VDMA: Mechanical engineering companies strengthen their presence abroad

Free trade and open borders do not only mean good export opportunities for the German industry. Mechanical and plant engineering companies are also increasingly establishing local production, service or sales in countries where their customers are based. According to the latest figures from the Deutsche Bundesbank, the German direct investment portfolio in the foreign mechanical engineering sector increased by almost 9 percent year-to-year to 39 billion euros in 2016. The number of foreign companies in which investments were made rose by around 3 percent to a total of 1,800 companies, which together employed around 402,000 people. The total turnover of these foreign mechanical engineering companies with German investment was 102 billion euros.

"It is becoming increasingly important for companies to be close to their customers in order to be able to react directly to the specific market conditions," explains VDMA Chief Economist Dr. Ralph Wiechers. "Growing protectionism is not only hampering exports, for example through tariffs. Our medium-sized companies also often encounter high bureaucratic hurdles in individual countries which are hampering them in their business. However, free trade and freedom of establishment are essential for the worldwide success of mechanical and plant engineering."

At the top of the ranking of investment targets for 2016 was again the EU with a share of 32.3 percent and a total investment volume of 12.6 billion euros. However, Brexit appears to have already left its mark in the same year, with the FDI stock in the United Kingdom falling by a quarter to 1.5 billion euro compared to the previous year. "This is also related to the depreciation of the Pound, but the uncertainty of investors since the Brexit vote may have been more important," says Wiechers. In contrast, direct investments in the US mechanical engineering sector increased by almost 11 percent to 11.1 billion euros, while investments in China rose by 1 percent to 6 billion euros.

The mechanical engineering sector in Germany also remains an attractive target for foreign investors. In 2016, the direct investment portfolio remained stable at just under 17 billion euros, almost unchanged from the previous year, even though the record figure of 18.2 billion euros in 2014 was missed. The statistics also show the source of foreign funds for 2016 according to the group headquarters of the respective investors. As a result, most companies that bought into mechanical engineering in Germany came from the EU (26.7 percent), followed by the United States (24.3 percent) and Switzerland (19.4 percent). Chinese investors were only responsible for 5.6 percent of direct investments in the German mechanical engineering sector in 2016. "In these statistics, the Netherlands and Luxembourg play a much smaller role than in the recording of FDI by country of origin. This shows that many buyers from the USA and Asia invest in Germany via holdings in the Netherlands or Luxembourg," the VDMA chief economist sums it up.