Why are large corporations drawn to East Germany?

With Intel and Tesla, two well-known companies have opted for East Germany. Explained in the interview Carsten Lexacommercial lawyer and start-up expert, what makes the new federal states so attractive for large corporations.

BASIC thinking: Hello Carsten, more and more well-known companies are settling in East Germany – for example Tesla in Brandenburg and Intel, who want to build a new plant in Magdeburg. Where does this change come from?

I think it’s based on different circumstances coming together now. Two central points stand out. On the one hand, Tesla and Intel primarily need space for their large factories. And there is a lot of space in East Germany – especially space that has already been partially made available for use.

The space that was made available to Intel in Magdeburg, for example, was already available for the automotive sector. A BMW factory was to be built there first. That’s why the area was previously, let’s call it: “cleared”. But BMW didn’t go there.

On the other hand, geopolitics plays an important role. Because Europe is moving into the center of interests because more and more political tensions are arising in other countries. Europe, on the other hand, is relatively stable. In addition, Germany wants to become a global location for the semiconductor industry. This is also in the coalition agreement. But many don’t realize that.

Area advantages and geopolitical situation

This means that two important concrete factors come together: the area advantages and the geopolitical situation in Europe with general stability and the large market. There are also many companies to affiliate with. This is a great advantage for Intel in particular, because they produce chips for the automotive industry, which is strong in Germany and needs more and more chips to electrify its fleets.

And then there are strong universities and many students in East Germany – and they are well educated. Finally, there are also the efforts of politicians to find attractive settlements. Both Intel and Tesla have said they felt like they were badly wanted.

Eastern Germany as a Business Location: On Jobs, Taxes and Universities

Why did Brandenburg and Saxony-Anhalt court so intensely for these companies? What are the concrete advantages for the federal states?

There are actually quite a few. What is most obvious, of course, are the jobs. Tesla speaks of 5,000 to 10,000 jobs. Intel even speaks of 10,000 to 12,000 jobs. And that’s just their factories alone. Then there are a few thousand new jobs from the suppliers.

A lot of people don’t even realize that. These are mostly small and medium-sized companies that settle where their bulk buyers are. In other words, we have economies of scale here that entail such large-scale projects. Of course, taxes also play a role. However, you have to be careful, because many companies are subsidized.

It is questionable when taxes will actually flow – especially with a view to international tax law. I think that’s not the main point though. Rather, it is about establishing these clusters. The universities also play a major role. They train top people, but they don’t always know exactly where to go with their knowledge.

When companies like Intel suddenly appear, there are of course completely different possibilities. This also attracts other students. Entire clusters can be set up in a federal state on such a large-scale project.

A reliable judicial and regulatory system

What are the advantages of East Germany for companies in terms of production and sales?

The geopolitical situation also plays a role here. Germany has the advantage of being in the middle of Europe. Another advantage is a reliable judicial and regulatory system. In Germany there are simply safer framework conditions – even if the government changes.

Other large companies are another advantage. Intel produces chips, for example, and there are two major customers in Germany with Tesla and VW. That means there is a network of large companies. But medium-sized companies are also important in order to cover certain niches.

Be it special machines or cable routing systems: We are also incredibly well positioned in Germany. For fast and short delivery routes, it often even makes sense to set up new branches near the bulk buyers.

Companies in East Germany: Wage differences and shortage of skilled workers

The wage gap between east and west is still there. Tesla is also currently having problems finding enough skilled workers for Grünheide. How do you assess the risks?

A real problem is the approval process. Intel, for example, wants to start producing in the coming year. Tesla already had problems there. Even if politicians are promising improvements, long approval processes are still a risk for many companies.

Creating jobs and finding skilled workers is also a big difference. Many factors play a role in finding workers. Employees also have certain rights. For example, you want to live in a city worth living in, perhaps with a certain cultural offering.

Brandenburg is therefore a good start-up and company location. But not necessarily because Brandenburg itself is so interesting, but because Berlin is so close. In principle, however, this is also a risk.

Because if I want to move employees somewhere, then they also have certain requirements for a city worth living in. And companies have to be aware of them.

The role of universities

The Grünheide location should be ideal in this sense. Is the shortage of skilled workers there just a temporary problem?

Yes, I believe this is a temporary issue. Because one must not forget that at the moment there is a shortage of skilled workers almost everywhere. But that will change again in the foreseeable future.

Intel is a good example, also to come back to the role of the universities. Some universities focus on such large-scale projects and offer courses that are tailored to the needs of companies located near the universities.

Many potential students will then choose these courses in order to be able to work at Tesla or Intel. This in turn strengthens the relevant faculties, which in turn produces more and more well-educated people.

How can eastern Germany be promoted as a business location?

Most of the DAX corporations are in the West. The range is large. What can politicians basically do to promote East Germany as a business location?

First of all, the fact is that many large companies have grown in West Germany. They are established at their locations and will stay there. However, the East German states can do a few things to make themselves more attractive as a location for resettlement. And they are already doing a lot.

Many technical colleges and universities have understood that cooperation with companies plays a major role. More is happening all the time, but more can be done.

At municipal and state level, however, one needs to think more about what companies need in addition to space. The main question here is what employees need. This includes: liveable cities, art, culture and young people who bring life to the cities.

This is a very important point and the cities and federal states have to work harder on it. The topic of city marketing therefore plays a major role. However, this is often done far too little.

Because it’s about the goals of the city, your own points of view and culture, i.e. what a city stands for overall. Not just about town twinning and being all-for-all.

Start-ups in East Germany

What is the situation for start-ups in the new federal states?

Definitely expandable. You can still see that the start-up clusters are in Berlin, Hamburg, Munich and generally in western Germany. And that’s actually a pity, because a lot is already being done in East Germany. The funding programs for start-ups in Thuringia and Saxony, for example, are really good.

There’s real money in there. But on the other hand, that’s also a bit misguided thinking. According to the motto: Now we have a large funding pot, now they all have to come. I can only repeat it once again: Founders go where it is – to put it bluntly – cool to live.

Leipzig and Dresden have already managed to do this to some extent. However, other cities still have to follow suit and draw a positive image of the city. Also as far as start-up centers are concerned: You can go a step further.

Thank you for the interview!

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