During the latter part of the Eighties, when most of their international competitors were slimming down, the Germans went on hiring.
Four years of plunging earnings amid dire overcapacity worldwide, falling demand and prices and intense competition from low-cost foreign producers have now battered this strategy beyond repair.
The nine-month results recently reported by the big three German companies highlighted their difficulties. BASF disclosed a 44 per cent plunge in pre-tax profits for the first three quarters of 1993 to DM607m ( pounds 234m). Hoechst announced a 40 per cent drop, to DM924m.
The domestic operations of both companies are running well in the red. Bayer, thanks mainly to its large and modern health business, has managed to keep its head up rather higher. Its nine-month pre-tax profits fell by 'only' 19 per cent to DM1.8bn.
Manfred Schneider, Bayer's chief executive, said that he hoped the long fall in earnings was bottoming out and that 1994 profits would be flat. But he left little doubt that it will be another tough year for chemicals.
Under unprecedented pressure the axe has finally been wielded: 31,000 jobs will have gone this year in the German chemicals sector and all the big companies have confirmed that the rationalisation will continue in 1994.
Bayer claims to have saved DM750m already this year, almost all because of job cuts. By the end of September its personnel costs in Germany had fallen by just under 8 per cent.
BASF and Hoechst, carrying even more fat, are paring back rapidly too. This marks a significant switch of direction. Even though between 1985 and 1992 the German chemical industry had only modest growth of 16 per cent, compared with 37 per cent in Japan, 28 per cent in the United States and 24 per cent in Britain, it was the only one to increase employment, by 5 per cent, while the others cut back, according to the German industry association.
In a comparison of productivity gains in the six big chemical manufacturing countries over this period the Germans came last.
The deep recession has exposed the structural weaknesses in this approach. For even when things do eventually pick up there will be no comfort for many areas of less sophisticated chemicals production, where the competitiveness pendulum has swung too far away from Germany.
Wage costs in the German chemical sector are estimated by Standard & Poors, the credit-rating institute, to be around 21 per cent higher than the US and 32 per cent higher than Japan, never mind the low-cost eastern European, Asian and Arab producers.
'We have seen a substantial structural shift in the international chemicals business. Even if German producers achieve low pay settlements over the next few years, the cost gap in certain basic sectors is too big to overcome. They will just have to get out,' said Wolf Streck, chemicals specialist at the IFO research institute in Munich.
This prospect places a large question mark over the system of production that the Germans have traditionally held to be one of their great strengths. The so-called Verbundsystem, where giant complexes manufacture as comprehensive a range of chemical products as possible by exploiting all sorts of by- products in a linked production chain, has in the past been hailed as a source of considerable cost advantage.
The Germans have defended these behemoth plants - BASF's at Ludwigshafen is the biggest in the world - longer than their international rivals.
But this is getting much harder, as increasing numbers of products within the Verbund chain, notably in basic chemicals, plastics and fertilisers, are heavily undercut by manufacturers in eastern Europe and Asia. Rather than being able to take advantage of these low prices, the German manufacturers are complaining that, where it used to deliver cost savings, Verbundproduktion is increasingly locking them into a system of uncompetitive prices. 'To the extent that increasing numbers of the links in this complex production chain have become unprofitable, much of the Verbund structure is falling apart,' said Gerd Becker, head of a smaller producer, Degussa.
Furthermore, as big German chemical clients, such as the car manufacturers, increasingly shift investment abroad, the rationale of these giant plants, built to serve corporate Germany, gradually weakens.
All sorts of measures are being used to shore up the weak links. Bayer has persuaded workers at its loss-making Dralon fibre plant at Dormagen to take a 15 per cent cut in wage costs.
But Pol Bamelis, the Bayer board member in charge of Europe, concedes that in some cases the writing is on the wall.
'In those activities where there is no chance of large cost- effective improvements or innovative jumps, we shall have to move out,' he said.
Internationalisation is the clarion call - a response to daunting high costs and an increasingly 'chemical unfriendly environment' in Germany and the need to be where the clients and the growth markets are.
BASF has several Chinese joint ventures and sees strengthening its position in the region as a strategic priority. 'We have to invest where the market is,' Jurgen Strube, the head of BASF, said.
Bayer, like Hoechst, was slow to spot the significance of China and is now making up for lost time. It has just announced a DM300m investment programme.
For the first time this year Bayer will be investing more abroad than in Germany, 52 per cent against 48 per cent. But even this shift underplays the significance of the trend. Most of the investment in Germany is on maintaining facilities, whereas abroad it is directed at new projects.
'The quality of the investments is completely different,' Mr Bamelis said. 'If it were not for the big project at Bitterfeld in eastern Germany, the domestic programme would be much smaller. In principle, we are still spending too much in Germany.'
In 1975 just 5 per cent of Hoechst's total research spending was outside Germany; the figure is now more that 40 per cent. Wolfgang Hilger, Hoechst's chief executive, puts most of the blame for the accelerating exodus on the German authorities. 'Whereas in Japan or the US our competitors are supported by means of state R&D subsidies, the establishment of modern technology is made more difficult in Germany by bureaucracy, excessive permission delays and complex administrative procedures,' he said.
Some of the toughest environmental regulations in the world have substantially raised the costs of chemical manufacturing in Germany. But the negative impact of strict controls has been seen most vividly in the fast-growing area of genetic engineering, vitally important for developments in pharmaceuticals and agro- chemicals.
Hoechst became so frustrated with delays in getting permission to produce the genetically-engineered drug Hirudin, used for thrombosis and by-pass operations, that it went to France, where it got the go- ahead in just two months.
For Utz-Hellmuth Felcht, a Hoechst board member, the lesson is clear. 'Either we succeed in bringing about profound changes in Germany, and that means deregulation, or the pushing of the chemical industry out of the country will gather pace.'
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