Survival Strategies of East German Companies in a Competitive Market after Reunification
©2003
Diplomarbeit
108 Seiten
Zusammenfassung
Inhaltsangabe:Introduction:
The speed with which the Berlin Wall fell on the 9 November 1989 was both surprising and inspiring. No longer would the people of East Germany be held captive under a repressive regime that deprived them, not only of western commodities, but of the most fundamental of human needs, the freedom to thrive.
On 18 May 1990, politicians from the East and West signed a treaty creating an economic and social union. This was followed by the Treaty of Unification on 31 August 1990. The dream of one Germany had become a reality. It was now up to the German people to build a unified economy, a task that posed difficult questions most importantly, what to do with the state owned businesses that comprised the former GDR (German Democratic Republic).
The former states of the GDR contain some of the highest growth regions in Europe. Despite this, there is social instability and high unemployment. As of October 2003, the unemployment rate in East Germany was 17.3% compared with 8.0% for the West, and 8.1% for the European Union.
While there is a necessity to improve the situation for all of Germany, many hurdles remain. In the case of unified Germany, Deutschland einig Vaterland is more than a slogan of unity; it is a statement for economic survival.
The aim of this thesis will be to explore the following questions:
How did three East German companies the Rotkäppchen sparkling wine company, the Florena cosmetics company, and the Fit detergent company survive and even thrive after reunification? How did the Treuhand Anstalt (THA), or Trust Agency, help these companies, and what affect has this had on the German economy? What were some peripheral reasons for economic survival, including government incentives, global economic expansion during the 1990s, and ostalgia?
What were some East German companies that did not survive, and why did they fail when others succeeded? How could these survival strategies be applied to other companies in other nations and what are the lessons for the future?
In answering these questions, it will be necessary to explore the history, not only of the three companies, Rotkäppchen, Florena, and Fit, but also of the East German market.
Due to the complexity of this topic, however, this thesis will remain focused on three main survival strategies. These will include how finding a niche market, using mergers and acquisitions, and using company and product diversification have helped companies […]
The speed with which the Berlin Wall fell on the 9 November 1989 was both surprising and inspiring. No longer would the people of East Germany be held captive under a repressive regime that deprived them, not only of western commodities, but of the most fundamental of human needs, the freedom to thrive.
On 18 May 1990, politicians from the East and West signed a treaty creating an economic and social union. This was followed by the Treaty of Unification on 31 August 1990. The dream of one Germany had become a reality. It was now up to the German people to build a unified economy, a task that posed difficult questions most importantly, what to do with the state owned businesses that comprised the former GDR (German Democratic Republic).
The former states of the GDR contain some of the highest growth regions in Europe. Despite this, there is social instability and high unemployment. As of October 2003, the unemployment rate in East Germany was 17.3% compared with 8.0% for the West, and 8.1% for the European Union.
While there is a necessity to improve the situation for all of Germany, many hurdles remain. In the case of unified Germany, Deutschland einig Vaterland is more than a slogan of unity; it is a statement for economic survival.
The aim of this thesis will be to explore the following questions:
How did three East German companies the Rotkäppchen sparkling wine company, the Florena cosmetics company, and the Fit detergent company survive and even thrive after reunification? How did the Treuhand Anstalt (THA), or Trust Agency, help these companies, and what affect has this had on the German economy? What were some peripheral reasons for economic survival, including government incentives, global economic expansion during the 1990s, and ostalgia?
What were some East German companies that did not survive, and why did they fail when others succeeded? How could these survival strategies be applied to other companies in other nations and what are the lessons for the future?
In answering these questions, it will be necessary to explore the history, not only of the three companies, Rotkäppchen, Florena, and Fit, but also of the East German market.
Due to the complexity of this topic, however, this thesis will remain focused on three main survival strategies. These will include how finding a niche market, using mergers and acquisitions, and using company and product diversification have helped companies […]
Leseprobe
Inhaltsverzeichnis
Survival Strategies of East German Companies in a Competitive Market after Reunification
