Baltic Tangent

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WP 2
Business Opportunities in remote regions The
German Case Study
Project part-financed by the European Union
within the BSR INTERREG IIIB programme
Henrike Koch, Kalmar, 10.02.2006
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Agenda

• Introduction
• Framework conditions for settlement and
  maintainance of businesses
• Case study Mecklenburg-Vorpommern
• Conclusion and Recommendations

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Agenda

• Introduction
• Framework conditions for settlement and
  maintainance of businesses
• Case study Mecklenburg-Vorpommern
• Conclusion and Recommendations

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Issue Location characteristics and location
finding with special focus on

• So called remote or less popular areas in the
  BT region
• Transport infrastructure issues
• The role of transport, logistics and intermodal
  solutions for location finding

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Methodology

• Investigation of secondary sources as literature
  and internet (incl. previous studies)
• Long term practical expertise of Deutsche
  GVZ-Gesellschaft in supporting and settlement of
  transport and logistics intensive companies in
  German Freight Villages
• Current participation of DGG in the advisory
  board of the German governments initiative
  Logistics location Germany (Logistikstandort
  Deutschland) to attract foreign logistics
  industry providers

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Definitions
remote area To consider high population
density in Germany (in average 231
inhabitants per km2), also mostly
sufficient access and connections to the
main transport routes
The German remote areas do not only (or even
less) have disadvantages through poor
accessibility but from aspects like comparatively
low consumer potential or lack of well-educated
labour force and less attractive living
conditions.
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Germany has a decentralised settlement
structure The decentralised structure is an
important location factor and creates the
preconditions for the adjustment of living
conditions in the most diverse sub-regions
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Rural regions in Germany
Very high development problems
High earnings from agriculture possible
Earnings from the tourism possible
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Central places in Germany
The spatial distribution of the 154 higher order
centres enable every citizen to reach the nearest
higher order centre within 60 minutes by car
Higher order centre
Middle order centre
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Case study
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Agenda

• Introduction
• Framework conditions for settlement and
  maintainance of businesses
• Case study Mecklenburg-Vorpommern
• Conclusion and Recommendations

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Socio economic measures
Business taxation
Example German limited company (GmbH), annual
revenue 1.244.500,- EUR (State 2005)
In EUR Annual revenue 1.244.500,- Trade
tax 224.418,- Corporation tax 255.020,- Solida
rity surcharge 14.026,- Total tax
burden 493.464,-
Tax burden Full retention 39.65
complete distribution of profit 52.35
(shareholder or partnership as shareholder)
(Tax burden before distribution of profit)
Source Steuerrecht 2005, Grashoff
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Labour costs and regulations
Labour costs in Germany
Example of an employee in Frankfurt, Western
Germany, gross salary of 3.200 EUR Health
insurance (6,95 example AOK Hessen) 222,40
EUR Nursing care insurance (0,85 ) 27,20
EUR Pension contribution (9,75 ) 312,00
EUR Unemployment insurance (3,25 ) 104,00
EUR The employer and employee pay the equal
amount. In this example the labour costs are
about 3.865 EUR (3.200 EUR salary plus 665,60 EUR
non wage labour costs). In addition the employer
has to pay the employees industrial compensation
insurance with around 50,- up to 250,- EUR
(related to the risk class of the profession) per
annum.
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• The labour law in Germany has a strong tradition
  and provides adequate prevention against the
  discrimination of special groups (expectant
  mother, disabled persons, trainees etc.)
• In Germany employees have a legal right to the
  continued payment of 100 of wages or salaries in
  the event of sickness by law. This right extends
  to a period of six weeks.
• The employer-employee relationship comes to an
  end by
• termination of the contract by mutual agreement
• end of the term of the contract of employment
• notice of termination of the contract of
  employment
• According to the Law on periods of notice, the
  basic period of notice to be observed by the
  employee and employer is four weeks on the 15th
  or the end of a calendar month. They are
  increased to seven months at the end of the month
  for a length of service amounting to 20 years.
  The length of service is calculated from the age
  of 25 of the employee.

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Federal and regional investment grants
Financial assistance from the German federal
government and regional governments is usually
provided in following ways Subsidies (some of
which are repayable under certain
conditions) Loans at concessionary interest
rates Capital Resources Aid Guarantees
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...an example

• GA - Gemeinschaftsaufgabe zur Verbesserung der
• regionalen Wirtschaftsstruktur (common programme
  for
• improvement of the regional economic structure)
• This programme is destined to compensate deficits
  in economic structures on a regional level
• Applicable regions are agreed between the federal
  states and
• the federal government
• Within applicable regions FV development can be
  funded (water, sewage, electricity access etc.)
• Restrictions exist for applicable enterprises,
  which need to have more than 50 share of so
  called value-added services (pure transport
  operation is not applicable for funding)

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Business-economic measures and individual
strategic consideration

• Location factors can be described as the factors
  as whole influencing enterprises in the decision
  making in location.
• These factors can be distinguished in
• Hard Facts (e.g. taxes, subsidies etc.) and
• Soft Facts (e.g. cultural opportunities,
  recreational activities etc.)
• The Soft Facts may be the important distinction
  if several different
• locations offer the same amount and quality of
  Hard Facts.

