Situation Analysis
The economy of Germany was at a delicate stage after the shocks and adverse effects of the recent global financial crisis. However, over the past one decade, German economy has shown significant improvements: commodity prices have stabilized enabling the country to significantly gains investor confidence. In addition, the country has been achieving surplus in its current account over the past few years, a fact which is recognized by the European Commission, French government, as well as International Monetary Fund (Dustmann et al., 2014). As the world is gradually shifting her economy towards globalization, the events in some countries are causing ripple effects on other countries. The arguments about state of German’s economy vary from depressed unit labor cost to strengths of export industries.
An article (n.d.) entitled “Why are German exports so competitive?” perfectly illustrates the commodity situation in this European economic hub. In particular, the author is expressing how the German economy experienced a rebound from the global financial crisis, lifting up mining shares, currencies, as well as prices of raw materials. Germany has been the reigning champion of world’s export for many years until 2009 when it was toppled by China. For many years, Germany’s export has been outperforming outer global economic powerhouses such as Japan, China, and United States of America.
The author of the article goes ahead to name some of the Germany companies that have taken a lead in the global business. They include Mercedes, BMW, SAP, Adidas, and Nivea skincare among others. The situation in Germany has caused significant economic effects nationally as well as internationally. Over the past decade, the performance of German exports has caused direct impacts on the international trade. In addition, it has caused subtle effect on the value of euro and well as other currencies such as dollars and British pound.
SWOT Analysis of German Exports
| Strengths:
· Large product variety and range that service different market · Strong, diversified and supportive industrial infrastructure · Avoidance of large-scale deindustrialization · Excellent product engineering · Unique co-determination schemes · Flexible production · Competitive market prices for export products |
Weaknesses:
· Less interest of young people · Slow economic growth · Confined export markets |
| Opportunities:
· Exploitation of new markets in Europe, Africa, Asia, and Latin America · Rising demand for German products in developed and developing countries · Rapidly developing ecommerce sector |
Threats:
· Exposure to foreign currency risks · Exposure to intense rivalry by other multinational corporations · Competition in export market · Bilateral government agreements |
Problem Statement
The article also highlighted several current issues with the German export situation. One of the major issues highlighted by the author is the slow economic growth in Germany. German economic growth is slow, hovering between 1% and 2% for most parts of 2008. The economic condition has not improved significantly since the recent global financial crisis that affected most industries. After most leading industries were hit by the 2008 economic crisis, the German economy has not fully recovered. Indeed, experts are worried if Germany economy will maintain its global export lead given its current economic situation. After the 2007-2008 financial crisis, virtually all top ten exports of German products started experiencing consumption binge (Wagner, 2013). They are subsequently reducing the amount of their exports.
Besides slow economic growth, German products are expensive thus making them unaffordable in most developing as well as developed countries. Even though German products have worn hearts, minds, and wallets of most people across the globe, they do not come cheap. This makes German products less competitive in the global market. Some countries opt for cheap alternatives from china and other countries. Another problems affecting German export is the increasing labor rates. The unique co-determination scheme that Germany implemented after World War II has increased the bargaining power of labor union, allowing them to control significantly the company’s board of trustees where they bargain for more labor rates.
Alternatives
There are several options to improving German export situation. The top three alternatives include (1) outsourcing labor and manufacturing, (2) using temporary workers, and (3) government investments.
Alternative #1: Outsourcing Labor and Manufacturing
Using this approach, most German companies can outsource cheap labor from other countries. This may help reduce the problem of high labor cost even though it will face objection from union officials. Alternatively, the companies can option to switch their production and manufacturing units to target export countries with cheap labor rates for instance China, Japan, and United States of America.
| Pros:
· Reduced labor costs · Easy manufacturing and distribution of products · Improved distant relationship with export partners · Reduced real estate and plant costs |
Cons:
· Time zone factor and holiday schedule · Layoff of German workforce · Increased unemployment rates in Germany · Reduced disposable income of workers |
Alternative #2: Using Temporary Workers
Through this approach, germ export companies should employ only temporary workers on contractual basis. They agree to work for a specific period earning specific amount of money based on their performance.
| Pros:
· Reduced labor costs · Eliminates recruiting work · Eliminate hiring mistakes · Avoid unemployment claims |
Cons:
· Contract buyout fees · Inability to build teams · Possible lack of commitment |
Alternative #3: Government Investments
The German government can invest in promoting its export companies by reducing taxes and creating favorable market conditions to enhance rapid economic growth. The government can take over the work of controlling export sector and promoting German products in other countries. In addition, the government can create bilateral agreements with other countries to promote their products and establish strong export links.
| Pros:
· Increased international cooperation and export links · Increased access to foreign markets · Reduced costs due to high level of taxations · Speedy economic growth and improve export conditions · Increased labor mobility |
Cons:
· Reduced government revenues · Increased government expenditures · Disruption of interpersonal relationships between multinational corporations |
Recommendation
Based on the three alternatives discussed above, outsourcing labor and manufacturing to other countries seems to be the most valuable and recommend approach or strategy. This alternative provides two most essential options to German companies seeking to control the export market; they can outsource labor or outsource manufacturing to targeted foreign countries.
The latter alternative seems the best because it has many advantages. By using this alternative, the German companies will get easy access into foreign markets. They can take this opportunity to control foreign markets by setting their manufacturing plants there. This is beneficial for increasing their market competitiveness and global presence. Apart from accessing the foreign markets, the German companies will have opportunities to benefits from reduced labor costs. By manufacturing in other countries that provide cheap labor such as China, the companies will benefit from reduced labor costs (Simonazzi, Ginzburg & Nocella, 2013). Another reason why this alternative is recommended is the opportunities to reduce distribution and marketing costs. The only challenge is that setting manufacturing plants in another country might be expensive.
References
Dustmann, C., Fitzenberger, B., Schönberg, U. & Spitz-Oener, A. (2014). From sick man of Europe to economic superstar: Germany’s resurgent economy. The Journal of Economic Perspectives, 28(1), 167-188.
Simonazzi, A., Ginzburg, A. & Nocella, G. (2013). Economic relations between Germany and southern Europe. Cambridge Journal of Economics, 37(3), 653-675.
Wagner, J. (2013). Exports, Imports and Firm Survival: First evidence for manufacturing enterprises in Germany. Review of World Economics, 149(1), 113-130.