i
Table of Contents
1. Introduction
... 1
1.1 Defining the Problem
... 1
1.2 Goal of the Study
... 2
1.3 Thesis Outline
... 3
2. History of the East German Economy
... 5
2.1 The East German Planned Economy
... 7
2.2 Imports and Exports with Other Countries
... 9
2.2.1 Relations with the Soviet Union
... 9
2.2.2 Relations with the Federal Republic of Germany (FRG)
... 10
2.2.3 Relations with the Non-Communist West and Japan
... 11
2.2.4 Relations with Africa
... 12
2.3 Failure of the Planned Economy
... 12
2.4 German Unification
... 14
3. Life after Communism
... 15
3.1 From the Planned to the Market Economy
... 16
3.2 Help from the Trust Agency
... 17
3.2.1 Purpose of the Trust Agency
... 17
3.2.2 Accomplishments of the Trust Agency
... 18
3.2.3 Criticism of the Trust Agency
... 19
3.2.4 Successors to the Trust Agency
... 20
3.3 Management Buy-Out and Management Buy-In (MBO/ MBI)
... 21
4. Survival Strategies of East German Companies
... 22
4.1 Examples of Three East German Companies that Survived
... 23
4.1.1 The Company Rotkäppchen, GmbH
... 23
4.1.1.1 History of the Company
... 24
4.1.1.2 The Company during the GDR
... 26
4.1.1.3 The Years following Reunification
... 29
4.1.1.4 The Takeover of Mumm, Jules Mumm, and MM Extra
... 31
4.1.1.4.1 History of Mumm and Jules Mumm
... 31
4.1.1.4.2 History of MM Extra
... 32
4.1.1.5 Takeover of Geldermann
... 32
4.1.1.5.1 History of Geldermann
... 33
4.1.1.6 How has Rotkäppchen Changed since these Takeovers?
... 34
4.1.1.7 Competition with other Companies
... 35
4.1.1.7.1 Henkell & Söhnlein
... 35
4.1.1.7.2 Freixenet
... 35
4.1.1.8 The International Market
... 35
4.1.1.8.1 Business in China
... 36
4.1.1.9 Survival Strategies of Rotkäppchen
... 38
4.1.2 The Company Florena, GmbH
... 42
Survival Strategies of East German Companies in a Competitive Market after Reunification
ii
4.1.2.1 History of the Company
... 42
4.1.2.2 The Company during the GDR
... 43
4.1.2.3 Competition between Sister Companies
... 47
4.1.2.4 The Years following Reunification
... 48
4.1.2.5 What has Changed since Privatization?
... 49
4.1.2.5.1 Competition from Other Companies
... 51
4.1.2.5.2 Business Abroad
... 52
4.1.2.6 Survival Strategies of Florena
... 52
4.1.3 The Company Fit, GmbH
... 55
4.1.3.1 History of the Company/ The Company During the GDR
... 56
4.1.3.2 The Brand Fit
... 58
4.1.3.3 The Years following Reunification
... 59
4.1.3.4 What has Changed since Privatization?
... 60
4.1.3.5 Competition from Other Companies
... 61
4.1.3.6 Taking Over of Rei and Sanso
... 62
4.1.3.6.1 The Product Rei
... 63
4.1.3.6.2 The Product Sanso
... 64
4.1.3.7 Survival Strategies of Fit
... 65
5. Other Reasons for Economic Survival
... 70
5.1 Government Incentives
... 70
5.2 Global Economic Expansion during the 1990s
... 70
5.3 Ostalgia
... 71
6. East German Companies that Did Not Survive
... 73
6.1 Automobile Companies
... 73
6.1.1 Trabant and the VEB Sachsenring Automobilwerke Zwickau
... 73
6.1.1.1 Why the Company Failed
... 74
6.1.2 Wartburg and the VEB Automobilwerke Eisenach
... 75
6.1.2.1 Why the Company Failed
... 75
6.2 Electronic Companies
... 76
6.2.1 VEB Robotron Riesa
... 76
6.3 Textile Companies
... 77
6.3.1 VEB Vereinigte Hutwerke Guben
... 77
6.3.2 VEB Textilkombinat Cottbus
... 78
6.3.2.1 Why the Companies Failed
... 78
7. Conclusion and Analysis
... 80
7.1 What Does this Mean for the Rest of the World?
... 85
8. Appendix
...I
9. Abbreviations
... VII
10. References
...VIII
Survival Strategies of East German Companies in a Competitive Market after Reunification
1
1. Introduction
The speed with which the Berlin Wall fell on the 9 November 1989 was both
surprising and inspiring. No longer would the people of East Germany be held
captive under a repressive regime that deprived them, not only of western
commodities, but of the most fundamental of human needs, the freedom to thrive.
On 18 May 1990, politicians from the East and West signed a treaty creating an
economic and social union. This was followed by the Treaty of Unification on 31
August 1990. The dream of one Germany had become a reality. It was now up to
the German people to build a unified economy, a task that posed difficult
questions most importantly, what to do with the state owned businesses that
comprised the former GDR (German Democratic Republic).
1.1 Defining the Problem
The former states of the GDR contain some of the highest growth regions in
Europe.
1
Despite this, there is social instability and high unemployment. As of
October 2003, the unemployment rate in East Germany was 17.3%
2
compared
with 8.0%
3
for the West, and 8.1%
4
for the European Union.
1
Rodden, J. (2000) The Berlin Wall lives: Today, its mental construct. Commenweal. No. 127,
(16), 22 September, p.11.
2
Statistisches Bundesamt Deutschland (2003) Arbeitslosenquote Neue Länder und Berlin
[Internet] Wiesbaden. Available from: <
http://www.destatis.de/indicators/d/arb230ad.htm
>
[Accessed 18 November 2003]
3
Statistisches Bundesamt Deutschland (2003) Arbeitslosenquote früheres Bundesgebiet ohne
Berlin [Internet] Wiesbaden. Available from: <
http://www.destatis.de/indicators/d/arb220ad.
htm
> [Accessed 18 November 2003]
4
InfoBASE Europe database record (2003) UNICE Economic Outlook - Autumn 2003 [Internet]
Fixby, Huddersfield/ UK. Available from: <
http://www.ibeurope.com/Records/7200/7231.htm
>
[Accessed 19 November 2003]
Survival Strategies of East German Companies in a Competitive Market after Reunification
2
While there is a necessity to improve the situation for all of Germany, many
hurdles remain. In the case of unified Germany, "Deutschland einig Vaterland"
5
is
more than a slogan of unity; it is a statement for economic survival.
1.2 Goal of the Study
The aim of this thesis will be to explore the following questions:
Ø How did three East German companies the Rotkäppchen sparkling
wine company, the Florena cosmetics company, and the Fit detergent
company survive and even thrive after reunification?
Ø How did the Treuhand Anstalt (THA), or Trust Agency, help these
companies, and what affect has this had on the German economy?
Ø What were some peripheral reasons for economic survival, including
government incentives, global economic expansion during the 1990s,
and "ostalgia?"
Ø What were some East German companies that did not survive, and
why did they fail when others succeeded?
Ø How could these survival strategies be applied to other companies in
other nations and what are the lessons for the future?
In answering these questions, it will be necessary to explore the history, not only
of the three companies, Rotkäppchen, Florena, and Fit, but also of the East
German market.
