Germans Cut Labor Costs

1. Germans Cut Labor Costs • Ex. German sports car Porsche new hit the Boxster • In-order to produce they need more assembly plants to keep up with demand • decision made to outsource outside of the country • reason: expense of the factory to high, training costs, and hiring and then firing workers if the Boxsters popularity diminishes

2. Germans Cut Labor Costs • Similar to BMW and Mercedes USA plants • Restructuring issue for GM

3. Europe’s Economic Growth • Most economic growth in years but not many new jobs have been created • Unemployment rate still 10% across the EU • 11.6% in Germany • Reasons for lack of job creation in Germany • High labor costs, fringe benefits, plentiful vacations, rigid work rules, and high payroll taxes that discourage companies from adding workers • In 1997 German companies invested 25 billion abroad = capital and job outflow

4. Europe’s Economic Growth • Joblessness in Germany is a major threat to Chancellor Helmut Kohl • Germans pay 1/2 gross income in taxes and mandatory social security contributions • employers have to match a portion of these payments

5. Hugo Boss example • Sales climbed 14% last year • 27% jump in profits • Part of the success due to production shift outside Germany to Poland • Only 20% of the clothing is produced in Germany because labor is so expensive

6. Hugo Boss example • Only reason they produce at all in Germany is to retain technical expertise to supervise suppliers and ensure quality = maintain competitive advantage • However, there is change is the future • Government is trying to put more money toward job creation programs and to seed capital for new companies