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Business Rules in Germany

Robert Binder

Germany makes a very appealing prospect for inward bound investment. Like every new market, it has its unique aspects, but these differences are not insurmountable especially when compared with some of the emerging markets.

Legislation and regulation

We have a completely different legal system in Germany to the UK and America, with no trial by jury, and specialised courts dealing with employment and collective bargaining issues. However it is widely accepted to be an effective system and according to World Bank Group ratings, it is easier to enforce contracts, resolve insolvency and deal with construction permits than it is in the UK.

Implementation of taxation is very different to the UK as well. In Germany, accounting standards are geared towards the tax authorities rather than the shareholder. The authorities take a firm line on implementation because of the country’s importance to the European market; as one of our clients said: ‘If you want to play in Europe you have to play in Germany.’ In the UK, the authorities take a consultative approach, as they are trying to encourage investment within the UK. Germany’s corporate income tax rate is 15% but, due to the addition of a solidarity surcharge and local trade tax, the prevailing corporate tax rate averages around 29%. VAT is charged at a standard rate of 19% and a reduced rate of 7%.

Cultural and linguistic barriers

Germany came late to nationhood so the emphasis is on local traditions and identities, and Mittelstand companies are firmly anchored in their respective home regions. Managers have strong relationships with stakeholders and the local bank as well as universities and research institutions. The pride in our local connections underpins our support of sustainability and our perception of work being as much about society as it is about profit. Over the years it has become very clear to me that companies that are insensitive to these elements and attempt to impose a different culture on the market are more likely to fail.

Investors considering partnership with a company should understand how important trust is to German business people. It is well known that discipline, precision and reliability are crucial for us; this thoroughness may cause some friction if a short-term solution is required, but your German counterparts will appreciate your recognition of these values. Germans often speak excellent English, but companies should not see this as a green light to set up an English speaking office. A subsidiary that is run by Germans will provide a smoother entry to the market and provide a sound footing for business. Finally, do not forget to talk about football in the warming-up phase of talks, it is a great ice-breaker and will be favourably received!

Currency fluctuations

The European Sovereign Debt crisis has made the Euro volatile and has no doubt affected the perception of the region by UK companies as a trading partner.  However the current weaker Euro offers opportunities for UK companies and rates can be locked by using Forward Exchange Contracts, Limit Orders or Options. The underlying strength of the German companies means that there is less chance of partners defaulting and collapsing than in many of the other riskier markets, which also offer their own currency challenges.

Finding the right workers

There’s no doubt that Germany’s ageing population is an issue – ours is the secound oldest population in the world after Japan. However, we are not alone in this situation as most of the populations in the western world are dropping with shortfalls of the working population expected. We are actively engaged in dealing with the issue and many of the workers are postponing their retirement. Life expectancy at birth has doubled in Germany during the last century and the increased levels of fitness that people have nowadays means that they can still make a contribution.

Meanwhile companies are starting their own initiatives to bring young people on board with internships – apprenticeships are an important part of the way that we approach our business.

Perhaps because we are an international trading nation, we welcome immigration – we have the third-highest number of international migrants in the world and it is increasing. Our government has amended restrictive laws so that it is much easier for companies to hire abroad, and the ‘Make it in Germany’ portal has been successful in encouraging potential migrants to consider the country. We had 7.6 million foreigners registered at the end of 2013 – the highest recorded since records began in 1967. The latest report on immigration from the German Marshall Fund found that the German population is positive towards immigration, with 62% considering it an opportunity and 38% considering it a problem – the mirror image of the UK where 36% consider immigration an opportunity and 64% consider it a problem.