Machine manufacturers need open markets

13/11/2020

Sören Bartol, member of the German Bundestag, in virtual discussion with managing directors of the various sectors of the ROTH INDUSTRIES GMBH & CO. KG and the VDMA 

Open markets and free trade without barriers are essential for mechanical and plant engineering companies. This is especially true in this extraordinary time, which is characterised by high levels of uncertainty as a consequence of the Corona pandemic. Depending on local developments, countries around the world will emerge from this crisis at different speeds. In contrast to the financial crisis of 2008, China alone won't be able to pull German industry out of the morass this time. In addition to the economic upswing in the trading partner countries, economic development also depends on some conditions in Germany.

For that reason, globally active medium-sized companies, including the oft-cited "hidden champions", have to rely on a functioning free trade model. Only in this way can they take up a strong position among the international competition from their bases in Germany and make an important contribution to jobs and prosperity in their regions.

Roth Industries and the VDMA (Mechanical Engineering Industry Association in Germany) presented this explanation to Sören Bartol, member of the Bundestag and deputy chair of the SPD parliamentary group, as part of a discussion on foreign trade policy.

Sören Bartol emphasised that the VDMA and the companies represented by the association embody the achievement and competitiveness of German industry. With a view to the coming Bundestag elections, he promised to stand up for active, creative industrial policies that support companies, with a special emphasis on small and medium-sized companies. There is a need for modern, consistent industrial policies based on impulses for innovation, a performance-based control system for companies, dependable framework conditions, an affordable, safe energy supply and effective qualification strategies to counteract the shortage of specialists. Germany now possesses global excellence in mechanical engineering, making it possible to become number one in the future fields of climate and energy. The election of Joe Biden hopefully means that the world will return to a fair global trade system based upon cooperation.

The Roth family business, in its more than 70-year history developing from an artisan enterprise into an international corporate concern, has developed its building and industrial divisions. Matthias Donges, CEO of Roth Industries, explained, "Out of a total sales of €281 million in 2019, around 61% is business done in foreign markets. Five hundred employees are currently active in the 21 production and sales units abroad, which is about 37% of the total 1340 employees of the Group. These relations underscore the importance of international markets and show that foreign sales ensure domestic employment. One indication is that the proportion of employees at home is significantly greater than the proportion of domestic sales.
The mechanical engineering companies of our industrial technology division, Roth Composite Machinery in Steffenberg and Roth Hydraulics in Biedenkopf, manufacture machines and plants that are sold worldwide. Direct exchange of information with customers on site is the basis of our successful business relationships, in particular during the planning, installation and commissioning of these plants abroad."
China in particular has become an important sales and procurement market for Roth. "However, business activity in this market faces many obstacles, including export restrictions, punitive tariffs and the current Corona situation. It is now practically impossible to send an installation team from Germany to set up a machine in China. Our customers cannot wait and are increasingly making their purchases locally," explains Matthias Donges.

Differing regulations set obstacles for SMEs
In conversation with Sören Bartol, a member of German parliament, the managing directors of the Roth companies explained why the "hidden champions" are now expecting more engagement about open markets in the political arena.
Matthias Donges underscored, "For our customers and for us, international trade in our machines is connected with many requirements that make exports more difficult. Some of the long-winding, multistage export approval processes have become obstacles. In our experience, some of these processes can take up to 18 months. This is a disadvantage for us among the international competition, because companies from the USA, the United Kingdom and France only have to wait two months at most."

Sören Bartol promised to work to engage the German government again on accelerating the approval processes. We have to ensure that a testing bureaucracy does not cause disadvantages in relation to the most important competitor countries. It is important to make sure that we don’t specify all the details on a national level, but instead move past the international markets with faster decision-making processes.

Another topic of the online discussion within the intersection of politics and economics was the planned supply chain legislation. The Roth corporate principles of environment protection, sustainability, fairness and social responsibility are defined under the heading "Responsibility".
Matthias Donges explained, "Fair business practices are very important to us. And we expect our business partners to reciprocate. Roth is subject to the code of conduct in accordance with the guidelines of the German Association of the Plastics Converters (Gesamtverband der kunststoffverarbeitenden Industrie (GKV)). In addition to anti-trust and competition provisions, the code of conduct also includes global guidelines for dealing with human rights, child labour and forced labour as well as ethical and social principles, such as non-discrimination and harassment. When auditing our suppliers, we make more and more queries relating to these principles, in addition to other testing criteria.
We stand with the political efforts to strengthen the implementation of these guidelines in international business. We believe, however, that a supply chain law will impose enormous bureaucratic hurdles that will unnecessarily burden small and medium-sized companies, which includes companies of our size. We need practical, EU-wide regulations that truly strengthen human rights and do not cause uncertainties that could lead to legal liabilities. In this way, we are in complete agreement with the position of the VDMA."

On the subject of the supply chain legislation, Sören Bartol made assurances that the SPD parliamentary group takes companies' worries seriously and that the law serves to support ethical companies against those who are even now in this crisis trying to secure advantages using illegal practices. The law does not place anyone under general suspicion, rather it should ensure that the honest companies do not have disadvantages in the end. The goal is to create fair rules that protect German companies in competition. He said that he knows that many companies are under multiple levels of stress these days. The Corona crisis is affecting many in the middle of a structural transformation caused by climate protection and digitalisation. That means that honest companies deserve even more for something to be done when some companies don’t follow the rules and try to gain a competitive advantage at everyone else's expense. The legislation is intended to support the companies with integrity.

Over 600,000 jobs in the machine manufacturing industry dependent on exports

Ulrich Ackermann, Director of VDMA Foreign Trade, underscores the importance of free trade for the entire mechanical and plant engineering industry. "In 2019, the machine manufacturing industry in Germany had revenues of around €230 billion, and the export ratio was above 78%. And 600,000 jobs are directly dependent on exports. This makes clear the huge factor that foreign exports represent for industrial SMEs."

In addition to that, around 35% of exports are now going to countries with high hurdles on imports. "For that reason, free trade needs an advocate in German politics, because in the end, it is about jobs and prosperity in our country. The demand coming from the European internal market is not sufficient for machine manufacturers. We need open markets globally. Protectionism and isolation will turn everyone participating in the markets, domestic and foreign, into losers," emphasised Ackermann.