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Episode 15: Cautious Optimism and Wild Cards

- February 2024 -

Never mind the doom-and-gloom headlines. Kearney’s most recent FDI Confidence Index suggests that international companies are still bullish on Germany. Big-ticket business expansions support that view. 

Germany’s GDP growth has slowed recently, and the number of FDI projects are slightly lower, but the country’s long-term stability and even its transition to sustainable industry are still attracting big projects in critical sectors such as pharma, microchips and battery production. Eli Lilly and Company, Intel and Northvolt are just some of companies pushing ahead with gigantic endeavors in Germany. But what challenges await in the future?

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Our Guests


Terence Toland, Manager, Kearney’s Global Business Policy Council Terence Toland, Manager, Kearney’s Global Business Policy Council

Terry Toland is a co-author of the Kearney 2023 Foreign Direct Investment Index and the thought leadership manager at the firm’s Global Business Policy Council. 










Robert Hermann, Geschäftsführer, GTAI Robert Hermann, Geschäftsführer, GTAI | © Anke Illing

Robert Hermann is the CEO of Germany Trade & Invest, Germany’s international economic promotion agency. 









Transcript of this episode

This transcript was partly generated automatically, text errors are possible

 Robert Hermann, CEO  GTAI:

“The latest trends tell us globally that investment attraction, is becoming more and more a challenge and not only for Germany, for all countries.”

Terry Toland, Kearney Global Business Council:

“There's been so much written about globalization and a retreat from globalization. But the findings this year reflected a great deal of continued confidence in globalization today and in the next three years." 


Hello and welcome to INTO GERMANY, the German business podcast brought to you by Germany Trade & Invest, the German government’s international business promotion agency. I’m Kelly O'Brien. What you’ve just heard are two different perspectives on international business expansion. The first was from Robert Hermann, CEO of Germany Trade and Invest. And the second was from Terry Toland, one of the authors of the 2023 Foreign Direct Investment Index by business consultants Kearney.

Everyone agrees that last year was a challenging one for global business. But what story does Foreign Direct Investment, or FDI, tell as an economic indicator? Where does Germany stand internationally? We’ll be tackling those questions and identifier five “wild cards” that will be key to international competitiveness world-wide?


To tackle those questions, let’s consider a point made by German Minister for Economic Affairs and Climate Action, Robert Habeck, late in 2023. 

“Currently, about two dozen companies are planning major investments in Germany, with a total investment volume of about 80 billion euros. We have created here a diverse biotope of companies with a large interest in investment, from pharmaceuticals to semiconductors to hydrogen production. These are sectors that will soon pay off and revive our prosperity.”


And here are a few examples of what the minister means. In the summer, Taiwanese chipmaker TSMC announced plans for a ten-billion-euro semiconductor factory in Dresden.  

U-S pharmaceutical pioneer Eli Lilly and Company revealed a scheme for a two-point-three-billion-euro expansion in Alzey. 

And of course, those two projects followed upon U-S chipmaker Intel’s thirty-billion-euro investment in a semiconductor megafab in Magdeburg.  

This reflects a global trend. The Kearney F-D-I Index shows that despite all the turmoil around the world, more investors continue to be optimistic about the global economy than pessimistic.  In the 2023 Kearney Foreign Direct Investment Index, 82 per cent of investors surveyed say they plan to boost FDI in the next three years. That is slightly up, over two years ago.

To explore why this is the case, we go to Terry Toland from Kearney. He’s a manager on the consultancy's Global Business Council and a co-author of the FDI Index. Terry, tell us first a bit about the index, and who is responding. 

Terry Toland  

 "So the FDI Confidence Index surveys global investors around the world. We have a roughly equal distribution of respondents, more than 500 respondents in total across the Americas, Asia, as well as Europe and the Middle East. Each of the respondents has a direct role in making foreign direct investment decisions for their companies, and they all come from companies that are valued at least half $1 billion or more. So these are all investors responding from large companies.


And you saw evidence that they were tending towards established investment destinations like Germany, which ranks in the top five of your list of confidence among investors.  

