Expanding Canadian Company Operation in Germany

Expanding Canadian’s Company Operation in Germany

Germany’s Business Environment: Review

(Author’s Name)

October 20th, 2014

Executive Summary

Few small or medium-size business are unaffected by the international economy meltdown. A company’s materials, supplies, and services can be purchased from overseas or locally. Consumers may be foreign companies and individuals positioned on the side of the globe. Global economy is decidedly dependent on foreign countries purchasing or transacting with large companies in Canada. This contributes to improve interest’s rates and economic stability indirectly influencing a local company.

This report, Expanding Canadian’s Company Operation in Germany, focuses on the central issues that an executive will consider when formulating and implementing his global expansion strategy. It provides specific analysis; also, common aspects have been described that are applicable to Singapore current economic, political, and social state. The annotations in this report are categorized into the three vital stages of a global expansion project: Choosing the appropriate country, planning expansion, and conducting business overseas.

Chart SEQ Chart * ARABIC 1: Effective Planning Chart

The chart above depicts the importance of identifying critical points to guarantee the executive’s energy and resources are spent implementing successful foreign operations.

Country’s Description: Germany

Germany represents the largest market across Europe, and comprises about 20% of European GDP and is home to 17% of the entire European Union (EU) population. The country is characterized with a highly industrialized and diversified economy. Germany is well positioned to attain future challenges given the significant amounts of federal and private funds of government and private finances made available for research and development.

According to Reuters, privates wealth is unequally distributed in Germany compared other Euro Zone nations. Nonetheless, Germany represents Europe’s largest paymaster and economy, with a GINI coefficient of 0.78 compared to France’s and Italy’s 0.68 and 0.61 respectively CITATION Reu14 l 1033 (Reuters 2014). Germany represents the world’s most developed country in transportation and communication infrastructure, which have been liberalized according to EU requirements. Business infrastructures favor foreign investors in Germany given the direct flight to Germany from different cities, for example New York, Edmonton, Atlanta, London, and Paris. Germany is also accessible through sea and inland ports in Bremen, Cologne, Duisburg, and Kiel.

Automotive Engineering, health sector, mechanical and plant engineering, chemicals and pharmaceuticals, and electrical engineering and electronics industries are among the leading industries in Germany. These industries play a major role in creating employment and generating revenue in Germany CITATION Mak12 l 1033 (Make It In Germany 2012). Germany is home to various multinationals enterprise, for example SAS Institute, NetApp, Diageo, Microsoft, and Quintiles. The Great Place to Work Organization rank these MNEs as the world’s best multinationals workplaces. Availability of knowledge resources, skilled professionals, and research and innovation help different MNEs to tap into Germany’s innovation systems and set up their new facility in the country CITATION Sim13 l 1033 (Iammarino 2013).

The United Nations Conference on Trade and Dev element ranked Germany, internationally, in the seventh position as a beneficiary of foreign direct investment (FDI). According to the German Central Bank statistics, 57% of Germany’s FDI stocks come from the European Union nations whereas 9% originate from other non-EU nations. There is a continuous investment growth from outside EU: North America contributes 23% of FDI while Asia accounts for 6% CITATION Ger14 l 1033 (Germany Trade & Invest 2014).

Transparency International ranked Germany in 12th position, globally, with a corruption perception Index score of 78%. According to OECD, the German anti-bribery convention in 2011 was active and focused on reducing corruption cases. Furthermore, the 2010 control of corruption in German was 93%. This implies that Germany has invested a lot of resources with the intent of reducing the level of corruption CITATION Tra14 l 1033 (Transparency International 2014).

Political Situation and Stability in Germany

Germany has existed as a state since 1871. The Basic Law is commonly used to mean the constitution of the Federal Republic of Germany. What makes Germany exceptional in present-day Europe is its stability with respect to political landscapes. Since 2008, few governments and political leaders have survived the economic and financial crises. The German political system is federalist and structured as a parliamentary democracy CITATION Dou131 l 1033 (Webber 2013). The German’s constitution state order focuses on constitutional organs, stable legal and administrative systems. Germany’s stable democracy is guaranteed by multi-party system and the separation of powers. Above all this, Germany is a proud member of G8, United Nations, NATO, and European Union.

