Workforce and investments continue to shift abroad – the U.S., China, India, and Eastern Europe are benefiting
R&D is gaining importance in global competition, but is also being relocated
“China Speed” as the key to competitiveness requires new structures and a new mindset
One in four manufacturers wants to enter the defense sector – but many companies overestimate the market potential
“Grow without Growing” is the order of the day for European companies. This year, manufacturing firms in particular aim to achieve modest growth of 5.6 percent – without significantly increasing their workforce. This is because companies must continue to cut costs. For industrial firms, this issue currently tops the list of strategic priorities. Seventy-one percent of the more than 1,000 board members and executives surveyed by the management consulting firm Horváth rate it as “very important.” “While the cost-cutting programs of recent years are having an effect, external pressures are intensifying at the same time. For the coming year, companies are planning cost reductions amounting to three to five percent of revenue. “That may not sound like much. But it must be taken into account that the potential of available levers has already been largely exhausted, and thus even this modest level of ambition is a challenge in light of new collective bargaining agreements and significant increases in material and energy costs,” says study director Dr. Ralf Sauter, a partner at Horváth.
“Germany as an Export Nation”: From Success Story to Obsolete Model – Staff Cuts Continue – More Than 100,000 Jobs Could Be Lost by 2026
In many cases, companies are planning to cut staff to reduce costs, driven in large part by automation and the implementation of AI. In the manufacturing sector, companies with cost-cutting plans are projecting an average global workforce reduction of 4.7 percent. Germany will be hit the hardest; here, over 70,000 jobs will be lost by the end of the year in the automotive and mechanical engineering sectors alone. In the automotive sector, projections indicate that over 34,000 jobs will be cut, and in mechanical engineering, over 37,000. A massive workforce reduction of over 37,000 is also realistic in the construction industry. The primary drivers are the aforementioned structural cost disadvantages – namely, the high labor costs in Germany compared to other countries. Regulation and bureaucracy play a relatively minor role in comparison. Workforce expansion is planned only in the defense sector (+7% from 2026 to 2027), which is targeting revenue growth of 14%.
According to the Horváth partner, it is also striking that even in the area of R&D – which 85 percent of the senior industry executives surveyed consider extremely important for differentiating themselves from the competition – activities are increasingly being shifted overseas. This includes, for example, innovation development and engineering work. “Customers no longer buy standardized ‘global products.’ They expect products that meet local needs,” says Horváth expert Sauter.
Companies are increasingly shifting value creation to low-wage locations such as Eastern Europe – while, at the same time, expanding their workforce in growth markets like the U.S., China, and India. Investments are also increasingly flowing into other countries, with the result that only 40 percent remains at the German headquarters, consisting primarily of maintenance and replacement costs. Genuine investments in the future, on the other hand – just like the workforce – are primarily directed toward foreign markets, especially the U.S., India, and China.
China is generally no longer viewed as critically as it was one or two years ago. “Although companies here are subject to strict regulations in some cases, they are dependent on the market due to a lack of alternatives for increasing revenue,” the expert said. The situation is similar in the U.S. “For global players, there is no alternative to the U.S. market. The economy is growing – despite all the tariffs and economic uncertainties, companies continue to invest here,” said Sauter.
Competitiveness Requires New Structures and “China Speed”
China is also a focus for companies for another reason. “China is the ‘gym’ of the industrial world. In no other country are innovative products developed, produced, and brought to market so quickly. Companies must learn to adopt ‘China speed’ in their production cycles and technology adoption if they don’t want to lose market share,” says study director Dr. Ralf Sauter. In the study, nine out of ten corporate executives also acknowledge that they risk losing market share if they fail to accelerate their processes in development, production, and sales. According to the expert, this requires, among other things, working on minimal and interdisciplinary collaboration – but also adapting the global corporate structure from the ground up. “Value creation is becoming increasingly decentralized in line with ‘local-for-local’ strategies. This requires new structures – lean headquarters and more autonomous local sites,” said Sauter.
Revenue Potential from Armaments and Defense Products Is Overestimated
Another finding of the study: About one in four industrial companies is considering entering or expanding into the armaments and defense sector, particularly in the “Metals & Mining” (72%), “Machinery & Industrial Automation” (33%), and Automotive (38%) sectors. According to the authors of the Horváth study, however, it is highly doubtful that companies that do not yet have a presence in this sector will truly benefit from entering the market, as in many cases they are either too late to the game or are overestimating the potential. On average, manufacturers expect this segment to account for 7–9 percent of their revenue by 2029. The experts view these targets with skepticism: “Defense will definitely not save the German economy. The media sometimes gives the impression that mechanical engineering firms and other manufacturers could flourish again thanks to the growing defense sector – but the market, even from a global perspective, is simply not large enough for that,” said study director Sauter. According to Sauter, the barriers to market entry are also being overestimated. Technical and regulatory hurdles are recognized, but they are not considered insurmountable and therefore do not differ from “normal” barriers to market entry. “What companies aiming to gain market share in the defense sector are lacking, however, is a strategic focus. Three-quarters of the companies with such ambitions do not yet have a concrete plan for how they intend to proceed.”
About the Study
For the 7th annual Horváth CxO Priorities Study, more than 1,000 board members and senior executives from large companies across 16 industries and 32 countries were surveyed on current management priorities and business outlooks. 83 percent of participating companies generate annual revenue exceeding €100 million. Manufacturing companies represent the majority of the sample. The survey was conducted between March and June 2026.
