It’s no secret that German exports are highly sought after. But Germany imports products too! France is Germany’s 2nd biggest supplier, followed by the Netherlands. Germany is actually an important export market for many of its European neighbors. There are lots of reasons to expand your business into Germany.
Germany is the heart of Europe, and the driving force behind its economy. Thanks to its proximity to Western European markets like France and the Benelux countries, it is a prime target market. During the recession that has plagued Europe for the past ten years, Germany’s economy has proven to be the most resilient, boasting a growth rate of +1.9% in 2016. Additionally, Germany’s 81 million inhabitants have a greater purchasing power than that of many European neighbors.
Expanding into the German market is a very appealing option for many businesses. There are, however, some important differences in legislation, culture and purchasing behaviors… Let’s take a closer look at the 5 most important factors to keep in mind when doing business in Germany:
1. Germany: a country caught between innovation and tradition
Germany leads the pack in terms of innovation and technology in several sectors (especially manufacturing) that support its economy: auto manufacturing, construction, healthcare, and the Cleantech and renewable energy technology sector.
Despite Germany’s technological advances in these sectors relative to other European countries, the Germans lag behind when it comes to digital technology. The German economy relies heavily on manufacturing Mittelstand – Small and Medium Enterprises – which are struggling to take on the digital transformation process.
The Germans are also very devoted to traditional media outlets. TV is by far the preferred channel for businesses to reach consumers, although online and social media channels have seen an increased share of marketing investments over the past few years. This attachment to traditional modes of communication can in part be explained by the aging German population and the struggle to reach replacement level fertility.
2. The Complexity of the German Legislative Environment
This is probably one of the biggest obstacles to establishing a business in the German market: regulations are abundant and can be difficult to untangle. In order to export to Germany, it is imperative that you comply with national (DIN), European (EN) and International (ISO) standards.
National standards in particular are often very strict. For example, you must fill out mandatory Exchange of Goods/Intrastat Declarations at the end of the month for all exports to Germany.
These countless standards and regulations explain in part why Germany has such a bureaucratic culture (especially in the workplace) and can occasionally seem rigid.
3. Germans do not kid around when it comes to protecting personal data!
If you plan on launching an e-commerce site in Germany, you’ll need a great deal of patience and understanding, because you’re about to encounter the biggest barrier to online sales in Germany: protecting personal data and privacy is sacred to the Germans.
There are several federal laws that protect personal data. Suppliers are prohibited from collecting more customer data than is necessary for the sale. They must also be able to indicate exactly what customer information has been saved, and to modify or delete it when requested. The Harvard Business Review revealed in a study that Germans are willing to pay a high price in order to protect their data, especially their credit card information and medical history.
4. Distance selling, franchises, sales representatives… what is the best way to break into the German market?
E-commerce is booming in Germany. It currently represents 25% of distance sales, and that share is steadily increasing. However, if you are hoping to set up a retail business in Germany, you will be up against well-established competitors and a very dense distribution network. General and specialized department stores, malls, supermarkets, convenience stores, discounters… the choice of stores is diverse and plentiful. You will also need the support of an intermediary to establish a business in Germany. There are 3 main types:
- Subsidiaries: creating a local business unit will help reassure potential customers by demonstrating your commitment and intention to stay for the long haul;
- Franchises: in order to limit the costs and risks associated with creating a branch, you may chose to start a franchise, a practice which is very common in Germany and has the benefit of highlighting your credibility on the market;
- Sales representatives: 30% of products are sold via a sales representative in Germany. A self-employed person who works on behalf of a company (most frequently one of the Mittelstand mentioned above) to sell its products and services. These intermediaries have a deep understanding of the market, and can often prove indispensable to anyone seeking to break into it.
5. Adapting to German Culture and Localizing Your Offerings: A Vital Step
The Germans, more than anyone, demand quality. Expectations are high, but price is also an important factor: German consumers will readily visit several stores or e-commerce sites to make sure they have found the best price-performance ratio. This is difficult to get around: you will have to offer a high-quality product at an affordable price. Germany is a mature market, making for steep competition.
When it comes to retail sales, keep in mind that discounters are enjoying increasingly outspoken popularity in Germany: stores like Aldi and Lidl aren’t seen as low-end the way they can be in other countries. Furthermore, the ethical, social and ecological dimension of products and services is of equal importance to German consumers as economic factors.
For e-commerce, once again, you can’t count on simply duplicating your model. Think about consumer habits, logistical concerns like your return policy (a German consumer has no qualms about ordering 10 items and returning 9 of them), customer service availability, a practical loyalty program, and multiple payment methods (especially bank transfers, a very popular option in Germany).
Finally, regardless of which product or service you intend to export to Germany, you will have to translate all of your business information, your content and your web site or online shop, and to not only create localized content but also transcreate your marketing campaigns and even your slogan.