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German companies look abroad for gains

Amid macroeconomic stagnation many of Germany’s largest firms are enjoying a run of healthy profits and rising stock prices because they are turning away from Germany to cut costs and raise revenues.

Manufacturers are outsourcing more and more of their operations, often by tapping the pool of cheap labour in Poland and the Czech Republic. Service providers shed German workers in favor of a much smaller group of employees.

Despite being among the world’s top exporters in goods and services, Germany’s growth is sluggish and job creation anemic.

The German economy, economists say, should be understood as a platform from which companies will pick and choose where to do business, without relying on growth or creating employment at home as they once did.

Deutsche Bank recently announced it would focus increasingly on investment banking outside Germany – and this year created a political firestorm by cutting jobs at home while reporting a healthy profit. Even Porsche, known for its commitment to manufacturing in Germany, gets roughly 45 per cent of the value of its Cayenne sport-utility vehicle from manufacturing in Slovakia.

The International Herald Tribune

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Electrolux to shift plants abroad

Electrolux will shift more of its manufacturing to low-cost countries, as the Swedish company grapples with rising raw material prices and stiff competition.

Electrolux, the world’s top maker of home appliances, plans to relocate many of its 27 plants in Europe and North America to Asia, Eastern Europe and Mexico. The company has already cut staff and moved some plants to low-cost nations.

Electrolux said it was accelerating its restructuring program, which aims to save an annual 2.5 billion to 3.5 billion kronor from 2009.

In 2004 Electrolux posted a fourth-quarter pretax profit of 1.35bn kronor. The health of the company, which is seen as a good indicator of global spending on consumer goods, said quarterly sales were 28.6 billion kronor versus a forecast of 28.0 billion kronor, and 28.3 billion a year earlier.

Electrolux said it expected demand for home appliances in Europe and North America to show some growth this year, but operating profit would be somewhat lower with raw material prices mainly for steel and plastics, weighing even more heavily on profit this year than they did last year.

The company said it had successfully pushed through price rises, announced last year to offset the surge in steel prices, but price increases in Europe were still being negotiated.

International Herald Tribune, February 16th, 2005

Unit VI

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Troubled carriers face some stiff competition

Air cargo operations are struggling to maintain profitability in the face of slower growth rates, high fuel costs and strong competition from other modes of transport, particularly in Europe. Airlines face heavy investments in new aircraft to modernize their fleets to improve fuel efficiency and to meet demand, which is still rising, albeit at slower rates than expected, as well as higher growth rates forecast for the long term. In a difficult business environment carriers are accelerating the withdrawal from service of older aircraft in order to cut operating costs.

Despite the generally shared forecasts for long term expansion, analysts warn that air cargo carriers have to be aware of the difficult challenges posed by the concentration of growth in Asia, the increasing imbalance in world trade and the loss of business to sea shipping.

Air cargo, a $55bn-a-year business remains at the heart of the world economy, with 35% of the value of internationally traded goods shipped by air.

Growth is linked to Asia, however, and by 2010 intra-Asia freight is forecast to account for 26% of total international freight at 8.3m tonnes, with another 6m tonnes being moved on routes from Asia to Europe and North America.

Airlines are reporting that yields, or average cargo rates, are under heavy pressure, as ocean container shipping becomes more competitive and takes away business.

Ocean container freight rates in 2006 were 20% in real terms below 2000 levels, while air freight rates were only 8% lower. And ocean freight capacity is growing at 12% a year, so more intense price competition can be expected.

The Financial Times, March 27th, 2007

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