Most American managers have a hard time making sense of Germany. It has a fraction of the resources and less than one-third the population of the United States. Labor costs are higher, paid vacations are at least three times as long, and strong unions are deeply involved at all levels of business, from the local plant to the corporate boardroom. Yet German companies manage to produce internationally competitive products in key manufacturing sectors, making Germany the greatest competitive threat to the United States after Japan.
A version of this article appeared in the September–October 1992 issue of Harvard Business Review.