Due to the complexity of this topic, however, this thesis will remain focused on
three main survival strategies. These will include how finding a niche market,
using mergers and acquisitions, and using company and product diversification
5
Schneider, W. (1990) Leipziger Demontagebuch, Demo Montag Tagebuch Demontage, Leipzig
and Weimar, Gustav Kiepenheuer Verlag.
Survival Strategies of East German Companies in a Competitive Market after Reunification
3
have helped companies survive in a competitive market. There will also be an
overview of secondary reasons for economic success.
1.3 Thesis Outline
The following is an outline of the format of this thesis, beginning with the
introductory chapter through the appendix.
The introductory chapter of this thesis will define the problem and outline the
goals of the study. The purpose of the introduction will be to propose a series of
questions that are addressed throughout the thesis.
The second chapter will provide an overview on the history of the East German
economy, including details of the planned economy, import and export relations
with other countries, the failure of the planned economy, and finally German
Reunification.
The third chapter will detail life after communism in East Germany, and the
steps taken to move from a planned to a market economy. This will include a
study on the role of the Trust Agency in the privatization effort, including the
Management Buy-Out and Management Buy-In options.
The fourth chapter will contain examples of the three East German companies
Rotkäppchen, Florena, and Fit, and how each of these companies survived in a
new competitive market. A history of each company will be provided prior to and
following reunification, and each company's survival strategy will be outlined in
detail.
In the fifth chapter, other reason for economic survival will be mentioned,
including government incentives, global economic expansion during the 1990s,
and ostalgia.
Survival Strategies of East German Companies in a Competitive Market after Reunification
4
The sixth chapter will examine several East German companies that did not
survive privatization, including enterprises that manufactured automobiles,
electronics, and textiles. Reasons for economic failure will be outlined, including
consumer trends, environmental reasons, and competition.
In the seventh chapter, the thesis will be summarized along with findings and a
final analysis. Additionally, questions will be answered about how these findings
might apply to other companies, countries, and the world.
The eighth chapter will contain the appendix, which will include a personal
interview with Silke Bretscher, product manager of the Fit GmbH conducted by
the author of this thesis on 17 April 2003.
Chapter nine will contain a will contain a glossary of abbreviations used
throughout this thesis with a brief explanation of their meanings.
The final chapter, chapter ten, will contain a list of all references that were
gathered from books, encyclopedias, newspapers, magazines, and Internet web
sites.
Survival Strategies of East German Companies in a Competitive Market after Reunification
5
2. History of the East German
6
Economy
To understand the history of East Germany, it is important to include an overview
on the history of the entire region. What is today known as the Bundesrepublik
Deutschland, or Federal Republic of Germany (FRG), really began with the
German political leader Otto von Bismarck. Known as the Iron Chancellor,
Bismarck was very successful at unifying the German people and their various
lands.
7
After being elected to the Prussian Parliament in 1847, Bismarck opposed the
liberal movement and advocated the unification of Germany under Prussia.
8
His
expansion of military power, however, created tensions throughout Europe and
this balance of power broke down in 1914. World War I soon followed, and the
aftermath of this war, especially the Treaty of Versailles, led to the collapse of the
German Empire.
9
During the Weimar Republic in 1919, a more democratic German constitution
was adopted. The economic crisis of postwar Germany, however, included high
unemployment and currency inflation. Following the economic recovery in 1929,
the Nazi and Communist parties grew in strength. Four years later, Hindenburg
made Adolf Hitler chancellor of Germany, which eventually led to World War II.
By early 1945, Nazi Germany was being invaded on both fronts and most German
cities were in ruin. With the impending fall of Nazi Germany, Hitler committed
suicide on the 30 April 1945.
6
Throughout this thesis, the terms "East Germany" and "East Germans" are used to refer to
the territory and citizens of the former German Democratic Republic both before and after
reunification.
7
The Columbia Encyclopedia (1993) Otto von Bismarck, Fifth Edition, Columbia University
Press. New York, p. 301.
8
Ibid.
9
The Columbia Encyclopedia (1993) Germany, The German Empire and the Weimar Republic,
Fifth Edition, Columbia University Press. New York, p. 1073.
Survival Strategies of East German Companies in a Competitive Market after Reunification
6
During the Potsdam Conference, which took place from the 17 July to 2 August
1945, the victorious countries of France, the United States, the United Kingdom,
and the Soviet Union divided Germany into four regions, with each controlling a
portion of the former nation. The three portions controlled by the United States,
the United Kingdom, and France united in 1949 to form the FRG, or West
Germany, and the Soviet Union portion became the German Democratic Republic
(GDR), or East Germany, a communist state.
10
Throughout its forty-year history, East Germany was heavily influenced by the
Soviet Union, becoming a Stalinist-style country protected under the Warsaw
Pact. The first leader of this new state was Walter Ulbricht, who served as
secretary general from 1950 to 1971 and chairman of the council of state from
1960 to 1971.
11
The East German constitution defined the GDR as a "Republic of
Workers and Peasants."
12
In reality, however, it was not a republic, since nearly
all of the power resided within the state, which controlled all resources and
production.
In communist East Germany, the state-owned stores that were responsible for
selling everyday goods were called Handelsorganisation (HO)
13
, and the larger
enterprises were called Volkseigene Betriebe (VEB).
14
There were only few
independently owned businesses during the 40-year history of the GDR.
10
The Columbia Encyclopedia (1993) Potsdam Conference, Fifth Edition, Columbia
University Press. New York, p. 2205.
11
The Columbia Encyclopedia (1993) Ulbricht, Walter, Fifth Edition, Columbia University
Press. New York, p. 2817.
12
Großbölting, T. (2001) SED-Diktatur und Gesellschaft , Mitteldeutscher Verlag.
