Read this Guide to seamlessly launch your company in the biggest European market. Check the do’s and don’ts of doing business in Germany as a foreigner.
Despite the worldwide crisis, Germany remains fertile ground for foreign direct investment. With its location at the center of the European domestic market and the 4th biggest economy globally, it assures free and easy access to about 83 million comparably affluent consumers throughout the EU territory. That’s why the American chip manufacturer Intel just recently announced a 30-billion-euro investment in research and development as well as in new manufacturing facilities in Germany.
But: Making this kind of decision needs good preparation.
International companies should be aware that cultural, organizational and legal peculiarities in this country are crucial to success. This article summarizes two key do’s and don’ts of doing business in Germany and delivers substantial advice to foreign companies clearly minimizing their risk and cost of this challenge.
Foreign Direct Investments (FDI): Do’s and Don’ts in Germany
Check our do’s and don’ts by a consultant and startup mentor based in Germany:
✅ Do: Plan market entry in accordance with a resilient strategy
Any direct investment in Germany (and elsewhere) which is not following a sound strategy is doomed to fail. In order to avoid a misled market entry, data-based market research provides information about the specific demand situation as well as competitors.
Additionally, it clarifies how, where and when a product can be launched on the market. A good strategy also contains a solid financial plan making capital and cost structure transparent and giving proof of specific knowledge of German tax as well as commercial law. A thorough understanding of target groups is especially relevant for international companies, because it provides reliable insights into German consumer behavior.
✅ Do: Flank direct investment with a specific B2B communications plan
B2B communication is crucial within the German market. Therefore, international companies should flank their direct investment with a specific communication plan in Germany, tailored according to local market needs. It absolutely makes sense to enlist the expertise of a local, Germany-based Public Relations agency. Usually (and hopefully), they are familiar with local markets and know how to conquer these with good B2B communications. Advice on:
- establishing sustainable relationship management, which provides high-quality market access through
- participation in trade shows, congresses and other industry events, as well as through
- associations – interest group membership is a much-needed plus for newbies.
At the same time, networking gains particular relevance. It can be crucial in building up relationships with local key players on an informal level, as this is often the glue in originally rather fragile partnerships.
TIP: Take care of the language barrier! Slightly more than a third of Germans actually speak English. Although managers consistently demonstrate good English skills, these are gradually declining as you reach downstream hierarchy levels.
❌ Don’t: Neglect legal rules and regulations
When founding a company in Germany, the legislation initially makes no distinction whether the investor is from Germany or abroad. This is particularly relevant for international companies when it comes to the repatriation of profits to their headquarters because they are not subject to any (tax law) restrictions.
However, new companies should fulfil legal requirements on time. Before they give it a go, it is recommended to register at commercial authorities (Handelsregister), issuing a corresponding unique VAT identification number.
Simultaneously, international companies should take care of the labour law and, if applicable, of collective bargaining regulations. Not complying with these regulations can lead to severe penalties.
❌ Don’t: Ignore the Germans’ quality awareness
Quality is King and German consumers generally prefer high-quality products. This awareness of quality is deeply anchored in German self-understanding. It has always been based on a clear or traditionally rooted commitment to education, craftsmanship, science and technology, which is characterized in particular by the highest ambitions to achieve precision, perfection and keeping attention to each and every single detail.
Where one gearwheel fits perfectly into the other it is no wonder, that an extensive performance orientation and punctuality are two main pillars of the German virtues. The backbone of this awareness is the German “Mittelstand”.
What is Mittelstand?
Mittelstand comprises almost four million small and medium-sized enterprises (SMEs), each with a workforce of ten to 500 employees, generating 45% of the gross domestic product. That’s why Germans enjoy working with Germans. Their business efforts can rely on a broad basis of almost endless potential partners from the dominating SME sector, sharing similar professional attitudes. This creates trust and forms loyal and long-lasting business relationships creating maximum security on both sides. Background info: Especially in the business environment, German managers reject any form of uncertainty.
How to enter the German market?
These complex requirements may irritate international companies at first glance. However, those who take these specific characteristics into account when making a direct investment will be rewarded with exceptional growth in a very potent German market.
To achieve this goal, it is crucial to engage with the cultural, legal and organizational requirements in the country, to understand them and to actually embed these professional attitudes within the body of an organization. Market research, for example, supports this. It is generally based on valid data that flows into a well-founded strategy and leads to a secure investment decision.
In this way, international companies planning a direct investment in Germany avoid pitfalls by ensuring successful long-term business development in their host country.