Classic sectors are evolving into niches in German region Saxony-Anhalt

There is good reason for the economic development agency representing Saxony-Anhalt to be voted one of the best economic development agencies in Europe. Its foresight, its team and its analysis of what its region can offer companies expanding crossborder are truly inspiring. Oliver Köhn, Head of International Business Development, Investment and Marketing Corporation Saxony-Anhalt mbH (IMG), talks Jo Murray through the German region’s lead sectors; and considers how these sectors are evolving into niches.

IMG Saxony-Anhalt, the Economic development agency of the German Federal State of Saxony-Anhalt, certainly has its strategy well thought out. Yet there is no sense of complacency about the role this economic development agency plays as a guardian of the future economic success of the region.

First, let’s take a step back. Saxony-Anhalt is one of the former East German regions along with the federal states of Mecklenburg-Vorpommern, Brandenburg, Berlin (excluding West Berlin), Saxony and Thüringen. Following the reunification of East and West Germany in 1990, economic growth in Saxony-Anhalt spurted, unemployment shrank and infrastructure projects – German and EU funded – were a permanent feature of the landscape. Mr Köhn points out that we are not just talking about roads, stations, ports and airports, but also housing and universities. It was a veritable rebirth.

He reminds us that education is one of the key drivers of economic growth and now, of the 55,000 students in the region, 10% are overseas students and this number is rising.

Today, with the economic situation in Saxony-Anhalt on solid ground, internationalisation is becoming more important, says Mr Köhn. And he isn’t only referring to foreign direct investment. Increasingly, Saxony-Anhalt’s companies are also foreign direct investors in other countries. Mr Köhn is referring to both domestic and international companies taking advantage of market opportunities and setting up representative offices overseas, as well as pursuing export strategies. “In the world economy, internationalization is an important process,” says Mr Köhn.

IMG Saxony-Anhalt therefore concentrates not only on bringing investments inwards, but also on supporting Saxony-Anhalt’s companies with their first steps abroad. The international team, responsible for international investors services at IMG Saxony-Anhalt, consists of regional managers, each of them with a specialised regional focus on different regions of the world. “We understand the correlation between internationalization and FDI very well. IMG Saxony-Anhalt supports both in terms of creating synergies, for example by offering companies platforms at trade shows, delegation trips or business events,” says Mr Köhn, adding that internationalisation efforts will increasingly be on IMG’s agenda.

IMG Saxony-Anhalt offers a holistic spectrum of services. As the economic development agency of the German federal state Saxony-Anhalt, it provides all services related to new business sites. In addition, IMG markets Saxony-Anhalt both nationally and internationally, and is also developing tourism concepts.

He says that IMG Saxony-Anhalt is constantly analysing the current economic development of world markets to be able to redefine its approach to different sectors; and so too does it redefine the countries from which FDI originates. Saxony-Anhalt is highly valued by foreign investors and leads the Eastern German federal states for FDI.

Mechanical engineering, the chemical industry, and agriculture and food have a long tradition in the state, and the state has a leading-edge level of know-how, innovation and technology in relation to these sectors, Mr Köhn points out. These might be the backbone of the Saxony-Anhalt economy but out of these three key sectors are emerging rapidly growing industries.

Since 1990, dynamic industries – which are based on the core competences of the existing fields of science and economy – are being advanced in view of future global challenges. These lead markets play a key role in the economic upswing of the state and include, for example, the linking of energy, mechanical and plant engineering, and resource efficiency, as well as chemistry and bio-economy, or logistics and mobility; as with health and medicine. For all these sectors, the state’s growing IT industry plays a key role, for example in the digitization of industries like the automotive sector, smart manufacturing and Industrie 4.0 as well as data security. Mr Köhn points out that T-Systems, a Telekom arm, built the largest data centre in Europe which is located in his region, and the IT giants – such as IBM or Dell – chose Saxony-Anhalt for their talent base.

The lead markets, supported by the federal state with their commercial and scientific developments, are based on the dynamic power of growing industries, as well as the strength of the traditional branches of the state. The basis for the success of these industries in Saxony-Anhalt is provided by the state’s exceptionally favourable research environment and the close cooperation between science and the economy. Thus, the conditions are good for achieving the state’s target to become an innovation leader in many sectors by 2020 – throughout both Germany and Europe.

Mr Köhn points out that the growth of sectors is market-driven but supported by the state’s universities and research institutes, and is not related to evolving geo-politics at all. At the heart of these high-growth achievements is innovation and, while public bodies may provide the infrastructure and universities may define the scope of projects, in the end the business world owns the projects. That is an important point. Fast and easy approval procedures in Saxony-Anhalt – for example planning permission – are facilitating investment in the state.

Of course, accessibility crosses all sectors too and Saxony-Anhalt is not short of hubs through which international connections can be made. Berlin, Hannover and Leipzig are all just an hour away by car. And let’s not forget Leipzig Halle Airport is DHL’s air cargo hub, and a vital link in the chain for the movement of goods along with the building of the supply chain.

So how will IMG’s future role be different from that following the early years of reunification? Mr Köhn says, in the early years, there was much less market saturation and lots of gaps in the value chain. Since then there has been successful growth, smaller niches and more competition.

He talks of the increasingly professional nature of the inward promotion agency sector, how networks, people and personal relationships have replaced the blunt tool of tax incentives. “Companies have a far more long-term approach,” he says. “Business is cost-driven, it is about the market – the location of suppliers, customers and talent.” IMG Saxony-Anhalt takes account of the changing markets and the individual needs of companies, resulting from that.

For each economic region in the world the international team at IMG Saxony-Anhalt is focusing on, it has a specialized regional manager which has a longstanding and continually updated expertise in foreign markets. It is complemented by regular international on-site-presence. IMG has excellent personal global networks in several countries in the world.

“Our staff is our most important asset,” says Mr Köhn. “We are not only looking for a suitable site or property to help a company locate here; we also help with integration into the existing economy, into the value chains, networks, etc. We are a constant and reliable partner for investing companies.”

Ahead, Mr Köhn sees FDI flowing into his region from China, South Korea, Japan and Malaysia. In Europe, the lead countries for FDI into Saxony-Anhalt will be Italy, the Netherlands and Switzerland. As well as the US and UK. “Over the last decade, the US has been our number one investor. Will that continue?” Mr Köhn asks rhetorically, considering the significant changes in those countries. Saxony-Anhalt has defined its FDI strategy, there is simply no conclusion to be reached on those markets as future sources of FDI just yet. “Regular market analysis enables us to adapt our strategy to the current developments,” he says.

IMG and the federal state of Saxony-Anhalt has, through their analysis of key sectors, appropriate investment and well considered action plans, made sure that the region is well placed to receive investment – wherever it originates. And happily, the double-digit growth of some niche sectors – not affected by geo-politics at all – may well be the ones to watch.