13
Wikipedia Encyclopedia (2003) DDR Lexikon [Internet] Available from: <
http://www.meine-
notizen.de /wiki /ddr.pl?HO
> [Accessed 21 July 2003]
14
Chronik der Wende Lexikon (2003) Glossar VEB [Internet] Available from:
<
http://www.chronik-der-wende.de/lexikon/glossar/glossar.jsp?key=VEB&mem=7.10.1989
>
Accessed [20 July 2003]
Survival Strategies of East German Companies in a Competitive Market after Reunification
7
2.1 The East German Planned Economy
In the former GDR, the communist government followed what is called a
centrally planned economy (CPE). In such an economy, the government fixes
prices, and agencies are responsible for determining production and distribution.
15
Patterned on the Soviet economy, this state controlled system was in place by
1948.
The supposed advantages of the CPE were that the government could maximize
resources to fill the needs of society rather than the individual. In theory, it had
the ability to achieve social goals more quickly, due to centralized planning.
Another theoretical advantage was decreased unemployment, due to the ability of
the government to create jobs as needed. Disadvantages of this system included a
decrease in product quality, the misuse of resources, and imbalance distribution of
goods and services.
Unfortunately, shortages often caused delays within the CPE and the planning
authority produced unnecessary or substandard products. Environmental damage
was also a problem, since it was a low priority for the state-owned enterprises.
16
The state was only interested in providing goods and services at the lowest price,
and the lack of competition meant that consumers could not choose a cleaner
environmental company. In addition, the practices of the state could not be
changed or criticized without much effort or risk of imprisonment. For this
reason, very few people had the courage to criticize the government-run
companies or their products.
15
Devine P. (1988) Democracy and Economic Planning: The Political Economy of a Self-
Governing Society. Boulder, CO, Westview Press.
16
Biedenkopf, K. (2003) The Transition Process in Germany and Its Relevance for
Europe [Internet] The World bank group Available from: <
http://www.worldbank.org/wbi/
lectures/bieden-text.html
> [Accessed 3 Oktober 2003]
Survival Strategies of East German Companies in a Competitive Market after Reunification
8
Within five years after World War II, the communist government implemented
what was called the First Five-Year Plan. The idea was to make up for war losses
and provide reparations to the Soviet Union. Heavy industry was built on a large
scale for this reason; however, production goals were not reached because of
shortages in raw materials. Additionally, with the focus on heavy industry,
consumer products were neglected almost completely.
Because of the shortage in consumer goods, the Second Five-Year Plan began in
1956. Its purpose was to nationalize all industrial enterprises, as well as
agricultural businesses. In the early 1960s, however, production declined and the
Sozialistische Einheitspartei Deutschlands (SED) introduced the New Economic
System of decentralized planning.
17
The purpose of this economic system was to
delegate responsibility to the Association of Publicly Owned Enterprises, or the
Vereinigung Volkseigener Betriebe (VVB), who then delegated responsibilities to
industry leaders.
Despite this move, technological development began to lag behind the western
world. The worldwide inflation of the early 1970s followed by the recession of
the late 1970s, created serious debts for the GDR. By the 1980s, the economy was
still struggling and the economic restructuring of the Soviet Union, known as
Perestroika, put additional pressure on East Germany.
18
This, combined with
decaying infrastructure and outmoded industry, was too much for the CPE. By
1989, with the CPE crumbling, the communist government collapsed.
19
17
Kaithly, D. M. (1992) The Collapse of East German Communism: The Year the Wall Came
Down, 1989. Praeger Publishers. Westport, CT.
18
Ibid.
19
Plock. E. D. (1993) East German-West German Relations and the Fall of the GDR. Westview
Press, Boulder, CO.
Survival Strategies of East German Companies in a Competitive Market after Reunification
9
GDR Debts to the FRG
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
Schuldenstand
der DDR
in millions of US $
Bankkredite
(BIZ/ OECD)
5,28
6,79
8,55
9,93
10,73
9,11
8,6
8,54
10,37
11,68
Öffentliche und
öffentlich garantierte
Handleskredite
(BIZ/ OECD)
1,00
1,20
1,30
1,40
1,50
1,62
1,95
1,74
1,45
1,95
Verpflichtungen aus
dem innerdeutschen
Handel
1,38
1,96
2,25
1,96
1,62
1,57
1,49
1,00
1,43
2,06
Bruttoverschuldung
7,66
9,95
12,10
13,29
13,85
12,30
12,04
11,28
13,25
15,69
Guthaben (BIZ)
-0,90
-1,32
-1,96
-2,15
-2,18
-1,99
-3,39
-4,53
-6,53
-7,46
Nettoverschuldung
6,76
8,63
10,14
11,14
11,67
10,31
8,65
6,75
6,72
8,23
[Source:
20
]
2.2 Imports and Exports with Other Countries
The land that made up the former GDR was relatively small and lacking in raw
materials such as coal, iron, and wool. For this reason, it had to import necessities
for daily living and industry and export products, including shop goods meant for
East German consumers, in order to afford these raw materials. Because of this
trade necessity, East Germany was dependent on other foreign markets,
particularly West Germany and the Soviet Union.
The following section focuses on the trade relationships East Germany had with
these countries, as well as the non-communist West, Japan, and Africa.
2.2.1 Relations with the Soviet Union
The relationship between East Germany and the Soviet Union benefited both
countries in different ways. Not only did the GDR provide the Unit Soviet
20
DIW-Wochenbericht (1988), Nr. 5, p. 66.
Survival Strategies of East German Companies in a Competitive Market after Reunification
10
Socialist Republic (USSR) with a political and military outpost, guarding eastern
Europe and the Soviet borders, but it also offered ideological legitimacy for the
Marxist-style of government.
