BUSINESS IN GERMANY

Germany is relatively poor in raw materials. Only lignite and potash salt are available in
economically significant quantities. Power plants burning lignite are one of the main
sources of electricity in Germany

Business in Germany
1. INTRODUCTION
Germany is the largest national economy in Europe, the fourthfourth
largest by nominal GDP in the world, and fifth by GDP (PPP) in 2008.
Since the age of industrialisation, the country has been a driver, innovator,
and beneficiary of an ever more globalised economy. Germany is the
world's third largest exporter with $1.408
$1.408 trillion exported in 2011.
2011 Exports
account for more than one-third
one
of national output.[1]

Germany is relatively poor in raw materials. Only lignite and potash

salt are available in economically significant quantities. Power plants
burning lignite are one of the main sources of electricity in Germany. Oil,
natural gas and other resources are, for the most part, imported from other
countries. Germany imports about two thirds of its energy. The service
sector contributes around 70% of the total GDP, industry 29.1%, and
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agriculture 0.9%. Most of the country's products are in engineering,
e
especially in automobiles, machinery, metals, and chemical goods.
Germany is the leading producer of wind turbines and solar power
technology in the world. The largest annual international trade fairs and
congresses are held in several German cities
cities such as Hanover,
Han
Frankfurt,
and Berlin [2].

2. INVESTMENT OPPORTUNITY
For decades, Germany has been a country with a highly developed,
high-cost economy. The opportunities but also the risks of a German
investment are therefore numerous, real and calculable. On the positive
side, Germany offers the foreign investor exciting national and international
marketing and business perspectives. These are inextricably linked to the
long-standing
standing commitment to European integration and the traditionally
strong business and cultural ties to most other European countries. The

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cultured, highly trained and educated working population provides the
medium for turning these perspectives to practical advantage [3].

The downside to this is that costs

cost and especially employment
costs, when measured in terms of wage rates, social security and other
charges levied on employers are comparatively high. Investment success
in Germany is thus dependent on a carefully planned, sophisticated
operation. In this
his sense, Germany is very much an up--market country.
The German investment climate, both inward and outward, is both open
and complex. However, Germany has emerged from the economic crisis
largely unscathed thanks in good measure to decisive government
governmen action
in launching a massive stabilisation programme and the return to growth
has allowed new investment opportunities to arise[4].
arise

Germany as a federation is a polycentric country and does not have a

single economic center. Only 3 of Germany's 100 largest companies are
headquartered in the capital Berlin. The stock exchange is located in
Frankfurt am Main, the largest Media company (B
(Bertelsmann
ertelsmann AG) is
headquartered in Gtersloh; the largest car manufacturers are in Wolfsburg,
Wolfsbur
Stuttgart and Mnchen [5].
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Business in Germany
Germany is an advocate of closer European economic and political
integration. Its commercial policies are increasingly determined by
agreements
greements among European Union (EU) members and EU single market
legislation. Germany introduced the common European currency, the euro
on 1 January 2002. Its monetary policy is set by the European Central Bank
in Frankfurt [3].

Almost all forms of industry are represented within the broad-based

broad
German economy. As befits a country with high employment costs but with
a well educated population and a well-trained
well trained workforce, the most exciting
prospects today are offered by industries at the forefron
forefrontt of technology and
by the providers of sophisticated technical, commercial and financial
services [4].

Agriculture and tourism are less significant, although they are of

social and cultural importance, especially for the preservation of living and
recreational standards [6].

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Business in Germany
Traditionally,

the

German

economy

is

oriented

towards

manufacturing. This extends to the service sector, where there are many
companies developing and applying leading-edge
edge technologies for
industrial use. For decades, manufacturing output has exceeded the
consumption requirements of the domestic economy; in effect, Germany is
and remains a major exporting nation in order to maintain domestic
employment. In keeping with this tradition, Germanys recovery from the
economicc crisis was export-led
export
[7].

Nevertheless, unemployment remains a perennial problem, although

by January 2011 it had fallen to 7.9%, that is, very nearly back to its prepre
crisis level. It is the hope of all concerned that this trend will continue.
Germany has a social market economy, meaning that the country embraces
the spirit of free enterprise, but tempered with controls and other
administrative legal measures designed to prevent large economic
participants from seriously damaging other interests.
s. Laws against unfair
competition, including the antitrust provisions, and for the protection of the
environment, as well as those protecting employees, all illustrate this latter
point [8].

