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Management Challenges for Germany and German Companies in the 21st Century Parallels to Korea?. SKK Graduate School of Business Prof. Dr. Hermann Simon. Seoul, April 29, 2005. Overview. Globalization: The great enigma Time bomb population Capital markets:World democracy and world tyranny
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Management Challenges for Germany and German Companies in the 21st CenturyParallels to Korea? SKK Graduate School of Business Prof. Dr. Hermann Simon • Seoul, April 29, 2005
Overview • Globalization: The great enigma • Time bomb population • Capital markets:World democracy and world tyranny • Change: Where are we heading? • Germany’s stars (5H01X010)
German Schizophrenia • Export record in 2004 • Worst internal situation since decades • Depressed mood • Lack of leadership • Strengths of German companies (5H01X010)
Exports in 2004 (billion US-$) . . . (5H01X010)
Globalization Has Only Just Begun World export per capita 985 437 23 6 (5H01X010)
Globalization Has Only Just Begun World export per capita 2,000 985 437 23 6 (prognosis) (5H01X010)
Unlimited Opportunities for Growth • 1.2 billion people without clean drinking water • 2 billion people without electricity • 49% of the world population have never made a phone call • 61% of the world population have never taken a photo • Today: 40 million cars per year • 2020: 80 million cars per year (5H01X010)
3 2 1 1 Germans Americans Swiss New Zealander Globalization of Management Example: Board of Adidas 7 (5H01X010)
2 1 1 1 Germans American Spaniard Italian Globalization of Management Example: Board of Fresenius Medical Care 5 (5H01X010)
1 1 1 1 1 1 1 2 1 Dutchman German Austrian Briton American Swede Spaniard Swiss Mexican Globalization of Management Example: Board of Nestlé 10 (5H01X010)
World-Class Talent • "A recent study says global corporations are at war for 21st century executive talent. Attracting world-class is getting more and more difficult. Firms big and small need to provide talented people with a compelling reason to join and stay with a company." • The Wall Street Journal (5H01X010)
Markets of the Future? • Transatlantica • China • South-East Asia • Japan • India • How do Korea and Germany stand relative to these markets? (5H01X010)
Report Card on Globalization • Germany Korea • Mental globalization + • Global presence + • Worldwide war for talent - • International management + • Global market leaders ++ • Education - + • Anti-globalization + (5H01X010)
Lesson 1 • Globalization has only just begun. It brings enormous opportunities for growth but also great risks. Mental globalization, the battle for the best talents and the best know-how are huge challenges. (5H01X010)
Timebomb Population Pyramid • Industrial countries • Life expectancy goes up radically • Pension age goes up from 8 (1957) to 27 years (2030) • Declining birthrate (5H01X010)
Timebomb Population Pyramid • Developing countries • High birthrate • More children survive • Explosion • AIDS? (5H01X010)
Timebomb Population • Gesamtschau • Industrial countries Developing countries Breeding ground for affluence or World War III? 1 billion rich old people 2 billion young people (5H01X010)
The Population Time Bomb (births per 1,000/population) • Birth rates: Germany 8.45 • USA 14.13 • Korea 12.3 • Japan 9.56 • Population below 15: Germany 15.0% • USA 21.0% • Korea 20.9% • Japan 14.3% • India 32.7% • Iraq 40.2% (5H01X010)
today Population Development in Germany male female (5H01X010)
2010 Population Development in Germany male female (5H01X010)
2020 Population Development in Germany male female (5H01X010)
2030 Population Development in Germany male female (5H01X010)
2040 Population Development in Germany male female (5H01X010)
2050 Population Development in Germany male female (5H01X010)
The Gap in Germany There is a gap of 10 million people under 30! This explains nearly everything. "Demography is Destiny" (5H01X010)
The Only Solution 1 million immigrants per year - well selected Two conditions: - willingness to integrate - value education The current immigration policy is exactly the opposite. (5H01X010)
Consequences/Implications • Collapse of social insurance system • Innovations drive of society and companies • Integration of older employees (5H01X010)
