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HIGH COSTS THROW GRIT INTO WELL-OILED GERMAN MACHINE Companies squeezed by taxes, wages, rules


Berlin -- One of Maryland's biggest businesses has been bullish on Germany for nearly a decade. Now, however, Towson-based Black & Decker has its worries.

The company, which uses Germany as a base to reach nearby Eastern European markets, is being squeezed by rising taxes, high salaries for workers and an exploding number of regulations.

"Our market is already highly developed, our competitors are active and productive. Every cost increase is a serious factor for us," said Hans Georg Stahmer, general operating manager of Black & Decker GmbH, echoing the complaints of other U.S. executives.

Over the past two years, rising costs -- including tough environmental legislation -- have made Germany the most expensive production location in Europe. Industry leaders, citing statistics that show investment fleeing to other countries, warn that Germany is becoming too expensive a place to do business.

"I have real worries about an exodus of industry from Germany. This country's social and wage policies have gone too far," said Eberhard von Kuenheim, chairman of BMW, which makes engines for cars and airplanes.

Industry has cried wolf before. But unification has given such cries widespread credibility.

While supporting the high standard of living for 62 million western Germans, the prosperous western region also must help rebuild the eastern region's battered economy. Eastern Germany's 16 million inhabitants threaten to sap the economic strength of the unified nation, which is the world's largest exporter and which has the third-largest gross national product.

The issue heated up late last year, when a survey of 87 U.S. companies showed that western Germany's investment image was being tarnished by the new taxes needed to support unification. German industrial leaders, including Mr. von Kuenheim, followed with dire predictions.

More recently, the high wage settlement in the steel industry heightened fears that Germany's attractiveness was eroding. The 6.4 percent wage increase, which unions said was necessary to compensate for new unification taxes, probably will keep interest rates high and hinder growth. And last week, the German government announced that the nation's trade surplus fell 81 percent in 1991 -- from $66 billion to $12.8 billion.

Now hardly a day goes by without the newspapers and magazines carrying articles decrying or supporting the current investment climate.

In the past, high costs have been offset by the high quality of workmanship. But as other nations offer high quality for lower prices, the German success formula may be endangered, said Siegfried Schoene, director of international economic relations for the Hamburg Chamber of Commerce.

"People here have become used to prosperity to such a degree that they forget that they have to bake their cake before they can eat it or have it," Mr. Schoene said.

A study by the Swedish Employers' Confederation showed that total German labor costs are the highest of any major industrial country. German costs received a rating of 95 out of 100; the United States received a 75 rating and Japan a 60 rating.

The American Chamber of Commerce in Germany's survey of U.S. companies showed that a major complaint was high taxes. About 50 percent of profits are taken by the German tax collector; the European average is 40 percent, and in Britain the rate is only 30 percent.

And companies have widely criticized German environmental laws -- especially a new packaging measure designed to cut the waste going to landfills and incinerators.

Since December, companies have had to recycle packaging used during transport. In April, the law will be extended to "secondary" packaging -- such as the cardboard around a whiskey bottle that serves no function other than advertising. In the final step, next year, the law will cover all packaging -- from butter wrapping to milk cartons.

Because few companies want the old packaging material back before it has been reprocessed, they are allowed to hire recycling companies to do the work for them. These companies offer recycling bins near consumers' homes and pick up packaging from stores. Many major German cities already have different recycling containers for plastic, glass, paper and metal near apartment complexes or in shopping centers.

The law already has affected the way companies operate. Procter & Gamble, for example, has redesigned laundry detergent boxes to use 30 percent less packaging. Hewlett-Packard has redesigned its packaging worldwide to make it easier to recycle in Germany. And Volkswagen says its new Golf is fully recyclable -- workers can strip down a car in 20 minutes.

Companies are bristling at the high production costs. For the first time since Germany's postwar economic recovery, there is more German capital flowing overseas than foreign capital coming into the country.

The most recent figures, for the first half of 1991, show that German foreign investments topped $8 billion. Foreign investment in Germany was only $550 million. In 1990, German overseas investment topped $20 billion, while foreign investment in Germany was just $2 billion. That equaled a net export of 100,000 jobs, according to the Union of German Industries.

In the auto industry, for example, Volkswagen has invested heavily in a new "lean production" factory in Spain and has bought the Czechoslovakian automaker Skoda for nearly $5 billion. Daimler-Benz chief Edzard Reuter said his company's huge car plant in Stuttgart would be situated overseas if it were to be built today. And, although BMWs still are produced in Germany, 25 percent of the parts are imported to cut costs.

Still, Black & Decker, like most investors in Germany, plans to stay in Europe's most populous country.

Reacting to the pessimism about Germany's future as an industrial giant, some industry leaders point out that Germany retains advantages in comparison with lower-wage competitors.

For example, investment is encouraged by the country's excellent infrastructure, the quick delivery time by suppliers and the local communities' favorable business climate, said Black & Decker's Mr. Stahmer. Just as important is Germany's strategic location near the emerging capitalist economies in Central and Eastern Europe.

The German Black & Decker company, for example, has 1,000 employees at two plants near Frankfurt, where it produces "Workmate" benches, "Saugboy" vacuums and various electric tools under the "Elu" and "Black & Decker Professional" brands.

Black & Decker has become a leading name in the booming do-it-yourself field in Germany. Company sales in Germany topped $320 million for fiscal year 1990-91, a 16 percent increase over the previous year.

As Mr. Stahmer says, that's tough for any company to walk away from.

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