21
In return, East Germany provided the USSR with
manufactured goods, including technology and machinery, such as computers and
train cars.
22
In fact, by 1980 more than 35% of East Germany's total foreign trade
was done with the Soviet Union. By 1987, this amount had increased to almost
39%.
23
2.2.2 Relations with the Federal Republic of Germany (FRG)
On 13 August 1961, the East German government began building a wall around
West Berlin to slow the stream of refugees fleeing to the West. This wall
eventually spanned the entire boarder between East and West Germany and was
built for economic, as well as social reasons, particularly to prevent East Germans
from working in the West.
24
By 1969, West Germany was making efforts to improve relations between the two
countries. With the support of the Free Democratic Party (FDP), West German
chancellor, Willy Brandt began peace talks with East Germany, which resulted in
a non-aggression treaty with the USSR and Poland in 1971. Brandt was awarded
the Nobel Peace Prize for his work, and the following year he signed a similar
peace treaty with East Germany.
25
Still, West Germany's relationship with East Germany posed difficult questions
about the roles of the two nations. In September of 1973, however, relations
21
Allrefer.com Encyclopedia (1987) Relations with the Soviet Union [Internet] Available
from: <
http://reference.allrefer.com/country-guide-study/germany-east/germany-east120.html
>
[Accessed 15 July 2003]
22
Roter Morgen (1989) The Plundering of the GDR by the Soviet Union [Internet] p.2 Available
from: <
http://www.mltranslations.org/Germany/plunder.htm
> [Accessed 3 July 2003]
23
Ibid.
24
The Columbia Encyclopedia (1993) Berlin Wall, Fifth Edition, Columbia University Press.
New York, p. 279.
25
The Columbia Encyclopedia (1993) Willy Brandt, Fifth Edition, Columbia University Press.
New York, p. 356.
Survival Strategies of East German Companies in a Competitive Market after Reunification
11
improved when the FRG and the GDR were both admitted to the United Nations
(UN).
26
In 1983 and 1984, tensions eased further when the West German
government granted DM 1 billion in bank credit to the East German
government.
27
2.2.3 Relations with the Non-Communist West and Japan
Because of East Germany's ties to the Soviet Union and the Warsaw Pact, it was
difficult for the GDR to build relations with western countries, who were mostly
members of North Atlantic Treaty Organization (NATO). Additionally, the
Council for Mutual Economic Assistance (COMECON), a trade organization
between the world's leading communist nations, made Eastern Bloc nations a
trade priority for East Germany.
28
However, by the mid-1970s, East Germany was
increasingly connected with markets in Western Europe and Japan, and while the
overall amount of trade was small, it continued to grow each year.
Export Trade of the GDR
(Includes inter-German trade. Amounts are in %)
1960
1965
1970
1975
1980
Socialist countries
75
74
72
70
66
RGW countries
68
69
67
66
63
USSR
43
43
39
36
35
CSSR
9
9
9
9
8
Poland
7
7
9
9
6
Hungary
4
4
5
5
5
Industrial countries
21
22
26
26
27
FRG
10
9
9
9
8
Developing countries
4
4
4
4
6
[Source:
29
]
26
United Nations (2003) List of Member States [Internet] Available from: <
http://www.un.org/
Overview/unmember.html
> [Accessed 20 July 2003]
27
Seliger, B. (2001) Ten Years after German Unification Economic co-operation in Germany
before 1989, Part 1. Central Europe Review [Internet] 8 January, Vol. 3, (1), Available from:
<
http://www.ce-review.org/01/1/seliger1.html
> [Accessed 23 July 2003]
28
Jarausch, K. H. (1999) Dictatorship as Experience: Towards a Socio-Cultural History of the
Gdr. Berghahn Books. New York.
29
Statistisches Jahrbuch der Deutschen Demokratischen Republik 1981, p. 235.
Survival Strategies of East German Companies in a Competitive Market after Reunification
12
In fact, by 1984, official cultural agreements were signed between the GDR and
Great Britain and the GDR and Austria, and by 1985, Italy and the GDR had
signed a long-term economic agreement that included expansion of trade and
cultural exchanges. In 1987, two years before the fall of the Berlin Wall, the
Japanese Prime Minister Yasuhiro Nakasone's 1987 visited East Berlin, which
symbolized greater economic cooperation between the two countries.
30
2.2.4 Relations with Africa
Beginning in the early 1970s, Algeria became a top oil supplier for East Germany.
While this relationship with the Third World was slow to develop, by the early
1980s, East Germany was building infrastructure in Mozambique in order to tap
coal reserves. Other imports from Africa included fruits, coffee, nuts, and
cotton.
31
2.3 Failure of the Planned Economy
While East Germany had some of the highest growth rates of all communist
countries, by the late 1970s and early 1980s, it became clear that the CPE had
limitations. Labor shortages and a lack of raw materials prevented economic
growth, and by the late 1980s, Perestroika and Glasnost were causing changes in
the minds of the people.
32
Additionally, news of protests in the Soviet Union was having an effect. The East
German government even tried to block Russian news magazines from reaching
East German shelves. This blockage of news created protests within the GDR and
30
Allrefer.com Encyclopedia (1987) Policy toward the Industrial West [Internet]. Available
from: <
http://reference.allrefer.com/country-guide-study/germany-east/germany-east126.html
>
[Accessed 15 July 2003]
31
Allrefer.com Encyclopedia (1987) Policy toward the Third World [Internet]. Available
from: <
http://reference.allrefer.com/country-guide-study/germany-east/germany-east125.html
>
[Accessed 15 July 2003]
32
LeMO Lebendiges virtuelles Museum Online (2003) 1989-90 Wandel im Osten, Glasnost und
Perestroika [Internet] Deutsches Historisches Museum. Available from: <
http://www.dhm.de/
lemo/ html/DieDeutscheEinheit/WandelImOsten/glasnostUndPerestroika.html
> [Accessed 2
Oktober 2003]
Survival Strategies of East German Companies in a Competitive Market after Reunification
13
caused East German chancellor Erich Honecker to speak out against the FRG,
blaming them for encouraging the demonstrations.