Terry Toland 

"The bottom line is that we saw what we call a "cautious optimism" among investors this year. There was a degree of optimism about the impact of foreign direct investment, and what it can mean for their companies. There was an increased interest in the most developed markets of the world. A sense of a flight to safety to some degree. And the perceived safety of developed markets over emerging markets. And a strengthening of the performance for those at the top of our list. So every year the FDI Index ranks the top 25 investment destinations in the eyes of investors and among the top ten. Their scores generally went higher, became stronger, and among the bottom 15, the scores generally got a bit weaker. So to us, the suggested a growing preference for the most established markets in the world as being the safest bets for investment. " 


The German economy has had a particularly rough ride over the last couple years, and growth has suffered.  But your report suggests investors remain bullish about Germany. How come?  

 Terry Toland:  

"The discrepancy is really because it's measuring two different things. On the one hand, we're looking at Germany's economic performance and G-D-P growth. And on the other, we're asking the question of Germany's attractiveness as an FDI destination overall. And at Kearny's Global Business Policy Council, we have two economic reports that look at each of these questions in our global economic outlook. We look at existing economic data and indicators that measure economic performance globally, regionally and at the country level. And then on the other hand, we have our FDI Confidence Index, which is this survey of global investors, more than 500 global investors on their investment intentions over the next three years. And it's that survey in which Germany ranks so highly. Now, our global economic outlook certainly reflects some of these negative headlines and challenges that we're seeing for Germany."  


Why don't you tell our listeners more about what your Global Economic Outlook say about the challenges facing Germany, which comes in fourth this year in your FDI Confidence Index.   

Terry Toland: 

"This won't be a surprise to the audience, but concerns about falling consumption, weaker consumer confidence, lagging real incomes. Of course, inflation is a major challenge for Germany and the world more broadly. It's falling. It's moving in the right direction. But it won't fall to below the 2% levels that we're looking for until sometime next year. It's similar at the global level. There are also a number of macro factors creating headwinds to German economy, slowing global growth. We expect global output growth will decline from 2023 to 2024, and persistent geopolitical risk is also creating headwinds in the context of Germany, specifically the Russian invasion of Ukraine and persistent uncertainty around that conflict." 


And yet the massive foreign investments we've seen in Germany indicate remarkable confidence in the country as a business location. 

Terry Toland:

"When we shift to a different lens asking about foreign Germany as a foreign direct investment destination, it's a bit of a different frame because investors are thinking about in our in our FDIC II, we ask about a three-year outlook. But many of these investments are looking at an even longer-term time frame. And so here generally over the long history, the 25-year history of the index, we find that investors are somewhat less concerned about shorter term economics, ups and downs and what they might see as a blip in the economy. They're more concerned about longer term stability, issues of trust. You know, we talked a bit earlier about the preference for perceived safety of developed markets. 19 of the top 25 markets in our FDIC II are developed economies. They're really looking for places that they see as being free of corruption, are home to trustworthy institutions, strong R&D investments and innovation capacity, reliable infrastructure and skilled workforces. And when you start looking at these metrics, Germany does quite well. And that's why Germany remains in the fourth position this year of the top 25." 


In Germany there is lots of concern that the planned transition to an environmentally sustainable economy will have a negative impact on industry. Why don't global investors seem to share this view?  

Terry Toland:

"And past and past FDI surveys, we've asked questions about investor views of climate and environmental issues. And the results have been striking. 77% of investors say that climate-related risk impacts their FDI decisions over the next three years. Last year, we asked investors about ESG, environmental, social governance priorities. 94% of investors said that their companies had developed ESG strategies and were working to achieve those commitments. 89% say that they view ESG commitments as a source of competitive advantage and that there's an opportunity, cost of inaction in pursuing these measures. And so, all of these results taken together along with some other studies we've conducted, really reflect that investors are more attuned than ever before to climate and sustainability issues. And when you think about it in these terms, they really do seem to suggest that Germany's energy transition could make it an even more favorable investment destination, especially when you consider that investors and executives are facing even more pressure to meet these ESG goals, if not from a regulatory standpoint, than certainly from consumer preferences." 


So, winding-up now Terry, what are the biggest wild cards for global investors at this point?  

Terry Toland:  

" So, for our latest geo Global Economic Outlook, we identify the big five wild cards that we think will have the most impact shaping the future for both the economy and for the investment landscape. And the five are one geopolitical turbulence. The second is the role of climate change and extreme weather. The third is the trajectory of inflation. The fourth is labor market imbalances. And the fifth, in which we can't overstate the importance of is tech innovation and accessibility."  


