2023: Doing Business In Germany

1. What is the current business climate in your jurisdiction including major political, economic and/or legal activities on the horizon in your country that could have a big impact on businesses?

Germany's status as a pivotal player in the global economic arena remains unchallenged. It stands as a beacon for sustainability and business viability on the world stage. As the gateway to the European market, Germany boasts unparalleled infrastructure and a workforce recognized for its qualifications and diligence. The country's robust economic framework and legal system ensure stability, making it an attractive destination for significant international investments.

Recent shifts in the global tech landscape further underline Germany's appeal. Notably, the decision by TSMC, the world's leading chip manufacturer from Taiwan, to channel a EUR ten billion investment into a new facility in Dresden signifies international confidence in Germany's tech industry. Similarly, Intel's commitment of around EUR 30 billion toward a state-of-the-art factory in Magdeburg reflects Germany's rising stature as a hub for advanced manufacturing and technology.

However, prospective investors should be attuned to evolving political and economic scenarios. The country is navigating transitions in energy policy, aiming for a greener footprint, which may affect industries reliant on traditional energy sources. Legal reforms, especially in the digital and tech sectors, are also on the horizon, aiming to adapt to the rapid technological changes. These reforms also increase the regulatory requirements on tech products, such as machinery (with the new Machinery Regulation) and batteries (with the new Battery Regulation).

In summary, while Germany presents immense opportunities, staying abreast of its dynamic political, economic, and legal landscapes is crucial for businesses seeking long-term success in the region.

2. From what countries do you see the most inbound investment? What about outbound?

Germany is experiencing a robust flow of inbound and outbound investment. From an inbound perspective, the US remains a major investor, attracted by Germany's technological innovation and manufacturing strength. At the same time, China sees Germany as a strategic partner in Europe, focusing on sectors such as automobiles, machinery, and electronics, which is reflected in its substantial investments. In terms of outbound investment, Germany's global reach means that it focuses on both emerging markets and established economies. While the United States and China remain primary targets due to their sheer market size and potential, other regions such as Southeast Asia and parts of Africa are also attracting German interest.

3. In what industries/sectors are you seeing the most opportunity for foreign investment?

Germany, with its reputation for engineering and innovation, offers countless opportunities for foreign investment. The automotive sector stands out. As the birthplace of the automobile, Germany is now leading the transition to electric and autonomous vehicles. This development opens up opportunities for investment in electric vehicle infrastructure, battery technologies, and software development for autonomous driving. Beyond the automotive sector, the renewable energy sector is on the rise, driven by Germany's commitment to sustainability. In addition, the biotechnology and pharmaceutical sectors are thriving, fueled by advanced research facilities and a robust healthcare system. Furthermore, Artificial Intelligence (AI), which encompasses automation and data exchange, offers significant investment potential.

4. What advantages and pitfalls should others know about doing business in your country?

Advantages:

• Stable economy: Germany has the largest economy in Europe and the fourth largest in the world, providing a solid foundation for businesses.
• Strategic location: Located in the heart of Europe, Germany offers access to a huge consumer market and acts as a gateway to both Western and Eastern Europe.
• Skilled workforce: Germany's vocational education system ensures a steady supply of highly skilled workers, particularly in the engineering and manufacturing sectors.
• Innovative drive: With a strong emphasis on research and development (R&D) many global innovations originate in Germany, making it a hub for technology and manufacturing innovation.
• Supporting infrastructure: From world-class airports to an extensive telecommunications network, Germany's infrastructure facilitates efficient business operations.

Pitfalls:

• Regulatory environment: Germany's bureaucratic system can be complex and time-consuming. Compliance, especially for new businesses, can be a challenge.
• Labor Laws: While the workforce is skilled, labor laws can be rigid, making it difficult to adjust staffing levels quickly.
• Cultural differences: German business culture values punctuality, directness, and formality. Misunderstanding these nuances can lead to lost opportunities.
• Tax system: Although there are incentives for businesses, the tax system can be complicated and requires expert advice.
• Language barrier: While many Germans speak English, especially in business contexts, it's beneficial to have a working knowledge of German, especially when dealing with local authorities or smaller businesses.

5. What is one cultural fact or custom about your country that others should know when doing business there?

In the German business world, two cultural customs are paramount: direct communication and punctuality. Germans value straightforward exchanges, emphasizing facts and clarity over ambiguity or prolonged pleasantries. This focus on directness reflects efficiency and respect for time and is not perceived as abruptness. At the same time, punctuality is revered, signaling professionalism and consideration for others. Late arrivals, especially unannounced, risk damaging business relationships. Adhering to these norms—valuing punctuality and embracing clear communication—not only ensures productive interactions but also fosters trust and cooperation in the German professional world.

Authors

Dr. Rebekka Krause, Dr. Benedikt Rohrßen, and Niklas Heldt