Matthias Gräßle: Industry – the basis for Hessen’s prosperity

In the public’s mind, Hessen is syn­­on­­y­­m­­ous primarily for banks, services and transport. Yet what is forgotten is the fact that Hessen was and still is a major in­­dus­­trial location. To a large extent, Hessen’s industrial sector still ensures that it is Ger­­many’s largest federal state with the highest level of prosperity. Nevertheless, today Hessen’s industry is faced with two new challenges whose effects make them seen in structural change. While there is a decrease in the gross value added of its manufacturing sector to be seen in Ger­many, Hessen has overcome this struc­tural change more quickly and more successfully than other regions in Germany. Yet it would be wrong to speak of de-industrialization. Structural change – not only in Hessen – is due to a large extent to organizational changes in in­­dustry. Many services performed in the past by manufacturers have been outsourced and are now part of the services sector. As a result, the links between industry and services have become more intensive today than they used to be but are not reflected in official statistics. If one looks at this connection between industry and services, that is, one adds those services to the industrial sector that would not be pro­­vided by industry due to lack of demand, the percentage in the total gross value added has remained constant since the mid-1990s and it has even started to rise again since 2000.
This link between industry and services is one of the success factors in Hes­sen’s industrial sector. New and creative con­­cepts for linking services – such as planning or financing – and manufacturing have led to competitive advantages do­­mestically and internationally. They also ensure dynamic development in in­­dustry.

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A sludge incineration plant at the Frankfurt-Höchst industrial park.

In addition, while Hes­sen’s industrial sector is very broadly based, clear specializa­tions can also be distinguished. From the 371,000 employ­ees who, according to the Hessen’s manufacturing industry’s sta­­­tistics, around 72 per cent were employed in only five sectors: the manufacture of chemical products (the chem­icals and pharmaceuticals industry); the manufacture and processing of metal products (metal in­­dustry); the manufacture of office ma­­chines, data-processing equipment; electrical engineering, precision engineering and optical equipments (the electronics industry); me­­chan­­ical engineer­ing and motor vehicle man­­ufacturing (in­­clud­­ing the car manufacturing industry, air and space travel industry and railway vehicle manufacturing). These sectors even earned 80 per cent of the total 97 billion euro sales earned by Hessen’s industrial sector.
After all, locally-based associations in the added value chain – also known as clusters – and Hessen’s technical infrastructure secure the future existence of Hessen’s industrial sector. Clusters, in particular, achieve syn­ergy effects that bind companies to the region. In Hessen there is a whole series of clusters, but their degree of organization varies. Some are organized formally, especially if they receive public subsidies. However, in many cases, clusters are organized only in rudimentary form or have no organizational structure at all.

Some of the most successful informal clusters in Hessen include the industrial parks in the FrankfurtRhineMain-Area, headed by the Frankfurt-Höchst industrial park. Here, concentrated on only a few square kilometres, there are 90 companies with 22,000 employees predominantly from the chemicals and pharmaceuticals industries, along with major research centres – not forgetting the Provadis private college. At the same time, an air and space travel cluster has developed around the Frankfurt airport. The industrial sector offers more than 4,000 jobs. At Rolls-Royce in Oberursel alone, more than 1,000 employees develop and manufacture the latest engines. Rolls-Royce works closely with the scientific community. Thus, in 2006 it founded the Uni­ver­­sity Technology Centre – UTC Combustor and Turbine Aerothermal Interaction in association with the TU Darmstadt. Research focuses on increasing the efficiency of engines while at the same time increasing their environmental friendliness by reducing exhaust emissions.

In addition to these informal structures, Hessen also has numerous clusters which are organized in associations or limited companies. These include the Rhine­MainProductivity Network, the Frankfurt Bio Tech Alliance e.V. and the mst-Netzwerk für Mikrosystemtechnik. In these clusters, the sponsoring organization organizes the exchange of information, creating networks and making contacts. In many cases, the business development organizations and the chambers of industry and commerce also perform these functions. In their capacity as a forum for the exchange of ideas on current issues, they often bring the potential players in a network or a cluster together. If this initial contact succeeds, the Chamber of Industry and Commerce often act as the formal responsible organizations themselves.

Globalization is one of the biggest challenges faced by Hessen’s industrial sector today – and it is not alone. Technical progress in the fields of information and communications technology, transport and innovations in capital markets together with the increasing liberalization of international trade have led to a closer worldwide intermeshing of markets and societies. Due to expanded markets, but also due to the worldwide increase in cheap labour, the developing countries especially are able to offer labour-inten­­sive, industrial products at low cost. This puts domestic industry in Germany under increasing pressure. At the same time, there is a concentration on high-tech and the high-skill fields taking place with which the developing countries cannot (yet) keep up.

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However, there is another aspect to this effect of globalization: competition be­­tween the industrial nations in the high­­tech sector has be­­come considerably tougher. In the struggle for technological leadership, even minor ad­­vantages over the competition are cru­­cial. These may be both cost advantages as well as differentiation advantages such as design, quality and service. But these advantages are mostly only of short duration. The industrial sector cannot and must not rely on its achievements of the past, but must constantly work on achieving dynamic advantages. If it does this, as it has in the past, Hessen’s industrial sector will be well equipped to confront the future challenges of globalization.

Matthias-GräßleThe banker, born in 1959, studied law in Frankfurt. In 1996 he became general manager of Frankfurt-based Asse­ku­ranz-Kontor GmbH before taking over the management of the executive board secretariat at mg technologies ag in 1997. He was appointed the company’s chief representative in 2000. He has been general manager of the Chamber of Industry and Commerce in Frank­furt since April 2005.