Offshore Doubters Return Work to Germany

The trend toward outsourcing production to other countries is slowly being reversed as Germany becomes attractive to foreign investors

by Janko Tietz

When the metal sheets came back from Romania "as if they had been gnawed at by rats," Rutger Dautel knew that his company's adventure in offshoring production had come to an end. He slammed on the brakes.

Dautel is a classic German medium-sized company based in the southern state of Baden-Württemberg that manufactures tail-lifts and tipper structures for trucks. Workers at the company's plant in Leingarten separate the metal used with highly modern gas cutting machines. Workers in Romania used straightforward metal shears for the same work.

"We couldn't present that to any customer," says one Dautel welder. "There were major qualitative flaws in the processing. We had to constantly touch things up in Germany. The Romania deal was a total fiasco." Of course, when company management embarked on the endeavor three years ago, they had a different outcome in mind.

Back then, things weren't going well for the business, which employs about 250 people, and layoffs ensued. Cost pressure was high and the company's profitability was at risk. Then, in 2004, one part of the assembly process was relocated to Romania.

It didn't take long for the disenchantment to creep in. For work to even begin in the city of Sibiu, Dautel first had to ship the materials there. Its Romanian business partner seldom met deadlines, and quality was often extremely poor. Even just shipping the product back to Leingarten often proved difficult -- shipments often got stuck at customs for days at a time, and that led to delays back home.

Like many other managers, company head Dautel had dreamed of massive savings. At the end of the day, though, it turned out to be a zero-sum game -- one that cost him a lot of nerves.

Dautel's decision to backtrack now puts him in good company. Many thousands of German companies joined the march to Eastern Europe and China during the past 15 years, hoping to reduce production costs there. But recently many have been returning, disillusioned. Smaller companies in particular are finding they overestimated the apparent advantages of low labor costs or more advantageous tax laws.

So far, it has not been the largest and most well known companies that have begun reconsidering Germany as a production location. And the return home usually involves considerably less ballyhoo than the earlier offshoring of production. Nevertheless, the trend is significant because medium-sized companies are both the heart and the driving force behind the German economy.

It is companies like Siteco, which produces lighting technology, Optotec, the producer of technical devices for opticians, or Gröditzer Kurbelwelle, one of the world's leading producers of crank shafts, who are now coming back -- along with the jobs they provide. They all hoped to make their fortune in the east -- whether in Maribor, Slovenia, Panagyurishte in Bulgaria or Katowice in Poland. But now they are coming back home to Germany's cities and states -- to Traunreut in Bavaria, Rathenow in Brandenburg and Gröditz in Saxony.

Coming Home

Jungheinrich, a company that produces fork lift trucks, even shut down its plants in Spain, Britain and France, redistributing production to its three German locations in Norderstedt, Lüneburg and Moosburg. Offshoring production is largely yesterday's news for all of these companies. Instead, production capacities are being massively relocated to Germany, researchers at the Fraunhofer Institute for Systems and Innovation Research (ISI), who regularly study the phenomenon, have found.