"Enough money in the world"
<h>'More optimism needed':</h> "Best of European Business" jury member, Professor Klaus Spremann, weighs in on the competitiveness of German companies. "The corporate landscape looks bleak," is Professor Klaus Spremann's verdict. Spremann, a juror for the "Best of European Business" competition, talks to manager-magazin.de about what makes a successful company and what has to change in Germany to make great companies the rule rather than the exception. mm.de: Professor Spremann, what impact will the general election have on European politics? Spremann: Politics in general and therefore also European politics will have no clear guiding vision in the coming years. The result will be a series of very small steps. When our European partners see Germany's political weakness, they can gain advantages which will ultimately be paid for by Germany – even if that is hushed up. mm.de:The EU in particular could do with a major step forward. But many already think that the Lisbon targets are a lost cause, and that the European constitution soon will be. Spremann: In the future people will cling more strongly to the status quo and in some cases wrestle with it. Compromises must be paid for with future promises. The EU reform many had hoped for has been postponed and spread over the next few decades. mm.de: What does this delay mean for companies? Spremann: I think that companies today tend to find it harder than we care to admit. Not just in Germany. Look at the US – one major corporation after another is filing for Chapter 11 bankruptcy. You can see the suffering caused: fewer jobs are being created and too little is being invested in the heart of Europe. In too many places, turnaround and restructuring are the main concerns. With a few exceptions, the corporate landscape looks bleak. In the 1960s and 1970s, when there were still high margins, companies were able to invest and create jobs. Things were looking up, and that gave people confidence. Today there is less and less momentum. People are not ready to accept that major changes are necessary to get the good ship "Corporate Germany" afloat again. mm.de: What needs to be done? Spremann: People benefit greatly from the global economy. Nowadays we can buy whatever we want very cheaply worldwide. This means a significant increase in everyone's quality of life. We are much better off now than a few decades ago. But consumption is not everything. We have to spend a larger portion of this extra prosperity on ensuring that the well does not run dry. Thus we have to invest more. I am not talking about money alone. There is enough money in the world. To encourage more investment, we have to create a climate which is favorable to investors. We talk much too much about encouraging consumption, which is supposedly the key to growth. But that is not the case, because then there would be investment throughout the world, just not here. However, many people, media and politicians are doing their best to create a climate in Germany which ultimately deters investors. There was that debate about locusts and the discussion about profit being ok, but an economy without profits would be better. mm.de: You are now on the German jury of the "Best of European Business" competition. Are things really that bad for business in Germany? Spremann: There are basically two phenomena. One is a question of how big the tip of the iceberg is, and the other is who is sitting on the tip of this iceberg. The latter will be awarded the "Best of European Business" prize. It is important to reward performance. But for the economy as a whole it is just as important that at least half of the iceberg is above water and that there are not too many companies in the water at risk of drowning. It is important to pick prizewinners, but it does not tell us how the economy as a whole is faring. | ||||||
Compared to other countries, it used to be clear that German companies were the front runners. Now that is doubtful. We in Germany have to realize that we have fallen behind economically in many areas. There used to be a solid body of vocational knowledge in Germany. By falling behind, gaps have now appeared in this knowledge. mm.de: What can the companies situated below water level learn from those at the top? Spremann: There is certainly a need for individual companies to take action, but first and foremost we all need to create an investor-friendly climate and policies that encourage entrepreneurial ideas. mm.de: So you do not think that competitively successful companies harm their country with their successful ideas and actions, to exaggerate a little. Or to use your analogy, that they push the iceberg further below water level? Spremann: No, I do not. A country is only prosperous if it produces and sells goods and services. That is done by companies. Without healthy companies, a country will disintegrate. A healthy company is fit in several areas: it must sell and at least keep pace with growth in the world. It must achieve financial earnings. It must develop products and do so innovatively. Only if you are ahead in the three categories of growth, value added and innovation can you achieve other socially desirable aims such as retaining jobs in your home country. mm.de: Does expansion into the eastern EU member states mean more than just offshoring jobs to low-cost countries? Spremann: Germany has always been the world's number one exporter. But now it is not just about exporting products manufactured completely in Germany. That is not a question of cost alone. Many products are only useful because they are part of complex systems. For modern products, these systems go beyond merely service and repairs. Companies thus have to maintain whole systems which nowadays are quite extensive. That alone means performing many of the services where the consumers are located. What is more, social acceptance is decreasing for products not made at least partly in the consumer's country. You can still leave research and development in Germany, as well as logistics and management, but at least manufacturing and assembly should be done in the country where the product is sold. So for two reasons – systems and acceptance – German companies must create a base in all countries and start manufacturing there. The days when we exported goods, purchased raw materials, and apart from that stayed in our own little world, are over for good. The issue of a strategy for the new Europe is thus not about outsourcing jobs to cut costs; it is about expanding economically integrated systems across Europe. mm.de: Financial services are an important industry in Germany – from a psychological perspective as well. However, as the takeover of HypoVereinsbank by Unicredito shows, other institutions in particular are pursuing the strategy you have just outlined. What should German banks expect next? Spremann: German banks need to catch up with their international counterparts. Banking is a global business and many processes lend themselves to economies of scale. Over the next few years this industry will undergo far-reaching changes. Whereas friendly bank staff used to be the only important factor, now a bank's reputation and brand are becoming more important, as is computerized processing. The changes at German banks will take place at all levels right up to a change of ownership. Unicredito, which you just mentioned, now has more