Germany as a business location – at acute risk of losing its appeal

What’s slowing down investment and where it is going

It isn’t just the weak economy that is preventing family businesses from investing in Germany. First and foremost, it is the sheer number of regulations. The United States, Poland, India and China were named as the most popular foreign investment locations in our survey.

Munich, 5 October 2023 When evaluating Germany as a location for business, more than 60 per cent of German family businesses gave their home country a grade of 4, 5 or 6 (on a scale of 1 to 6, with 1 being best and 6 being worst). And a further 26 per cent gave the country a grade of 3. It is true that their investments are currently still mainly spread across German locations. However, 34 per cent state that these investments will decline in the next five years. When asked what has a positive or negative impact on their investments in Germany, the answers from family businesses are surprisingly uniform.

The answers include the number of regulations (with 90 per cent saying this has a significant or slight dampening effect), energy prices (80 per cent saying this has a dampening effect) and the supply of skilled labour (80 per cent saying this has a dampening effect). This is followed by labour costs and taxes, and only then the sales situation. Digitalisation, financing and infrastructure apparently have less of an impact on investment decisions.

This is the result of a recent survey of 1,200 family businesses. The data was collected and analysed by the ifo Institute in Munich on behalf of the Foundation for Family Businesses. This is based on the jointly maintained FamData database.

Regulation an important reason for investing abroad

The United States, Poland, India and China stand at the top of companies’ investment plans for the next five years. The top reason they gave for relocating was “entering new markets” (21 per cent), followed immediately by “less government regulation” at the foreign location (19 per cent), ahead of “reducing labour costs” or “lower energy costs” and far ahead of “more attractive subsidy environment”. Only two per cent planned to relocate back to Germany.

Rainer Kirchdörfer, Chairman of the Foundation for Family Businesses:

“The data shows that bureaucracy is driving family businesses to relocate abroad. They are losing confidence in Germany as a location for business. In this context, politicians have always been able to rely on their loyalty. Now they are mainly looking at relocating to the United States.”

Matthias Lapp, 40, CEO of Lapp Holding SE:

“We are currently making the largest investment in the company’s history in Ludwigsburg. Everyone in the family agrees that if the general conditions here don’t change, this will be our last major investment in Germany.”

Patrick Luik, 33, Managing Director and Strategist at straiv GmbH:

“Can we launch another rocket here? What annoys me most is that foreign employees are often slowed down by bureaucracy – if I trust them to do the job, I don’t need a government agency to check any qualifications.”

FamData is Germany’s leading scientific database on family businesses. It contains data from more than 12,000 companies, half of which are family businesses. This makes it a powerful tool for research into family businesses.

Teaser picture: © This is Engineering / unsplash

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