Innovation, innovation, innovation…

A recent Newsweek piece shows why German manufacturers aren’t afraid of China’s industrial juggernaut.  By focusing on innovation and “reindustrialization,” Germany has seen a tremendous resurgence in its manufacturing exports.

What exactly have the Germans done? 

According to Newsweek, there has been an “unprecedented surge of equipment-buying in emerging economies, as countries from China and Russia to the Middle East build factories, upgrade transportation and improve infrastructure—a trend economists expect will last years, if not decades.”

German manufacturers have taken note, and now they’re focused on selling quality start-up equipment to these young countries.  Newsweek notes that developing and transitioning countries have accounted for more than a third of German export growth since 1995, and in 2006 Germany even managed to run an €11 billion trade surplus with these countries.

That’s not a bad way to go when dealing with “mercantilist” China.  It also suggests a path for U.S. manufacturers to follow.  The Germans have established their products as being of high-quality and have simultaneously worked to rein in costs.  The result is a new specialization that they’ve been able to exploit.

Of course, it helps that they’ve invested heavily in new technology.  Automakers like BMW and car-component specialists like Bosch churn out an estimated two thirds of the global auto industry’s innovations.  And German manufacturers (which represent 90 percent of the nation’s R&D spending, compared with 75% in the U.S.) are introducing new products at a rate typically seen in the IT sector.

Because of this focus on reinvesting in domestic production, German firms aren’t shipping their work offshore. 

They also have the advantage of a government that supports and sustains its homegrown manufacturing.  Germany is one of a number of EU countries that employ VAT tax rebates to subsidize exports.  And, as ManufactureThis has previously reported, EU countries are aggrieved by China’s currency manipulation and are threatening to take strong action.

By contrast, U.S. manufacturers are facing heavy obstacles, including subsidized foreign production, rising healthcare costs, and energy issues.  But the suggestion is there—to focus on new technology and focus on the importance of domestic production in order to ensure a healthy manufacturing base.

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This entry was posted on Tuesday, January 22nd, 2008 at 2:14 pm and is filed under Manufacturing in the U.S.. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.