Acknowledgements:

I would like to thank:

My colleagues: Yvan Go, Rahul Tongia and Andreas Schöps from the CrossKnowledge practice project team for their contribution to the practice project and discussions related to this thesis;

All the corporations and individuals who provided their valuable inputs during our research;

Our consulting coach, Dr. Jens Weinmann, and thesis couch, Dr. Niels Billou, for their advice and assistance;

My German speaking classmates who have assisted me with the translation of German statistics

2

Table of contents

Abstract.   6

Introduction   7

Methodology   8

1.  Is there a market for additional adult education?  9

1.1  Overview  9

1.2  Changes in the German population  11

1.2.1  Demographic changes  11

1.2.2  Net immigration  15

1.2.3  Changes in the age of entry into the working population  17

1.2.4  Changes in the age of exit from the working population.  19

1.3  Changes in the structure of work  20

1.3.1  Employment ratios: permanent employment vs contract employment  20

1.3.2  From unskilled to skilled  22

1.3.3  From manufacturing to service  25

1.3.4  Changes in workers attitudes.  27

1.4  Germany’s position in the educational rankings  29

1.5  Statutory environment  33

1.5.1  EU policy on promoting education  33

1.5.2  Changes in public funding from education towards health  35

1.5.3  Changes in Federal government influence and reduction in number of public education  

providers   35

1.6  Changes in the provision and the type of training  37

1.6.1  Recent trends in company-provided training  37

1.6.2  Recent trends in adult education provision and enrolment by public communities  39

1.7  Conclusions  41

2.  Market imperatives  45

2.1  Overview  45

2.2  Research approach  47

2.3  Drivers of investment in training  48

2.4  Commentary on individual market imperatives  50

2.4.1  Content, participation and price  51

2.4.2.  Change in the structure of the delivery of training.  54

2.4.3  Technology of training delivery  57

2.4.4  Certification  57

2.4.5  Reputation of the training provider  58

2.4.6  Global reach  59

2.5  Conclusions  60

3.  Discussion  62

4.  Conclusion  67

3

Bibliography   

List  of figures  

Figure  1 1 Changes in age profile 2005-2050  

Figure  1 2 Employee participation in company training  

Figure  1 3 Population development and the recipients of social welfare distribution  

Figure  1 4 Net migration in Germany 2001-2006  

Figure  1 5 Odds-ratios for students from blue-collar background to be in higher education  

Figure  1 6 Persons in employment by economic sectors  

Figure  1 7 Distribution of social protection expenditures, Germany 2003  

Figure  1 8 Proportion of enterprises offering training activities  

Figure  1 9 Share of private providers and specialized training institutions of total external course hours  

  , 1999  

Figure  2 1 Companies’ assessment of drivers for investment in training  

Figure  2 2 Assessment of business issues by German companies  

Figure  2 3 Participation of employees in leadership and management programs  

Figure  2 4 Assessment of distance learning  

4

List  of tables  

Table 1  1: Segmentation of the German population 2005 - 2020  13

Table 1  2: Labor participation.  21

Table 1  3: Participation in adult education by previous educational attainment for the 25 EU countries  

   23

Table 1  4: Percentage of GDP by sector 2000/2005  26

Table 1  5: Employment by economic sector, 2005-2015  27

Table 1  6: Germany’s position in EU rankings on education and training  30

Table 1  7: Number of publicly funded adult education providers and learners enrolled  36

Table 1  8: Structure of direct costs in German enterprises, 1999  39

Table 1  9: Teaching hours by subject area, taught in community education centers in Germany  39

Table 1  10: Learner enrollments by subject area  40

Table 2  1: Research sample  45

Table 2  2: Major companies’ primary research overview  50

Appendices   

Appendix 1:  ESMT MBA student survey  68

Appendix 2:  Basis for the provision of training (survey results)  76

Appendix 3:  Major companies’ primary research  77

Appendix 4:  Effectiveness of current training activities (survey results)  79

5

Abstract

With the European Union’s stated objective of making the EU “the most competitive and dynamic knowledge-based economy in the world” ¹ , the issue of education, as a driver for increases in productivity and employment, is becoming increasingly important. Several EU initiatives, which set targets and strategies on how to increase the level of education and the rate of participation in lifelong learning, suggest that education is, and will continue to be, of high level of priority for all the European states.

Furthermore, the consequences of aging population, the openness of the European labor market, the ongoing move to high skill-level service industries, and the tendency towards short-term employment contracts all require an increased emphasis on education and training for adults. This places more pressure on the policy-makers, training providers, enterprises, and individuals. Statistics indicate that Germany’s position is below the European average in many of the European rankings on education and training. The arising demand for new skills requires that the system of adult education be ready to adapt to the changing environment and facilitate the provision of market-driven education. At the same time, with changes in employment structure, more responsibility for training is being shifted from enterprises to individuals to ensure their future employability on a mobile labor market.

