As U.S. manufacturers gear up for another year, many would do well to take a look at what their German counterparts are doing. According to the IHS Markit’s Purchasing Managers’ Index (PMI), Germany’s growth in manufacturing hit an all-time record high in December. And it’s not unique to 2017. In fact, Germans have been increasing their efficiency in all areas of manufacturing for years.
German manufacturing strengths
But just what makes Germany the manufacturing giant it is? A better question might be, “How can those here in the United States emulate it?” There appear to be two key factors contributing to the industry’s success in Germany: One is taxes and the other is the nation’s commitment to manufacturing.
- An innovative tax code — Tax codes in the United States are built around borrowing while, in Germany, they’re all about investing and saving. Businesses here in the U.S. must pay, on average, 35% in taxes. German businesses, on the other hand, pay much less at just 15%. As a result, more German company leaders can reinvest earnings into growing their businesses. And if capital is necessary for a new venture, it is easier for those in Germany to raise that as well.
- A dedicated nation — The second aspect in strong German manufacturing is an innovative and unique quality: The nation as a whole is committed to making manufacturing an excellent job sector for citizens. They support job training, maintenance, and growth on a public level. Layoffs and unemployment are discouraged by way of fines for companies whose leaders lay off their employees and unemployment payments are only meant to support short-term unemployment. On the flip side, if a worker must take a job that pays less than what he or she was making, the individual can still receive partial benefits — a true incentive to work and one those in the U.S. could do well to emulate.
Another factor that merges with Germans’ national dedication to manufacturing is their use of apprenticeship training programs. This is a fundamental basis upon which Germans build their manufacturing success. Young people enter vocational training programs every year, and their success hasn’t gone unnoticed. In the U.S., presidents have been stating for decades that industry leaders in our nation should start something similar.
Emulating the masters
Leaders of companies here in the U.S. looking to implement apprenticeship programs can also incorporate other successful German manufacturing tactics into their businesses.
Fund apprenticeship programs. These can be costly, but the rewards are often phenomenal. Better trained workers who cost less to employ is one of the many benefits.- Strong long-term leadership is key. One of Germany’s strengths lies in company leaders typically staying at the helm for the long term — 20 years on average. In other countries, turnover for CEOs and the like is five to seven years. The cream of Germany’s crops start younger, stay longer, and are more often women.
- Think focused niches. Many of the strongest manufacturing companies in Germany were not always big companies — and may not be now. But they are specialized. Those employed in traditional crafts such as clock making, which traditionally required skilled mechanical workers, went on to create medical equipment that demanded the same skills, according to the HBR article.
- Go global. Another instrumental area for German manufacturing leaders is their international mindsets. While the companies themselves may be smaller, their decision-makers’ mindsets are not. From a young age, they make connections and network throughout the world.
Thankfully, some U.S. company leaders are listening and learning how to implement the German toolset. The SC Technical College System now has an apprenticeship program that is proving quite successful. It starts in high school when students entering the program take regular classes in the morning, do vocational training in the afternoon, and go off to work part time to practice what they are learning.
South Carolina’s technical program is not alone. Over 130 company leaders have started similar apprenticeships in the hopes of training a brand-new generation of talented young workers. As they invest in training these students, savvy U.S. manufacturers are going beyond just equipping them with the necessary skills. These industry leaders are investing in their students’ lives and their own companies’ futures — and this means an investment in the future of all Americans.