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Doing Business in Germany

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Market Overview

The German economy is the world's fourth largest and, after the expansion of the EU, accounts for more than one-fifth of European Union GDP. Germany is the United States' largest European trading partner and is the sixth largest market for U.S. exports. Germany’s "social market" economy largely follows free-market principles, but with a considerable degree of government regulation and generous social welfare programs.

Germany is the largest consumer market in the European Union with a population of 80.5 million. However, the significance of the German marketplace goes well beyond its borders. An enormous volume of worldwide trade is conducted in Germany at some of the world’s largest trade events, such as MEDICA, Hannover Fair, Automechanika, and the ITB Tourism Show. The volume of trade, number of consumers, and Germany’s geographic location at the heart of a 28-member European Union make it a cornerstone around which many U.S. firms seek to build their European and worldwide expansion strategies.

The German economy has improved markedly in recent years. The economy took a serious hit during the economic crisis. Because of the country’s strong export dependency, GDP declined by more than 5 per cent in 2009. However, the recovery in 2010/11 was equally strong (4.2% and 3.0% respectively), resulting in a V-shaped recovery as pre-crisis real GDP was reached again in the second quarter of 2011. Growth has slowed more recently, mainly due to uncertainty in the Eurozone. GDP grew by 0.7% in 2012. The government forecasts annual growth of 0.4 percent in 2013.

The labor market largely remained robust even though the recession in many euro zone countries created more difficult economic environment in 2012. In addition to a series of labor and social reforms implemented in recent years, many experts credit the government-funded short-time work program for limiting unemployment which allowed companies to retain their trained labor force at a time of shortages of skilled labor on the job market. Other factors, such as moderate wage increases, flexibility in bargaining agreements, numerous company-level alliances to retain jobs, and employers’ willingness to accept higher unit labor costs, also contributed to the stability of the German labor market. A manufacturing industry on the rebound brought back jobs that were partially lost during the 2008/2009 recession. In addition, jobs in the services and health care sector were added. A steady economy and a declining workforce contributed to a drop in average unemployment to 2.89 million over the course of 2012, with an average jobless rate of 6.8% – down from 7.1% in 2011. For 2013, the government expects unemployment to further decline slightly, maintaining an average of 6.8% and a drop to 6.6% in 2014.

Although unemployment is still higher in the east of the country than the west (10.7% versus 5.9%), it dropped to the lowest level in 20 years. The number of persons in employment living in Germany reached an all-time high (about 41.6 million) in November 2011, an increase of 521,000 from a year ago and maintained that level throughout 2012.

Market Challenges

Germany presents few formal barriers to U.S. trade or investment, although Germany’s participation in the EU’s Common Agricultural Policy and German restrictions on biotech agricultural products represent barriers for some U.S. goods. Germany has pressed the new EU Commission to reduce regulatory burdens and promote innovation to increase EU member states’ competitiveness. The Merkel government has talked about the need for regulatory reform in Germany, still, Germany's regulations and bureaucratic procedures can be very complex. While not directly discriminatory, government regulation by virtue of its complexity may offer a degree of protection to established local suppliers. Safety or environmental standards, not inherently discriminatory but sometimes zealously applied, can complicate access to the market for U.S. products. American companies interested in exporting to Germany should make sure they know which standards apply to their product and obtain timely testing and certification. German standards are especially relevant to U.S. exporters because, as EU-wide standards are developed, they are often based on existing German standards.

Market Opportunities

For U.S. companies, the German market - the largest in the EU - continues to be attractive in numerous sectors and remains an important element of any comprehensive export strategy to Europe. While U.S. investors must reckon with a relatively higher cost of doing business in Germany, they can count on high levels of productivity, a highly skilled labor force, quality engineering, a first-class infrastructure, and a location in the heart of Europe.

Market Entry Strategy

The most successful market entrants are those that offer innovative products featuring high quality and modern styling. Germans are responsive to the innovation and high technology evident in U.S. products, such as computers, computer software, electronic components, health care and medical devices, synthetic materials, and automotive technology. Germany boasts one of the highest Internet access rates in the EU and new products in the multi-media, high-tech and service areas offer great potential as increasing numbers of Germans join the Internet generation. Certain agricultural products also represent good export prospects for U.S. producers. Price is not necessarily the determining factor for the German buyer, given the German market’s demand for quality.

The German market is decentralized and diverse, with interests and tastes differing dramatically from one German state to another. Successful market strategies take into account regional differences as part of a strong national market presence. Experienced representation is a major asset to any market strategy, given that the primary competitors for most American products are domestic firms with established presences. U.S. firms can overcome such stiff competition by offering high-quality products, services at competitive prices, and locally based after-sales support. For investors, Germany’s relatively high marginal tax rates and complicated tax laws may constitute an obstacle, although deductions, allowances and write-offs help to move effective tax rates to internationally competitive levels.

Market Fact Sheet

Profile

 

Population in 2012 (Millions)

80.5

Capital

Berlin

Government

Republic

Doing Business/Economic Freedom Rankings

 

World Bank Doing Business in 2012 Rank

20 of 185

Heritage/WSJ 2012 Index of Freedom Rank

26 of 179

Economic Mix in 2010

 

All Industries

28.2%

Manufactures

20.9%

Services

71%

Agriculture

0.9%

Principal U.S. Exports to Germany (2011)

Principal U.S. Imports from Germany (2011)

1. Transportation Equipment (25.5%)

1. Transportation Equipment (29.7%)

2. Computer & Electronic Products (14.9%)

2. Machinery, Except Electrical (17.4%)

3. Chemicals (14.4%)

3. Chemicals (16.4%)

4. Machinery, Except Electrical (10.9%)

4. Computer & Electronic Products (10.1%)

5. Miscellaneous Manufactured Commodities (5.7%)

5. Primary Metal Manufacturing (4.5%)

Economy

2009

2010

2011

Nominal GDP (Current billion US$)

3,307

3,312

3,607

Nominal GDP Per Capita (Current US$)

40,393

40,513

44,111

Real GDP Growth Rate (% change)

−5.1

4.0

3.1

Real GDP Growth Rate Per Capita (% change)

−4.8

4.2

3.1

Consumer Prices (% change)

0.23

1.2

2.5

Unemployment (% of labor force)

7.7

7.1

6.0

Foreign Merchandise Trade (US$ Millions)

2009

2010

2011

Germany Exports to World

1,127,840

1,271,096

1,482,202

Germany Imports from World

938,363

1,066,817

1,260,298

U.S. Exports to Germany

43,306

48,161

49,156

U.S. Imports from Germany

71,498

82,429

98,663

U.S. Trade Balance with Germany

− 28,192

− 34,268

− 49,507

Position in U.S. Trade

2009

2010

2011

Rank of Germany in U.S. Exports

6

6

6

Rank of Germany in U.S. Imports

5

5

5

Germany Share (%) of U.S. Exports

4.1

3.8

3.3

Germany Share (%) of U.S. Imports

4.6

4.3

4.5

Foreign Direct Investment

2009

2010

2011

U.S. FDI in Germany (US$ Millions)

106,103

100,185

106,887

FDI in U.S. by Germany (US$ Millions)

183,966

200,565

215,938