Archive for the ‘competitive advantage’ Category

Germany is losing its global competitiveness

So far this blog has focused on describing the problems with poor customer service in Germany. Soon I will switch the focus on identifying business opportunities from good customer service. Before I do that though, let me point to some statistics as evidence that the German economy has been negatively impacted by the poor customer service offered in Germany. 

Over the past century, Germany has been able to benefit in the global economy from its strong engineering and product development heritage. This strength has been its competitive advantage in the industrial age. However, we don’t live in the industrial age anymore. 

As described in this post, the majority of developed countries’ gross national product is already derived from services and the majority of employees work in service businesses. Hence, the global competitive advantage depends more on services driven by human-to-human interactions than on engineering or product development. And here Germany lacks competitive advantage. 

That Germany’s economic wealth is declining relative to other countries becomes obvious when comparing its gross domestic product (GDP) per capita with that of other developed countries (see chart below). Germany’s GDP per capita, indexed against the OECD average, declined about ten points over the past decade whereas many developed countries increased their GDP per capita above that average or at least kept it stable.

GDP per capita

Although this decline is driven by several factors, one factor to consider is Germany’s weak competitive position in the global service economy. That weak position is in turn driven by the poor service mindset in Germany. Although this blog doesn’t attempt to fully analyze Germany’s service economy, here are few data points as indicators for that weak position.

Impact of services on GDP
In Germany only 69% of the GDP was derived from services in 2005, in the US it was 81%. Over the past ten years, Germany’s total GDP has been growing 1.9% and its GDP from services has been growing 2.4% annually (compounded annual growth rate). Over the same ten years, US GDP has been growing 5.4% and its GDP from services 5.7% annually. 

Exports of goods AND services
Germany prides itself in being the world’s biggest exporter of goods, even ahead of the US for several years now. However, this statistic reflects only export of goods, it doesn’t include services. And the majority of these goods exports come from auto & heavy industry and chemicals, all areas with strong German industrial heritage. Taking services into account, the picture is not as rosy. In 2005, only 13% of Germany’s total exports were coming from services, in the US that number was 28%. 

Germany’s representation among best global brands
According to the recent ranking of the best global brands 2006 by Interbrand, Germany is represented with nine brands among the top 100 and US with 51. This number difference is less important, but what is more telling is the percentage of brands from service industries. Out of the nine German brands represented, only one, SAP, is from the service industry and that only if you take the broader definition of services, which includes software. On the other hand, over 40% of US companies represented is from the service industries.

Germany vs. USA comparison

As mentioned before, these are only few indicators for the poor German service economy in a global comparison. And, the poor service economy isn’t the only reason for the weak performance of the overall German economy. Probably a more significant driver of the German economy is the relatively low consumer spending, driven partly by low birth rates in Germany since the mid-1970s. As documented in this German research paper, there are 300’000 less children born every year than needed for a sustainable economic progression. This gap leads to declining domestic consumer spending with for example 250’000 less new households being established every year than just ten years ago. Well, this is though a topic for its own blog. 

There is mounting evidence for how the poor service in Germany has been negatively impacting its economy. German politicians and businesses believe, however, that more focus on innovation is the solution to the poor economic performance relative to other developed countries. How about looking at the lack of customer focus and poor service levels as other drivers – and maybe even more significant ones – for the current state? Can you imagine where German economy could be if it would be more competitive in the service area?