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In general, the workforce is highly motivated, and highly trained
trai
and
disciplined. The strong and well established trade union movement usually
keeps to established bargaining procedures and, over the years, has
achieved an impressive degree of protection for employees. As a result,
cases of serious industrial unrest are rare, although there are a few instances
of demarcation disputes (conflicts between rival employee representations,
rather than between labour and management), especially in the passenger
transport sector [1].
[1]

Most German industry is dynamic and, except in the depressed

areas, expanding. The state does not encourage the development of specific
industries as a deliberate act of policy, but it does offer substantial subsidies
and other support for, in particular, research and development likely to lead
to new marketable products. There is thus a move towards high-tech
high
industries and the more sophisticated parts of the services sect
sector are also
expanding. The labo
labor force numbers some 40.9 million gainfully employed
by 3.5 million enterprises
enterprise [2].

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Business in Germany
Of the latter 16% are corporate entities, the remainder being
partnerships and sole traders. The typical business in Germany is a small
family-owned
owned unit. Any outside shareholders are usually long
long-term
employees or others with long-standing
long
personall relations with the original
family. Most large businesses are publicly held corporations with many
shareholders [2]..

However, the original family owners often retain a significant

minority holding and there are still a few large businesses closely held by
only a few individuals. Many medium-sized
medium
corporations that are publicly
listed issue a different class of shares to the public in order to give the
original owners a greater degree of control and influence than warranted by
their investment [3].
[3]

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3. POLITICAL RISKS
The constitutional form is the Federal Republic of Germany
(Bundesrepublik Deutschland), comprised of sixteen federal states
(Lnder). Each level of government (federal, state, district and local
community) is directed by an elected body competent to take decisions on
all matters remitted to it by the constitution. Berlin
erlin is the capital. It is the
home of both chambers of the federal parliament and of most government
ministries. Other ministries and government
ment authorities are located in
various German cities, particularly in Bonn, the former West German
capital [4].

The federal parliament has two chambers

chambers.. The lower chamber
(Bundestag) is elected by the population for a four
four-year
year term. Its seats are
allocated on a system of proportional representation. The government is
formed by the party or coalition (in practice, invariably a coalition)
co
with a
majority of the seats. The remaining parties represented
resented in the Bundestag
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Business in Germany
form, collectively, the opposition. The upper chamber
amber (Bundesrat) is made
up of members delegated by the parliaments of the individual federal states
with votes in rough proportion to the size of their populations. The party
allegiances of its members reflect the identity
ntity of the governing party or
coalition
alition in each federal state. Most acts of parliament are initially proposed
and debated in the Bundestag [5].

The Bundesrat does have certain rights to propose, or to propose

changes to, bills, although its primary function is to safeguard the interests
of the federal states against acts of expropriation bby
y the federal government.
Since all acts affecting the interests of the fe
federal
deral states are subject to its
approval, very few acts of national importance can be passed by the
Bundestag without the support of the majority of the Bundesrat [6].

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Business in Germany
This division of political functions and responsibilities
responsib
forces a
willingness to compromise on all major political parties. Bills are enacted
into law on signature by the federal presid
president
ent (Bundesprsident) to whom
they are submitted after acceptance by both chambers of parliament. The
signed acts then take effect on promulgation in the Federal Law Gazette
(Bundesgesetzblatt) [7].

The ultimate source of all law is the constitution or Basic

Ba
Law
(Grundgesetz). Acts of either the federal or a state parliament are void if
they conflict with the constitution or aree passed in an unconstitutional
manner. Similarly, all acts of the state parliaments must be in accordance
with the provisions of the
t constitution of the relevant federal state [8].

The government, individual ministries and other authorities have the

power to issue guidelines, decrees and other pronouncements. These
ordinances are of varying degrees of authority and require
ire the approval of
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Business in Germany
differing levels of government. Tax guidelines, for example, but not
decrees, require the consent of the Bundesrat. These extra-statutory
extra
instruments bind, at least to the extent of their own terms, the issuing
authority and its subordinate
subordi
authorities, but not courts of law. They cannot
amend the law as it stands, but give guidance on the issuing authoritys
preferred interpretation thereof [5].

The German court system is decentralized.. Initially, cases are held

locally and appeals are made to a higher court responsible for a wider
geographic area. The courts are divided into a number of different streams,
each specialising in its own field of law. There are therefore separate courts
to try tax, commercial and labour law suits. At the head
ead of each stream is a
single, federal supreme court to which appeals can be made by either side
on points of law, but not of fact [4].

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Business in Germany
The

ultimate

arbiter

is

the
the

Federal

Constitutional

Court

(Bundesverfassungsgericht) in Karlsruhe to which

which a final appeal can be
made, although only on the grounds of conflict with the constitution. The
judgments of the Federal Constitutional Court are binding on all other
courts. The judgments of all other courts, including the supreme court of
each stream,
m, are only binding in respect of the case tried and do not set
binding precedents for other cases of a like nature. They may, however,
give guidance to other courts, especially to lower courts of the same stream,
although even a lower court is free to dep
depart
art from an established precedent
if it feels that circumstances warrant a change [9].

