Germany in trouble?

Filed in archive Outsourcing Pros and Cons on July 21, 2004

Do you remember the often cited McKinsey study? the study outlined how outsourcing creates value for American GDP? As the study says the balance for outsourcing done by American firms is $1.13 positive for every dollar spend. Well you can argue about these findings but now The Economist cites another study about outsourcing in Germany. Because of the different outsourcing destinations (Eastern Europe instead of India) German companies actually save less.

Moreover there is another problem:

"The biggest difference emerges when workers who have been fired in the offshoring process look for new work. In America, McKinsey estimates that around 70% of workers ousted in favour of offshore alternatives find new work within six months. In Germany, however, the re-employment rate is only around 40%. The reason? Above all, Germany's thicket of labour laws, which discourages firms from hiring workers who may prove a hard-to-shed liability. Admittedly, these same laws---which are increasingly under fire (see article)---also make it harder for German firms to shed workers to take advantage of efficiency-enhancing offshoring. The lesson: offshoring may be an easy target for politicians, but if they have flexible labour markets it may actually be a good thing, not just for big firms, but for everyone."