The problem that eastern Germany presents is a problem that effects all aspects of the country’s economy. In 1990 when the country of Germany was re-united the democratic West Germany was burdened with all of the totalitarian East Germany’s economic difficulties. Almost total reengineering of the East was needed to build it up to the western standard. To do all of these things the government has called for total cooperation on the part of every German citizen.
The key to restructuring the East at first was privatization. Privatization was carried out by a new government agency called the Treuhandanstalt (Trust Agency) with much success. The Trust Agency is still working to sell off all the businesses in the east. Along with privatization they successfully rebuilt the infrastructure to almost equal proportion to the west.
H. Infrastructure
The German infrastructure consists of a strong network of the latest technology and is thoroughly suited for the cutting edge of business. The nation’s roads, railroads, and communications are second to none the world over. However, there are some imbalances in the size of the infrastructure in the east and west.
The infamous autobahn is one of the most recognizable superhighways in the world. People and goods being transported along these highways are capable of reaching anyplace in Germany quickly. Much of a Germany is also accessible by rail, with a total of 43,966 kilometers of track across the country.
In the east the infrastructure is not as extensive as the west. The government believes that a strong network of transport and communications is vital to improving the economic conditions in the east. Large portions of the $100 billion in subsidies to the east are spent on improving telephone lines and improving roads. Since re-unification major strides have been made in refurbishing the eastern infrastructure. These incredible changes resulted in the fastest modernization of a nation in European history.
Part II: Marketing, Trade and, Investment: Personal Computers
A. Distribution and Sales Channels
Foreign suppliers in Germany are free to choose the distributor that they feel best suit their needs. There are no regulations that require certain distributors be used for your product. Direct and indirect distribution is used, but in the case of personal computers a direct approach may be the best choice (this will be discussed later in the report.)
For products like industrial goods it is most common for firms to sell indirectly. This is to say that due to the high cost of entering the industrial goods market, it is more cost effective to display products through a supplier already in the market. Your product can be distributed through an independent trader (wholesalers, importers, and retailers) or through independent dealers (commercial representatives, exclusive representatives.) There are also companies specifically designed to buy imported goods and sell them to distributors and dealers. These companies tend to deal in goods as opposed to economic or geographic regions.
Similarly to the US, wholesalers and retailers play a large role in the import sector. A great portion of these firm’s dealings are in the consumer goods sector. In fact, over half of imported consumer goods are moved using supermarkets, mail orders, and department stores.
The next option for the indirect method is the independent dealers. Foreign companies that do not wish to set up a branch in Germany use these. These firms are cost-effective and allow small and medium-size businesses access to the market.
Indirect methods are less expensive in some cases, but if the wrong dealer/trader is chosen it can be detrimental to the company’s market position. A supplier looking to sell in Germany must be sure of the firm’s reputation and its capability to distribute to the entire country.
Lastly, direct distribution seems the best option for the personal computer market, primarily because of German perception of American firms. Germans feel the US firms operate using a, “You bought it, now it’s your problem,” philosophy. They tend to believe that Americans are here today gone tomorrow. US firms have the reputation of only exporting to Germany if sales at home are stagnant and then if leaving the market when sales back home pick up. This doesn’t agree with what Germans expect from a firm. They expect to be able to maintain contact with the company for technical assistance and support.
A computer being a large purchase and often times requiring support and/or help for the consumer it is in your company’s best interest to deal directly with your customers. This would allow clients to buy and receive help from your retail stores and web sites. One example of this is the Dell Computer Company whose market share has increased significantly. Their mix of web site and telephone sales has given them a market share growth rate of 70% for 1998.
B. Advertising and Trade Promotion
Marketing a product in Germany is done much like marketing a product in any other developed nation. To make a product known, it is best to present it through a strong advertising campaign and through trade fairs. The major difference in Germany, that must be considered, is its lack of a single business center. The industry and population of the nation are both evenly distributed across the countryside. To successfully market a product in Germany is to have an advertising and trade plan that will appeal to everyone throughout the entire country.
Advertising, in most cases, is considered a proper method to promote your product. There are many more rules in German advertising than in the US, although. These regulations come in the form of judicial rules and voluntary guidelines that were established by the major firms in advertising. The legal rules were enacted at the turn of the 20th century and are modified periodically. Rules such as these basically enable competitors to file suit if another firm “violates good manners.” Another item to be noted is that some advertising techniques, such as offering premiums, are not legal like they are in the US. It is wise for a firm to discuss any advertising plans it may have with an advertising agency, to avoid any legal problems.
Trade fairs offer a business a cost-effective, highly profitable medium to promote their product. The practice of trade fairs actually originated from Germany in the Middle Ages, so it is not surprising that Germans put a lot of stock into them. Germans view the fairs as a place for continuous business and a firm should come ready to sell their product. German fairs are also an excellent place to keep up with the competition and encounter new technologies. Trade fairs are seen by the citizens of Germany to be the most effective gauge of product quality and base many purchasing decisions on them. Many foreign visitors attend the fairs, too, and often this leads to sales that are non-German. For example, the German fair named CeBIT, is the largest computer and telecommunications fair in the world and attracts firms from around the globe. With prospects like these, it is obvious that to succeed in Germany one must participate in these fairs.3
C. Product Pricing
In 1998, the price of a personal computer fully equipped with a 17″ monitor sells for less than DM 2,500 ($1,470), and a PC equip with a 15″ monitor costs about DM 1,600 ($940) sometimes less.
