FRANKFURT, Germany - German upholstery and drapery manufacturers are finding new life by focusing on producing products for niche markets abroad in better price points. In years past, German producers could rely on strong growth in their local markets and other parts of Europe.

Today, that is no longer the case. The German economy has declined in the past few years with a weakened currency against the American dollar and high unemployment. German labor rates traditionally have been the highest in the world placing extreme pressure on Germany's ability to produce home textiles and fabrics. Asian sources have also eroded prices and this has further affected the German producer.

As a result, German textile sales have fallen dramatically. Some mills have gone bankrupt while others have moved their production to Eastern Europe to save money with cheaper labor rates. Some family owned businesses have sold out while others continue to plod on as family businesses.

''Germans are getting more international,'' said Ralph Steinwarz, director of Messe Frankfurt, organizer of trade shows around the world. ''While China and Hong Kong are the top two exporting nations today, Italy and Germany are number three and four according to the World Trade organization in Geneva,'' Steinwarz pointed out.

''There's a new German generation emerging in the textile sector-all educated in America and England. They speak several languages including English and travel extensively. The prewar generation who restarted their textile businesses in the early '50s were engineers, production managers and 100 percent owners. They were not internationally motivated. They worked 18 hour days in partially destroyed plants. That has all changed with the new generation.''

With these trends as a backdrop, Fabrics & Furnishings International found some German producers which are actually surviving and even pros-pering. We have highlighted their strategies for success. F&FI