Market Entry Strategy: GermanyNatalie DeNikeNovember 10, 2010

Goal

To analyze and understand the economic, social, and cultural climate that impacts business practices in Germany. The following analysis will highlight the opportunities and threats for introducing the client’s product into the German market.

Overview

• History• Demographics• Geographical Location• Natural Resources• Trade• Industry• Economy• Technology• Education• Labor Force• German Consumer

• Political Structure• Legal Structure• Religion• Intercultural Communication• Culture• Business Environment• Negotiations• Outlook• SWOT Analysis• Recommendations

History

• 1871: German Empire formed

• 1914 - 1918: World War I

• 1929: Global Depression

• 1939 - 1945: World War II

• 1949: Germany divided into East and West regions

• 1961: Construction of the Berlin Wall

• 1973: East and West Germany join the UN

• 1989: Fall of the Berlin Wall

• 1990: Germany joins the EU

• 2005: First female Chancellor, Angela Merkel elected

• 2008: Germany officially declares recession

• 2009 (Feb): Parliament signs $63 billion stimulus package

• 2009 (Aug): Germany comes out of recession

Demographics

• Population: 82,282,988

• Population growth rate: -0.061%

• Birth rate: 8.21 births/1,000 population

• Life expectancy: 79 years

• 2nd most populous European country

• Population density: 230 per sq.km = 597 per sq.mi

Demographics

• Median age (male): 42.6

• Median age (female): 45.2

• Age structure:

– 0 - 14 years: 13.7%

– 15 - 64 years: 66.1%

– 65 years and over: 20.3%

Demographics

• Population of capital city of Berlin: 3,440,441

• Urbanization:

– Urban population: 74% of population

– Rate of urbanization: 0.1% annual rate of change

Geographical Location

Geographical Location

• Total: 357,022 sq km– Land: 348,672 sq km– Water: 8,350 sq km

• Located in central Europe• Area comparison: slightly smaller than Montana• Bordering countries: Austria, Belgium, Czech Republic,

Denmark, France, Luxembourg, Netherlands, Poland, Switzerland

• Water: borders the Baltic Sea and the North Sea

Geographical Location

• Germany is made up of 16 different “states”– Baden-Württemberg,

Bavaria, Berlin, Brandenburg, Bremen, Hamburg, Hesse, Mecklenburg-Vorpommern, Lower Saxony, North Rhine-Westphalia, Rhineland-Palatinate, Saarland, Saxony, Saxony-Anhalt, Schleswig-Holstein, Thuringia

Geographical Location

• Climate: temperate and marine; cool, cloudy, rainfall during summer and winter

• Terrain: lowlands in north, uplands in center, Bavarian Alps in south

• Natural hazards: flooding• Major cities: Berlin, Hamburg, Munich, Cologne

Geographical Location

Natural Resources

• Coal, lignite, natural gas, iron ore, copper, nickel, uranium, potash, salt, construction materials, timber, arable land

• Land use:

– arable land: 33.13%

– permanent crops: 0.6%

– other: 66.27%

Trade

• Exports $1.159 trillion (3rd highest in the world)

– Machinery, vehicles, chemicals, metals and manufactures, foodstuffs, textiles

• Export Partners: France 10.2%, US 6.7%, Netherlands 6.7%, UK 6.6%, Italy 6.3%, Austria 6%, China 4.5%, Switzerland 4.4%

Trade

• Imports $966.9 billion (3rd highest in the world)

– Machinery, vehicles, chemicals, foodstuffs, textiles, metals

• Import Partners: Netherlands 12.71%, France 8.3%, Belgium 7.19%, China 6.89%, Italy 5.88%, UK 4.76%, Austria 4.55%, US 4.25%, Switzerland 4.07%

Trade

Trade

Industry

• One of the world's largest and most technologically advanced producers of:

– Iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages, shipbuilding, textiles

• Industry and construction accounted for 29% of gross domestic product in 2008, and employed 29.7% of the workforce.

Major German Companies

• Volkswagen• Allianz• Daimler • Siemens• Metro• Deutsche Telekom • BMW

• Mercedes Benz

• Audi

• T-Mobile

• Nivea

• Porsche

• Merck

• Adidas

Economy

• Largest national economy in Europe and 5th largest in the world

• Monetary system: monetary policy was transferred to the European Central Bank in 1999

• Currency: Euro established in 1999

Economy

• GDP: $3.353 trillion

• GDP (PPP): $2.81 trillion (6th in the world)

• GDP per capita: $34,100

• GDP growth rate (2009): -4.9%

• GDP growth rate (2005): 2.5%

• FDI: 503 billion EUR (2009)

Technology

• 105 million mobile cellular phone users (8th in the world)• 61.973 million internet users (6th in the world)• German companies represent 15.6% of research advanced

goods worldwide, ranking 2nd in the world (following US)• The Federal Government provides funding through annual

grants or endowment capital– In 2010 the Federal Ministry of Economics and

Technology created a budget of 2.3 billion euros for technology research and development

Technology

Education

• 99% literacy rate among males and females

• Approximately 4.4% of GDP invested in education

• 250 universities, 100 of which focus on applied sciences

• 95% of universities and higher education are public

• School life expectancy: 15 years

Labor Force

• Labor force: 43.5 million

• Labor force by occupation:

– Agriculture: 2.4%

– Industry: 29.7%

– Services: 67.8%

• Unemployment rate: 7.5% (2009)

• Much higher unemployment rate in Eastern Germany than Western Germany

Labor Force

Labor Force

Labor Force

• Average work week: 37.5 hours

• Normal business hours: 9am - 5pm

• Retail hours vary, limited hours on Sunday

• Average wage: 27.9 EUR (Western Germany) and 17.4 EUR (Eastern Germany)

• Typical annual leave: 20-30 working days

German Consumer

• The typical German consumer rejects the idea “discounts” shops and places value on quality

• Emphasis on safety, quality, comfort and reliability

• Household consumption (2008): 1,143,489 USD

• Household consumption per capita (2008): 13,926

German Consumer

German Consumer

Political Structure

• Government type: federal republic

• Chief of state: President Christian Wulff

• Head of government: Chancellor Angela Merkel

• Elections: president elected for a 5 year term (eligible for 2nd term)

Legal Structure

• Legal system: civil law

• Value added tax: 19%

• Value added tax for food: 7%

• Corporate tax: 15%

• Profit generated in Germany can be subject to corporate tax, solidarity surcharge, and trade tax

Religion

• Religious freedom• Protestant (33%), Roman Catholic (33%), Muslim (4%),

108,000 members of Jewish communities, and others

Intercultural Communication

Power Distance

35

Low

Individualistic

67

High

Masculinity

66

High

Uncertainty Avoidance

65

High

Hostede’s Cultural Dimensions

Culture

• Germans have a strong sense of regional pride

• Reputation for being industrious, thrifty, and orderly

• Germans usually express their thoughts and opinions in a direct way

• Separation between private and public relations

• Interest in academic credentials but not personal life

• Formal communication and greetings

Culture

• Business deal is usually mutually beneficial and the central focus is just the task.

• Attention to be paid to targets and time schedules.

• Appointments are to be taken before meeting someone

• Decision making is a slow detailed process.

• Correspondence should be in German

Business Environment

• Starting a business in Germany is ranked 88 out of 183 economies by The World Bank

• To start a business in Germany:

– It will take approximately 15 days

– 9 different procedures

– 4.8% of income per capita

Business Environment

• German-American business groups:

– German American Business Association

– American-German Business Club

– Germany-USA Career Center

Negotiations

• Negotiations typically follow strict agenda and protocol

• Avoid confrontation

• Once a decision is made, it is final

• Decision making can be a slow process

• To enforce a contract in Germany it requires approximately:

– 30 different procedures

– 394 days

Outlook

• Increased research and funding for science and technology• Economic climate improving since 2008 recession• Growth in Eastern Germany

– Productivity in Eastern Germany has more than doubled since 1991: each employee contributes more than EUR 50,000 to the overall GDP.

• Sales in the German security technology are expected to grow by more than 50 percent by 2015

• Growth in technology industries– IT products and services are projected to reach US

$58.0 bn in 2010 and US $66.6 bn by 2014

SWOT Analysis

Strengths• Increasing consumer consumption

• Efficient and educated work force

• Largest European economy

Weaknesses• High tax rates

• Slow negotiations

• Demanding employees

Opportunities• Location

• Tax incentives

• Introduction into European market

Threats• Mature market• Competition

Client Recommendations

• Focus business practices in Eastern Germany– Growing opportunities in Eastern Germany– Higher unemployment– Possible tax incentives– Lower labor cost

• Use Germany as a starting point for European business– Germany is key to successfully entering the European

market• Pay attention to consumer patterns

– Avoid discount and sale approach– Boast product quality

Client Recommendations

• Use societal values to client advantage– Importance on education– Quality product– Increased awareness of social responsibility and

sustainability– Specific target market

• Information and communications technology– Responsible for 80% of German innovations– Be aware of advancements in technology– Competitive market

Client Questions

• For any additional questions please do not hesitate to contact me at nldenike@gmail.com

Works Cited

• http://news.bbc.co.uk/2/hi/europe/country_profiles/1053880.stm

• http://www.countryreports.org/people/overview.aspx?Countryname=&countryId=91

• http://www.populstat.info/Europe/germanyg.htm

• http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Navigation/Statistics/Bevoelkerung/VorausberechnungBevoelkerung/VorausberechnungBevoelkerung.psml;jsessionid=92DC8F43948C823158298A7D3C91D160.internet

• http://www.bmbf.de/en/1869.php

• http://www.mynewsdesk.com/us/view/pressrelease/germany-information-technology-report-q3-2010-502588

• http://www.buyusa.gov/germany/en/doing_business_in_germany.html

• http://www.mapsofworld.com/germany/german-economy-and-business/germany-business/

Works Cited

• http://www.doingbusiness.org/data/exploreeconomies/germany

• http://www.laposte-export-solutions.co.uk/uk/markets/country-profiles/germany/consumption-trends

• http://www.gtai.com/homepage/german-business-location/foreign-direct-investment/

• https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html

• http://www.clearlycultural.com/geert-hofstede-cultural-dimensions/power-distance-index/

• http://www.kwintessential.co.uk/resources/global-etiquette/germany-country-profile.html

• http://www.nationmaster.com/red/country/gm-germany/edu-education&all=1