Economy
As one of the most prosperous and stable EU Member States, Austria offers its investors ideal conditions. The Austrian economic system can be characterized as a free market economy with a strong social focus by also taking into account the weaker members of society. Austria also features a tried and tested system of economic and social partnership, which has traditionally played a strong and reconciliatory role in wage and price policies.
Austria is a highly developed industrialized country with an important service sector. The most important industries are food and luxury commodities, mechanical engineering and steel construction, chemicals, and vehicle manufacturing.
In the field of agriculture, Austria is witnessing a strong trend towards organic farming. With an overall share of 22%, organic farms in Austria occupy a leading position among the EU Member States.
As regards raw materials and energy production, Austria can draw on an abundance of resources. It has natural resources of iron ore, non-ferrous metals, important minerals and earths. The constant growth of the industrial sector, however, increasingly requires supplementary imports. This is also true of fuels, energy resources, and the electricity-generating industry. Austria has its own resources of petroleum and natural gas. The generation of hydroelectric power is constantly being expanded, which makes Austria the leader in the field of hydroelectric power in the European Union.
Austria's industrial and commercial sectors are characterized by a high proportion of medium-sized companies. Austrian industry covers every branch of manufacturing, from basic goods to the labor-intensive production of highly processed products. The construction of plants and systems (encompassing the planning, delivery, and assembly of turn-key production facilities, including the required know-how and operational expertise) is making up an increasingly important share. This field is strongly export-oriented, as is the electronics sector (including, for instance, the production of integrated circuits).
Austria is world-famous for its arts and crafts, most notably fine hand-crafted items, costumized jewellery, ceramics, and glassware.
Tourism is an essential pillar of the Austrian economy. Austria is a mountainous country with one of the largest natural land reserves in central Europe.
In the global-political arena, Austria is increasingly becoming an international meeting point, which is illustrated by the large number of summits and conferences held in Austria. At the same time, the country's relevance as a vital transit country between the economic areas of Europe is increasing, especially for European energy supplies, including petroleum, natural gas, and electricity.
Sectors
As an advanced modern economy, the Austrian economy is dominated by the service or tertiary sector, which constitutes approximately 70 percent of the gross value added, or GVA, as of 2020. The largest Austrian service sector employers work in sales, hotel and restaurant services as well as health and education. Representing 28 percent of Austria’s GVA, the secondary sector is primarily manufacturing, energy production and supply, and construction. The primary sector—agriculture and forestry—makes up only 1.2 percent of Austrian GVA and only one in thirty Austrians are employed in this sector.
The shift from the primary and secondary sector to the tertiary, i.e. from agriculture and production to services, has been dramatic in recent decades. As recently as the 1960s, agriculture and forestry represented 11 percent of Austrian GVA and the production sector (47 percent GVA) was actually larger than the service sector (42 percent GVA). Over the last twenty years, the tertiary sector as grown by an annual average of 3.2 percent at current prices. The structure of the Austrian economy in 2020 is on par with EU-27 average, however, where the secondary sector accounts for about 25 percent and the tertiary sector for about 73 percent of GVA.
Aside from globalization, increasing productivity, and rising incomes, another reason for this shift towards the tertiary sector is increasing time for leisure. In 2020, Austrians worked on average 35.6 hours per week (actually 28.1 when accounting for holidays and vacation time).
SMEs and Hidden Champions
Small and medium-sized enterprises (SMEs) are the basis of the Austrian economy and make up 99.6% of all companies in Austria, according to KMU Forschung Austria. As of 2019, there are about 358,400 SMEs in Austria that employ over 2 million people—more than the entire population of Vienna. While relatively unknown, many of these SMEs are incredibly complex and specialized in their respective fields. In fact, the Observatory of Economic Complexity (OEC), ranks Austria 10th in the world in terms of economic complexity—an index that seeks to measure the productive capabilities of large economic systems (such as countries or regions) based on the knowledge accumulated in a population. According to the OEC, the economic complexity index can also be used as a predictive tool for economic growth and income inequality (negative correlation with higher economic complexity).
For example, Austria has a very high level of specialization in handguns, railway maintenance vehicles, and “unprocessed artificial staple fibers,” such as rayon and lyocell. In 2020, Austria was the world’s largest exporter in each of these fields. In terms of handguns, Austria exported $354 million in goods in 2020, $304 million of which were to the USA (By comparison, the U.S. exported $193 million worth of handguns worldwide.) In this case, essentially all of this specialized economic activity is manifest in one company—the GLOCK GmbH. Founded and headquartered in Deutsch-Wagram, Austria, by Austrian engineer Gaston Glock in 1963, the company originally made curtain rods and various injection molding parts before developing the Glock handgun based on consultations with Austrian gun experts and selling it to the Austrian military in the early 1980s. Today, Glock handguns are used by armed forces and law enforcement organizations worldwide and GLOCK GmbH a world leader in its field.
Beyond Glock, the Lenzing AG is another world leader that boasts the world’s largest cellulous fiber plant in the world; Austria exported more than $767 million in “unprocessed artificial staple fibers” in 2020. Similarly, Austria is also the world leader in “non-alcoholic sweetened or flavored beverage waters,” exporting $2.33 billion worth of beverages in 2020—think Red Bull. Finally, Plasser & Theurer is another example of a world leader in its specialized field. The company exported $320 million worth of railway maintenance vehicles in 2020.
In management literature, such companies are referred to as “hidden champions,” a concept coined by German business professor Hermann Simon. It refers to highly successful companies that are often market leaders in their respective fields but not known to a wider public. According to Simon, three criteria must be met in order to be considered a hidden champion; (1) the company either has to be positioned in the top three of the global market or take the top spot on its continent in terms of market share, (2) the company's revenue must not exceed $4 billion, and (3) the company must have a low level of public awareness.
Given this third condition, hidden champions often are small and medium-sized enterprises and are often are part of the so-called “Mittelstand.” Moreover, Simon found that these companies provide a high vertical integration of manufacture, they focus on niche markets and show a willingness and extraordinary ability to globalize in those markets. Together, Austria, Germany, and Switzerland boast the world's highest concentration of small and medium-sized businesses that have a global market leader position in their respective industries. The remarkable success of these hidden champions is derived from a variety of factors, including a strong focus on manufacturing and production, robust in-house research and innovation capabilities, and a highly skilled labor force, which, in Austria’s case, is a function of Austria's dual system of apprenticeship and vocational education.
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Overview
Structural Changes Continue
Almost only one out of 30 employed persons today earns his or her living in agriculture and forestry.
Like most advanced, modern economies, the Austrian economy today is dominated by services: Around 70% of the gross value added (GVA) comes from the so-called “tertiary”sector, 28% comes from the “secondary” sector (industry and construction), and only 1.2% comes from agriculture and forestry (the “primary” sector).
Since the 1960s, the national economy has undergone fundamental changes. In 1960, agriculture and forestry still comprised an 11% fraction of the gross value added. The service sector at about 42% lay behind the production sector (47%). The “shrinkage” of the primary and secondary sectors in favour of the service sector began in the 1970s and it is still continuing today. About 72% of the labour force is engaged in the service sector, whereas 40 years ago only about half were.
The production sector also declined in importance during this period: Whereas more than a third of the labour force was engaged in production during the 1970s, today it is just under a quarter. This structure is similar to that of the 27 EU states, where the secondary sector accounts for an average of about 25%, and the tertiary sector about 73% of the GVA.
Most of those employed in production work in manufacturing and in construction. In the service sector, the largest contingent works in sales, hotel and restaurant services and in health and education.
