German Industry competitiveness Plummets Amid Cost Pressures and Innovation Struggles

Munich, Germany – The competitiveness of German industry is facing a steep decline, particularly within the chemical and pharmaceutical sectors, according to the latest Alvarez & Marsal Competitive Index. The index reveals a significant drop from 20 points in 2024 to a mere 8 points in 2025,signaling a concerning trend for Europe’s largest economy. This decline is attributed primarily to intense cost pressures coupled with the ongoing challenge of maintaining innovative strength.

Key Factors Driving the Decline

The Alvarez & Marsal Competition Index of the German Industry 2025 highlights several critical factors contributing to this downturn. The most prominent is the overwhelming cost pressure faced by German companies. A staggering 77% of top managers surveyed identified cost pressure as a major concern, forcing them to seek countermeasures to stay competitive.

Did You Know? Germany’s chemical industry is the largest in Europe and the fourth largest worldwide, accounting for approximately 6% of the country’s total industrial production ^[1].

In response to thes pressures,companies are primarily focusing on optimizing supply chain management and raw material procurement. According to the study, 32% of companies have already successfully implemented such optimizations, while 47% are in the process, and 16% are planning to do so.

Strategies for Survival: Automation and Relocation

Beyond supply chain improvements, German companies are also exploring automation technologies and web-based applications to enhance production efficiency. While only 5% have fully implemented these measures, 48% have partially implemented them, and 12% are in the planning stages. However, the most drastic measure under consideration by over two-thirds of companies is the relocation of production facilities abroad to reduce overhead costs and tap into new markets.

Pro Tip: Companies considering relocation should carefully evaluate the long-term implications, including potential impacts on brand reputation and supply chain resilience.

The Innovation Imperative

Despite the focus on cost reduction,German companies recognize the critical importance of maintaining innovative strength. A significant 75% of managers surveyed emphasized innovation as a key factor for competitiveness. To foster innovation, companies are prioritizing strategic partnerships, open innovation initiatives, and the development of customized offerings.

Furthermore,there’s considerable interest in leveraging digital platforms for research and development,and also utilizing artificial intelligence to drive innovation. Though, a concerning trend is that 55% of companies are also considering relocating research and development activities abroad, signaling a potential loss of intellectual capital for Germany.

Expert Insights

“Companies are primarily implementing digital measures aimed at reducing costs or fostering innovation. In the chemical and pharmaceutical industries, this includes automation in production or the use of Digital Twins to simulate production processes,” explains Dr. Frank Jenner, Managing Director and industry expert at Alvarez & Marsal.

He further adds, “In the fight for competitiveness, the German industry has recognized that it cannot solve all problems from within Germany. Relocating production abroad can also help to better address markets in those regions.”

Competitive Index of the German Industry 2025: Key Metrics

The study involved in-depth interviews with 241 top managers across key industries, evaluating competitiveness on a scale from -100 to +100 points and analyzing the central challenges and strategies of the industry.

Did you Know? The German government has launched several initiatives to support industry competitiveness, including tax incentives for research and development and funding for infrastructure projects ^[2].

Will German industries be able to regain their competitive edge? What innovative strategies can be implemented to keep production and R&D within germany?

Share your thoughts in the comments below and let us know what you think the future holds for german industry!