Foreign company takeovers: no negative consequences for employment and productivity

DIW Berlin Weekly Report 42/2010, p. 2-7 42 / 2010

When foreign companies take control of German businesses in the context of mergers and acquisitions, government representatives and trade unions often fear the relocation of production abroad and the loss of influence and jobs. The currently discussed takeover of the Hochtief Group by a Spanish corporation is an example of this. Overall, about three per cent of German companies are majority-owned by foreigners. These companies employ about seven per cent of the workers in Germany. They are not only larger, but also more productive and more export-oriented than the average company. Some of the foreign-owned establishments were newly founded in Germany, but in many cases existing establishments were taken over. Preferred targets of foreign takeovers are both highly productive and relatively unproductive farms. Firms with average productivity levels, on the other hand, are taken over less frequently. An analysis of the effects of foreign takeovers shows that – at least in the short term – there are no significant effects on the number of employees and productivity. This means that neither fears critical of globalisation (foreign direct investors as locusts) nor hopes of significant increases in productivity are justified. Existing formal and informal restrictions on foreign company takeovers are thus unnecessary and potentially harmful.

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