How does Korea cope with the demographic challenge? (5H01X010)
Lesson 2 • Population dynamics determine our future more than anything else. This is not a prognosis but reality. The current systems cannot cope with the aging population. Germany needs 1 million immigrants every year. German society is going to change completely. Companies face very major challenges with regard to getting enough young people and integrating immigrants and older employees. (5H01X010)
Low Profitability of German Companies • Return on sales after tax: 0.0% in 2003. Germany and France no. 20 of 20 industrialized countries • Return on sales public coporations 2003: • UK: 5.7% • France: 2.4% • Germany: 1.5% (5H01X010)
Market Capitalization Metro 14,2 Wal-Mart 159,4 Posco Steel 12.3 Bayer 19,4 Merck 57,8 Hyundai 0.9 Deutsche Bank 67,7 Citigroup 187,6 Korea First Bank 0.6 Siemens 61,9 General Electric 296,2 Samsung Electronics 55.3 Quelle: Deutsche Börse Quelle: NYSE.com Quelle: Company Websites (5H01X010)
Value Extraction BRAND Value Delivery ? ? Value Extraction Value Delivery Value Extraction (What value do we deliver to the customer?) (Welchen Wert liefern (Wie holen wir uns (How do we get the counter-value?) wir den Kunden?) den Gegenwert?) + + - / o / + (5H01X010)
Lesson 3 • The capital market is both a world democracy and a world dictatorship – whether you like it or not. Each country and each company must adjust itself to the rules applicable, which are above all profit and growth. Whoever believes they can elude these rules of the market will end up an outsider and destitute. (5H01X010)
Willingness to change in Germany • 95% of 46 to 59 year olds are AGAINST an increase in the retirement age. • 75% of 30 to 45 year olds OBJECT to reductions of their retirement funds. • 81% do not want to FINANCE THEIR OWN sick pay. • Source: N-Indikator for the analysis of political consequences, 2003 (5H01X010)
A “Brutal” Diagnosis • “20 million addicts to a drug called state.” • Terror of minorities, e.g. unions • Education as a major weakness of Germany – and a strength of Korea? (5H01X010)
“We’ll know we’ve become Germany when two things are true: Dad can never lose a job and also can never find one.” • Holman W. Jenkins Jr. • WSJE, February 26, 2004 (5H01X010)
Job market regulation and productivity * Difference of average growth of productivity between 1990-2000 and 1980-1990 ** in 1998, with 0=lowest and 6=highest degree of job market regulation (OECD) Effects on Productivity Growth of productivity* Ireland Australia Finland Canada Norway New Zealand Denmark Sweden USA Austria Italy Belgium Germany Netherlands France Japan Correlation -0.69 Spain Job market protection indicator** (5H01X010)
Deutschland vs. USA Germany vs. USA Development of Employment USA USA Germany (5H01X010)
Observations • Discussion with a professor of theology. • Secondary school director in Duisburg: 80% of my teachers are against the performance principle. (5H01X010)
Change vs. Status Quo Managers Distribution of Change Managers and Status Quo Managers 84 % 16 % " ..., who all have one " ... visionaries and thing in common: discoveres who are They hate change full of ideas and almost more than anything." obsessed with their search for the new and innovative." Source: Rolf Berth, Triebfedern des Erfolges, Max-Planck-Gesellschaft, Spiegel 6/1993, S. 40 - 42 (5H01X010)
Contradiction • For me one of the strangest aspects in Germany is the contradiction between societal culture and corporate cultures. • Germany has a very severe growth problem. Many German companies, however, do not have this growth problem – they simply grow abroad. (5H01X010)
Is Korea better at accepting and managing change than Germany? (5H01X010)
Lesson 4 • To save Germany, much more radical change is necessary. Most Germans are in favor of more radical change – but, due to rigid structures, such change has yet to take place. Germany’s management elite has failed to communicate the necessity of change. It is doubtful that Germany will be able to pull off the necessary change. (5H01X010)
Hidden Champions – The German leaders • The hidden champions: 1000 world market leaders • Focus • Globalization • Clear competitive advantages • No alliances (5H01X010)