Internationalization in the German SME sector
For many years, Commerzbank’s Unternehmerperspektiven initiative (which translates to Entrepreneur Perspectives) has been asking German small and mid-sized enterprises (SMEs) about challenges, prospects and trends. In May 2019, the latest study was presented, which this year focused in particular on the topic of “Internationalization in German SMEs”.
On the occasion of German Chancellor Merkel’s visit to China in early September 2019, a quote from this study made headlines in some Chinese media. “According to German media reports, the survey showed that 31% of German SMEs are preparing to relocate their factories to the Chinese market,” it said. There is no doubt that China continues to be an important market and location for German SMEs, as we can confirm from our daily work. But this figure made us wonder – so we took a closer look at Commerzbank’s study, which contains many interesting facts about China’s importance for German SMEs. A summary of the China facts from the Entrepreneur Perspectives 2019 can be found here.
Sales markets: 22% export to China
China is already an important sales market for German SMEs: 22% of all companies surveyed export to China. By comparison, only slightly more than half of all surveyed companies export at all. In other words: approx. 42% of all exporting companies have already entered the Chinese sales market.
Eventful times: Benefit from the trade conflict?
The Commerzbank survey shows that companies have less planning security overall – 64% of all companies surveyed agree. Only a few companies, however, assume that they can benefit from the shifts resulting from the trade conflict, for example. Only 20% expect positive impacts for German companies from trade conflicts such as the one between China and the USA.
Surrounding conditions: Better in China than in the USA
The surveyed SMEs were also asked to assess the economic conditions of selected countries. China is rated here as a reliable partner for German entrepreneurs, two thirds rate the general framework as at least satisfactory or even good to very good. It is worth noting that China scores significantly better in this respect than, for example, the USA or Great Britain. This assessment by the respondents to the study also triggered a broad media response in China: Many Chinese media outlets reported that China was rated as more reliable than the USA and Great Britain.
Strategies: China as a new sales market and location
When exporting companies are asked about their plans, China appears again and again: On the one hand as one of the new sales markets that German exporters want to tap. Twelve percent of respondents plan to sell their products or services in China in the future – India, the USA, Poland, France and Africa are also mentioned here with a similar frequency (12-14 percent).
The picture is much clearer when asking about the intentions to relocate business operations abroad. 31% of all companies with business operations outside of Germany that are considering relocating or are planning to do so want to move to China. However, it is not 31% of all German SMEs in general who are planning to relocate to China, as the Chinese headlines suggested. In fact, only a small number of the medium-sized entrepreneurs surveyed are currently considering relocating (only 119 out of a total of 2000 respondents for the study). Nevertheless, China’s attractiveness as a business location for German SMEs is underscored by the fact that by far the majority of those considering relocation want to go to China.
Political support needed: 80% want commitment to better relations with China
The last question of the current study links again to the current visit of the German Chancellor and the German business delegation to China at the beginning of September. Good economic relations with China are among the major concerns which small and medium-sized enterprises would like political support for. Out of all respondents, 80% expect politicians to do more to support them. With this in mind, let’s hope that not only large companies but also medium-sized companies will benefit from delegation trips to China like this one last week.
For Commerzbank’s representative study, 2000 medium-sized companies with an annual turnover of € 2 million or more were surveyed by telephone. A balanced distribution according to federal states and sectors was ensured, so that representative results are also available for individual sectors and regions. All figures are taken from the Commerzbank study.
The study and all sub-studies (in German) can be found at here.
Annette Heile – Business Development Manager
Annette Heile is a Manager in our Business Development and Marketing team. She has been living and working in Asia for the past twelve years. Annette works with clients and partners, organizes events, and keeps clients, partners and prospective clients up-to-date about latest developments in China relevant to our service areas.
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Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. We are specialized in advising mid-sized international companies and focused on tax and legal advisory, accounting and auditing. We frequently publish articles on new regulations and recent developments in China and Germany on our website.
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