Procurement Intelligence Unit

For many, 2011 has been a dreadful year spent amidst fears of a double-dip recession and the need to cut costs. While Greece is still on the verge of bankruptcy, Japan reported a foreign trade deficit for the first time since 1980 and the USA is struggling with record unemployment rates, Germany's export economy has known an incredible growth. And, Germany's suppliers are part of this success.

For the first time ever, Germany's exports exceeded one trillion euros in 2011. For the first time in the last 20 years, less than three million Germans were unemployed. And, for the first time after the 2008 crisis, the public deficit should reach a new low after breaking through the imposed EU-ceiling. This is an impressive performance, and the fact that we are still in what some journalists have started calling the "Great Recession", the most dramatic crisis since 1929, only makes it even more impressive.

One of the keys to this success are labour market reforms which have put a strong pressure on loans while costs related to workforce have been constantly growing in all other European markets. Today, Germany is relying on the other European countries for about two thirds of its exports. One could argue that Germany's success is only due to the failure of its neighbours, that Germany's income is offset by Greece's debt. But this would be a very Euro-centric argument that does not withstand when put into perspective with the global competition.

Indeed, in 2011, the share of German exports outside of Europe has increased by 13.6%, proving its international competitive advantage. Germany's competitiveness is one of the sources of Europe's imbalances, but it is also Europe's chance. Had it not been for Germany's competitiveness, Europe's industrial basis would be even worse off than it is today.

The Europe 2020 Strategy aims to make Europe the most competitive economic area of the world. Germany has already run through an important part of this tedious way, but unfortunately it has been running alone. Now the time has come for levelling up the imbalances and this could mean a less impressive 2012 for Germany.

The impact on procurement is that Germany's importance as a sourcing destination continues to grow. One of the most iconic examples is the automobile industry. The "Global Top Automotive Suppliers 2011" study by Berylls Strategy Advisors shows that between 2000 and 2010, the number of German automobile suppliers among the world's 100 top suppliers has increased by 46%, with Germany becoming the n°2 sourcing location for the automobile industry behind Japan.

In the late 90s, German automobile suppliers were seen clearly disadvantaged due to high factor costs, an inflexible labour market and company sizes that were judged unfit for global competition. Efficiency gains, cost control and industry consolidation paired with an innovation culture boosted by premium car OEMs such as BMW, Mercedes Benz and Audi have radically changed the supply base. As low-cost competitors emerged in China, Mexico and India, German suppliers are concentrating on the higher growth, higher margin, innovative premium segment. Some predict a decade of dominance of German manufacturing suppliers. We hope that it will also be a European decade.