Investments are fundamental for entrepreneurial action. The IW-Economist Hubertus Bardt explains in his contribution, how the word market is changing and which investment projects are necessary for the German economy.
Investment is a key driver of economic growth. In a world where there was no investment, all income would be consumed immediately. Only when governments and businesses choose not to consume in the present—to save, in other words—and instead use the funds freed up by that choice to create future value—that is, to invest— does economic growth happen. That is why economists always study trends in government and business investment decisions very closely.
Core piece of doing business
Investment is also a core piece of doing business. Investment entails the risk of loss, uncertain outcomes, the hope of success, and the potential for the business’ development and growth. Businesses must invest in order to develop their plans, improve their processes, and make their products. Business cannot exist without investment. And companies that systematically underinvest cannot expect to remain competitive for long.
The world as market
For many companies, their relevant market is the entire world. Companies that operate internationally are typically more successful than those that stay within the borders of a single country. Having numerous sites around the globe enables companies to leverage cost advantages and tap into new markets. However, trends vary widely from one industry to another. Labor-intensive industries will look for opportunities to save on labor costs. Knowledge-driven industries will invest where there are skilled people and existing innovation networks.
Transformative processes like the digitization of industry require substantial investment. Last year, many business units completed important construction projects. Investments that help to serve the markets even better. They not only bring about technological change, they also transform entire companies as investment decisions can impact business models, partnerships, and a company’s entire culture.
Fortunately, German businesses can invest and continue upgrading and innovating. The challenge for companies lies in identifying the right projects for investment. Meanwhile, policymakers must establish conditions that ensure companies’ ability to make the necessary investments.
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