They come from South Africa, Germany, France, Italy, Serbia and Great Britain. With their diverse expertise and international business experience, this consulting team is hard at work on a German automotive merger. On a recent summer morning in Berlin, the group dedicated their Kaffeepause (coffee break) to sharing insights on German outsourcing. Englishman Daniel Klein, an engineer and consultant with posts throughout Europe, served as their spokesperson.
The multinational team quickly reached a consensus that Germany is an exception to the rule in European outsourcing practices. Generally speaking, outsourcing has been accepted in many branches of German business. Postal service and call centers are often outsourced to German providers, whereas IT providers are often American-based. Dallas, Texas based Perot Systems, for example, is an American IT provider with a large presence in Germany. But many German companies have been hesitant in letting go of non-core business practices. Klein comments, "There is a major emotional barrier there. It's about hierarchy and control, particularly if they're trying to outsource more traditional forms of business. IT and call centers are fairly new forms of business. But when it comes to outsourcing manufacturing or design and development, they have a bit of a problem.
Understand the Culture
It pays to have a bit of cultural background on the German business scene. American outsourcing often focuses on how the bigger picture of a business will be affected, but Klein warns against expecting those models to suffice in Germany. Germans appreciate promptness and detail, and Klein recommends providing the technical details of the service level agreement to German firms immediately. His advice: "If you get into any sort of debate about outsourcing, you better know your specifics. It doesn't matter what the top-level ideological model is. You've got to be able to explain the detail and specifics in context with their business."
When the Berlin Wall fell in 1989, the German business landscape changed dramatically. Reunification followed in 1990, and most East German state-owned enterprises were either closed down completely or diluted by capitalizing Western European firms. Today, while countries like England and Scandinavia save money by rapidly exporting more non-core services than ever before, German companies tend to look to the east first. Unemployment exceeds 20 percent in many eastern German towns, and federal funds assist German firms that establish outsourcing sites in these "new German states."
"Because of reunification, the Germans actually have a "poor backyard." They are more likely to keep manufacturing or business processes in house. They don't actually feel the need to outsource if they can simply go and put up their own factory in Saxony, for instance," comments Klein.
The Workers' Council
Although private companies in Germany are free to make their own outsourcing decisions, they often face the reactions of the German Betriebsrat, or workers' council. "If you try to outsource a service, they basically will try to stop you dead in your tracks because of the fear of loss of jobs," says Klein.
Klein uses the example of a current German client in desperate need of more development engineers. The factory design portion of the project demands overtime hours until more engineers can be hired, but the Betriebsrat won't allow any one sector of the employees to work overtime. "The Betriebsrat wants everybody in manufacturing to be on overtime, as well. Even if you have 200 factory workers and 1600 designers, which is the case at one particular site, the factory workers are actually more powerful on the workers' council than the developers and design engineers," Klein explains.
Once again, Klein points to history and post-World War II reparations to explain German technology in the workplace. The lack of a German defense industry over the past 50 years offered little incentive to train workers in high tech fields. "They've not got a home-grown source of talent, unlike France, Britain and America. It's almost like Germany hasn't had the tap turned on," Klein says. The educational system has few technology courses.
Klein suggests that Germany is in need of a major technical revamp. Germany doesn't have an efficient level of infrastructure to allow for fast-speed Internet access. The corporate culture also tends to be very conservative in adopting new software. Klein notes, "Germany only has one software company and it's called SAP. And to any German, SAP is the answer to everything."
Germany recently passed legislation to attract foreigners with technical know-how into the country. But because Germans prefer German speakers when hiring non-natives, they often discourage tech savvy foreign applicants. France, on the other hand, desires one foreign language from foreign applicants, usually requiring either French or English in the workplace. "If I walk into a software company in France, for instance, I'll probably only find that 50 percent of the company are French. The same is true in Holland. But Germany is having a great deal of trouble recruiting non-German software and design engineers in general," comments Klein.
Lessons from the Outsourcing Primer:
- When outsourcing internationally, investigate a country's business culture. In Germany, familiarity with their culture is important.
- Germans weigh the benefits of sourcing in the former East Germany versus outsourcing abroad.
- Keep in mind possible legal repercussions or union-related reactions to your multinational outsourcing decisions.