Location decisions and the strategic alignment of the food industry in eastern Germany (448)

Theme Track: Locational Analysis - Locational Preferences

Author:
McNamara, Kevin T.

The collapse of the German Democratic Republic (GDR) in fall 1989 ushered in a period of political and economical restructuring for the states in the former GDR. While the political change had its highlight with the re-unification at October 3, 1990, restructuring to a market economy was more protracted. Public welfare and economic restructuring in the five new states became the task of the newly established Treuhandanstalt. The responsibilities of these Treuhandanstalt included transforming the 70 established combines into corporations or business establishments that could compete in regional, national and international markets. It quickly became evident that most eastern German firms would not survive the transition.

Failure of firms from eastern Germany was not surprise given the circumstances of the transition. The economic transition had to keep pace with the lighting speed of re-unification. The German economy was made became on without time to develop transition arrangements. Let alone implement them. Eastern German firms were also hampered in many cases by under capitalization, archaic infrastructure, labor low productivity, and management unfamiliar with western economic, operational and managerial tools (Pohl 1995, S. 11). A direct consequences of this lack of competitiveness was bankrupt or liquidation for many firms that had been viable in Eastern Germany. This restructuring led to a series of investments by firms from former West Germany entering the eastern market through acquisition of firms and establishment of new facilities (Beer 1995, S. 160 ff.). These establishments and takeovers were encouraged by investment support programs established by the German government. The food industry was one of the first to under go a transformation. Most food industry investments in the five new states were made within a formal location decision process, regardless of the ownership/management structure and product line of the firms.

Consequently, questions arise about the motives of the expansion / investment, the determinants of the location decision, and the strategic implications of the investment decision. This paper reports on research undertaken to identify what motivated investment decision as well as location choices for firms entering the eastern German market. The paper highlights differences in strategies within the food industry sector and evaluates what influenced operative and strategic decisions related to market entrance through takeovers or new construction. Even though it is hard to envision new establishments being made at such a high rate in a short time period again, understanding the decision process provides valuable information for government officials, and efficient public policy.

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