4. PRODUCTS AND INDUSTRY

Each entity carrying on a trade or busines
businesss in Germany must register
with the local registry court (trade register) for the town of its seat or of its
principal place of business. Branches in other
other towns must also be registered
if the branch effectively trades independently, but not if it solely supports,
and is dependent on, the activitiess of the main company. The same
distinction
stinction applies to German branches or other establishments of foreign
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Business in Germany
companies. A German subsidiary, as a legal entity, must
ust be registered in at
least one trade register [3].

Of the world's 500 largest stock market listed companies measured

by revenue,, the Fortune Global 500, 37 are headquartered in Germany. In
2010 the ten largest were Volkswagen, Allianz, E.ON, Daimler, Siemens,
Metro, Deutsche Telekom, Munich Re, BASF, and BMW
BMW. Other large
German companies include: Robert Bosch, ThyssenKrupp, and MAN
MA
(diversified industrials); Bayer and Merck (pharmaceuticals); Adidas and
Puma (clothing and footwear); Commerzbank and Deutsche Bank (banking
and finance); Aldi, Lidl and Edeka (retail); SAP (computer software);
Infineon (semiconductors); Henkel (household
(household and personal consumer
products); Deutsche Post (logistics); and Hugo Boss (luxury goods). Well
Wellknown global brands are Mercedes Benz, BMW, Adidas, Audi, Porsche,
Volkswagen, Bayer, BASF, Bosch, Siemens,
Siemens, Lufthansa, SAP and Nivea.
[2]

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Business in Germany
The trade registers are open to public insp
inspection.
ection. The publicly
accessible file for each company includes the basicc rights of representation
(the personal details of the directors and their respective powers),
power and a
copy of the statutes. The trade registers havee recently been converted to an
electronic format and it is now no longer
nger possible to file hard copy
documents. Parallel to the local registers, the Federal Gazette maintains a
database of registered businesses. It is open to interrogation by members of
the
he public on the internet at unternehmensregister.de.
gister.de. Financial statements
(annual reports) of companies are also filed with the Federal Gazette, where
they are open to public inspection at ebundesanzeiger.de.
ger.de. The Federal
Gazette accepts only soft copy filings
fil
in a set XBRL (eXtensible Business
Reporting Language) format [1].

The only import restrictions of general application are those imposed

in accordance with UN sanctions. Otherwise, there is a special licensing
li
procedure for certain specific types of goods,
oods, mostly military equipment
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Business in Germany
and drugs. Some import quotas are imposedd by the EU (eg, for textiles),
and these are also applied by Germany, which
ch issues licences freely until
the quota is filled. Products whose sale
le is prohibited in Germany
G
can
sometimes be imported, but they will not be cleared through customs and
will therefore have to be re-exported
re
[3].

Since the EU member states constitute a single European market,

deliveries between Germany and other EU countries do not qualify as
imports or exports. Within the EU there are no longer any border controls
of any description or any customs duties or other restrictions on intra-union
intra
traffic apart from certain minor formalities for travellers. The terms
export and import therefore
therefore now only refer to trade between Germany
and non-EU countries [4].

Customs duties are the main duties effectively increasing the price of
foreign goods over that of domestic or EU products. German
Germa customs
duties are all based on value and are levied at rates dependent on the type of
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Business in Germany
goods and on the country of origin. Imports
Imports from EFTA countries (Iceland,
Liechtenstein and Norway) and Switzerland are generally free of duty, and
the same applies to most imports from Croatia,
roatia, Turkey and the other
o
EU
candidate or associate countries. The rate of duty on imports of
manufactured products from other countries is often zero and rarely rises
above 10%. Additional duties are levied from time to time on specific
spec
products from specific countries at the direction of the EU, usually as a
result of an anti-dumping
dumping case [8].

Goods are classified for customs duty

duty purposes under the
Harmonised System and the TARIC (integrated tariff
ff of the European
Communities) nomenclature, and the valuation principles
princi
follow the
internationally recognised customs code. The basis for assessing duties is
usually the suppliers invoice unless it is obviously incorrect.
rrect. This basis is
subject to amendment, either in response to subsequent pprice adjustments,
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Business in Germany
or because of other charges and credits raised separately or otherwise borne
by the importer that directly affect the imported value of the goods.
Customs duty auditors regularly inspect the books of German importers to
establish whether they have appropriately accounted for such adjustments
[7].

5. SWOT ANALYSIS
The SWOT analysis for investment opportunities in Germany cam be given
as follows [7]:
a) Strengths
Business strengths are its resources and capabilities that can be used as a
basis for developing a competitive-advantage.
Patents
Strong brand names.
Good reputation among customers.
Cost advantages from proprietary know-how.
Exclusive access to high grade natural resources.
Favorable access to distribution networks.

b) Weaknesses
The absence of certain strengths may be viewed as a weakness.
Lack of patent protection.
A weak brand name.
Poor reputation among customers.
High cost structure.
Lack of access to the best natural resources.
Lack of access to key distribution channels.

