Germany is coming under a lot of heat these days. Its economy is considered troubled, its unemployment rate is high, and the cost of doing business there is thought to be astronomical.

But if Germany is in such trouble, why does it continue to be one of the world's biggest economic powerhouses?

The answer lies in some of Germany's autonomous 16 states. After all, perceiving Germany as one expensive country is akin to examining the United States at New York City prices.

Cheap Land

Take Saarland for example. Its rental rates and land prices are among Western Europe's lowest. Wage levels are approximately 10 to 20 percent below the federal average of the former West Germany and are up to 35 percent below urban levels.

Consequently, Saarland, which borders France and Luxembourg, has attracted service, headquarters and distribution operations.

"About 25 investment projects have been realized in our small state," said Roland Schmitt, project manager, Saarland Economic Promotion Corp. Among them are Ford, Whirlpool and Johnson Controls.

America Online, Lands' End, and J & L operate call centers there. In 1995, AOL joint ventured with Bertelsmann, one of the world's largest media companies, to form Multimedia Service International (MSI).

"The main reasons for choosing Saarland is its central location in Europe, its ability to provide a qualified multilingual work force, and the flexible and non-bureaucratic work practices of the state government," said Hans-Joachim Herzog of Bertelsmann Distribution.

Unlike some other German states, Saarland permits call centers to operate 24 hours a day, 7 days a week. Women are allowed to work night shifts.

High productivity

German wage rates, along with labor costs such as workers compensation, are high. Yet, as Jochen Steudle of Bruchsaler Innovations und Gewerbezentrum (BIG), a business and innovation center that assists start-up companies, revealed, "We have learned from sources such as L'Oreal that the productivity in Germany is a lot higher and, therefore, the cost per unit is lower than in other European countries."

L'Oreal and its subsidiaries located their German facilities in the region around Bruchsal and Karlsruhe near the French border and in the state of Baden-Wurttemberg.

John Deere selected Bruchsal for similar reasons.

"Deere can count on a highly skilled, flexible and reliable work force from the area," said W. H. Buchloh, a manager at the facility. "Our factory, as well as the European Parts Distribution Center and the John Deere Training Center, benefit from the area's location in the heart of our key Western and Central European markets. Bruchsal can easily be reached, be supplied with raw materials and deliver its own products efficiently to other Deere manufacturing locations or customers."

To promote Bruchsal, BIG has developed a Technology Village. Among its offerings are office, distribution, transport and light manufacturing facilities, residential complexes, daycare centers, restaurants, hotels, shops, schools, and extensive greenery and parks. The development is the first in Germany to integrate occupational and residential life into a single entity and incorporate renewable sources of energy, mass transit and other principles of environmental protection into its master plan.

Business Parks

Other business parks are being developed throughout Germany. ParkStadt am Rhein business park in Speyer is planned to become one of Europe's largest business parks. Targeted industries are logistics, automotive and medical businesses.

The logistics section, dubbed Logistics 2000, covers some 1.94 million square feet. Among its advantages are that it is within 45 minutes of Frankfurt International Airport, has direct connections to the German autobahn, is located on the Rhein River, and has an on-site rail link to a multimodal container terminal 15 minutes from the park. Deutsche Post AG chose Logistics 2000 from among 33 potential sites for its 280,000 square foot express parcel depot. From there the company will network with France, Spain, Portugal, Italy and North Africa.

Speyer is located in Germany's Oberrhein Region, a highly developed business triangle encompassing Karlsruhe, Heidelberg and Mannheim.

Eastward, Ulm, located between Stuttgart and Munich in the state of Baden-Wurttemberg, is home to Science City, a symbiosis of university, polytechnic, and research institutes supported jointly by the state and private companies such as Daimler-Benz AG and Bosch. Research subjects range from laser technology in medicine, applied knowledge processing, diabetes technology, solar energy and hydrogen research to dynamic material testing.