In 1997, 36 percent of all PCs sold in Germany were in the range of DM 2,700 ($1,588) and DM 3,600 ($2,118); 33 percent were in the range of DM 1,800 ($1,059) to DM 2,700 ($1,588). Only two percent were in the price category below DM 1,800 ($1,059). (The pricing information is based on the 1997 exchange rate of US $1 = DM 1.7. The estimated inflation growth rate is under 2 percent for 1998 and 1999.) 4
D. Customer Service and Support
Service and support to customers should be a high priority for any business, but that is especially true for those in the business of personal computers. Computers present a wide array of potential problems to the average person. The fact is many customers who aren’t persistent computer users may have trouble performing the simplest tasks. Many of this type of customer should be anticipated and a plan of adequate service and support should be planned accordingly.
Excellent service should also be a concern because German clients will demand it. German customers expect to be able to reach their dealer with ease and to have their problems and concerns dealt with in a timely manner. The average German consumer does not always buy the less expensive good; instead they may choose quality of service over cheaper price. Therefore, in order to beat the competition it is absolutely necessary to “delight the customer.”
F. Protecting Products against Intellectual Property Rights Violations
Germany legally recognizes all patents, trademarks and copyrights. Enforcement of intellectual property law is rapid and just. Fines for intellectual property laws are usually at or above the cost of purchasing a license. 5 Germany is also a member of the World Intellectual Property Organization (WIPO), as well as complying with many international agreements concerning the protection of intellectual property.
The German government is currently making great strides to curb software piracy. Even though piracy is not a major issue in Germany they are taking a stand to stop any illegal activity that may be going on. The federal governments commitment under the intellectual property rights portion (TRIPS) of the Uruguay Round has further reduced concerns about the level of software piracy. In 1993, Germany set into motion an EU directive for software copyrighting and education for the public on the subject of piracy.6
It is important that the IPR laws in Germany are as well founded as they are. This will assure the software manufacturers that selling their product to a PC dealer in Germany is secure. This allows a firm selling PCs to give the best operational software with their computers, and at the best price possible.
G. Trade Barriers
There are few formal barriers to trade in Germany, with the exception of a small number of EU restrictions that are in place only to strengthen the bond between countries within the economic union. The biggest problems exporters encounter when entering the market are “ingrained consumer behaviors,” and, “intense competition prevailing in German product and services markets.”7 These can make it hard for a company to gain a portion of the market share.
Import restrictions on computer hardware and software are non-existent. The import of hardware (HS-group 8471), software and magnetic tape storage devices (customs tariff no. 85244010) is duty free. A 2.1 percent duty is levied on CD ROMs (customs tariff no. 85243100) and diskettes (customs tariff no. 85243200) imported into the European Union. An import turnover tax of 16 percent is applied to the value of the object on which the software is recorded, either a tape, diskette or laser disc. The tax is later passed on to the end user as value added tax. 4
No more formal barriers for trade exist, but complex administrative policies that are not designed to discriminate, sometimes work against foreign businesses. Many of these policies also seem to offer low level protection to domestic firms. These regulations do not present many difficulties to the import of PCs, but nevertheless should be considered.
H. Openness to Foreign Investment
The government in Germany welcomes foreign investment and has no regu
1Central Intelligence Agency. CIA World Factbook, (1998). Accessed 15 September
1999. Available from http://www.odci.gov/cia/publications/factbook/gm.html
2 Foreign Affairs Division of the Press and Information Office of the Federal
Government (Germany). “Facts About Germany,” (1998). Accessed 10 October
1999. Available from
http://www.bundesregierung.de/tatsachen_ueber_deutschland/englisch/index.html.
3 Department of State. Germany: 1998 Country Report On Economic Policy and Trade
Practices (1999). Accessed 30 November 1999. Available from http://www.tradeport.org/ts/countries/germany/market.html.
4 . Lumborg, John T. “Personal Computers,” Industry Sector Analysis (1998). Accessed
29 November 1999. Available from http://www.tradeport.org/ts/countries/germany/isa/isar0019.html.
5 The Economist Intelligence Unit. “Main Report,” Investing, Licensing & Trading in
Germany (1999): 24
6 US Department of State. FY 2000 Country Commercial Guides: Germany (1999).
Accessed 15 November 1999. Available from http://www.state.gov/www/about_state/business/com_guides/index.html.
7 US Department of State. 1998 Country Report on Economic Policy and Trade
Practices: Germany (1999). Accessed 11 November 1999. Available at
http://www.state.gov/www/issues/economic/trade_reports/europe98/germany98.html.