By Ulrich Ackermann
Long gone are the days when employees of the former VDMA foreign trade department began their events by rolling out maps. Today, the week-long journeys by ship to South America or Asia to discover and develop new sales markets for member companies are nothing more than an anecdote. But German exports of mechanical and plant engineering systems experienced a steep increase over the past decades - from 32 percent in 1955 to more than 78 percent in 2015.
Developing foreign markets
Many mechanical engineering companies started their export activities by delivering their products to neighboring European countries. Despite the Cold War, the Eastern Bloc was an increasingly important sales market from the 1950s onwards. Starting in the 1960s, Latin America was opened up as a sales market, followed by the USA. The Asian market was developed much later via the Asean states. The past two decades were mainly focused on China.
From the beginning, VDMA supported its member companies in entering into foreign markets by providing information on the market and sharing experience. New issues kept coming up over time. The collapse of the Eastern Bloc after 1989 led to an increased interest in the eastern neighboring states - and not just as sales markets, but also as an affordable source of procurement. For this reason, VDMA organized several purchasing delegations at the start of the 1990s, from Estonia and Latvia in the north to Romania and Bulgaria in the south. Many of the initial contacts have developed into long-term business relationships.
EU single market as the basis
The completion of the EU single market by 1992 was announced just in time for the 100th anniversary of VDMA. After the EU became a "home market", the mechanical engineering industry in Germany shifted its focus to the more remote sales markets. At that time, the then VDMA President Prof. Dr. Berthold Leibinger urged: "Our strategy must not stop at simply defending our leading position on the European market and leaving the rest for the others. Besides the fact that we are selling 30 percent of our products outside of the EC, the deciding factor for me is that we can only succeed in holding the top position in engineering on the world stage when we also explore other countries with leading positions in worldwide technology markets." The mechanical engineering industry took this warning to heart.
VDMA also took account of the increasing importance of emerging markets and set up several liaison offices in order to support its member companies in these important, but also quite challenging foreign markets.
VDMA provides support on site
The first VDMA representative office was established in 1984 in Japan for the purpose of monitoring the competition. Next in line:
- VDMA Representative Office in India (2000)
- VDMA Representative Office in China (2004)
- VDMA Representative Office in Russia (2008)
- VDMA Representative Office in Brazil (2013)
In addition, a liaison office was established in Iran in 2016, which is still in its start-up phase. The aims of the representative offices are to connect VDMA members on site in the local markets, to provide representation of the interests of mechanical engineering as well as to offer of concrete support services such as the facilitation of contacts and assistance in market development.
China as future competitor
Recent decades haven't just seen a change in export markets, but also a change in international competition. While the "Japanese threat" was an important factor during the 1980s, the increasingly local but also international competitor is now China. Chinese mechanical and plant engineering companies have developed impressively across all sectors in the past 20 years. In order to assess the current and future competitiveness of China, VDMA has compiled a series of studies on competition and discussed them with the member companies.
Free trade guarantees prosperity
For the export-oriented mechanical and plant engineering sector, it is essential to open foreign markets and, specifically, to keep them open. This is why VDMA supports the EU in its efforts to open export markets through bilateral free trade agreements with third countries. To this end, the association has set up additional trade policy capacities in its European office in Brussels. The biggest success to date for the mechanical engineering industry in this context was the conclusion of the free trade agreement with South Korea in 2011. The current discussions on the Transatlantic Trade and Investment Partnership (TTIP) as well as the Comprehensive Economic and Trade Agreement with Canada (CETA) show that free trade agreements are not "quick sells". Since the beginning of the TTIP negotiations in 2013, VDMA has been heavily involved. The requirements of mechanical engineering on the agreement have been formulated in numerous position papers and statements and discussed with the relevant institutions on a European and national level. Furthermore, several citizen events have been used to clarify the advantages of free trade agreements such as the TTIP. The world has become more volatile in the past years. There is an increased risk of serious finance and economic crises at ever shorter intervals. VDMA has kept on tackling this issue and in 2015 organized a Foreign Trade Day under the heading "Well-armed against crises", during which effects on companies and possible measures were discussed on the basis of crisis scenarios.
Mechanical engineering is prepared for the future
However, the mechanical engineering industry can look confidently into the future. In the core markets in Europe, America and Asia, the mechanical engineering industry currently enjoys a strong position. In the future, however, the mechanical engineering sector in Germany and Europe will need to increase its focus on smaller markets such as in Africa. The opportunities on the African continent were highlighted in a VDMA market study published in 2015. With an initiative to train specialists on site in Africa, VDMA plans to facilitate entry into African markets. Kenya, Nigeria and Botswana were selected as project countries. In the future, investment in the mechanical engineering industry will move even closer to the sales markets. This also secures jobs in Germany and Europe, and there is no alternative way. In Germany and Europe, the dependence of prosperity on successful business abroad is growing. To be precise, enjoying a coffee break among family and friends in your own garden comes down to the success of the factory in Asia or America - now and even more so in the future. It is up to companies, policymakers and VDMA to raise awareness of this situation.