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Run a business in Germany

At a glance

  • Biggest consumer market in the EU
  • Workforce renowned for expertise, reliability and efficiency
  • Structural burdens like employment legislation and social security being eased by reformist Chancellor
  • Located in heart of Europe, ideally placed to exploit emerging market economies to its east
  • Long-term, substantial investment made its infrastructure among the best in the world
Run business in Germany

Industrious, efficient, organised. These are three qualities that characterise the German stereotype and which are conducive to success in business.

A simplistic caricature admittedly, but after decades of partition these traits were evident when a unified Germany underwent the wirtschaftswunder (economic miracle) and emerged as the world's third largest economy with a workforce renowned for its skill, innovation and productivity, as well as products synonymous with quality and durability.

Beset by structural and demographic problems, Germany's manifold advantages nevertheless offset these to a considerable degree

It is increasingly evident however, that Germany's 'social market' economic model is being rendered untenable by globalisation. Concerns persist among foreign investors about overregulation and inflexible employment laws.

Germany's Rolls Royce economy has decelerated in recent years, growing only 0.9% in 2005. Brittle consumer confidence seemingly entrenches the cycle, causing hardship to the retail sector.

The west of the country still transfers €90bn worth of resources annually to the post-Communist east to help it modernise. Germany's aging population is also a drain on the economy. Given that unemployment is still around 11%, it is small wonder that social security is such a burden on the public purse.

Iron lady

Beset by structural and demographic problems, Germany's manifold advantages nevertheless offset these to a considerable degree. With the election of Angela Merkel - Germany's very own Iron Lady - as Chancellor in 2005, there is hope - albeit cautious hope, given her flimsy mandate - that the decline can be reversed and these advantages fully exploited.

Derided by the Bush administration as part of 'Old Europe', Germany is nevertheless still Europe's largest economy. Though consumer confidence is relatively low, it is the largest consumer market in the EU, with a population of 82 million.

It also accounts for one-third of EU spending. And English might be the lingua franca, but with 100 million speakers, German is the largest language group in the EU.

Germany is the world's biggest exporting nation. Its annual export volume of over €650bn consists of vehicles, chemicals, metals, textiles and foodstuffs. It is a big producer of, among other things, iron, steel, coal, cement, chemicals, machinery, machine tools, electronics, ships, textiles and food and beverages.

Having attracted out-of-work UK builders in the 1980s - as depicted in the 1980s sitcom Auf Wiedersehen, Pet - Germany's construction industry has fallen on hard times. Buoyed by abundant World Cup work, favourable interest rates, new tax breaks and Government support for making German homes more environmentally friendly, the future is looking brighter.

'The Land of Ideas' - as Germany now astutely markets itself - is still among the most innovative and technically adept in the world. German consumers appreciate quality and innovation - often ahead of price.

 

Technology driven

So industries associated with high technology, such as healthcare, computer software and pharmaceuticals are prime areas of economic activity.

The same applies to the automotive industry. Birthplace of BMW, Audi, Daimler, Mercedes, Volkswagen and Porsche, Germany is replete with contacts for all things automotive.

Germany is the leader in internet commerce and has the highest rate of internet access in the EU; 65% of marketing is conducted via e-mail and the internet. Beware the lattice of regulation that criss-crosses marketing; laws on privacy, consumer protection and data protection are stringent.

Germany is a great place for would-be franchise owners. Good options include specialised retail stores, home care services, express delivery services, accounting and taxing services and themed bistros and restaurants.

Business owners need to be mindful of the need to adapt services or goods to meet local consumer tastes and, likewise, adapt business practices to suit the German business climate.

Die Kultur

German and British cultures are not poles apart to the extent that popular comedic myth would have it - but there are differences worth noting.

For example, the British sometimes are inclined to be overly polite. Feigned interest in a project or deal - in order to appear courteous - can be misinterpreted as genuine by more straightforward Germans.

Caustically ironic British humour can be lost on their Teutonic cousins because of both language barriers and a different approach to humour. By the same token, do not misinterpret formal, straightforward communication as coldness - they simply adopt a mode of interaction best suited to maximising efficiency.

Efficiency is valued - so plan meetings two or three weeks ahead, stick to a clearly delineated agenda, and persuade with facts, figures and illustrative examples. Charismatic charlatans are less likely to make headway in Germany.

Quantifiable factors are important; intuition rather less so. So offer risk analyses and promise frequent reviews. Beware: a company with no track-record - a start-up - will automatically present a major risk in the German psyche.

Punctuality is paramount. No wonder then that Germany has a first-class rail network; thanks to faster, more reliable trains, Germans are less likely to be delayed than their British counterparts.

It only takes a day to traverse Germany by road, while every major city can be reached within one hour via a total of 552 domestic and international airports. Located in the heart of Europe, it is within a few hours of every European country in the EU, the biggest single market for trade and investment in the world.

 

Being on the doorstep of the latest and potential EU-accession countries is particularly tantalizing; it has been predicted that the economies of the 10 states that joined in 2004 will grow faster than the EU average for several years.

Despite having the benefits of being at the heart of Europe, Germany is not landlocked and has access to the lucrative North American markets, by sea. Distributors and exporters could do worse than site their logistics operations in the country.

Trade-fair central

Germany is also the international hub for business conferences and trade fairs. Given that 90% of new products and technologies are introduced into the German market via trade fairs, it is difficult to overstate their importance.

One the most famous trade fairs is the Leipziger Messe in Leipzig, which recently topped a poll, of thousands of CEOs, conducted by the Bertelsmann Foundation, about the best German cities to do business in.

In a survey of the 25 largest cities, Liepzig scored highest for business promotion and the competence of its political administration. Bremen and Karlsruhe came joint second, followed by Gelsenkirchen, Dusseldorf and Wiesbaden. Surprisingly, Berlin footed the table, with its banks, city council, trades council and employment exchange scoring particularly badly.

Germany has invested heavily in its telecommunications infrastructure since reunification. The "red carpet" rolled out for around a million visitors - an extra €6bn spent on stadiums, hotels, roads and train stations - has only helped.

However, there is no such thing as a free lunch. The tax burden on German business is onerous: large companies pay around 40%, one of the highest in the world.

The headline figure can be misleading, however. The tax laws are complicated, and allowances, deductibles and write-offs lower the burden for companies in a number of industries.

Mercifully, plans have been drafted to lower the tax burden to around 30% - the same as in the UK. Under the plans, partners of small firms would each get tax-free profit allowances of up to €100k.

With a VAT hike of 3% - to 19% entering into force on 1 January, it might offset the impact, especially given already fragile consumer confidence. Wages are also high - higher, even, than in the US: in 2002 they stood at $25 per hour, compared to $21 across the Atlantic.

Aside from the fact that Germany is an affluent country, tough employment laws and substantial social security expenses have inflated wages. Companies have to share equally with their workers the burden of social security and healthcare costs.

German companies are constrained by a myriad of bureaucratic regulations. Exacting safety and environmental laws can make the German markets difficult to enter, for instance. However, EU standards often use German laws as a template, so UK companies should already operate within most parameters.

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