How to Do Business in Germany
Germany is in the top five of the UK’s trading partners for a good reason. The fourth-largest economy in the world provides good opportunities to do business. Here we explore more about what the economy offers and the risk factors associated with doing business in Germany.
German business culture
In Germany, business etiquette is a serious matter, and time is always of the essence. Business meetings are highly formal. You’ll hardly have any small talk with a German colleague. Detail, order, and structure are highly valued.
Contracts are carried out as specified to the tee — surprises and last-minute changes aren’t welcome. The dress code is formal and smart, typically in dark colours. Small gifts of office items such as staplers are acceptable, and shaking hands is common.
Benefits of doing business in Germany
Here are some of the positives of venturing into the German market.
Germany is a large consumer market. It has the second-highest population in the European Union. The country also ranks high in purchasing power among European markets with a high per capita spending power. Combining an innovative culture and increased spending power means new ideas can easily penetrate the market. With an internet usage of 93%, the market is also ripe for ecommerce.
Strong business protection laws
Germany has a stable political and legal environment for doing business. A solid legal framework is in place to protect private and intellectual property rights.
Estimates indicate that about 56% of Germany’s population speaks English. So you are likely to negotiate with German business counterparts who can speak, read and write English proficiently.
However, consider using a native translator to capture the entire market when selling your products if you don’t speak German.
Germany is located in the central part of Europe, making it a strategic point for entering other markets. It shares its borders with nine countries. In addition, it's a widely used location for trade shows and other industry events.
Data from the World Bank shows that Germany is in the top 10 of the world’s best infrastructure rankings, with world-class transportation and logistics networks.
The country also has modern telecommunications and a high-speed internet network. The excellent infrastructure supports and accelerates doing business in Germany.
Challenges of doing business in Germany
Some of the difficulties you’ll encounter when doing business in Germany include:
While some of the population speaks English, the national language is German. So you may encounter some communication challenges. In addition, it may be necessary to translate documents into German, which comes with a cost and the risk of losing important information to translation.
Complicated tax laws
German tax laws are complicated and require a significant amount of time to comply with. There are up to 14 different tax payments, including income tax, municipal business tax and solidarity surcharges. So you will have to engage an expert to handle your taxes and advise on the ones that apply to you and the appropriate tax rate.
Different business culture
For someone who doesn’t live in Germany, doing business requires a high cross-cultural awareness. Detail, formality, and defined structure are hallmarks of German business culture. Hierarchy is highly emphasised in business relationships, resulting in bureaucracy and a slow decision-making process. Avoid being too relaxed in meetings, and be patient.
Strong employment protections
If you’re planning to employ staff based in Germany, even if you don’t physically set up a business, prepare for stringent employment protection laws. The minimum wage is on the high side.
German law also stipulates that anyone employed in Germany should sign an employment contract, whether working full-time, part-time, seasonal or temporary. In addition, they are strict about employment issues such as holiday pay, eight-hour shifts and health insurance.
Doing business in Germany comes with inherent foreign exchange rate risks. Once you receive payments, you’ll need to convert them from euros to pounds. Make sure you factor in the impact of currency risk when budgeting for your business. Market volatility means that you may lose money on your exchange if the rate fluctuates over a period of time.
It's worth using a dedicated foreign currency specialist to help you mitigate your foreign exchange risk. Here at Clear Currency we offer tailored guidance to clients, and can often provide a more favourable exchange rate than a traditional bank.
Navigating the German market
If you're thinking of expanding your business into the core of Europe, Germany’s large consumer market offers a wealth of opportunity. The vibrant market and high spending power can help increase your profitability. Germany's solid business-oriented legal system, world-class infrastructure, and location can give your business a boost.
On the downside, the convoluted tax system, language barriers and stringent employment procedures may increase your costs. In addition, be prepared for the strict business culture. You will also have to find effective ways to manage currency risk exposure arising from the euro/pound exchange rates.
Send money to or from Germany with Clear Currency
Expanding your business into Germany comes with considerable advantages and business potential. There will also be some downsides which are bound to keep your hands full. Clear Currency provides a fast and efficient way to send money to and from Germany at an affordable cost.
Don’t let worry about poor exchange rates and currency risk put you off. Clear Currency, (a trading name of Clear Treasury (UK Trading) Ltd), is FCA-regulated and has a fast, simple and secure online payments platform:
Clear Currency offers:
- Fast, simple and secure payments and receipts.
- Competitive exchange rates.
- Expert guidance to help you understand the currency markets.
Sign up for a business account today to get started.
How to Mitigate Foreign Exchange Risk
Currency risk can have a significant effect on the efficiency and profitability of any international business. Each exchange rate movement affects how much you receive from sales and what you pay to suppliers.
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