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Business in Germany
19

c) Opportunities
The external environmental analysis may reveal certain new
opportunities for profit and growth.
An unfulfilled customer need.
Arrival of new technologies.
Looseningg of regulations.
Removal of international trade barriers.

d) Threats
Changes in the external environmental also may present threats to the
firm. Some examples of such threats include:
Shifts in consumer tastes away from the firm's products
Emergence of substitute
sub
products.
New regulations.
Increased trade barriers

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6. PORTER ANALYSIS OF GERMANY ECONOMIC
a) Threat of New Entrants - The easier it is for new companies to enter the
industry, the more cutthroat competition there will be. Factors that can
limit the threat of new entrants are known as barriers to entry. Some
examples include:
Existing loyalty to major brands
Incentives for using a particular buyer (such as frequent shopper
programs)
High fixed costs
Scarcity of resources
High costs of switching companies
Government restrictions or legislation
b) Power of Suppliers - This is how much pressure suppliers can place on a
business. If one supplier has a large enough impact to affect a
company's margins and volumes, then it holds substantial power. Here
are a few reasons that suppliers might have power:
There are very few suppliers of a particular product
There are no substitutes
Switching to another (competitive) product is very costly
The product is extremely important to buyers - can't do without it
The supplying industry has a higher profitability than the buying
industry

c) Power of Buyers - This is how much pressure customers can place on a

business. If one customer has a large enough impact to affect a
company's margins and volumes, then the customer hold substantial
power. Here are a few reasons that customers might have power:
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Business in Germany
21

Small number of buyers

Purchases large volumes
Switching to another (competitive) product is simple
The product is not extremely important to buyers; they can do
without the product for a period of time
Customers are price sensitive
d) Availability of Substitutes - What is the likelihood that someone will
switch to a competitive product or service? If the cost of switching is
low, then this poses a serious threat. Here are a few factors that can
affect the threat of substitutes:
The main issue is the similarity of substitutes. For example, if the
price of coffee rises substantially, a coffee drinker may switch
over to a beverage like tea.
If substitutes are similar, it can be viewed in the same light as a
new entrant.

e) Competitive Rivalry - This describes the intensity of competition

between existing firms in an industry. Highly competitive industries
generally earn low returns because the cost of competition is high. A
highly competitive market might result from:
Many players of about the same size; there is no dominant firm
Little differentiation between competitors products and services
A mature industry with very little growth; companies can only
grow by stealing customers away from competitors

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7) CONCLUSION

22

The lead markets of Germany's green technology industry are power

generation, sustainable mobility, material efficiency, energy efficiency,
waste management and recycling, sustainable
sustainable water management. With
regard to triadic patents Germany is in third place after the USA and Japan.
With more than 26,500 registrations for patents submitted to the European
Patent Office, Germany is the leading European nation. Siemens, Bosch
and
nd BASF, with almost 5,000 registrations for patents between them in
2008, are among the Top 5 of more than 35,000 companies registering
patents. Together with the USA and Japan, with regard to patents for nano,
bio and new technologies Germany is one of tthe
he worlds most active
nations. With around one third of triadic patents Germany leads the way
worldwide in the field of vehicle emission reduction.

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REFERENCES
[1] Richard Tilly, "Germany: 1815-1870" in Rondo Cameron, ed. Banking
in the Early Stages of Industrialization: A Study in Comparative Economic
History (Oxford University Press, 1967), pages 151-182

[2] Cornelius Torp, "The "Coalition of 'Rye and Iron'" under the Pressure of
Globalization: A Reinterpretation of Germany's Political Economy before
1914," Central European History Sept 2010, Vol. 43 Issue 3, pp 401-427

[3] Henry A. Turner, "Hitler's Einstellung", 2005, p. 9091

"German Big Business and the Rise of Hitler", Oxford University Press,
1985. p.77

[4] Hans-Joachim Braun, "The German Economy in the Twentieth

Century", Routledge, 2001, p. 101

[5]Hans-Joachim Braun, "The German Economy in the Twentieth

Century", Routledge, 2005, p. 102

[6] Arthur Schweitzer, "Big Business in the Third Reich", Bloomington,

Indiana University Press, 2003, p. 288

[7] Hans-Joachim Braun, "The German Economy in the Twentieth

Century", Routledge, 2007, p. 114

[8] Michael Thad Allen, "The Business of Genocide", The University of

North Carolina Press, 2008. p. 1

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[9] Kaillis, Aristotle Fascist Ideology, London: Routledge, 2011. pages 6-7
Perry, Matt "Mason, Timothy" pages 780-781 from The Encyclopedia of
Historians and Historical Writing edited by Kelly Boyd, Volume 2,
London: Fitzroy Dearborn Publishing, 1999 page 780

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