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• Economic Location Factors
• Macroeconomic factors
• Infrastructure
• Procurement factors
• Production factors
• Disposal factors

• Physical Location Factors
• Topography
• Climate
• Ressources
• Geophysical and climatic risks of the location

Location Factors Cluster

• Political / Legal Location Factors
• Regulatory policy framework
• Public and political groups of interest,
  responsible body of the economic policy
• Economic relevant aspects of the legal system
• Institutional access to the markets
• Political risks

• Sociocultural Location Factors
• Part, influence, pattern of behavior and binding
  of social institution and groups
• Sociocultural distance / distance between
  investment sites and home area of the investor
• Sociocultural access barriers

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• Traffic infrastructure
• Existence
• Diversity
• Quality (consistence and condition)
• Density
• Connections
• Vicinity
• Costs and tarif-structure of short and long
  distance traffic routes and modes like motorways
  (speedways Autobahn, local, regional and
  national street network)
• Railway
• Airports (Domestic and international services,
  service charges and handling facilities)
• Seaports
• Innland waterways
• Pipelines

• Economic Location Factors
• Macroeconomic factors
• Infrastructure
• Procurement factors
• Production factors
• Disposal factors

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Ranking of location factors
The settlement decision of enterprises is
influenced by a wide range of location factors.
In a survey 24 singular factors were assessed by
actors of the logistics service sector and of the
municipal government. The assessment of the
factors by the two groups of actors has shown a
nearly homogeneous result.
Source Universität Dortmund, Raumanspruch und
Raumverträglichkeit, Results of the consultation
procedure, November 2005
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Top Ten of location factors
Municipal actors
Logistics enterprises

• Access to the speedways, regional traffic network
• Dimension of real estate parcels and layout
• Possibility of 24h-services
• Night driving ban / restrictions for trucks
• Real estate price level
• Distance to the selling market
• Time consume of the public regulation procedure
• Attitude of the municipal government towards the
  enterprises
• Distance to the consumer, places of production
• Possibility/risks of traffic jams in the region

• Access to the speedways, regional traffic network
• Night driving ban / restrictions for trucks
• Dimension of real estate parcels and layout
• Possibility of 24h-services
• Real estate price level
• Regulations of building and layout
• Regulations of environmental effects
• Distance to the selling market
• Distance to the consumer, places of production
• Attitude of the municipal government towards the
  enterprises

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Location decision process
The new location
1st step Identification of the location problems
(demand)
2nd step Search for location
3rd step Location assessment
4th step Decision for a location
Target the optimal location
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• 1st Step
• Basic requirements
• Political stability
• Market potential / size
• Strategic position
• Infrastructure
• Qualified working force

• 2nd Step
• Survey of the remaining alternatives
• Site visits
• Interviews
• Advanced material
• Legal conditions
• Financing schemes

Location assessment

• Base for a benchmarking analysis

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Agenda

• Introduction
• Framework conditions for settlement and
  maintainance of businesses
• Case study Mecklenburg- Vorpommern
• Conclusion and Recommendations

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Case study Mecklenburg-Vorpommern
Germanys sixth largest Federal State Thirteenth
place concerning the population density, share of
2,2 of the total German population Almost one
half of the population in Mecklenburg-Vorpommern
lives along the coastal zone of
the BSR
Biggest cities Schwerin, Rostock,
Neubrandenburg, Stralsund, Greifswald and Wismar
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Economic development
Gross value added by industry (in million EUR)
Agriculture, forestry and fishing (1.234)
Manufacturing industry (5.262)
Mining (31)
Processing industry (2.512)
Energy and water supply (617)
Service industry (20.242)
Construction (2.102)
State 2002
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Industrial park locations
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Unique selling point

• Speedway connection to south, east and west
• Multi-purpose port (example of Rostock) offering
  a wide range of port services
• Nearness to metropolitan areas of Berlin and
  Hamburg
• Wide range of offers of settlement areas with
  qualified traffic connections
• Public funding programmes (Joint Task Framework
  Plan)

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Agenda

• Introduction
• Framework conditions for settlement and
  maintainance of businesses
• Case study Mecklenburg Vorpommern
• Conclusion and Recommendations

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Overview of the main findings

• If market demands and the opportunities for
  additional business achieve a certain extend,
  lacks of the infrastructure are tolerated
• SMEs are often involved in international supply
  chains, which means that access to both
  international as well as national transport
  networks becomes more significant.
• Opposite the new markets, in mature markets
  excellent infrastructure is a matter of fact.

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Approach / recommendation

• Regionally coordinated planning of priority
  regions for concentrated company settlement
• Option concentrated settlement with
  concentration / specialisation on transport and
  logistics
• Value added services

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Customer for the offer
Sphere of the logistic enterprise
Europe / world
local
regional
national
Location in the inner-city area
Location in the suburban area
Location in remote areas
Findings from the German study, university
dortmund, 2005
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Thanks for your attention
Contact Deutsche GVZ-Gesellschaft Henrike
Koch Universitätsallee GW 1 Block A 28359
Bremen, Germany www.gvz-org.de
Project part-financed by the European Union
within the BSR INTERREG IIIB programme