6. Chinese Investment to Germany
6.2 What do they do, where do they do it and how?
6.2.3 Post-acquisition management and employment structure
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in Europe is located in Frankfurt. Still, the majority of Chinese companies set up shop no more than 10 years. (Wang 2008, 3)
Hamburg is a prime example for how an urban cluster attracts foreign investment from China. The city is a hub for commodity flows, especially in the logistics sector.
Its industrial harbor is currently the largest harbor in Germany and second largest in Europe. Boasting such assets, the city is home to a large number of Asian companies, with around 650 companies setting up branch offices here: more than 400 Chinese companies, 60 Taiwanese companies, 40 Korean companies, 40 companies from Hong Kong and the European headquarters of Japanese conglomerates (more than 100 Japanese firms in total). (Matz 2009, 3) Hamburg is home to the European
headquarters of some of the largest Chinese conglomerates, including Sinochem Trading Corp., Baosteel, Chinatex Trading Corp., COSCO, China Shipping and Sinotrans. The city further offers a good infrastructure to the large Chinese
community of more than 10,000 people of Chinese origin with resident status: The Commercial section of the Chinese Consulate General is located here, a Chinese school was opened, Chinese shops, restaurants and Chinese newspapers are available.
The city more or less exemplifies the advantages an urban cluster location offers:
infrastructure, services, transportation and community.
Still, urban locations are primarily used to establish branch offices or headquarters.
With access to services and important institutions, they provide a strategic location for Chinese business to manage their operations in Germany and beyond. They are
however not primary locations for M&A transactions, as most industrial companies are situated in the rural regions of Baden-Wuerttemberg and Bavaria. There, industrial clusters have developed over time, with many of the well-known brand names from cars to appliances located here.
6.2.3 Post-acquisition management and employment structure
A thorough explanation of post-acquisition management is crucial to evaluate the impact of Chinese M&A and Greenfield Investment on the organizational structure of the individual company and its effect on the German labor market in general.
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Overall, German employees play a key role in Chinese investments. A study
conducted by Yang Wang in 2008 in the federal state of Hesse underlines that 80 per cent of all Chinese companies there (be they M&A or Greenfield Investments) employ German workers (see graph below). These workers are essential for several reasons.
Foremost, they possess local knowledge and command of local language crucial to the day-to-day business activities of the investor. German employees are familiar with business customs and know the structure of regulations in their industry. Thus they tend to save the investor both time and money after the foundation of a subsidiary or a takeover.
Figure 14: Share of German Employees in Chinese-invested companies in the state of Hesse 2009
Source: Wang 2008.
Crucial for the success of a Chinese investment is the managerial staff. In Hesse, 31 per cent of all Chinese companies do employ a German CEO/ general manager or a deputy manager to operate their businesses. (Wang 2008, 4) While the numbers are surprisingly low, most surveyed Chinese companies expressed their wish to employ a German manager in the future- they however did experience troubles finding a suitable candidate for the position. Employing a German manager is important, because he/ she is aware of all legal regulations and business customs. Furthermore, he/ she possesses valuable business contacts in the country. The German manager is
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usually supervised by a Chinese manager dispatched from the parent company in China. In the case of Greenfield Investments, the share of Chinese employees and managers is naturally higher than in the case of a takeover.
In a takeover procedure, Chinese investors face a predominantly German workforce to begin with, thus the share of Germans in the workforce is usually above 90 per cent. It is customary that the investor reaches an agreement with the union of the respective target company, with regard to job preservation and wages. This usually includes a guarantee that no jobs will be outsourced from Germany to China. This is normally agreed upon for an initial timeframe of five to ten years.
The short-term effects of Chinese investments on the German labor market are therefore generally positive. As most takeover targets are financially ailing and
bankrupt companies, the starting position for the investor is usually difficult. It is clear that without the investment, jobs would be lost or a rigorous cost cutting scheme with unpaid overtime would be instituted (for further details refer to chapter 6.4). In a worst-case scenario, the company would simply stop its operations and all employees would become redundant. Thus Chinese investments, especially into ailing
companies, tend to save jobs on a long-term basis.
According to a study by Margot Schüller and Magnus Brod of the German Institute of Global and Area Studies (GIGA), Chinese investment has not only helped to save jobs, but also created a substantial number of new ones. In their survey covering 463 registered companies, they found that 3,505 new jobs were created by Chinese investors in Germany until 2009. (Schüller/ Brod 2009) This is a rather substantial number, given the high salaries and general employment costs in Germany. However, there is no reliable data on the overall job creation effect Chinese investment has had to date, as such data is neither collected by chambers of commerce nor investment agencies. Thus, this report can also only provide an indication on issues of
employment structure and job creation.
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