Fleeing or exporting the German model? – the internationalization of German multinationals in the 1990s

Abstract

This article examines the question of whether German companies flee or export the German model. On the basis of data from the Deutsche Bundesbank and mergers and acquisitions data, the article argues that job exports from Germany in the last fifteen years have been rather marginal. Thus, German multinational corporations (MNCs) do not flee the German model to the extent suggested by many critics of Germany as a production location. In addition, the paper draws on 13 case studies of German investments in Hungary to help understand the extent to which German MNCs export the German model. This case study evidence indicates that German MNCs do not attempt to completely transfer all aspects of the German production model, as some proponents of institutionalist political economy approaches maintain. The German labour relations model, in particular, is only selectively transferred.

Keywords:

• Multinational corporations
• Relocation
• Varieties of capitalism
• Hungary
• Model transfer
• International human resource management

Acknowledgements

The author would like to thank Lutz Engelhardt, Michael Wortmann and two anonymous reviewers for their helpful comments on an earlier draft of this article.

Notes

The study was designed by Michael Wortmann. The relevant paragraphs in this paper draw heavily on his ideas and work.

The project team consisted of Christoph Dörrenbächer, Michael Fichter, László Neumann, András Tóth and Michael Wortmann.

However, in the longer run, the integration of companies taken over abroad might have a negative impact on domestic employment of the acquiring MNC. This can occur if activities from the home country of the acquiring firm are relocated to the acquired firm abroad in cross-border restructuring after acquisition. Indicators for such an erosion of the employment in the home country include considerable internal growth at foreign affiliates, a tremendous increase in productivity in those affiliates, or an overall collapse of the markets of those affiliates.

From 1,132,000 employees at the end of 1984 to 1,922,000 employees at the end of 1999.

Among these regions, Asia (without China) is the most important region for job relocations by German MNCs.

As calculated by Wortmann (2002: 5).

Methodological problems result not only from oversimplification but also from the general problems associated with surveys of investment motives. These surveys only give a static view at a fixed point in time and neither consider mixed motives nor weight the investments by size (e.g. by number of jobs affected by the investment).

The study also included service industries, where cost motives are generally weaker. Exceptions here include sectors such as software and IT-related services, where tradability is higher. Furthermore, the study looks at the indirect positive effects on German jobs that are associated with cost-driven investments. Thus, some investments in former Communist countries actually trigger more exports from Germany. Since they lower the overall price of products, these products are more competitive on world markets, leading to an increase in demand for German goods and possibly compensating for job losses in Germany. In addition, investment in Eastern Europe may have saved jobs that would have been lost in lieu of the synergies between modern technology and products developed in Germany and cheap production facilities in the reform countries (for a detailed discussion of the various positive effects see Cross & Tüselmann 2000).

In most cases, these interviews were limited to management representatives. Michael Wortmann was involved in most of the interviews carried out by the author. Colleagues working on the project (identified in note 2) conducted the interviews at four Hungarian subsidiaries.

Some of the companies no longer have any significant production in Germany.

A further example for the selective transfer of home country practices was the frequent transfer of the German pay grading system. However, this mostly served to harmonize wage discrepancies resulting from the strongly individualized Hungarian wage bargaining processes.

The work of Westney (1993) is an exception; she takes into account both home and host country effects.