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A tractor drives past a solar panel in Germany. JOHN MacDOUGALL/AFP/Getty Images) (JOHN MACDOUGALL/AFP/Getty Images)
A tractor drives past a solar panel in Germany. JOHN MacDOUGALL/AFP/Getty Images) (JOHN MACDOUGALL/AFP/Getty Images)

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Canadian firm makes hay while the sun shines - in Germany Add to ...

The country is far from complacent. Confidence is still strong, though it's ebbed from highs earlier this year. Companies large and small continue to go global. At the same time at home, investments in innovation, research and development remain robust.

Diversifying into new markets and finding niches aren't the only reasons for the country's success. Difficult decisions made a decade or two ago are now bearing fruit.

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Germany may be the continent's engine now, but just a decade ago it was the sick man of Europe.

Reunification saw a flood of East Germans move west. The jobless rate spiked to nearly 12 per cent in 1997 and was only slowly drifting down. The economy was stagnating. Manufacturers were fleeing the country to set up lower-cost operations elsewhere.

The country needed to do something - and the route it chose was none too popular. German businesses began to ruthlessly keep a lid on wage increases. And in 2003, Chancellor Gerhard Schroeder introduced a series of social security and labour reforms aimed at making the labour market more flexible and boosting Germany's position in the world market.

First, employers could shorten the work week, and workers could get part of their lost hours paid by the government (a system called "Kurzarbeit," similar to Canada's federal work-sharing program). Second, some unions agreed to flexible hours that vary with demand while salaries are smoothed out. Third, more short-term contracts give companies flexibility to meet demand - sparking growth in temp agencies such as Randstad and Manpower.

"If you put these three together, you are very flexible," said Olaf Wortmann, Frankfurt-based national economist at VDMA, country's body for local machinery and industrial equipment manufacturers. During the last recession, "many companies had fears, but not existential problems. And then they could react all of a sudden to the increase in demand."

The reforms came at a cost. Consumer spending dried up, job insecurity swelled and protests rocked the country. By early 2005, more than 5 million Germans were unemployed and the jobless rate had shot back up past the 12-per-cent mark, eroding the power of unions to negotiate higher wages.

"They were really painful years," said Volker Treier, chief economist at the Association of German Chambers of Industry and Commerce.

Meantime, a flood of German companies off-shored production to Eastern Europe, Russia and the Ukraine - helping German firms lower costs, limit wage gains and become more competitive. Other countries paid the price. Wage restraint helped Germany win market share at the expense of southern Europe, economists say.

By 2006, the country's fortunes began to turn. Labour reforms, years of tepid wage growth and investments abroad had helped Germany regain competitiveness - factors that explain the country's current resiliency, observers say.

German companies today are much more globally focused than their peers, including Canadian firms. It's not just large companies moving abroad; 98 per cent of Germany's 350,000 exporters are small and medium-sized enterprises. A typical small exporter is active, on average, in 16 international markets, according to the DIHK.

Apprenticeships are another reason for Germany's success. Young people typically spend three-and-a-half years on the job, and get qualifications that are valid across the country and for any German company overseas. The program is so successful it explains why the country's youth jobless rate is so low (at 8.1 per cent compared with, say, 44 per cent in Spain) and why other countries like Turkey and Spain are seeking to emulate it, says Mr. Treier.

Training young people and collaborating with universities is spurring innovation at Kuka AG, a robotics maker which employs about 6,000 people. "Students learn and give us ideas around innovation. Also, the students of today are our workers for tomorrow," spokesman Gert Butter says.

Peter Loescher, CEO of Siemens, Europe's largest engineering firm, rattles off reasons for Germany's might: mid-sized companies have been expanding globally for decades; companies collaborate closely with universities and research institutions; Germans produce what the world wants; it has a strong engineering culture, and a flexible labour market.

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