assets than Deutsche Bank, the former heavyweight. German banks have missed the boat. mm.de: Last Sunday's election result is surely further proof that there is more fear of these developments than optimism about them. Spremann: I can understand this fear to some extent. Not everyone can see the big picture and some things really are threatening at a personal level. Despite this, for the good of the country it is important to place these challenges in a wider context. mm.de:But surely it is up to politicians to communicate that? Spremann: Certainly politicians must try to allay people's fears, and in individual cases should provide help. But we do not want our doctor to tell us that our illness is due to decades of an unhealthy lifestyle. We would rather hear that is it not our fault we are ill and that it does not hurt. mm.de: What impact has the general election had on the German economy? Spremann: Many people had hoped it would give Germany a boost and move the necessary reforms forward quickly. Now there is little chance of a fresh start in economic policy, since all of the possible coalitions will be hindered by compromises. Voters did themselves the worst imaginable disservice, because they did not decide clearly between the two paths which emerged prior to the election. mm.de: What determined the election result? Spremann: Before the election, the conservatives said too clearly that they would make fundamental changes – the VAT hike and the proposed finance minister Kirchhoff became handicaps. Many feared the changes reforms would bring about. They would rather be reassured. In a democracy like this you can no longer address the voters with a clearly set out manifesto. What they want are charismatic stars who make an emotional impact, and who do not say what they are going to do later on. That is developed after the election as in a theatrical production. Suddenly the nation is in an "unforeseen" predicament. The star politician plays the role of a savior who leads the people out of this plight. Just do not say before the election what you are going to do after it. mm.de: More emphasis on personality than on content? Spremann: Yes, the voters have given up their direct rights to decide between directions and positions. Ultimately, they have passed on their power wholesale to the political class, who will use the coalition negotiations to thrash out who will link up with whom and what will happen in the future. This type of political situation is what we have always criticized Italy for. mm.de: The capital markets have recovered despite the political crises in Germany and Europe. Why? | ||||||
Spremann: Compared to other countries, the German stock exchange for example fell considerably after the 2001/2002 debacle; the Dax lost over half its value. What we have seen now is a partial recovery of the markets coupled with the pre-election hope that Germany will take on a strong role in renewing old Europe.
mm.de: As you already said, these expectations will be a lot harder to fulfill given the current composition of parliament. Spremann: Everything will be slower, and no coalition will be particularly stable. But I have not given up hope. mm.de: You teach in Switzerland. Why are the Swiss less affected by the economic crisis than Germany, on which they are greatly dependent? Spremann: The Swiss economy is much more international than that of Germany, France or Italy. And there is also a basic business-friendly attitude shared by the populace. Switzerland attracts financial investors from all over the world as well as young businesspeople. Foreign employees who go to Switzerland include doctors, IT specialists, researchers and high-ranking artists. In addition, the labor market is much more flexible than Germany's because of certain unique features. The Swiss constantly strive to improve their services, rather than relying just on products. mm.de: Would you say that Switzerland as a whole has more diversified trade relations? Spremann: Of course a small country's policies are different from those of a large state. Small countries are like the "special economic zones" set up from time to time by large countries. It is right that its most important business relations are with Germany and France. mm.de: So a global setup is a success factor. Can the top companies identified in the "Best of European Business" competition shine on the international stage? Spremann: It goes without saying that companies which are product-oriented have to sell their products worldwide as well, to make use of economies of scale. They are successful internationally. By contrast, service providers such as trading or power companies can do business very successfully despite their regional limitations, although in South America nobody will have heard of them. mm.de: And what does Germany have to do to get back on track? Spremann: For Germany to still have the prosperity it wants in 20 or 30 years' time, it must attract and encourage investment more than it has done in the past. The emphasis must shift from the consumer to the investor. In addition, young people's strengths must be integrated. We need a climate in which young people make a start in a career, in which young people can learn and at the same time in which new knowledge is created. Germany cannot be successful in the long term if school leavers and graduates cannot get a foothold on the career ladder. To achieve this, the Germans must move away from their limited interpretation of frequently cited justice. Many people understand this to mean justice within the current generation. But there is also justice between generations. Society must do what is right for young people and give them opportunities. Secondly, the Germans used to be successful because they combined the best products with good services. This level of quality can only be maintained if R&D capacity is expanded considerably. Some of the funds currently spent mainly on consumption within the current generation must be diverted – to schools, universities and research institutes. Unfortunately no politician is willing to do that, as studies show that it takes 25 years for investment in education, training and innovation to lead to flourishing new economic sectors. My third recommendation is to conduct positive diplomacy for German products. German brands must appeal to global buyers. mm.de: Can you be more specific? Spremann: The French show us how to successfully mix products with a dash of politics and thus make them seem acceptable and appealing. The products are not simply forced onto the markets. We Germans put too much emphasis on the global market and product quality. The buyer of the future will react more to style, appeal and emotions. Germany therefore needs to be "sold" via diplomacy as an interesting and appealing country. mm.de: Have the companies selected as "Best of European Business" mastered this combination of fresh capabilities, top research and economic diplomacy? Spremann: They are certainly strong in R&D and open-minded in their expansion strategies. At the same time they are companies which do not just make announcements and have plans, but have already achieved something, as their sales and earnings show. The interview was conducted by Arne Stuhr and first appeared in Manager Magazin online on 19 September 2005. If you have any questions, please don't hesitate to contact us:  | ||||||
Top
previous 