33
At the 40th anniversary of the GDR, on 7 October 1989, Honecker then stated,
"Socialism will be halted in its course neither by ox, nor ass." Gorbachev, on the
other hand, was quoted in the international press as saying, "He who comes too
late will suffer the consequences of history."
34
Gorbachev's, as history shows,
was the more prophetic, since on 9 October, 70,000 protesters demonstrated in
Leipzig against the communist regime stating, "We are the people!"
35
By the 16 October 1989, the crowds had grown to 100,000, and on 18 October,
Honecker resigned and was replaced by Egon Krenz, chairman of the Freie
Deutsche Jugend (FDJ). Krenz, then announced that all charges against
demonstrators be dropped, and on 4 November, over 1 million people marched in
East Berlin demanding free elections.
36
Following the resignation of Prime Minister Willi Stoph on 7 November 1989,
and his political office on 8 November, political office member Günter
Schabowski announced the opening of the borders on the evening of 9 November
1989.
37
That night revelers from both East and West Germany climbed atop the
Berlin Wall and began knocking it down.
33
Country Studies (2003) The Last Days of East Germany [Internet] U.S. Source of Congress.
Available from: <
http://countrystudies.us/germany/72.htm
> [Accessed 2 July 2003]
34
Ibid.
35
Leipzig Forum of Contemporary History (2003) Peaceful Revolution [Internet] Available
from: <
http://www.hdg.de/Final/eng/page159.htm
> [Accessed 2 July 2003]
36
Chronik der Wende Lexikon (1999) Samstag, der 4. November 1989 [Internet] Available from:
<
http://www.chronik-der-wende.de//wendepunkte/wendepunktejsp/key=wp4.11.1989.html
>
[Accessed 20 July 2003]
37
Chronik der Wende (1993) Donnerstag, der 9. November [Internet] Christoph Links
Verlag, Berlin Available from: <
http://www.chronikderwende.de/wendepunkte/wendepunkte.
jsp?id=965&mem=7.10.1989
>[Accessed 10 November 2003]
Survival Strategies of East German Companies in a Competitive Market after Reunification
14
2.4 German Unification
By 28 November 1989, West German Chancellor Helmut Kohl was calling for the
peaceful reunification of East and West Germany, and he outlined a 10 Step Plan
for this purpose.
38
An interim democratic government was put in place with Hans
Modrow as the new Prime Minister, but in February of 1990 Kohl rejected
Modrow's proposal for a neutral Germany and stated that the new unified
Germany must be a member of NATO.
On 18 March 1990, the first free elections were held which involved numerous
political parties, including the renamed SED, now called the Party of Democratic
Socialism (PDS). The East German people voted to reunify with the West under
one government, and in June of 1991, the German Bundestag voted to move the
seat of government from Bonn to Berlin.
39
38
Chronik der Wende Glossar (2003) 10 - Punkte- Plan [Internet] Available from:
<
http://www.chronik-der-wende.de//lexikon/glossar/glossarjsp/key=10-punkte-plan/mem=
7.10.1989.html
> [Accessed 10 November 2003]
39
Holz, E. (1999) From Bonn to Berlin: A New Old Capital for Germany. NIRA Review
[Internet] Winter 1999. Available from:<
http://www.nira.go.jp/publ/ review/99winter/holz.
html
>[Accessed 15 July 2003]
Survival Strategies of East German Companies in a Competitive Market after Reunification
15
3. Life after Communism
Hartmut Zwahr, in his book Ende einer Selbtzerstörung: Leipzig und die
Revolution in der DDR, sums up the feelings of the East German people following
reunification in the statement below.
"Die Dialethik zwischen Freiheit und Konsum begann die große
Mehrheit der Menschen, deren Grunderfahrung Mangel war, zu
bewegen; man war entschlossen, die Mangelgesellschaft hinter
sich zu lassen."
40
The Iron Curtain was gone, and in July 1990, following the signing of the Treaty
of Unification, GDR products were almost completely eliminated from East
German shelves. Even well known brands, such as Trabant and Wartburg, which
were once symbols of East German technical and social advancement, were
quickly disappearing.
This time period, of about one year, was called the "Test the West" phase,
41
and
the advertisement for West cigarettes became a symbol for this era. Everything
produced in the East was no longer good enough, and companies had difficulty
selling even well known East German products.
During the GDR, almost no competition existed for these companies. After
reunification, however, the sudden influx of competitors nearly ran them out of
business. The population wanted to experience new products, which looked much
more colorful and interesting than the East German ones, and stores were filled
with many new varieties.
40
Zwahr, H. (1993) Ende einer Selbstzerstörung: Leipzig und die Revolution in der DDR.
Vandenhoeck & Ruprecht.
41
Lay, C. (1997) Der Siegeszug der Ostprodukte, Zur Mentalitäts- und Produktgeschichte der
deutschen Vereinigung [Internet] Kommune 1/97. Available from:<
http://www.oeko-net.de/
kommune/kommune1-97/tlay197.html
> [Accessed 20 June 2003]
Survival Strategies of East German Companies in a Competitive Market after Reunification
16
By the end of 1990s, East Germans, after experiencing West German products,
discovered that not everything produced in the GDR was substandard. It was not
the "Golden West" they had expected. The West German people were very much
like those in the East, and not necessarily better; they simply had access to
superior technology and were more experienced than Easterners were.