Well, thanks for that Terry Toland, thought leadership manager on Kearney's Global Business Policy Council. In just a minute we'll hear just how Germany is addressing Kearney's "investment landscape wild cards" from Robert Hermann, the CEO of Germany Trade and Invest, Germany's international business promotion agency.  But first, let's look at some of the stories making headlines in German business.  

Renewables Record

The German Federal Network Agency says that Germany now gets more than half of the electricity it uses from renewable sources. A whopping 55 percent of power consumed in 2023 was sustainable – up from 48.42 percent the previous year. Over 31 percent of German electricity came from on- and offshore wind, while photovoltaics represented 12.1 percent, biomass 8.4 percent and hydro and other renewables the remaining 3.4 percent.

Home Sweet Home

Staying on the topic of energy, Germany’s Federal Association of the Solar Industry BSW reports that over a million new solar units were installed in Europe’s largest economy last year. That’s also a new record. Small, residential balcony units accounted for much of the growth, with around 270,000 plug-in solar units going operational in 2023. That was four times as many as in 2022. 

Rising R and D

82 billion euros – that’s how much companies in Germany invested in research and development in 2022, according to Eurostat and Association of German Foundations. To put that in context, the private sector in France spent 36 billion euros and the EU as a whole 233 billion euros over the same period. The German expenditures increased eight percent over the previous year. The European average was 6.8 percent.

Cloud Cover

American I-T colossus Microsoft is doubling the capacity of its Azure Cloud service in Germany. The company said the expansion was prompted by anticipated rises in demand, particularly because of artificial intelligence. Microsoft’s customers in Europe’s largest economy include such heavyweights as Bayer, Deutsche Bahn, Lufthansa, Mercedes-Benz, SAP and Siemens as well as the German stock exchange.

And finally Green Light

The European Commission has okayed over 900 million euros in German government support for Swedish battery maker Northvolt for the construction of a planned factory. The facility is to be built near the northern German city of Heide. This marks the first application of new rules allowing national governments within the European Union to match subsidies offered outside the bloc for projects of strategic importance. The location enables Northvolt to employ the abundance of wind-produced green energy along Germany’s coasts. 


Welcome back. As we’ve heard consultant Kearney has identified five business “wild cards” for the immediate future. We have with us now Robert Hermann, CEO of Germany Trade and Invest, for some insight on how Germany may deal with them.  But first, Robert, let's start with your view on trends in foreign direct investment. What are the trends right now?  

Robert Hermann, CEO of  GTAI:

"The latest trends tell us globally that investment attraction, is becoming more and more, a challenge and not only for Germany, for all countries. We know that the numbers in the neighboring countries, for example, France, are going down or have going gone down last year by, let's say, quoting a study of Financial Times, more than 40% in France, for example, and Spain by more than 20%. So you see, companies attracting companies to a region is a challenge. We see high numbers of investments starting in the United States based on their incentive framework that they have established Inflation Reduction Act. And we see an interesting enough, not that much of a decrease in Germany.   for the future relevant for future investments.   We have a bunch of large projects in different industries. Battery manufacturing, battery recycling. We have several projects in healthcare sector, for example, large projects. So billion-euro investment projects in the pipeline. So, you see, there are large projects out there."      


Kearney has identified five key wild cards that could impact where FDI flows. Why don't we go through the list and see where Germany stands on some of them.  First up is geopolitical turbulence. How is Germany set up to handle turmoil on the global stage?  

Robert Hermann: 

"Very good question. Stability is major German calling card. Turmoil  increases Germany's attractiveness. So the EU and Germany are taking steps to both shorten and diversify supply chains. In the interest of resilience.  And examples are the chipmaking factories in Germany that have    in the last year 2023 been   announced and further investments that are supported by financing instruments of the European Union to settle battery factories to Germany or to your end to Europe as well as to car making car makers and other supply chain actors of the automotive industry, for example so that it's a big framework that supports it to strengthen the European economy as well as the German economy to make sustainable and  yeah, sustainable, positive to establish a sustainable, positive future for the German companies and companies in Germany." 