North Rhine-Westphalia (NRW), which borders the Netherlands, continues to be attractive to U.S. companies. Among its recent big catches are Time-Warner (which opened a movie theme park there), CNN and QVC.

"The large population base of some 23 million people within 90 miles of the park constitutes a huge potential market, plus accessibility to the site is excellent," said Nicholas S. Winslow, executive vice president of Warner Bros., Recreation Enterprises Division.

Medical technology is among NRW's targeted industries these days, however. Because Germany is the third-largest medical market worldwide and accounts for the lion's share of business in Europe, NRW is trying to capture some of this business by promoting its medical research and development institutions. These are found in Aachen, Bochum, Bonn, Cologne, Dusseldorf, Essen and Munster. Currently, NRW is offering special incentives to U.S. medical device companies that choose to locate in the state.

Growth Engines

Meanwhile, Bavaria continues to be Germany's growth engine. Some 160 American companies in computer-related industries alone have located in Munich, Bavaria's capital, including Microsoft and Intel.

"Munich is one of the most appealing places to work and live in Europe," said one Microsoft executive. One advantage is Munich's proximity to markets in Eastern Europe.

Many high-tech companies come to Germany to work with Siemens and Bavaria's other heavyweight customers. Other clusters include medical technologies in the Nuremberg-Erlangen-Furth area; automotive engineering in Ingolstadt, Dingolfing and Regensburg; microelectronics in Landshut; aerospace and transport engineering in and around Augsburg and advanced solar and geothemeral technologies in the Upper Palatinate in and to the north of Regensburg.

Other companies that have chosen Regensburg include BMW, Siemens and Toshiba.

Port City-States

Germany's city-states of Hamburg and Bremen are attractive to companies because of their strong port ties. Hamburg, especially, has strong ties to the Baltic states. Dubbed "Eurogate," Hamburg is among the world's top 10 container ports.

"Its highest growth in traffic is with East Asia," said Barbara Spector Yeninas, port spokesperson. "Hamburg handles 80 percent of Far East cargo in Germany." Not surprisingly, Hamburg is considered Asia's Hanseatic city. Many corporate relocations are coming from China.

Manufacturing companies such as those involved in the oil industry or the processing or refining of imported raw materials such as coffee, cocoa, oilseeds or rubber have strong ties to the port. Non-port related industries in Hamburg include aviation, medical technology, banking and insurance. Print and broadcasting media, film, video production, music and advertising also are particularly big here.

Hamburg's economy is well served by its transportation system. Hamburg Airport offers more flights to Baltic destinations than any other German airport. Germany's Baltic autobahn is under construction. With the German capital transferred from Bonn to Berlin, a high-speed magnetic levitation rail link called Transrapid also is being developed between the two cities that will cut traveling time to under an hour.

Bremen-Bremerhaven's port is often in competition with Hamburg, although the ports attract the bulk of North American traffic. Bremer Lagerhaus-Gesellschaft (BLG) Distribution Center, run by the port operating company, offers immense warehousing and distribution.

Capital locale

Finally, Brandenburg, the home state of Berlin, Germany's new capital, offers easy connections into Poland and Eastern Europe and is located near Germany's political center.

"The long-term attraction of an investment in Brandenburg was to establish a base for eventual expansion into the markets further east," said Karsten Blue, vice president of San Diego-based General Atomics. "These market conditions are augmented by the enthusiastic support of Brandenburg's officials for ventures involving foreign capital and providing local jobs."

Brandenburg's highly qualified labor force is the result of its six universities, 21 colleges and more than 200 institutions. Consequently, companies involved in biotechnology, transport technology and microelectronics benefit from resulting synergies.

Honeywell established its engineering center in Brandenburg's industrial town of Havel.

"A highly motivated work force with a feel for market trends and rapidity in the realization of new ideas is the most important capital in Brandenburg," said Dr. Wolfgang Selzer, of the managing board of Honeywell Holding AG.

By Karen E. Thuermer