP Growth 
Period Output Growth Input Growth __________
1956-1990:
Germany 3.6 1.0 2.6
United States 3.3 1.2 2.1
Difference .3 - .2 .5
1956-1993:
Germany 3.1 .8 2.3
United States 3.2 1.1 2.1
Difference - .1 - .3 .2
1973-1990:
Germany 1.4 - .4 1.8
United States 2.0 .8 1.2
Difference - .6 - 1.1 .5
1990-1993:
Germany - 2.2 - 1.8 - .4
United States 2.6 - .2 _ 2.8
Difference - 4.8 - 1.6 - 3.2
[source: Lysko, 1995]
_______________________________________________________________ 
The competitive position of the Germany automobile manufacturing industry has suffered in
the decade of the 1990s, as German unemployment has increased by German standards (Feast,
1996). High labor rates in the German automobile industry also have hurt the industry, as
German manufactured automobiles increasingly are unable to compete within the context of
price (Short-Term Prospects for the German Motor Industry and Market, 1996). The pricing
problem has hurt the industry in the domestic German market, the wider European market,
and the global automobile market.
Automobile Industry-Specific Tariffs and Trade Restrictions
No tariffs or trade restrictions apply to automobiles manufactured within the European
Union, regardless of the country in which the manufacturing plant is located and
regardless of where the headquarters of the plant owner is located. Thus, General Motors
and Ford based in the United States have subsidiaries in Europe, including those located
in Germany, which compete on equal terms with European-based automobile manufacturers.
One Japanese automobile manufacturer has a plant located in Spain. The output of this
plant competes on an equal footing with European-based automobile manufacturers.
Automobiles manufactured in Japan, as well as those manufactured in the United States,
and then shipped to the European Union members, however, are subject to both tariffs and
trade restrictions in the form of import quotas.
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