New Study: Relocating production eastward not paying off for Germany

German companies relocating industrial production to Eastern Europe face skills shortages, low levels of automation and sharply rising labour costs, Strategy&, the consultancy arm of PwC, says in a new study released in Munich on Sunday.

By contrast, relocation to Asian countries offers lower costs and better conditions, Strategy& says.

The study was prompted by increased investment by German companies in Germany's eastern neighbours. The consultancy notes high German energy prices and labour costs 30% above the EU average.

German executives have cooled on China over recent years and have begun to focus on "nearshoring" for production, with Poland and the Czech Republic becoming the most popular destinations between 2015 and 2024.

Companies' hopes have not been fulfilled, with labour costs rising more than three times faster than productivity levels, according to the study.

In addition, skills shortages are 16% greater than in Germany, while energy prices have gone up almost threefold within the past five years.

"CEOs can no longer rely on production location as sole competition advantage," study author Michael Weiß said.

Asian countries from China to Malaysia are in fact more competitive, having much lower energy prices than those prevalent in Europe, the study says.

Average pay levels in China are 10% lower than in Germany. Plus, productivity has risen rapidly as a result of faster automation and the widespread use of robots, while it is stagnating in Germany, the study says.