German answers to globalisation challenges

IF you need proof that the pace of globalisation has accelerated over the past decade and a half, look no further than the rising influence of FIFA, the international football association.  

Operating in 204 countries, FIFA's reach is matched only by such noteworthy institutions as the Catholic Church and the United Nations, each having a presence in 202 and 191 nations respectively. 

Globalisation, as a phenomenon, has political, social and cultural consequences and companies, as such, have had to deal with the fierce and growing pressure of competition. 

Siemens AG supervisory board chairman Dr Heinrich v. Pierer recently highlighted two ways of mastering the challenges of globalisation: keep cost under control and maintain a culture of innovation.  

He was speaking at a dinner hosted by Continental AG in conjunction with the launch of the Global Engineering Excellence Initiative, a comprehensive research on engineering sciences.  

Dr Heinrich v. Pierer

According to him, one of German's main challenges is the high labour cost as the country ranks worldwide at the top of the list. A German engineer costs around 80 euros an hour and the same amount pays for up to six engineers in China.  

Skilled German workers, on the other hand, cost roughly 40,000 euros a year and only about 5,000 euros in China. While there might be differences in qualifications, nothing would remotely justify the enormous cost discrepancy, Pierer said.  

That aside, the cost difference is compounded by another element. In Germany, a factory employee works less than 1,600 hours a year but, in China, an average factory employee works nearly 2,000 hours a year.  

Quoting the late writer Ephraim Kishon, Pierer said: “The Asians are conquering the world market with unfair competition. They work during their work hours.” 

On education, nearly 400,000 highly skilled engineers graduate from Chinese universities every year. Germany, in contrast, turns out about 40,000 a year on a comparable basis.  

With lower labour costs, Chinese firms are pushing into the global market with growing confidence and good products. For example, the automotive sector is set to move into Western markets with massive price advantages.  

Most Westerners might not have heard of the names of the Chinese carmakers but that would soon change. The Chinese Government is persistent in putting an internationally-competitive car on the market and they are likely to succeed, he added.  

Furthermore, India is also up and coming with its strong growth rates, middle class population of 200 million and huge pool of talent. Over 300,000 engineers graduate every year in India and the cost level is close to China's.  

“And there is absolutely no question about qualifications: Indians, for example, are the biggest foreign community in Silicon Valley,” Pierer said. 

Apart from Asia, he noted that mini-globalisation was also happening within Europe itself with the business conditions in central, eastern and south-east Europe as well as the Baltic republic offering strong growth rates, low tax rates and highly competitive labour costs. 

In Hungary, for instance, a skilled worker costs only one-quarter of an equivalent German and a software developer in Romania costs only 27 euros an hour. New competitors - either companies or locations - would be cheaper, bigger, tougher, better or faster.  

He said the obvious answer to the competitive cost situation was to improve own costs, but companies have yet to exploit all possibilities for a more flexible labour market in general. 

Workers packing mobile phones of German electronics giant Siemens.

He cited Siemens’ example in the past year in reaching an agreement with work unions to return to the 40-hour week without additional compensation. This, he said, would strengthen a company's competitiveness and secure jobs.  

“Such local job pacts increase the chance to slow down the shift of industrial jobs we are experiencing right now in Germany,” Pierer said.  

Another way of improving the cost situation would be to set up creative job-sharing between high- and low-cost locations.  

For example, Siemens is using the plant in Wurzburg as producer of highly innovative products and the sister factory in Czech Republic as the labour-intensive one.  

It was important to keep manufacturing capacity in the country, as with “no factories, at some point, we will lose the capability to generate new ideas”, he said.  

People need to interact with production - fine tuning and learning ways to make future products even better and more efficient, he added.  

Meanwhile, to continue attracting and keeping customers around the globe, the way would be by securing and sustaining technology leadership through innovation.  

A competitive edge in innovation requires intensive and expensive efforts. Last year, Siemens invested 5 billion euros in R&D with more than 45,000 researchers working at 150 facilities in over 30 countries, Pierer said.  

In addition, the telecommunications giant is currently building R&D centres in China, India and Russia to complement and support the facilities in Germany.  

And such efforts are paying off: Siemens, which holds 48,000 patents worldwide, is the leader in patent statistics in Germany and number two in Europe, he said.  

In pursuing innovation, German companies have to keep their priorities right. “The days of over-engineered products are over – or at least numbered,” he said. 

Companies increasingly must design-to-cost and produce what the customer will pay for, he said, adding that, “if they don't, others will.”  

He pointed out that the key to innovation was education. Like Henry Ford said: “A country's competitiveness doesn't begin in the factory hall or in the research lab. It begins in the classroom.” 

However, education does not and cannot stop with the awarding of a degree. Companies must keep their people state-of-the-art by providing career-long learning to master the demands of accelerating technology trends and changing business needs, Pierer said.  

As such, European countries have to join forces especially in R&D. After all, China and India collectively produce 700,000 engineers every year while Germany and France turn out only 70,000, he added. 

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