In addition, recent statistics indicates that there has been a reduction in the provision of both publicly-funded and company training. Against this background two major questions arise:

1. Is there a market demand, in the short- and medium term, for new education providers? 2. What are the market imperatives that a new provider must meet in order to secure an adequate market presence?

¹ Source: The Lisbon European Council of 2000, Council of the European Union [26]

6

Introduction

This study explores current and medium-term training needs of the German adult population and implications of training trends and underlying market forces on the provision of adult education ² . This study consists of four sections.

The first section answers the question of whether there is a market for additional adult education in Germany. By looking at the changes that are currently happening at the macro-level, such as the aging profile of the working population and the changes in the structure of employment, this section of the study analyses the training needs of various segments of the German population. The second section of the study answers the question of what are the market imperatives that a provider will need to deliver in order to gain access to the largest German corporations. The third section of this study - discussion - provides recommendations to the education providers on how to approach the German adult education market in order to capture its significant share, as well as recommendations on further areas of investigation.

Taking into consideration the analysis performed in the first two sections, the final section of this study provides an overview of conclusions.

² Adult education includes everything described as basic and continuing education and assisted

learning for youth and adults, formal, non-formal or informal [7].

7

Methodology

o Interpretation of data - drawn from national and European statistical offices and other respected sources - on demographics, the working population, the German education market, national and EU policies.

o Analysis of the market, statutory environment, and trends in education. o Primary data collection through on-line survey with 130 German companies o Field-based and telephonic interviews with of the 15 largest German corporations o Analysis of responses and follow up questions

8

1. Is there a market for additional adult education?

1.1 Overview

This section explores the population, demographics and other underlying characteristics of the German adult education market. It looks at the current situation and, using respected sources, estimates the underlying market forces in the medium term.

To evaluate the current and possible future market size this study looks at not only base adult population numbers but also the impact of an aging population, since studies show that currently older people tend to participate less in all forms of training (1.2.1).

In the past 15 years, Germany has experienced large population shifts, namely, immigration. But recently net immigration has become almost negligible despite recent legislation that encourages immigration of skilled workers from the new EU countries (1.2.2).

Evidence suggests that German companies require increasingly skilled workers as the industry base moves more from secondary (manufacturing) industries towards tertiary (services) industries. Furthermore, studies suggest that adults are much more likely to be in training if they have a higher level of education before entering the work force. This study attempts to quantify the training needs implications of these shifts (1.3.2).

Employers are increasingly turning to temporary fixed-term and part-time contracts rather than indefinite full-time employment contracts in order to increase their flexibility in the face of global competition. It has been suggested that employees on fixed-term contracts receive less training than their colleagues on indefinite contracts. This study attempts to quantify the impact on training demand of this shift from permanent to temporary employees (1.3.1).

Anecdotal evidence suggests that younger workers are seeking a more balanced and flexible life than hitherto. Historically in Germany, many school-leavers entered an apprenticeship scheme (which combined training and practical experience) and tended to develop their careers in the same industry possibly even the same company. Recent acceleration in the rate of change of technology, company ownership, industry structures, and internationalization combined with demands for an improved lifestyle, may drive younger workers to seek transferable skills from the training programs that they enter and, despite employers’ wishes to the contrary, may be one factor reducing the number of school

9

leavers entering apprenticeship. The implications for training providers may be dramatic in the case where employees, rather than employers, determine what training they themselves receive, if employers are to respond to employees needs in order to retain the best workers (1.3.4). On a number of international/European measures Germany fares relatively badly. For instance, it occupies 16 ^th place in participation rates in continuing vocational training and 22 ^nd place in the number of young people attaining upper secondary education level (see Table 1 6). The statutory environment relating to training has seen some important recent changes including the reform of the Vocational Training Act ³ , and one can expect German legislators and employers will need to move their practices on a par with other EU countries in order not to lose their competitive position. This may change the numbers of workers in training (1.4).

³ Vocational trainings means vocational training preparation, initial training, further training and retraining (Section 1, Part 1 of

Vocational Training Act 2005 [23] )

10

1.2 Changes in the German population

1.2.1 Demographic changes

Germany’s population is falling in line with most Western-European countries: it continued to decline on average by 0.1% over the past four years and is forecasted to decline by approximately 9.5% from the level of 82.4 million of 2006 to below the 75 million by 2050 [20], which means an annual decline of 16,600 people, or about 0.2% of the 2006 population.