In addition, East Germans did not want to lose everything they knew and loved.
These products belonged to them and they needed them to retain a sense of home.
Furthermore, they wanted to save jobs and show the West they had the ability to
produce worthwhile products. They wanted to get the attention of West Germany
and share their ideas with their newfound friends. For the East German people,
economic survival was more than keeping jobs and products; it was retaining their
own identity and culture.
3.1 From the Planned to the Market Economy
After reunification, the main issue for East Germany was how to privatize these
former state-owned businesses. Compared with other newly democratic nations of
the Warsaw Pact, East Germany was fortunate. The West German economy was
strong and gave East Germany legal, financial, and technical assistance.
Still, there were many challenges when moving toward a free market economy.
Managers of the former communist nation were not knowledgeable enough to
lead a company on the new market. In addition, the technology was years and
sometimes decades behind the times. Another problem was the difference in work
attitudes and freethinking. The communist citizens were not used to taking risks,
getting loans, or creating new businesses with their ideas.
42
42
Rodda, C. (2001) Problems of moving from a planned to a market economy [Internet]
Available from: <
http://www.cr1.dircon.co.uk/TB/1/1.4.3.htm
> [Accessed 10 September 2003]
Survival Strategies of East German Companies in a Competitive Market after Reunification
17
Because of this, there was high unemployment following reunification, made
worse by new competition from western companies. For this reason, the German
government saw it in the best interest of all Germans, whether East or West, to
create a Trust Agency in order to privatize East German firms and to lead the way
financially into the new market economy.
3.2 Help from the Trust Agency
The Treuhand Anstalt (THA), or Trust Agency, was originally created by order of
the Council of Ministers of the GDR, as a replacement for the CPE of East
Germany.
43
It began to operate on 1 March 1990, seven months before
reunification, and served until the end of December 1994. At the time of creation,
it was said to be "the world's largest industrial enterprise".
44
The Trust Agency became the temporary owner of nearly 8,500 former state-
owned enterprises, including some 40,000 individual plants and 4.7 million
employees. The value was originally estimated at DM 600 billion. This was later
discovered to be a highly overblown figure.
45
3.2.1 Purpose of the Trust Agency
The goal of the Trust Agency was to privatize as many state-owned East German
companies as was feasible, while saving as many jobs as possible. Other goals
included the reorganization and liquidation of state assets and the selling of land
for commercial purposes.
46
Land had be sold to private investors, since East
Germany needed large sums of money in order to survive financially, and the
43
Scada, R. (2000) The Treuhandanstalt and the Transition from Socialism to Capitalism
[Internet] Hagen, Fernuniversität Hagen. Available from: <
http://www.fernuni-hagen.de/
POLAD /Treuhandanstalt.htm
> [Accessed 15 July 2003]
44
Ibid.
45
Smyser, W.R. (1992) The Economy of United Germany. Colossus at the Crossroads, New
York, St. Martin' Press.
46
Dininio P. (1999) The Political Economy of East German Privatization. Westport, CT. Praeger
Publishers.
Survival Strategies of East German Companies in a Competitive Market after Reunification
18
primary buyers would need to be West German and foreign investors because of
their access to capital.
Of the 13,000 new enterprises formed by the Trust Agency, nearly all became
Limited Liability Companies, or Gesellschaft mit beschränkter Haftung (GmbH).
This process initially moved quickly; although, it was slowed from September
1990 until March of 1991, when ownership rights were disputed by some,
particularly those who had lost properties to the Nazi and communist regimes.
47
These disputes kept investors away until all issues were settled, and finally
resulted in the Impediments Removal Law, which stated that people disputing a
property would have to show proof that they proposed to invest equally into the
property as other potential investors. If they would not or could not, they would
lose rights to the property.
48
Despite the controversy and unfairness of this law, it
expedited the privatization process, allowing the German economy to continue to
move forward during this difficult period.
3.2.2 Accomplishments of the Trust Agency
By the end of 1994, the Trust Agency had privatized two-thirds of all
enterprises.
49
There were still be some 200 companies and a large portion of real
estate that needed to be sold, however, by the time the mandate had expired, the
Trust Agency had accomplished most of its intended goals. East Germany, with
the help of West Germany alone, had been transformed from a CPE into a free
market economy in just under four years.
47
Country Studies (2003) Unification and its Aftermath [Internet] U.S. Source of Congress.
Available from: <
http://countrystudies.us/germany/138.htm
> [Accessed 15 June 2003]
48
Gibbon, M. J, Mack, K. S., Shingleton, B. A. (1995) Dimensions of German Unification:
Economic, Social, and Legal Analyses. Boulder, CO, Westview Press.
49
Jacobsen, L. C. (2001) Die Finanzierung der deutschen Einheit 1990-1998, Träger der
Fianzierung und Lastenverteilung, Treuhandanstalt, [Internet] Available from: <
http://www.
studienforum-berlin.de/finanzierung_deutsche_einheit.htm#V.4.%20Treuhandanstalt
>
[Accessed 3 November 2003]
Survival Strategies of East German Companies in a Competitive Market after Reunification
19
Other accomplishments of the Trust Agency included the following: one fifth of
all businesses taken over by a Management Buy-Out (MBO), nearly 2,600
businesses purchased by East Germans, over 3,300 business liquidated, 199
businesses closed, and investment pledges of $13.2 billion from foreign investors.
In the end, some 12,500 companies of all sizes were privatized with the help of
the Trust Agency.
50
3.2.3 Criticism of the Trust Agency
While the handling of restitution in East Germany received criticism, and may
have even violated the Treaty of Unity that was signed to find justice for Jewish
people who had lost property during the Nazi regime,
51
most criticism of the Trust
Agency came from the East German people themselves.