Economic Condition and Stability in Germany

Richard Anderson, a BBC business reporter, described Germany as Europe’s industrial powerhouse, whose economy, unaccompanied, helped stop the Euro zone from falling back into economic recession and was the only country rich enough to save the Euros currency CITATION Ric121 l 1033 (Anderson 2012). The Economy Watch ranked Germany’s GDP as the fourth largest economy in the world and the fifth largest with respect to GDP (PPP). The 2014 Index of Economic Freedom ranked Germany in 18th position with a total score of 73.4%. This score is 0.6 better than that of 2013, implying modest advancements in investment, labor, and trade freedom. Out of the 43 nations in Europe, Germany sits in eighth position with its score exceeding the world and Europe’s average CITATION Eco13 l 1033 (Economy Watch 2013).

Figure SEQ Figure * ARABIC 1: Germany’s 2014 Index of Economic Freedom

Source: CITATION Her14 l 1033 (Heritage Organization 2014)From the above figure, it is clear that the property owned by foreigners are completely protected under German law with secured interests in property are recognized by the government and enforced. The public spending in Germany is stable at 45% of the domestic economy, and public debt has remained constant at about 80% of GDP. Germany’s economic structure is classified into three categories: Agriculture with 11.6%, Industries with 24.6% and Services account for 73.8%. Germany generates a huge surplus, in account balance, at the expense of other EU countries. As a result, the European Commission warned Germany in 2012 after it reported a current account surplus of 7.01% of its GDP CITATION Her14 l 1033 (Heritage Organization 2014).

Euro is the commonly accepted currency in Germany. The Governing Council of the European Central Bank is responsible of making interest rates decision on Germany. According the Euro Exchange rate, the Germany’s currency stability decreased to $1.24 in September 2014 from $1.31 in August 2014. Germany’s Euro currency is generally stable and favorable for foreign companies con conduct their business in Germany.

Legislation affecting Inward Foreign Investment in Germany

Technically, Germany offers business activities free and regulated restrictions during their daily business dealings. Generally, there is no major distinction between foreign nationals and Germans when it comes to investing or establishments of companies. Patent laws protect intellectual property (IP), which broadens the same conditions enjoyed by German nationals to foreign investors CITATION Wor13 l 1033 (World Trade WT100 2013). When needed, Germany’s efficient judicial system can effectively enforce investor right. The country is open and welcoming towards FDI. The legal system for FDI in Germany presents special treatment to law of freedom of foreign business and payment transaction as outlined by the Foreign Trade and Payments Act. Importation in Germany does not require import permit or import control declaration. Import tariffs ad duties apply have been constantly reduced over the past years in Germany. Agricultural products, food, pharmaceuticals are examples of commodities subject to particular import restrictions. Import regulations in Germany apply to both partners with registered companies and residents within the country CITATION Ger141 l 1033 (German Trade and Invest 2014).

Cultural Issues and Social Stability in Germany

The Germans have a culture of embracing initiative skills and professional knowledge. For instance, the German Embassy in Washington, DC brought together the American and German businesses and local training providers, by launching Skills Initiative, in order to improve training programs best suited to business requirements CITATION Ste13 l 1033 (Speckesser 2013). Several states in U.S. have implemented the German-inspired workforce with the primary objective of utilizing and aligning their existing education and workforce with those of Germans.

Immigrants in Germany play an important role in developing cultural and social stability. Native Germans and integrated resident immigrants characterize the German labor market. However, there exists a gap, in relation to the level formal education, among the natives and the immigrants. There are formal social barriers restricting immigrants from accessing training in Germany CITATION The14 l 1033 (The Lane Report 2014). Examples of such barriers include complexity in foreign credential recognition, unfamiliar workforce development system, and poor German languages skills. Germany has designed and implemented best practices to improve the country‘s workforce and offer employment opportunities and quality training in communities across the world that will not only improve Germany’s level of employment but also strengthens its economy.

Factor Endowments: Germany’s Factors of Production

According to German’s Federal Ministry of Education and Research, production presents the vertebral column of German industry. Availability of factors of production play an important role in determining the location of industrial activity. Different goods need different intensities of the factor of production. Germany has a large supply of capital, thus, capital is relatively cheap. Positive influence human on human capital is greatly responsible for Germany’s economic success of new businesses and an increment in the country’s probability to survive. This has made the country to specialize in production of capital-intensive machines CITATION Ash06 l 1033 (Vaidya 2006). Germany’s industrial production gradually undergoes elemental changes. Germany organizes its factors of production on an international scale allowing flow of goods, information, and capital in a tightly networked globalization process.

