Germany’s Hidden Highlights

Berlin and Bavaria are the two best-known place in Germany internationally. But there are numerous less familiar hotspots dotted throughout the country, and expansion-focused companies are finding that it pays to widen their searches.

February, 2023

Until recently, some international companies may never have heard of the eastern German city of Magdeburg. But when the US chip manufacturer Intel decided in 2022 to build its new EUR 17 billion megafab production facility in this eastern German city of a quarter of a million inhabitants, Magdeburg was instantly put on the global map. Big time.

In Germany, medium-sized companies that are world market leaders in their market segments are known as “hidden champions.” But the country also has plenty of “hidden champion locations” offering uniquely attractive conditions for doing business. These hidden highlights are scattered all over Europe’s largest economy, and it pays for international businesses to know about them.

The future is looking increasingly bright in some lesser-known locations. In Magdeburg, a massive expansion by Intel and a great R&D landscape are expected to attract other companies to the eastern German city.

Photo: Votimedia/stock.adobe.com

In Germany’s northernmost regions, a number of medium-sized cities and even smaller towns and communities have become a center of attention for companies in the renewable energy and logistics sectors. Not only do they offer direct access to major seaports, they have a modern, renewables-friendly energy infrastructure that is attracting industrial companies working on their green transformation.

To the south, modest-sized cities are becoming magnets for international tech companies due to the high density of excellent universities and outstanding research institutes. Tübingen, for instance, is a center of innovation for future technologies such as artificial intelligence. And in Bavaria, there are lots of relatively obscure business locations outside of Munich, where companies can find large plots of land with excellent infrastructure and special funding programs to support their expansion into Europe.

One German USP is Decentralization

Germany’s economy is comparatively decentralized. Its many thriving and well-connected local economic centers offer excellent conditions for ambitious and specialized business expansion projects.

Germany’s unique economy reflects the country’s political structure as a federation of 16 regional states. The federal system generates friendly competition, resists homogeneity and monopolies, and promotes experimentation. As a result, Germany has an unusually large number of well-developed locations that vie with one other to attract international business expansions. Many locations are oriented around the needs of specific industries and new business trends. Sometimes multiple regions join forces to form well-connected and sustainably positioned business networks. International companies from a variety of sectors and with all manner of specialties can hope to find an optimally suited German location for their plans.

In western Germany, traditionally the heartland of heavy industry in Germany, completely new initiatives and networks are now emerging and will transform the economic landscape. Case in point: the Circular Valley in Wuppertal, where start-ups and corporations from all over the world network and collaborate to create solutions for the circular economy. Or the town of Wetzlar, which brings together everyone who is anyone in the optical and electrical engineering industry in Germany.

And to take another example in the east, the satellite towns surrounding Berlin are also developing very dynamically. The area gained global recognition in 2021, when US carmaker Tesla chose the town of Grünheide as the location for its first European gigafactory. The list could go on and on.

Variety is the spice of success

As these examples show, the Federal Republic of Germany is relatively decentralized in terms of both political authority and economic power, especially when compared with its neighbors. Whereas most European countries may only have a few business metropolises, Germany offers a wide choice of medium-sized and specialized locations.

High-tech companies in rural areas that might be considered parochial are not an unusual phenomenon. Foreign businesspeople are often pleasantly surprised when they realize they can find optimal locations in smaller, less intensely industrialized, lower-cost towns.

This is one of Germany’s unique selling points for multinationals, industry leaders and innovative start-ups looking to set up shop in Europe. “Regional disparities in economic infrastructure and living conditions are much less pronounced in Germany than in other, more centrally organized countries,” explains Jörg Lahner, professor of economic development and regional economics at the University of Applied Sciences and Arts (HAWK) in Hildesheim, northern Germany.

Strong partner for the textile industry: Digitization throughout the textile value chain is becoming increasingly important. As an industry-related research institution, Sächsisches Textilforschungsinstitut e.V. (STFI) www.stfi.de in Chemnitz (Saxony) recognized the strategic importance of digitization for the textile industry and ¬began to establish its own area of ¬expertise several years ago.

Photo: W. Schmidt-Chemnitz

Furthermore, the 16 regional states that make up the country engage in friendly competition with one another. Central political decision-makers ensure that no region misses out when it comes to the distribution of investment and the development of critical infrastructure such as universities, research facilities, transport links, energy supply and digital connectivity.

But above all, says Lahner, it’s Germany’s strong tradition of small and medium-sized enterprises (known as the Mittelstand) dotted all over the country that anchors regional economic growth. “In Germany, you might go hiking in a rural region and along the way pass the locations of two world market leaders,” jokes the economics professor.

SMEs drive economic development

Traditional SMEs located off the beaten track in Germany have a vested interest in strengthening the economic structure in the places they call home, thereby attracting other investors and entrepreneurs. “These companies keep local economic policy on its toes. Self-confident entrepreneurs set high standards and drive the economic development of their locations,” says Lahner.

Ralph Lauxmann President HORIBA Europe GmbH and Dr. Ingo Benecke Managing Director HORIBA FuelCon GmbH at the opening ceremony of the new HORIBA eHUB in Magdeburg-Barleben.

Photo: HORIBA Europe GmbH

Two examples are transport infrastructure and energy supplies. Hidden champions work with schools and universities, research institutions and local political leaders. And they are continually building up their network of suppliers at home and abroad. This dynamic allows for economic clusters and powerhouses to emerge all over Germany. These local hubs then network with each other and outside Germany, cooperating with international partners.

At first glance, this may make Germany’s economic structure seem overly complex. But in times when many European companies are looking to shorten international supply chains and strengthen regional value chains, Germany’s diverse and decentralized hotspots offer a huge advantage. International investors and entrepreneurs often find themselves “spoiled for choice” when it comes to finding attractive locations, even if they have very high standards and specific requirements.

FOUR ARGUMENTS FOR GERMANY’S “SMALL-TOWN” BUSINESS LOCATIONS

1

DECENTRALIZED STRUCTURE IS A GOOD FIT FOR DIGITAL BUSINESS MODELS
As economies and industries worldwide undergo digital transformation, they are also embracing less unitary and more flexible ways of working. Germany has many excellent regional role models for decentralized location strategies.

2

GERMANY’S RURAL AREAS ARE WELL CONNECTED, BOTH INSIDE AND OUTSIDE THE COUNTRY
Good transport links, digital infrastructure and connections to the larger metropolitan regions in their vicinity ensure Germany’s more rural areas also benefit from the country’s good economic infrastructure and can be integrated into European and international value chains.

3

SPECIAL FUNDING FOR PERIPHERAL LOCATIONS
Many of the more rural economic regions also benefit from special development funding either from the state itself, the national government or the European Union.

4

LOCAL, NATIONAL, INTERNATIONAL
Many of Germany’s less centrally located companies – often established, small to medium-sized enterprises that form part of Germany’s Mittelstand – have a long tradition as global “hidden champions.” They are usually fully integrated into international value chains and are open to cooperation with both international and domestic business partners.