Germany is a superb target market for expanding your company.
It’s the largest market in Europe, and relatively easy to operate once a business is established.
However, setting up a business in Germany can prove a minefield – without proper planning and preparation, especially with regard to working practices and the building of positive professional relationships, your efforts may not yield success.
Perhaps the most important reason for setting up a business in Germany is that it’s ranked the number one market in Europe, and number four worldwide. There are over 45,000 foreign companies already established, accounting for a workforce of around 3 million, which equates to 25% of jobs functioning in the export sector.
In almost all factors regarding business, Germany ranks amongst the top countries. But when it comes to the ease of starting a company, Germany ranks at just 114 out of 190. So, whilst operating in Germany is relatively easy, actually starting up is not easy at all.
Company formation in Germany can be tricky
There are a lot of legal steps involved, and it’s important to liaise with a number of local and national bodies.
Those steps not only have to be carried out in the correct order, but some necessarily all on the same day. Your Articles of Association and Memorandum of Association must be notarised. The necessary minimum capital must be deposited with a German bank. Banks require a number of documents for directors, as well as specific documentation about the company. Once this is done, the Notary will arrange the official registration.
You may then need to obtain a trading permit, notify the local Office of Business and Standards to be issued with a trading license (Gewerbeschein), register with the relevant Professional Association, notify the local Labour Office, register Employees for Health and Social Insurance and post all Relevant Documentation to the Tax Office. Normally all those steps have to be done on the same day!
And then there’s money. Picking one’s way through the complexities of the German financial system is renowned for its difficulty. Up to 14 separate tax payments may be applicable, and processing them and social security payments can consume a lot of working hours.
From the point of view of sales, Germany has some unique aspects to its financial systems which have a significant impact on every company’s trading. For example, although credit cards are in common use among businesses around the world, they are not common in Germany. Only around a third of the population have credit cards, and most prefer not to use them for online transactions.
Instead they use ELV, an electronic direct debit payment system. Customers supply their banking details (e.g. bank account number, security information), which a company passes to a third party gateway authorised to withdraw money directly from their bank accounts. However, as the gateway does not check the customer’s account balance before processing the transaction, chargebacks can occur. So ELV transactions carry more risk than traditional credit and debit cards, but the risk needs to be weighed against the universality of the system in Germany, and the possibility of losing customers who prefer to use this method of payment.
German business etiquette and culture
Perhaps one of the biggest barriers to good working relations with business colleagues in Germany is not appreciating the importance of etiquette, customs and culture within the business sector. A detail that may seem insignificant to you could cause considerable offence to Germans.
Germans tend not to mix their working lives with their leisure hours. They believe that everything should keep its proper order and that things should be done at the right time and place. A clear difference in their attitude and relationships with others exists between their business colleagues and their friends. Expecting them to blur those lines can be counter-productive.
Germans prize the ability to be organised and well prepared – they do not like surprises, especially in business. Sudden or impulsive changes in strategy or practices are considered to be avoidable by careful planning, and are thus viewed as a weakness.
Germans like their lives to be well-ordered and regulated – they believe this make things clear to everyone and results in better relationships. They prefer written contracts and written agreements over verbal communication or ‘taking things as read’.
Germans are sometimes considered to be lacking in subtlety and often rude. However, this is based on a clear difference in their expectations about how matters should be communicated. They prefer direct and honest communication without frills.
Making subtle hints, giving non-verbal cues, or wrapping your views up gently, can cause great confusion, as this tongue-in-cheek guide to translating business-speak between cultures demonstrates. Germans would prefer you to state what you want directly, and they don’t expect to be complimented or made to ‘feel good’ about their performance. Just say it like it is and be prepared for them to respond in kind.
Levity and humour are generally considered to be indicators of a lack of concentration and commitment. Using humour at work is deemed to show you’re not approaching matters seriously, and that perhaps you’re lacking in maturity.
But that doesn’t mean Germans don’t have a sense of humour!!
Adapted from an article originally published on the Basch Consult blog.
Click here to listen the episode: How to get started in Germany #16 – Oliver Dowson talks to Burkhard Schneider, the Executive Director of Basch Consult. Oliver met up with Burkhard in London recently and recorded their conversation about how he helps businesses set up in Germany.
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