Sports shoe maker Adidas, specialty chemicals group Covestro and chipmaker Infineon share a common trait: They generate four out of every five euros abroad. The blue-chip, DAX-listed companies are German in name and spirit, but they hardly earn money at home.
It is a fact true for almost all of Germany's 30 large caps, which have embraced globalization in the last three decades. They made 79 percent of their revenues abroad last year, a higher share than ever before, and up from a third some 30 years ago, according to Handelsblatt calculations. That’s a significantly higher percentage than in France, Britain and the US where the top firms have foreign revenue shares between 50 and 65 percent.
“Many DAX companies are now global firms that happen to be based in Germany,” Hubert Barth, head of Germany for consultancy EY, told Handelsblatt.
Europe as a region remains the biggest market for the German businesses, but in terms of a single nation, many can call the US or China their second home, in addition to Germany. More than half of the DAX companies sell more in the US than they do at home. They include BASF, Deutsche Telekom and Siemens. China is the most important single market for BMW, VW and Infineon.
It is not just the famed export model that accounts for the internationalization. The companies also produce a lot of shoes, cars, soaps, elevators and medicines abroad. At Continental, Henkel, Adidas, Linde, business software group SAP, and Fresenius Medical Care, more than three-quarters of employees work abroad. The average stands at 63 percent of the 27 DAX companies who disclosed employee figures.
A high share of international sales also tends to support the stock price, although success is not guaranteed. Adidas, Covestro and Infineon saw their shares rise by more than 150 percent in the last five years, compared with a gain of just 25 percent in the overall DAX. Vonovia, a residential property company focused on Germany, is the odd one out: It has no foreign sales, but still managed to boost its share price by 117%.
In the slipstream of their bigger brothers, highly-specialized suppliers, often world leaders in their fields, have also conquered the global market. Companies such as wire and cable maker Leoni and assembly line producer Dürr, kitchen maker Rational, bottling machine maker Krones, engine maker MTU and fragrance producer Symrise all make over 80 percent of their sales abroad. They operate almost 100 plants worldwide.
As global as the DAX-listed firms operate, their executive boards are far less international. Of 129 blue-chip managers, only 69 have a foreign nationality, some 53 percent of the total. In the non-executive, supervisory board, which monitors the CEO, CFO and their colleagues, only one in five members is non-German, according to data from consultancy EY. Of those supervisory board members, which are nominated by employees, the percentage drops to 9 percent.
In many cases, the higher the number of foreign managers, the better the company is run and the better its stock has performed. Fresenius Medical Care, the world’s largest dialysis treatment company, has an American CEO, three other American executives, one Polish, a Dutchman and one German. Adidas, insurer Allianz and payment technology firm Wirecard are other examples of companies with a high number of non-German executives and an above-average rise of their stocks.
Firms with mostly German management, such as BMW, Daimler, Siemens and ThyssenKrupp, performed relatively poorly. Infineon, which only has German executives, is an exception to the rule, as the chipmaker’s shares far outperformed the DAX average. Spun off from Siemens in 1999, it has successfully targeted the Asian market, where the Munich-based company now makes 55 percent of its sales.
The global nature of Germany Inc. enables the companies to reap the benefits of booming foreign markets, but it also exposes them to big risks when global trade flows less smoothly. Donald Trump’s protectionist policies have already hit their business models, with German companies getting caught in the crossfire between the US and China. Some Daimler and BMW models sold in China have become more expensive because they’re assembled in US plants and are hence subject to new Chinese import tariffs.
More than a dip
The 30 German blue-chip companies suffered an 11 percent drop in operating profit to €33.2 billion ($38.1 billion) in the second quarter year-on-year. The DAX index fell 7 percent as a result compared to 2017. In the same period, US companies saw their shares gain 15 percent.
Corporate profit warnings, such as those from BMW, Daimler, Continental and Henkel, have rained down on shocked shareholders in recent months at a rate not seen since the global economic crisis that followed the collapse of Lehman Brothers when the German economy contracted by five percent.
“The mounting risk of a trade war suggests that the decline in corporate sentiment signals more than a brief growth dip,” Jörg Krämer, chief economist of Commerzbank, warned.
The International Monetary Fund cut its growth forecasts for the world economy on Tuesday, citing Trump’s trade disputes, Brexit and the rise of US interest rates. The next few quarters will show whether Germany’s globalization champions could also turn them into globalization’s victims.
Ulf Sommer reports for Handelsblatt on companies and financial markets. To contact the author: [email protected]