Thursday, December 5, 2013

German Manufacturing Lessons

Germany recently recorded the largest monthly trade surplus by any country ever, of €20 billion this September. NYT has two stories that nicely illustrate the reasons behind Germany's success with retaining and growing manufacturing jobs in the country, even as the rest of the developed world struggles with the same challenge. 

The first is a story about Faber Castell, the world's largest maker of pencils, pens, crayons, markers, and other drawing and writing supplies. It writes,
Faber-Castell illustrates how midsize companies — which account for about 60 percent of the country’s jobs — are able to stay competitive in the global marketplace. It has focused on design and engineering, developed a knack for turning everyday products into luxury goods, and stuck to a conviction that it still makes sense to keep some production in Germany.... In contrast to many American companies, like Apple, that have outsourced nearly all production to Asia, Faber-Castell and many other German companies make a point of keeping a critical mass of manufacturing in Germany. They see it as central to preserving the link between design, engineering and the factory floor...
While the basic design of a pencil has not changed much in 400 years, Faber-Castell has managed to find ways to be unique. For example, in the late 1990s, it developed a triangular pencil with raised dots that make it easier to hold. That proved popular. Innovations include the use of water-based coatings to make pencils more environmentally friendly, as well as nontoxic to compulsive pencil chewers...
Even boxes of the highest-quality Faber-Castell colored pencils and artists’ markers can easily cost hundreds of dollars. It is this focus on the premium end of the market that has enabled German companies to survive in markets flooded by low-cost Asian alternatives. Mercedes and Audi cars are good examples of this, but German companies have also achieved similar success with more mundane products like Rösle kitchen implements, Steiff stuffed animals and Falke socks. 
The other story is about the famous German apprentice system which has kept the supply of skilled manpower flowing to meet the demand from manufacturing firms, besides easing labor market problems that have bedeviled other developed economies. About Germany's 1.8 million apprentices, it writes,
In Germany, apprentices divide their time between classroom training in a public vocational school and practical training at a company or small firm. Some 330 types of apprenticeships are accredited by the government in Berlin, including such jobs as hairdresser, roofer and automobile electronics specialist. About 60 percent of German high school students go through some kind of apprenticeship program, which leads to a formal certificate in the chosen skill and often a permanent job at the company where the young person trained.
And about South Carolina's experiment with trying to embrace the apprenticeship system to alleviate shortage of skilled workers,
Still, the close cooperation between employers and the state educational system is unusual, and despite initial skepticism on both sides, apprenticeship opportunities are rapidly expanding both for high-school age students and for older workers. Apprenticeship Carolina started in 2007 with 777 students at 90 companies. It now has 4,500 students at more than 600 companies in the state, with the typical apprentice in his or her late 20s. Mr. Neese’s goal is to have 2,000 companies by 2020... it links the state’s technical college system with private companies to help create specialized programs. 
Replication of the German business culture outside the country may remain a distant possibility, though the adoption of the apprentice model may be a more realistic project. In fact, for countries like India, with ambitious manufacturing sector goals, such apprentice systems may be the only practical way to assure the supply of medium-skilled manpower required by manufacturing firms. 

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