Eastern Germanys
09/01/1998
Eastern Germany`s "Silicon Saxony"attracting high-tech business
Lorie Karnath, Industrial Investment Council, New York City, New York
Often referred to as "Silicon Saxony," this eastern region of Germany has attracted more than 350 microelectronics firms in the past few years due to its central location, educated work force, and government financial incentives. The Motorola-Siemens joint venture Semiconductor300 and Advanced Micro Devices have set up shop here.
Saxony attracts high technology
Saxony (pop. 4.6 million) is geographically well situated as an integral part of Germany, the European Union`s largest market, and as a border region providing ready access to central and eastern European countries such as the Czech Republic and Poland (Figs. 1 and 2). Business volume between Germany and the eastern European countries is significantly greater than business links between the eastern countries themselves.
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Figure 1. Germany is positioned to offer ready access to central and eastern Europe.
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Figure 2. Investment incentives attract high tech companies to eastern Germany.
In addition, the German government has pumped billions of dollars into the eastern states, modernizing infrastructure to ensure a modern and competitive environment. Economic output in Saxony has soared by 80% since 1991. The microelectronics industry, represented by some 350 firms, accounts for more than 10% of the gross domestic product (GDP).
For some time now, the area has been well versed in the arena of computer technology. The discovery of semiconductors` germanium and indium in the latter half of the 19th century resulted in the development of Saxony as a semiconductor center. With four highly rated universities and five technical colleges, the region offers an exceptionally skilled as well as available workforce at competitive wages (Figs. 3 and 4). "Saxony is an excellent location for microelectronics," noted Martin Gillo, CEO of AMD Saxony Manufacturing GmbH, Electronics. "The Technical University Dresden and the University Chemnitz-Zwickau are top addresses for microelectronics."
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Figure 3. Level of education for workers in selected European countries.
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Figure 4. An electrician returns cleanroom equipment to the electronically regulated storage vault in the Precision Implant 9500.
Saxony was the preferred choice for the Semiconductor300 joint venture between Motorola Inc. and Siemens AG, as well as the new headquarters for software producer Paravisio Software, formerly based in San Diego, CA. Paravisio will represent the first major software producer to join the growing number of microelectronics companies clustered around Dresden, the capital of Saxony.
The leading-edge IC Siemens Microelectronics Center GmbH (SIMEC) production facility, which opened November 1995, represents an investment of $1.6 billion and houses Semiconductor300. The joint venture focuses on the development of new wafer manufacturing technology with the goal of producing 300-mm silicon wafers in volume. SIMEC employs 2400 people, twice as many as originally planned. Overall, the joint venture is expected to create directly or indirectly up to 13,000 jobs. Juergen Ruetters, the German federal minister for education, science, research, and technology, qualified the venture as "the largest integrated electronics project ever begun in Europe."
Advanced Micro Devices Inc. (AMD), Sunnyvale, CA, also broke ground in Dresden (October 1996) for a build-to-suit semiconductor plant. Production of leading-edge Kryptonite 6 microprocessors is scheduled to begin in early 1999. AMD will invest nearly $2 billion and employ 1600. Other foreign investors in the area include Applied Materials (Santa Clara, CA), American Microsystems (Pocatello, ID), Japan`s TEL Tokyo Electron, and Israel`s Federmann Enterprises. The latter, with a state-of-the-art plant in Freiberg (birthplace of the transistor), is Europe`s first Israeli manufacturer and Europe`s sole producer of gallium arsenide chips.
Investment in eastern Germany
In contrast to its well-known Californian counterpart, Saxony`s silicon region is still in the early stages of development. A number of generous investment initiatives and support programs provide significant incentives to ensure and foster growth and development. For example, the Motorola-Siemens joint venture is expected to require more than DM 1 billion ($549.5 million) in R&D costs, as well as incur substantial additional investments estimated at close to DM 500 million. The Research and Technology Ministry has pledged DM 187 million toward start up costs of the R&D program. The state of Saxony has contributed an additional DM 120 million.
Available investment incentives in eastern Germany are wide ranging and require individual structuring depending on a company`s unique requirements. The German federal government established the Industrial Investment Council (IIC) in 1996 to facilitate foreign investment in eastern Germany. With offices in Berlin, New York, and London, the IIC aims to optimize incentive programs, providing no-cost strategic and analytical support. The IIC offers industry-specific expertise and works in close cooperation with the state economic development agencies to foster new business activities.
Incentive programs are directed toward reducing up-front capital expenditures, as well as minimizing operating costs via a host of cash incentives, loan, and equity capital assistance programs, and state guarantees. Financial incentives can be generous, covering up to 35% of the initial capital and operating costs of an investment for large companies, and as much as 50% for small- and medium-size firms. Saxony prioritizes its investment support for high technology, funneling to that area about $1.8 billion to German and non-German investors alike. In addition, available labor-related incentives can be geared toward cost-free pre-employment training programs, wage offsets, and on-the-job training grants for up to 50% of total unemployment costs for previously unemployed workers.
Hans Christoph von Rohr, chairman of the IIC stated, "We are experiencing an incremental increase in the level of foreign investment demand in eastern Germany due primarily to the favorable investment climate and entrepreneurial environment. The rapid development of Saxony`s high tech corridor appears at this point to be reaching a critical mass, which will on its own provide incentives for companies to invest in the region."
Lorie Karnath is senior VP, North America, Industrial Investment Council, 500 Fifth Ave., Suite 4220, New York, NY 10110; ph 212/391-9390, fax 212/391-9391, web site: www.iic.de.