Next up climate change, and here in Germany, the price of fuel... Kearney says investors are concerned about the costs entailed.  

Robert Hermann:  

"So, the German government has, established the framework to increase the amount of electricity generated by renewable resources that we have to distinguish between short and medium term perspectives. So there is a goal to support the companies in the coming year and this year, 2024, that supports short term developments. And there are frameworks to establish further energy generation through renewable instruments photovoltaics onshore as well as offshore wind energy. We have energy pipelines that are established from north to south.  The German government has established a tremendous hydrogen package that covers opportunities to establish a hydrogen piping network of several billion euros in the next decade as well as on the short-term perspective to to discuss the needs for hydrogen and alternative energy resources. I'll say German industries or industry in Germany, let's say it's both for German for foreign companies, that are active in Germany." 


What about inflation? Kearney says that's a top concern and could dampen the investment climate...  

Robert Hermann: 

"It is very tricky to predict and control inflation but I would say, Germany's situation is very similar to the situation everywhere in the West with inflation in the past two years. that said, one German still thinks its government's ability to reach compromises and function smoothly. So take From the I mentioned recently. You need to recalibrate. And the German budget negotiations were intense, but ultimately a deal was reached in fairly orderly fashion. So the German government has shown that they are able to find solutions in difficult times. The government is very interested in strengthening the German economy with regards to a low inflation rate. But we are not alone. So if we have to consider that there are other regions and other factors that influence global businesses and   , we see a very much interlinked German economy that has a direct influence on the German companies or companies in Germany. But you can see if you see the decision of a company like Eli Lilly that has decided on Germany for the next billion-euro expansion only in November last year. that's the location is obviously of interest for companies  and that inflation has not, that much of a role on business decisions." 


All right, what about issues on the labor market, like potential shortages of skilled labor?  

Robert Hermann:

"The need to ensure sufficient skilled labor is a problem faced by all the world's leading economies we know that very well. Dealing with companies as foreign investors that are interested in investing in Germany that tell us that they faced similar problems in neighboring countries.  

So Germany is keenly aware of this and is engaged in a major overhaul of immigration reforms, especially targeted at people with skills in high demand. Germany also changed a lot of talent itself, its universities may not be household words around the world, but it came after the US and the UK in the recent survey about which countries students chose to study in abroad. So I would say it is an issue that is very much discussed within the German economy, within the German companies or companies in Germany. But the trust in the German instruments and institutions is high that we can find solutions."  


Finally, Kearney also lists "access to technologies and rates of digitization" as an important unknown as far as investors are concerned.  Germany is only now focusing on this though...  

Robert Hermann: 

"No denying that Germany was slow off the market and is still trying to close the gap with some other countries. But the need to improve is very much at the center of government policy, and to Germany is well aware of the central important importance of artificial intelligence that's beginning to turn the tide. As you can see in the private sector, Apple is investing heavily in Munich and Microsoft, it's about to double the German cloud capacity. Add that digitalization represents a great chance for international companies to expand to Germany and have successes here. This statistic is telling four out of seven new European unicorns in 2023 came from Germany" 


That was Robert Hermann, CEO of Germany's international economic promotion agency, GTAI, addressing a new focus on promoting digitization in Europe's biggest economy. We’re almost through with this episode, but first, here's a look at How Germany Works  

As we heard earlier, the European Commission has greenlighted nearly a billion euros in state subsidies to help Swedish company Northvolt build car batteries in northern Germany. The EU found that the project was consonant with its Green Deal Industrial Plan. That plan improves the environment for the scaling up of the EU's manufacturing capacity for net-zero technologies and products required to meet Europe's ambitious climate targets. The assistance is the first aid of its kind to be approved under the Temporary Crisis and Transition Framework. It supports measures in sectors key to accelerating the green transition and reducing fuel dependencies. And that’s How Germany Works.


On that upbeat note, let's thank our guests Robert Hermann and Terry Toland. If you think it's time your company takes a closer look at Germany as an investment destination, remember Germany Trade & Invest can help. And at no charge, because we’re a government agency.    

Get in touch at We’re also keen on your opinions, suggestions and questions. Please leave a comment in your favorite podcast app or drop us a line. You’ll find all the details in our show notes.    

So, till next month, stay positive, “Auf Wiederhören” and remember: Germany means business. 

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