Germany has the largest population, market and economy in the EU. The market is very competitive and does present some challenges. The advantages however outweigh as it is the crown jewels of the European economy. The reward is high when you dare to reach for it. But beware of the Do´s and the Don’ts of doing business in Germany and your expansion plans are more likely to succeed.
Opportunities or pitfalls
Companies in the Netherlands favor Germany as the next “go to market” because it is geographically close and the cultural distance doesn’t seem that big.
This is right in some ways but wrong in most ways as it depends on a few more factors.
What many don’t know about Germany is that it is a very heterogeneous country. Due to federalism the country has a very decentral culture and economy and traditions vary strongly from north to south, from east to west.
RECOMMENDED READING: Why Berlin is not the best place for your company to expand into Germany
Consider these factors – and there are many more – when you plan your expansion strategy to Germany.
9 things to always remember!
1. Thorough planning
Before you close a deal with a German business partner it is essential to determine, when, where and how the product or service will be delivered. Once a contract is concluded, changes are regarded as unprofessional and the compliance with the regulations of the contract are mandatory.
2. Pay attention to detail
Germans want to avoid any kind of uncertainty, therefore every little detail and behaviour in case of unexpected events and circumstances has to be clear in advance and should be mentioned in the agreement.
3. Quality before quantity
In Germany it is crucial to provide excellent quality, where time plays a less significant role, as long as the end product is flawless and satisfactory at the end. An outstanding performance at the workplace is expected at any time.
4. Time commitments are binding
Time is money, and Germans take this saying literally. It is considered as a matter of respect to abide by agreed dates and times. You might think Germans have planned out every minute of their life. If everything has been done according to the rules, the Germans will show their appreciation and a beneficial relationship can be established.
5. Germans read the small letters
Ever wondered who takes the time to read the fine print on packages or agreements? What many people consider as unnecessary and time consuming is taken very seriously in Germany. Talk over arrangements and their consequences in case of non-compliance with your business partner, beforehand.
6. There are many rules and guidelines
To ensure an efficient process, rules and guidelines need to be discussed and determined beforehand. “Ordnung muss sein”, as a German would say, indicates that directions are needed in order to perform well. Since they like to avoid uncertainty, these regulations provide the desired security.
7. Good old German Mittelstand
Most of the business in Germany is done by small and medium-sized companies (SME’s – called “Mittelstand” in Germany). In the past, a lot of business was done locally, and relationships with customers were very close. A Mittelstand-company is typically employing between 10 and 500 employees with an annual turnover of €50 million or less. It is estimated that there are about 3.7 million Mittelstand-companies in Germany, producing anywhere from 35 to 45 percent of the gross domestic product. Mittelstand companies tend to be concentrated in industry, manufacturing, commerce, skilled trades, professions, and service industries such as technology, construction, transport, retailing and the hotel and restaurant business
8. A little more than 34% speak fluent English
To what degree German employees and managers – as potential business partners – speak English? A study by the Gesellschaft für Konsumforschung and Wall Street English showed that 65.5% of employees state that they have little or no knowledge of English. This number should be taken as an indication as the proficiency level differs among industries and job positions. And of course, managers are on average more proficient than employees.
RECOMMENDED READING: Most Germans speak little or no English
9. Consider legal aspects first
Germans like to do business with Germans. You might want to consider to establish a German entity before entering that market. However be aware that: German law does not distinguish between Germans and foreigners in the establishment of companies.There are no restrictions regarding the repatriation of profits.
- Several options for establishing a company exist. German company law distinguishes between limited liability companies, joint stock companies, and various forms of partnerships including individual trading forms. It is recommended to get an expert to assist you selecting the most suitable form for your needs and to guide you through the official process. Take a look here for an overview of the types of companies that exist in Germany.
- Germany’s relatively high marginal tax rates and complicated tax laws may present a barrier. You must have a good tax consultant to guide you and to avoid critical errors.
Other insights to avoid pitfalls
- Germans look for trust
- Be patient
- Germans value functionality and quality
- Be on time, always!
- The devil is in the details
- Germans are loyal
- You ! do not have to know German
- Germans like to do business with other Germans
- There is no one way to communicate
- Germans hate uncertainty
Need more advice on how to conform to the German way of doing business? We are there to answer your questions.