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Chapter 1: Doing Business in Germany

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Market Overview

The German economy is the world's fourth largest and, after the enlargement of the EU, accounts for more than one-fifth of European Union GDP. Germany is the United States' largest European trading partner and the sixth largest market for U.S. exports. Germany’s "social market" economy largely follows free-market principles, but with a considerable degree of government regulation and generous social welfare programs.

Germany is the largest consumer market in the European Union with a population of 80.8 million. However, the significance of the German marketplace goes well beyond its borders. An enormous volume of trade is conducted in Germany at some of the world’s largest trade events, such as MEDICA, Hannover Fair, Automechanika, and the ITB Tourism Show. The volume of trade, number of consumers, and Germany’s geographic location at the center of a 28-member European Union make it a cornerstone around which many U.S. firms seek to build their European and worldwide expansion strategies.

The German economy has improved markedly in recent years. The economy took a serious hit during the economic crisis. Because of the country’s strong export dependency, GDP declined by more than 5 percent in 2009. However, the V-shaped recovery was equally strong, as pre-crisis real GDP was reached again in the second quarter of 2011. The German government expects real GDP to grow by 1.8% in 2014 and by 2.0% in 2015.

The labor market remained resilient during the economic and financial crisis and continued to be strong in 2013. A comprehensive set of labor and social reforms, termed “Agenda 2010,” which former Chancellor Gerhard Schröder and his Social Democrat/Greens coalition government introduced between 2003-2005 helped overcome the structural weaknesses of the German welfare state and labor market, resulting in today’s strong employment growth and low unemployment. Many experts also credit the government-funded short-time work scheme for limiting unemployment during the economic crisis which allowed companies under considerable economic stress to avoid layoffs by reducing their worker’s working time and pay for a limited amount of time. Other factors, such as moderate wage increases, flexibility in bargaining agreements, numerous company-level alliances to retain jobs, and employers’ willingness to accept higher unit labor costs, also contributed to the stability of the German labor market. 

As a result of the positive economic development, employment in Germany has continued to rise for the eight consecutive years and reached an all-time high of 41.84 million in 2013, an increase of 233,000 from 2012. Particularly women and the elderly have benefitted from the positive trends.

Simultaneously, unemployment has fallen by almost two million since 2005; at the end of 2013, 2.95 million people were unemployed. The jobless rate was at 6.9% in 2013, according to the German Federal Statistical Office (using the internationally comparable concept of the International Labor Organization (ILO) the German unemployment rate stood at 5.5%). There was a minor increase in unemployment in 2013, with an increase of 0.1% or 53,000, in comparison to 2012, the year with the lowest unemployment rate since German reunification.

Market Challenges

Germany presents few formal barriers to U.S. trade or investment. Germany’s acceptance of the EU’s Common Agricultural Policy and German restrictions on biotech agricultural products represent obstacles for some U.S. goods. Germany has pressed the EU Commission to reduce regulatory burdens and promote innovation to increase EU member states’ competitiveness. The Merkel government has talked about the need for regulatory reform in Germany, still, Germany's regulations and bureaucratic procedures can be very complex. While not directly discriminatory, government regulation by virtue of its complexity may offer a degree of protection to established local suppliers. Safety or environmental standards, not inherently discriminatory but sometimes zealously applied, can complicate access to the market for U.S. products. American companies interested in exporting to Germany should make sure they know which standards apply to their product and obtain timely testing and certification. German standards are especially relevant to U.S. exporters because, EU-wide standards are often based on existing German standards.

Market Opportunities

For U.S. companies, the German market - the largest in the EU - continues to be attractive in numerous sectors and remains an important element of any comprehensive export strategy to Europe. While U.S. investors must reckon with a relatively higher cost of doing business in Germany, they can count on high levels of productivity, a highly skilled labor force, quality engineering, a first-class infrastructure, and a location in the center of Europe.

