»The German market is currently extremely lucrative«
Interview with Dr. Marcus Schmidt
You are the Director of the Chemicals and Healthcare Division at Germany Trade and Invest. If you compare your department with the other investment promotion divisions, do you think it is easier or more difficult for you to win investors for Germany?
Both the chemical and nearly all aspects of the healthcare industry have a very long tradition in Germany. Both are well established and place particularly high demands on companies that want to enter the market afresh. Therefore many international companies find it quite challenging to enter the German market. In addition, there are high requirements in the regulatory area, whether it is the approval of medical products or the handling of chemicals. On the other hand, because of all this, we are usually dealing with the best, most successful and innovative companies in their respective fields. Working with these companies is exciting and motivates us in our daily work. Business is very good for us right now. Numbers for investment projects and job creation are at an all-time high.
What is the significance of the chemical industry and healthcare for the German economy?
With more than seven million employees and more than 700,000 new jobs created over the past 10 years, healthcare has become one of the most important growth sectors in Germany. The average annual growth in this period was 3.8%. The most recent annual healthcare spending of €358 billion corresponds to 11.3% of the German gross domestic product and does not even include private out-of-pocket spending, estimated at another €60 billion. Due to the demographic change in Germany and rapid pace of technological advancement, we expect the industry to continue to grow at a high rate.
The chemical industry, which also includes pharmaceuticals, has a long tradition in Germany and has led to technology leadership in many product categories. With almost €200 billion in sales, approximately 450,000 employees and annual R&D spending of around €10 billion, the chemical industry is one of the core innovative industries in Germany. A key factor here is the industrial base in Germany, meaning that other key industries, such as the automotive industry, are important recipient industries. Exports hold enormous relevance, too. Last year the chemical and pharmaceutical industry was the second largest exporter in Germany.
Which segments of these industries are you focusing on and why?
Besides the chemical industry, our main focus is on medical devices, pharmaceuticals and biotechnology, digital healthcare, the prescription-free consumer healthcare market, and rehabilitationcare.
Each year we closely examine various sub-segments within these areas. Based on this analysis we identify product categories we should focus on, the countries we expect the highest potential from, as well as the best approach to contact our target clients.
What are your arguments for investing in the German chemical industry and healthcare? How is the acquisition-process working?
In our experience investments are nearly always driven by market potential. The German market is extremely lucrative due to its size and the industrial base but also because of the healthy economy and low investment risk. In addition, Germany is an excellent location to serve other European countries. In medical technology, the “Made in Germany” seal continues to play a major role; it is highly valued as a quality feature and can also be important in entering other national markets. In the chemical industry, we have an excellent infrastructure with the so-called “chemical parks”, which guarantee maximum reliability with high synergy potential and fast approval processes.
In our investment consulting division, we distinguish between marketing measures and the actual investor acquisition. Marketing activities include, for example, speaking engagements at conferences, trade show activities, and our webinar series.
When we actively approach potential investors, we primarily target companies that are already active in the German market, but have not yet established a legal entity in Germany. Another important target group are companies that add more value and enhance Germany’s competitiveness, for example, by local production or by R&D activities.
Which partners do you cooperate with during the acquisition process?
GTAI not only assists international investors, but also supports German companies in identifying international market opportunities. The same applies to many trade and investment agencies in other countries – our international counterparts. We are therefore not only competitors, but occasionally complement each other. For example, the USA, the UK, the Netherlands and France frequently invite us to speak to their company delegations at trade fairs such as Medica in Düsseldorf to highlight business and investment opportunities in Germany.
Industry associations such as the VCI (Association of the Chemical Industry), BVMed (The German Medical Technology Association), BIO Deutschland (sector association of the biotechnology industry) or bvitg (Federal Association of Health-IT) also play an important role. The latter cooperates with us alongside Messe Berlin in the organization of conhIT, the largest German trade fair in the field of digital healthcare. We jointly work on the international conference program as well as other offers for international visitors.
Internationally, we also benefit from good cooperation with the German embassies and consulates as well as the German chambers for industry and commerce abroad. In many countries, where we do not have our own resources, they are the first points of contact and forward requests from potential investors to us quickly.
In which segments of the chemical and healthcare industry are there most foreign investments in Germany and why?
The numbers are fairly evenly divided between the segments we focus on, so I cannot really point at any particular one. Moreover, the number of investment projects does not always accurately reflect the number of jobs or investment volume connected to these projects.