Germany has over the past 30 years witnessed a remarkably low number of births. With a current fertility rate of 1.37 ⁴ and a rise in average life expectancy, it is estimated that the ratio of people aged 65 and over will increase from the current 18% to one third of the population by 2050 [1]. As the population age structure drastically changes and the proportion of people aged under 20 decreases from the current 21% to 16%, a larger number of pensioners will be supported by a smaller number of working age people [1].

Figure 1 1: Changes in age profile 2005-2050

Source: Federal Statistical Office Germany, 2007

⁴ Fertility rate represents the number of children that would be born to a woman if she were to live to the end of her

childbearing years and bear children in accordance with prevailing age-specific fertility rates (Euromonitor International)

11

It is estimated that by 2050 one out of five people in Western Europe will be 60 years old or over and there will be two people of working age per every pensioner from the current four [15]. The implications of the ageing demographics for Germany will become visible from 2015, when the proportion of those supporting the pension system will decline from the current 2 to 1 to 1 to 1, as 24 million people will be over 60 (four million more than today) [9].

Research shows that participation in training decreases dramatically with age: only 17% of those 50 years of age or older participated any kind of continuing training in 2003, compared with 31 % for the group of 35-49 year old [21]. And, according to the latest survey of 2005 on continuing vocational training conducted in German companies, the participation rates of employees of over 55 years of age in courses and seminars remain low, with the highest percentage of participation in smaller companies [6]

Figure 1 2: Employee participation in company training

Source: Statistisches Bundesamt, Wirtschaft und Statistik 7/2007

The above diagram (Figure 1 2) depicts percentage of employees who participated in companyprovided training in 2005 with a breakdown by three age-groups of employees and company size. Another factor that may increase the proportion of older people available for work is a possible increase in the effective average retirement age (see section 1.2.4 below).

12

The below table shows population estimates to 2020 together with segmentation by age groups and working population and is based on the estimates provided by the Federal Statistical Office of Germany: with retirement age of 65, birth rates almost constant and migration rate of 100,000 per year [20].

Table 1 1: Segmentation of the German population 2005 - 2020

Source: Federal Statistical Office, 2006

In the next few years, at least, changes in the age structure of the population will increase pressure on the social security system and public finances and may make required expenditures on education more difficult.

Another factor effecting age distribution is that many Eastern areas of Germany (with fewer employment opportunities) have, for the past 15 years, seen the movement of young qualified people to Western Germany and other areas. If employers in these areas don’t have enough young qualified people available, it is important that the area becomes economically more attractive to recruit labor from other places in order to remain competitive and to ensure equal and stable economic development across the country [9]. One of the ways to sustain competitiveness in the global market is through lower taxation rates. However, because of the changing age profile, increasing expenditures on pensions and health are likely to continue to represent an enormous burden on the federal budget [7] and come in conflict

13

with the EU strategy, and Germany’s need, to promote training and education especially since Germany’s proportion of GDP spent on education is already one of the lowest in the EU (see Table 1 6).

Figure 1 3: Population development and the recipients of social welfare distribution Source: Berlin Institute for Population and Development, 2006

Over time, the German government has an obligation, together with other European countries, to increase the participation of women, younger people and older people in work [1]. Although under Federal law, changes in education will mainly happen at the länder level, it is the Federal government’s role - in response to EU and OECD recommendations [5] - , to ensure that there is equal development in all parts of the country.

The implications for an education service provider may be the following: • An overall decline in the total German population is likely to increase competition among existing providers and may make the entry of new providers more problematical. • With lower rates of training today in the older members of the working population, and increase in the proportion of older people could imply reduced opportunities for training providers. • However, there may be an opportunity here too, for an education provider to define the needs and supply accordingly to this increasingly important, but relatively poorly educated, market segment. These special needs may include a focus on, for example, health and retirement skills.

14

• Those länder where education provision today is lowest may present more opportunities, particularly if more Federal funds are directed towards those areas in the near future. • In looking at participation in education by age segments, it was noted in Figure 1 2, that relatively more people (in all age groups) participate in education in smaller companies than in larger ones. It may be that these smaller companies will provide an interesting market for standardized education solutions (in section 2 we look at the implication for larger companies).