ICT encourages the coordination and control of distributed factors of production in Germany. This has improved the production conditions to become an essential factor in competition among the different industries and manufacturing of products. Flow of good, information, and capital has encouraged customers to depend on faster product change and demand products that are increasingly targeted to satisfy their needs. Germany practices the resource conserving, which facilitates sustainable economic activity to meet novel production conditions CITATION Can06 l 1033 (Brush 2006). This has played a crucial part in different industries to achieve high degree of flexibility in terms of technological advancement, effective industrial processes, resource allocation, and proper industrial structure. The availability of qualified expert and adoption of high degree automation has led Germany to develop competitive goods and services. This is clearly seen through the implementation of four field of production technology: Market orientation and well-structured product planning, improved production methods and equipments, efficient and collaborative participation among different manufacturing companies and people’s adaptation to various companies.

With improved information and communication technology facilities, reliance of automation, and focus on research and development, it is clear that Germany’s business environment will favor manufacturing industries such as Electrical and telecommunication companies and production firms. Germany’s economy is capital-intensive with a good number of qualified professionals. This will encourage competitive production and production of demand-oriented goods and services because of combined human ideas, processes, improved technology, resources, and production facilities CITATION Fed14 l 1033 (Federal Ministry of Education and Research 2014).

Risk and Benefits of Doing Business in Germany: Analysis

A risky proposition arises when carrying out business in Germany with no enough cultural awareness. German’s cultural values and business culture can cause cultural misunderstanding for foreign companies conducting their operations in Germany. As a foreign company, our company will face cultural risk when carrying out its operation in Germany. In 2010, Communicaid Organization identified three factors that form the source of cultural risks. First, hierarchical company structures where German business emphasizes on great value on hierarchy thus business adhere to strict hierarchical structure. Secondly, strong departmental rivalry encouraged by business managers with the aim of getting the best out of their employees. Such rivalry contributes to competitive production and high level of efficiency. Lastly, communication in Germany follows a direct style, where businesspeople tent to communicate in a direct manner. The openly and straightforwardly present their opinion and expect the same from their colleagues. One should be in a position to point out criticism as a positive contribution to improve their results.

Germany’s political stability favors foreign investment. The constitutional form presents conducive business atmosphere to foreign companies. Berlin and Bonn is home to several government departments making. The acts of parliament and Bills safeguard the interests of the interests of residents and foreign investors against acts of expropriation by the federation. Over the years, Germany’s economy has proven flexible in the face of international financial and economic meltdown. Germany overtook U.S. to become the global export leader in 2003. Germany-manufactured goods from pharmaceuticals, automotive and industrial equipments are in high demand across the world. About 64% of all German exports are exported to European countries. Expanding a company’s operation to Germany means the company will enjoy German’s economical benefits, which are oriented towards manufacturing. The company will be in a position to enjoy foreign participation in German industry. There exist many restrictions and prohibitions implemented to safeguard non-business and business interests and prevent exploitations. Nevertheless, government policies have been put forward to encourage both local and foreign competition among different companies.

Recommendations

It is vital to comprehend German business culture and coming up with cross-cultural skills to help decode its influence on existing business relationships with different Germans companies. This will help the company balance its negotiations with German’s companies to our own advantage.

Meet personal customer demands while remaining competitive by producing products on an industrial scale. This can be achieved by coming up with supple production systems for custom-made production which needs state-of-art technologies which facilitate efficient, effective, and flexible quality production

Encouraging innovations for resource-effective production through reviewing resource scarcity and designing resource efficient strategies through increasing important factors of production

Implementing the German skill initiatives to help train employees on different production and skill-based approaches on how to attain quality products

The company should be able to integrate production and services to achieve greater efficiency. The company should be able to design and implement concepts that should support incorporation of products and services in manufacturing and marketing to improve the competitiveness of the company.

Conclusion

Germany is home to a successful business environment, which benefits from global recognition as one of the globes most safe and secure business landscape. Germany remains on top of its nearest competitors: France, China, Singapore, and USA. Setting up a company in Germany could not be easier. Germany offers swift and efficient company formation procedure, which need simple defined steps to come up with a new business or setting up a foreign business. Given the favorable economic condition and the Germany’s stable political environment, business investors or foreign companies’ rights are expressly defined and all business activities are legally secured, making it possible for foreign companies to expand their operations into Germany.

Bibliography

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Appendix

Table SEQ Table * ARABIC 1: 2014 Corruption Perception Index ranking