Great expectations

If North Rhine-Westphalia were a country rather than one of Germany’s states, it would rank as one of the world’s major exporting nations. By volume, the region stands at eighteenth in the global league table, just behind Spain and Taiwan. Despite being land-locked, it exports some €175bn of goods every year, equivalent to 18 percent of Germany’s entire exportable production. It’s one of the great economic hubs of Europe, a haven for SMEs that has made it the most economically powerful region in Germany.

Central location in Europe
NRW’s attraction as a preferred location in Europe – 20,000 new domestic and foreign companies, mostly SMEs, open for business there every year – becomes clear from a map showing the distribution of the buying public. No less than a third of all EU consumers live within about a 500km radius of the state capital, Düsseldorf. This proximity to markets is routinely cited by companies as the major reason for moving there, above all other factors. According to a survey of 1,000 foreign firms in the region, over 37 percent name this enormous pool of buyers right on their doorstep as the major attraction.
   
And to get to it, there’s a highly comprehensive logistical network based on road, rail, air and waterway. Take rail. With Cologne’s central station as the hub, there are 1,230 rail journeys every day in the region, shifting 250,000 passengers. High-speed trains connect with Paris and other major European cities. All up, NRW boasts the densest rail network in Germany.

Take the waterways. Every year more than 100 million tonnes of cargo pour across the wharves of Duisburg, the largest inland port in the world. Indeed many companies – both foreign and local – cite the port as a major reason for basing themselves near there. The waterways, which are some of the biggest in Europe such as the 226km of the Rhine, link up with the major European seaports. Added together, there are 120 inland harbours – 23 public and 97 private – in the region and the vessels plying them carry around 130 milion tonnes a year.

Big as it already is, the logistics industry has to keep expanding to cope. Indeed, it’s one of the leading growth sectors in the region, with an astonishing 24,000 companies employing 250,000 people. Blue-ribbon companies in the sector include Deutsche Post, Schenker, Wincanton and NYK Logistics. If all employees in the sector, including those working in logistics in industrial and commercial enterprises, were thrown into the head count, nearly 600,000 people are occupied purely in the business of getting goods to market.

Tax rates aren’t everything
On the face of it, the region should be disadvantaged relative to competitors such as certain cantons in Switzerland – Zug, for instance – that are in a position to offer cash grants, tax breaks and other sweeteners to attract companies. Apart from relatively modest concessions such as an allowance to pay tax in arrears – particularly useful for start-ups, NRW Invest cannot match such largesse.

On the contrary, the region’s rapid expansion has been built around the merits of an overall, business-friendly environment that goes beyond mere enticements. For instance, corporate taxes. In the last decade Germany has worked hard to cut the tax rate. As high as 56 percent in 1996, average corporate tax has dropped steadily in every year since and particularly from 2002. Now it’s down to 29.8 percent and Germany can fairly claim to be competitive with other EU nations. Indeed both the OECD and KPMG predict the standard payable rate to drop to just 25 percent.

According to NRW Invest, the region’s one-stop agency for companies seeking advice, new arrivals are much more interested in integrated issues such as the cost of products and services, the ease, speed and cost of distribution, quality of staff, accessibility of R&D facilities and related matters. As it happens, independent studies suggest the region stands up well in the all-round picture. Employment costs in most industry segments are highly competitive, there’s an ample pool of qualified, multi-lingual staff, and office and warehousing rents are lower than some competing locations such as Greater London Area and Ile de France. A recent global competitiveness report gave both Germany and North Rhine-Westphalia a score of 6.6 out of a possible seven points in the quality of its overall business case.

Public finance
Although the region can offer a package of (usually) interest-bearing financial assistance on a needs basis, especially for the SME sector which forms the overwhelming majority of its constituency. No less than 748,000 SMEs have established in this thriving hub and they are put firmly at the heart of NRW’s economic policy. The region’s administration has earmarked a budget of €1.3bn to be spent mainly on SMEs over the next five years.

But there are also EU-complying subsidies for companies basing themselves in structurally weak regions. Provided they make a case, industrial investments may also quality for help in expanding or for projects that create new jobs or secure existing ones. (Generally, this kind of assistance is limited to majority∞owned domestic and foreign SMEs operating in the industrial economy with sales not exceeding €500m.)

There are also grants or other forms of support for ‘soft’ projects such as consulting, training and development programmes for staff. Similarly, there may be back-up for the launch of new products deemed innovative or otherwise worthy of assistance. There are also entrepreneur-based loans and assistance for equity-taking measures such as the refinance loans provided for private equity firms.

The region’s investment institution, NRW Bank, can also dispense funding for the development of intellectual property such as new products, processes and services. Under this heading would come R&D, experimental development, technical studies on the feasibility of projects and/or the acquisition of industrial property rights.

One-stop agency
NRW Invest supports mainly international companies with their investments projects and settlements in North∞Rhine Westphalia, even after they have based themselves in the region. Not only does it provide the usual support such as tips regarding tax and legal aspects, information on the general economic structure and on industry clusters, it can also put investment proposals under a microscope and suggest the most suitable locations. Appointments with interested parties? NRW Invest can arrange that too.

And after the company is up and running, NRW Invest will come to the party with information about expansion, spin-offs, R&D and other essential intellectual know-how. Its staff knows the right people at the local and regional development agencies as well as the other, numerous authorities essential in the clearing of commercial hurdles such as the Ministry for Economic Affairs, business federations, chambers of industry and commerce, and other business-related organisations.

Germany’s investment location
With the second-highest R&D budget in Germany for universities and other public institutions, the third-highest number of patent applications, and a devotion to the cluster concept typified by Silicon Valley, the region flies a banner of innovation.

Whether it’s because of its commitment to innovation, proximity to markets, the overall business case or the region’s remarkably comprehensive logistical system, North Rhine-Westphalia has undoubtedly become a desirable location for foreign investors. According to the latest figures (for 2006), the state attracted 28.5 percent – a total €167bn – of all foreign direct investment in Germany, far ahead of other states. Today more than 10,000 foreign companies including such blue-ribbon names as 3M, BP, Ericsson, Ford, LG Electronics, Sony, Toyota and Vodafone, run their German or European operations from the region.

And more of them are piling in. At current rates of growth, at least another hundred new foreign companies will locate in North Rhine-Westphalia next year.