1.2.2 Net immigration

It is estimated that one out of six German citizens has come to live in the country through immigration [9]. However, since 2003 the number of people immigrating to Germany no longer offsets the deficit of births [9]. Net immigration has declined from the peaks of several hundred thousand of previous years to just 40,600 in 2006 - a further decline of 50% from 2005 [15] mainly because of tighter asylum rules and despite the new German immigration law of 2005, which eases immigration for highly-qualified non-EU citizens such as engineers, academics and business leaders, but makes it more difficult for others [14]. Although people with mid-range qualifications can obtain a limited residence permit but only if they have a job offer that could not be filled by EU citizens. The below chart provides information on immigration in Germany in the period 2001 - 2006.

Figure 1 4: Net migration in Germany 2001-2006

Source: Euromonitor International, 2007

15

Until recently, legislation restricted immigration into Germany from the new EU states. However, EU law requires complete openness of borders within all EU states by 2011. It may be that the gradual lessening of these restrictions will result in increased migration into Germany but probably in numbers insufficient to halt the decline in total population. According to the “Social Situation Report 2002’ published by the European Commission, EU labor market and pension system will not be on a sustainable level even if the fertility rate were to improve from the current 1.37 and the immigration rates were to double [12].

Although Federal authorities do not expect net migration to be much greater than 100,000 per year in the foreseeable future (basis for the forecast in Table 1 1), it is feasible that will be as high as 200,000 a year. According to the Federal Statistical Office an assumption of 200,000 a year would increase total population in 2050 by as many as five million people (to 73.958 million from 68.743 million with net immigration at 100,000 a year) [20]. It also has to be noted that majority of immigrants in 2002/2004 were in the 20 to 35 year age group, while people that emigrate tend to be, on average, older [20]. It has been estimated that people of Turkish descent represent the biggest of the share of all the immigrants at 2.4% of the population. Other ethnic groups, such as Greek, Italian, Polish, Russian, etc. amount to 6.1% of the total population [11]. This data implies that there are about 7 million immigrants of non-German origin and about 6.5 million of German origin. A study done by the Friedrich Ebert Foundation showed that less than a third of 182,000 jobs applied for by young qualified people were given to those with immigrant background and there seems to be a preference for native Germans when it comes to choosing a candidate [31]

The level of integration of the immigrants of both German and non-German origin into the German culture, their level of employment and dependence on social welfare are increasingly becoming a matter of concern. Following the change in law most of the new migrants will be highly educated but there remains a substantial population of recent immigrants and their descendants who tend to have lower qualifications, are in low-skilled jobs and have high unemployment rate - a concern raised by the OECD Secretary-General in Berlin in September 2007 [8]. Over 51% of people with a migration background are without a training qualification compared to 27% of the population without such background [14]. As an example, the achievements of German youth in education and employment look more significant than those of the Turkish youth living in Germany. In 2005, 84 % of Germans were either employed or pursued studies, while the rate of involvement in these activities of their Turkish peers was only 61%. The implications for the training provider may be the following:

16

• With an open European labor market, one can see significant implications for training provided to migrating workforce, even though these people may, under current regulation, enter Germany with high level of qualifications.

• Working across borders will expand the demand for education beyond occupational training, increasing the need for social knowledge and language training. Mobility will become successful when there is intercultural competence, which will allow new residents to function more effectively in the German environment. The above data would suggest substantial opportunities for intercultural learning, including German language training, (but whether this can be best provided by a non-German company is open to question).

• The total population of people of Turkish descent, the biggest of the share of all the immigrants, is 2.4% of the total population. However, if we add that proportion of the total population of the population of origins other than Turkish such as Greek, Italian, Polish, Russian 6.1%, and some six million people of German descent that immigrated recently and who seem to be treated as immigrants, there is a total immigrant population of some 13.5 million people which may represent a significant opportunity for education providers. (the issue is further discussed in section 3)

1.2.3 Changes in the age of entry into the working population

On the prospective of changes in the age of entry into the working population, it has to be noted that historically, German university entrants (who represent 0.5% of the population with 400,000 starting university each year) graduated at the age of 25-26 compared with 21-22 in most other western European countries and so entered the workforce later. This is due to mainly the fact that German university students study continuously through a bachelor’s level to a master’s level education without a break. Also, many German students have to fund their own education which requires them to work parttime often delaying graduation. According to OECD, drop out rates in the traditional 5-6 year universities can amount to 35% [8]. However, the EU Bologna Declaration directs EU states to standardize in their provision of tertiary education such that separate diplomas are offered at bachelors, masters, and doctorate levels [13]. This may mean that German students will break from their university education at bachelor level around 21 to 22 and enter the work force rather than being considered as university ‘drop outs’.

Incidentally, the above EU initiative also encourages universities to provide European credit transfer certificates which, in principal, allow students to move schools at the end of every year. Apart from the potential for German graduates to enter the work force earlier than hitherto, the Bologna Declaration

17