To illustrate just one segment: The dental industry currently attracts quite a lot of foreign direct investments because the trend of “digital dentistry” has brought many product innovations – from dental scanners to artificial denture production through 3-D printing. The 70,000-plus dentists active in Germany are regarded as “early adopters” and have allowed a rapid introduction of CAD / CAM production technology into the German dental market. Currently, all leading international companies want to participate in this market and be present in Germany. We receive inquiries from the USA and Canada, Japan, Korea, China, and Europe. Some seek to open sales offices while others are interested in R&D or local production.
If you want to explain to a new customer the possibilities in Germany, what are the first questions you hear? Are the investors well informed about Germany? Are there prejudices that you can then invalidate?
We get to know companies in very different phases of their engagement in Germany. In many cases, companies are still in the early stages of their research and primarily need market data. In the case of innovative products or regulated markets, e.g. e-health solutions, we are regularly asked whether the offered solutions would be compatible with the German market. Within our healthcare webinar series, the most requested topics are the approval and reimbursement of new medical technology products.
In the case of complex production projects in the chemical industry, technical aspects are at the forefront. For example, the availability of raw materials, energy and water at possible locations, approval procedures and possibilities for disposal of waste material, building loads and alike often play a role.
Customers who have already decided to establish a presence frequently have questions about the practical business set-up process, as well as on taxation and customs procedures.
Prejudices such as high wage costs, a lack of flexibility on the labor market, or trade unions and the German co-determination system do not really play a significant role any more. Germany has implemented many reforms over the past decade and has become much more competitive. Germany’s humming economy seems to speak for itself.
How long does an investment process last from the first contact to the opening of the company or office?
The time varies quite a lot. If, for example, a US company intends to set up a sales office and only needs to clarify questions on tax or legal issues, the process can be very swift. On the other hand, we have worked with some clients for many years before they recognized certain market opportunities and finally invested, sometimes significantly, in Germany. The range is roughly between one week and five years. However, typically our range is 4 to 9 months.
Are there any special challenges for foreign investors who want to invest in the life sciences sector in Germany?
As in all countries, the life science sector is heavily regulated in Germany to ensure adequate safety for patients. Medical, as well as medicinal products therefore require thorough approval, which may be contingent on successful completion of clinical trials. Another major hurdle can be the reimbursement by health insurance companies. In other words, medical care has to be not only state-of-the-art, but also safe and affordable.
Is there a type of investment that makes up the majority of your projects?
Sales and marketing representations make up a large part of our projects. They are typically the starting point for a long-term market entry. In this phase, foreign companies often have a high need for information and advice. They are new to the market and want to avoid costly mistakes. However, compared to other industry segments our industry team also has a very high number of production and R&D projects.
Please mention some particularly important or interesting investment projects your team has brought to Germany in recent years!
One of the larger investment projects that our team has worked on in recent years was a €275 million project for the production of pharmaceutical products, which created 300 new jobs.
Other clients we have assisted known by the general public include big corporations such as Mitsubishi Plastics or Mitsui from Japan. However, most of our clients are highly specialized small and medium sized who are researching and developing highly innovative high-tech solutions. US headquartered Blackrock, for example, is producing implantable electrodes in Hannover, which enable quadriplegics to control prostheses solely by their minds.
Your team organizes lots of webinars for interested parties. How do you explain the success of this type of communication?
We started our webinar series “Succeed in Germany’s Healthcare Market” in 2013, primarily for North American customers. Because of the great distances there, it is often very difficult to gather a large number of people at a certain time in one place. Webinars, on the other hand, are very flexible and therefore popular in the USA and Canada. I can dial in from my workplace as well as from the airport or from home. Our healthcare team invites high-profile external speakers to join us for webinars on different topics four times a year, which are met with great interest every time.
Word has spread fast about our offer, so we have now participants from many other parts of the world as well. At the last webinar we received registrations from all five continents! If someone cannot participate live due to the different time zones, he or she has the possibility to submit questions in advance and can also download the webinar as a stream from our website or watch it on YouTube. Also the confidentiality of the format may play a role for some companies.
In which direction do you see the development of the Chemicals and Healthcare Division heading?
A big topic currently within the chemical industry is battery production. Batteries account for 40% of the value of electric vehicles, and chemicals for cathode production account for most of the battery costs. Other critical components are the anode, electrolytes and separators. We may see a whole new supplier industry emerge in Germany. New materials, regardless of whether they are used in the automotive industry or in medical devices, are continuously an exciting topic with great potential for the future.
In the health sector digitization and networks are major developments that will change the entire industry. The market potential in Germany is enormous, especially as new business models evolve in the near future.
Photo: Dr. Marcus Schmidt, Director of the Chemicals and Healthcare Division at Germany Trade & Invest | © GTAI – Illing & Vossbeck Fotografie