Digitization and relocation behavior in German industry - trends and correlations

Objective

The objective of the analysis for the Association of German Engineers (VDI), together with the Fraunhofer Institute for Systems and Innovation Research ISI, is to analyze the following questions:

1. What stage or degree of digitization of its value creation processes has German industry already reached and what dynamics and trends are currently apparent?
2. What is the correlation between the degree of digitization and selected key performance indicators?
3. How many and which companies have relocated parts of their production abroad in the years 2014 to 2015 and how many companies have relocated parts of their production back to the German location in the same period?
4. What correlation can be seen between the degree of company digitization and the tendency to relocate production abroad or to relocate back from abroad? Is more intensive digitization accompanied by fewer relocations abroad or more relocations back?

Central results and main findings

• Meanwhile, no significant correlation emerges between the operational use of digitization technologies and the relocation propensity of establishments. Accordingly, establishments that already use several digitization technologies in different technology fields as "active" or "advanced" show no below- or above-average probability of relocating parts of their production abroad.
• More digitization-active companies are more likely to relocate parts of their production to Asian growth markets and less likely to relocate to the EU, which primarily offers labor cost advantages. Accordingly, they seek both with their digitization and relocation activities increased flexibility and ability to produce close to the customer, in order to efficiently serve the increasingly individualized customer needs in different regions.
• Also, the logistic regression model explaining the probability that an industrial firm has relocated back from abroad from 2013 to mid-2015 is significant and shows satisfactory model goodness.
• A significant positive correlation also emerges between the operational use of digitization technologies and the propensity of establishments to relocate back. Accordingly, "advanced" companies that had already introduced at least one technology from each of the three technology fields before 2013 were significantly more likely to relocate parts of their production back to the German site than "non-users" of digitization technologies.

The key findings will be presented to invited media representatives and the public at various joint press conferences in spring 2016.

Project duration

• October 2016 to May 2017

Staff

• Prof. Dr. Steffen Kinkel