According to the study, companies are also more successful from an economic point of view if they diversify their supply chains.
(Photo: obs)
Berlin The “if” has been clarified, but the “how” is being discussed all the more intensively. The geopolitical turning point has shown the danger of economic dependencies. There seems to be no alternative to the diversification of supply chains, especially with regard to China. But the question arises: How much does the state have to intervene in order for the economy to broaden its supply chains?
A new study by the Center for European Economic Research (ZEW) Mannheim and the German Institute for Economic Research (DIW) now shows that companies are also more successful from an economic point of view if they diversify their supply chains. The unpublished study is available to the Handelsblatt.
ZEW and DIW analyzed around 3900 German companies. Specifically, the economists looked at the countries in which companies buy IT goods such as chips, servers or software. They compared that to value added as a measure of production and operating surpluses as a measure of corporate profits.
A key result is obtained by comparing a company that purchases no more than 43 percent of its IT goods from one supplier country with a company that purchases 100 percent in a single country. The diversified company reports 13.7 percent higher earnings and 6.2 percent higher production.
“Based on our data, a positive connection between diversification and corporate success can be demonstrated even before the current geopolitical situation,” says ZEW economist Thomas Niebel. This applies equally to smaller and larger companies.
State Secretary for Economic Affairs Franziska Brantner (Greens) says about the analysis: “Risks in the supply chain entail costs and diversification can not only reduce these costs, but also open up new markets.”
China Policy: How Much Carrot and How Much Stick?
The study sheds new light on the question: how much support and coercion does it take to diversify? Do we need financial state aid for companies to diversify? And does it need more, such as obligations that force companies to diversify?
This debate is likely to continue in the coming months. The federal government has only just passed its China strategy. It says, for example: “We are striving to use market-based instruments to change the incentive structure for German companies in such a way that reducing one-sided dependencies becomes more attractive.”
This leaves a lot of room for interpretation when it comes to implementation. The Greens, who are in favor of more carrots and sticks, and the FDP and especially Chancellor Olaf Scholz (SPD), who are more cautious, are likely to clash a few more times.
>> Read here: Berlin’s new China plan – These are the most important points for the economy
In any case, one thing is clear: the dependencies on China are enormous, especially when it comes to IT goods. In 2020, 41 percent of these products came to Germany from the People’s Republic, and the trend is rising. Second place is far behind: only five percent of IT imports came from the Netherlands. The IT goods are decisive in terms of digital sovereignty.
Neither funding programs nor mandatory examinations
The study authors from ZEW and DIW emphasize what is often neglected in political debates about scientific findings: correlation is not the same as causality. Diversification is no guarantee of success. Those who broaden their supply chains do not necessarily become more successful.
The economists looked at the countries in which companies buy IT goods such as chips, servers or software.
(Photo: Reuters)
Conversely, this also means for the political debate: The narrative of some business representatives that diversification is too expensive and can be managed with financial help from the state does not hold up.
Funding programs for a broader distribution of supply chains do not appear specifically in the China strategy either. “Diversification can initially be associated with higher conversion costs, but in the long term leads to more resilient and successful companies,” says SPD parliamentary group viz Verena Hubertz.
The compulsion is also only found to a limited extent in the China strategy. The federal government merely expresses the expectation that the companies will “deal” with risks from their China business. If Federal Economics Minister Robert Habeck (Greens) had had his way, the government would have gone even further. He had proposed mandatory China risk assessments for companies. But Chancellor Scholz in particular is said not to have wanted that.
In view of the study by ZEW and DIW, the industry thinks this is correct. “The decision as to which markets to supply and which suppliers to use is something that the company has to make itself. The state cannot take them away from the company,” says Thilo Brodtmann, General Manager of the Association of German Machine and Plant Manufacturers (VDMA).
>> Read here: The new China strategy can only be the beginning – one comment
At the latest with the China strategy, however, it is also clear that the traffic light government does not want to stay completely out of it. First of all, she wants to implement this with new guidelines for exports. But imports should also be on the agenda in the near future.
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