The Trust Agency's final cost for restructuring the economy was DM 323 billion,
with expenditures far from being balanced by revenues of DM 67 billion. In the
end, the budget deficit was close to DM 256 billion.
52
In order to cover this debt,
the German government imposed new taxes on the people and borrowed money
from the Euro Market.
Meanwhile, many East Germans felt cheated. Some companies were sold for only
one dollar, and many companies are still subsidized today.
53
In addition, three
fourths of manufacturing jobs were eliminated and not replaced with jobs of
equivalent pay or security. As a result, the unemployment rate in East Germany
following the mandate was 21%, compared to the national average of 9%. It is
50
Jacobsen, L. C. (2001) Die Finanzierung der deutschen Einheit 1990-1998, Träger der
Fianzierung und Lastenverteilung, Treuhandanstalt, [Internet] Available from: <
http://www.
studienforum-berlin.de/finanzierung_deutsche_einheit.htm#V.4.%20Treuhandanstalt
>
[Accessed 3 November 2003]
51
Issa, G. (1995) Treuhandanstalt, German Privatization Program BA Thesis, American
University of Paris.
52
Ibid.
53
Galle, R. (2002) Erst die Treuhand hat die DDR Wirtschaft marode gemacht, Neue Solidarität
[Internet] 18/2002. Available from: <
http://www.solidaritaet.com/neuesol/2002/18/ deutsch
htm #G1
> [Accessed 15 July 2003]
Survival Strategies of East German Companies in a Competitive Market after Reunification
20
still significantly higher than West Germany today with unemployment rates of
17.3%
54
compared with 8.0%
55
for the West, and 8.1%
56
for the European Union.
In response to these criticisms, Birgit Breuel, former head of the Trust Agency,
stated that almost no East German firm was competitive prior to reunification, and
following the Trust Agency's help many were now viable businesses contributing
to the overall German economy.
57
She also admitted, however, "in a bureaucracy
created so hastily for such an epic task, mistakes are inevitable."
58
3.2.4 Successors to the Trust Agency
When the Trust Agency dissolved in December of 1994, there was still unfinished
business. Much of East Germany's public lands, including forests, fields, and
farms, are still managed by the German government, and about 62,000 individual
properties still remain to be sold.
59
This task is now in the hands of the Federal Agency for Special Tasks Resulting
from Unification. The government agency has a staff of over 2,000 people who
supervise tens of thousands of contracts. Additionally, hundreds of companies
remain to be liquidated, though these numbers are falling.
60
54
Statistisches Bundesamt Deutschland (2003) Arbeitslosenquote Neue Länder und Berlin
[Internet] Wiesbaden. Available from: <
http://www.destatis.de/indicators/d/arb230ad.htm
>
[Accessed 18 November 2003]
55
Statistisches Bundesamt Deutschland (2003) Arbeitslosenquote früheres Bundesgebiet ohne
Berlin [Internet] Wiesbaden. Available from: <
http://www.destatis.de/indicators/d/arb220ad.
htm
> [Accessed 18 November 2003]
56
infoBASE Europe database record (2003) UNICE Economic Outlook - Autumn 2003 [Internet]
Fixby, Huddersfield/ UK. Available from:<
http://www.ibeurope.com/Records/7200/7231.htm
>
[Accessed 19 November 2003].
57
Corrie, S. (2003) Privatization of East Germany, The Treuhandanstalt: East Germany's
Transition to a Market Economy, Case Study, OK Economics.
58
Ibid.
59
Ibid.
60
Ibid.
Survival Strategies of East German Companies in a Competitive Market after Reunification
21
3.3 Management Buy-Out and Management Buy-In (MBO/ MBI)
In article 2, paragraph 12, in the Trust Agency Law, it was stated that a firm's
management and committee members had the right to acquire their business in a
Management Buy-Out (MBO).
61
This law was created to promote independent
enterprises of approximately 50 employees. When numerous investors were
interested in buying a company, the Trust Agency usually favored the firm's
management, since in most cases they had knowledge of the product and an
interest in saving jobs.
The downside to this was that many managers had ties to the former communist
system in the GDR. Additionally, these same managers, who may have been very
successful while functioning within the bureaucracy of communism, had very
little knowledge of the free market economy. To mitigate these risks, the agency
created what was called a Management Buy-In (MBI) system. The purpose of this
system was to promote the selling of shares to management within the firm, as
well as outside of the firm, in many cases resulting in a combined East and West
German ownership.
62
This combined effort brought together the knowledge of those who knew about
the company and its products, with those who knew about the free market system,
and who had capital to invest more financially into the business. To encourage
this partnership, the Trust Agency granted financial help for these MBO/ MBI
applicants, even enlisting the help of accountants, tax consultants, and business
consultants.
63
61
Glasnost Archiv (1990) Treuhand Gesetz [Internet] Neues Deutschland 29.06.1990. Available
from: <
http://www.glasnost.de/hist/verein/90treuhand.html
> [Accessed 18 July 2003]
62
Issa, G. (1995) Treuhandanstalt, German Privatization Program BA Thesis, American
University of Paris.
63
Ibid.
Details
- Seiten
- Erscheinungsform
- Originalausgabe
- Erscheinungsjahr
- 2003
- ISBN (eBook)
- 9783956360190
- ISBN (Paperback)
- 9783832496340
- Dateigröße
- 1.1 MB
- Sprache
- Englisch
- Institution / Hochschule
- Georg-Simon-Ohm-Hochschule Nürnberg – Betriebswirtschaft
- Erscheinungsdatum
- 2006 (Juni)
- Note
- 1,3
- Schlagworte
- planwirtschaft treuhand rotkäppchen gmbh florena wiederaufbau
- Produktsicherheit
- Diplom.de