Market Entry Strategy

The most successful market entrants are those that offer innovative products featuring high quality and modern styling. Germans are responsive to the innovation and high technology evident in U.S. products, such as computers, computer software, electronic components, health care and medical devices, synthetic materials, and automotive technology. Germany possesses one of the highest Internet access rates in the EU and new products in the multi-media, high-tech and service areas offer great potential as increasing numbers of Germans join the Internet generation. Certain agricultural products also represent good export prospects for U.S. producers. Price is not necessarily the determining factor for the German buyer, given the German market’s demand for quality.

The German market is decentralized and diverse, with interests and tastes differing from one German state to another. Successful market strategies take into account regional differences as part of a strong national market presence.  Experienced representation is a major asset to any market strategy, given that the primary competitors for most American products are domestic firms with established presences.  U.S. firms can overcome such stiff competition by offering high-quality products and services at competitive prices, and locally based after-sales support. For investors, Germany’s relatively high marginal tax rates and complicated tax laws may constitute an obstacle, although deductions, allowances and write-offs help to move effective tax rates to internationally competitive levels.

Market Fact Sheet

Profile
Population: 80.5 Million in 2012 (Source: DeStatis)
Capital: Berlin
Government: Federal parliamentary constitutional republic

Economy

EUR billion

2011

2012

2013

Nominal GDP (Current billion EUR)

2,609.90

2,666.40

2,737.60

Nominal GDP Per Capita (Current EUR)

31,9140.00

32,550.00

33,346.00

Real GDP Growth Rate (% change)

3.3

0.7

0.4

Real GDP Growth Rate Per Capita (% change)

4.6

2.0

2.4

Consumer Prices (% change)

2.1

2.0

1.5

Unemployment (% of labor force)*

5.5

5.5

5.9

(Source: DeStatis, *ILO)


Foreign Merchandise Trade (USD Millions)

EUR billion

2011

2012

2013

Germany Exports to World

1 126.69

1 172.59

1 169.11

Germany Imports from World

972.99

994.35

977.84

U.S. Exports to Germany

49,146.8

48,797.1

47,442.2

U.S. Imports from Germany

98,687.9

108,708.1

114,644.4

U.S. Trade Balance with Germany

−49,541.1

−59,911.0

−67,202.2

(Source: *DeStatis, U.S. Bureau of the Census)

Position in U.S. Trade

 

2011

2012

2013

Rank of Germany in U.S. Exports

6

6

5

Rank of Germany in U.S. Imports

5

5

5

Germany Share (%) of U.S. Exports

3.3

3.2

3.0

Germany Share (%) of U.S. Imports

4.5

4.8

5.1

(Source: U.S. Bureau of the Census)

Principal U.S. Exports to Germany (2013)

Commodities by two-digit SITC codes

F.A.S. Value in USD 1,000

Share %

Transport equipment, n.e.s.

5,906,622

12.45

Road vehicles (including air-cushion vehicles)

5,894,944

12.43

Professional, scientific and controlling instruments and apparatus, n.e.s.

3,906,885

8.24

Electrical machinery, apparatus and appliances, n.e.s., and electrical parts thereof (including nonelectrical counterparts of household type, n.e.s.)

3,592,366

7.57

Medicinal and pharmaceutical products

2,300,656

4.85

(Source: U.S. Bureau of the Census)

Principal U.S. Imports from Germany (2013)

Commodities by two-digit SITC codes

C.I.F. Value in USD 1,000

Share %

Road vehicles (including air-cushion vehicles)

32,436,032

27.74

Medicinal and pharmaceutical products

11,395,375

9.75

General industrial machinery and equipment, n.e.s., and machine parts, n.e.s.

9,216,175

7.88

Electrical machinery, apparatus and appliances, n.e.s., and electrical parts thereof (including nonelectrical counterparts of household type, n.e.s.)

7,393,686

6.32

Power generating machinery and equipment

6,331,412

5.41

(Source: U.S. Bureau of the Census)

Foreign Direct Investment (Millions of Dollars)

 

2010

2011

2012

U.S. FDI in Germany

103,319

111,088

121,184

FDI in U.S. by Germany

203,077

215,250

199,006

(Source: BEA)

Doing Business/Economic Freedom Rankings
World Bank Doing Business in 2013 Rank: 21 of 189
Heritage Index of Freedom in 2013 Rank: 18 of 177