Doing Business in Germany: 10 Pitfalls You Have to Avoid
Last update: 31 October 2023 at 02:52 pm
5.00/5If you’ve expanded and just entered new territory with your business, it can be difficult to get to grips with international differences. These differences mean that doing business in Germany can seem like doing business on Mars: it’s hard enough to get business etiquette right at home, let alone across borders.
Knowledge on taxes, rebates, name registration. Those are areas where you can get a competitive advantage. But just as important is meeting etiquette: a first impression can make or break that deal.
Avoid these 10 pitfalls and you’ll get the advantage you need to make breaking the German market a success. Because the last thing companies want is for anything to get ‘lost in translation’ – literally or otherwise.
Getting Started Doing Business in Germany
What’s acceptable and what isn’t in one country can differ vastly as you go global, and knowing what to do – and what to look out for – when you’re dealing with other cultures can be critical to business success.
But it’s not just about understanding the culture of the country.
For example, ways of working in Europe can be fairly alien to the USA. Even within European countries, there are nuances when dealing with the British, German or French…
Following Dr. Milton Bennett’s Model of Intercultural Sensitivity – to be truly successful in the German market, we’re looking to reach “adaption” and eventually “integration” with the German culture, both on a personal and a business level.
Therefore cultural sensitivity is essential to succeed internationally. But on a more practical level, recognizing and understanding how culture can affect international business is of vital importance. It’s important to avoid misunderstandings between clients and colleagues, and also to make sure that your business is presented to the new market in the best way possible.
Understanding the way the business world is structured is key before entering a new territory. It may feel like a time-consuming exercise, but detailed information is invaluable when ensuring your company is well set up in a new region.
Think about the bigger things you need to know around employment, regulations, tax, and laws. Get down to the nitty-gritty, such as if you need a residence permit, GDPR, how intellectual property rights may differ and any other organizations you might need to be aware of.
There’s a lot to consider.
Pitfall 1: Not Understanding the German Landscape
Expanding your business to the Federal Republic of Germany and the wider European market has never been more tempting, but understanding Germany is key before taking the leap.
An economic powerhouse at the heart of the EU positioned beautifully for Western European markets, Germany is a prime export market. It’s one that has weathered ongoing economic flux better than it’s neighbors, with the German economy on an upward trend.
Industrially forward-thinking, Germany’s main industries include machine building, automobiles, electrical engineering, electronics, chemicals, and food processing. Service industries however, are also a key pillar to the economy with an annual contribution of around 70% to the country’s GDP.
is there a place for my business in this landscape? “Where do I sit in relation to the German market? Is my product or service new or traditional? Core or peripheral?
Germany is home to companies such as VW, Allianz, BMW and Siemens, but it’s not just big brands that thrive here.
Its famed ‘Mittelstand’ of family-owned businesses is a prime example of small and medium-sized companies co-existing together in perfect harmony. As well as Germany’s famous industry and manufacturing, it’s also home to a range of service industries, transport and especially the hotel and restaurant business.
Having a good handle on your competitive positioning is essential, think: “is there a place for my business in this landscape?” “Where do I sit in relation to the German market?” “Is my product or service new or traditional? Core or peripheral”?
Oh, and If you are a UK company and you are asked to form a quote, do so in euros, not GBP. These are quick wins.
Pitfall 2: The Wrong Name for your Company
In Germany, your business name must be related either to your own name or to your products and services – hence why many German companies are named after their founders.
So far, so easy.
But once you have your name, you then need to decide on the type of company you need – a more challenging task.
The best-known company structure and legal entity in Germany is a Limited liability company, GmbH. This requires a minimum capital investment of 25,000 EUR, and positions you as a serious company and one that is actually German.
Germans are risk-averse and like to buy ‘German’. So our first bit of advice is to operationally look more German. Rather than a foreign company trying to trade with German companies. If you’re a U.S. brand, lose the inc. and register a GmbH.
Another option is to consider a joint stock company, which needs a share capital of 50,000 EUR and requires just one shareholder – who can be of any nationality. However, you must make sure you are registered in the Register of Companies.
See? Tricky isn’t it…
Many corporations looking to expand their business to Germany choose to set up a branch office, with their parent company based elsewhere.
However, you’ll still need to be included on Germany’s commercial register, and also consider the need for visas and permits when you have other employees visiting or staying.
Pitfall 3: Taxes, taxes, taxes…
When doing business in Germany, you’ll also need to stay on top of your annual turnover as tax implications and tax laws can be complex.
This can include additional fees such as the solidarity surcharge (Solidaritaetszuschlag), and other added tax.
But it can also work the other way around. Knowing when you’ve got a rebate or qualify for a EU grant could make a major impact.
When you’ve got to pay
The federal government levies taxes, as do states, and municipalities, so you would be wise to employ a professional tax advisor. It’s also smart to speak to the tax office or join a local chamber of commerce for advice related to your sector.
Even the language around taxes is complicated. Take into account these different terms:
- Steueridentifikationsnummer
- Steuerliche Identifikationsnummer
- Persönliche Identificationsnummer
- Identifikationsnummer
- Steuer-IdNr
- IdNr
- Steuer-ID
What links them? These are all names for one single entity. Your unique, permanent tax number.
When you can claim back
But it’s not all giving money to the taxman. Germany also offers companies financial incentives, and the German government provides funds, as do individual federal states, and the European Union (EU).
These funds are available to support companies in different project stages: from setting up new production or service facilities to R&D activities.
If you have employees who are performing ‘skilled trades’ you can also apply for incentive programs and additional grants. Don’t forget to check what you can claim on business expenses too – because every little helps…
Hitting the German Market
So, you might think that’s the hard bit done, but getting your company or headquarters up and running is probably the easy bit. At SWC Partnership we’ve had long years of experience in the market, and that’s taught us a thing or two.
The physical act of doing business in Germany can be a minefield, unless you know what to expect – and follow some rules.
Pitfall 5: “Just Translating” Your Marketing
Now you’re open, you need to let people know who you are and what you do.
Firstly, you need a website, and it’s strongly recommended that this is in the German language. It’s worth getting this professionally transcreated to ensure no hiccups when it comes to saying what you want to say correctly.
Transcreation is different to translation as it takes in the nuances and tones of the local language, rather than simply taking copy and translating it into German.
Having boots on the ground helps with this. To use ourselves as an example, SWC Partnership‘s local German office allows us to carry this out swiftly and efficiently, ensuring that all website content is tonally and grammatically correct – key as your website is usually one of the first touchpoints for customers.
You’ll also need to advertise to let potential customers know that your German ‘office’ is open. We’d recommend a ‘deep dive’ which covers audience understanding and the media channels they’re consuming, along with tactical opportunities and additional creative ideas which can offer standout and help your business grow in the new market.
Transcreation is different to translation as it takes in the nuances and tones of the local language, rather than simply taking copy and translating it into German.
As a rule however, commercial activity in Germany is fairly straightforward in that rates are rates with little room for negotiation. Media channels include broadcast, display advertising and out of home advertising, and interestingly newspapers still play a major role in German society so are well worth considering.
The flip side to this is that print titles (including magazines) can be expensive – especially if you’re looking to target a niche market.
Pitfall 6: Using the Same Adverts
Once you have booked your advertising and you’re thinking about creative executions, you’ll need to stay aware of German cultural and language nuances.
Again, simply translating copy from English to German (for example) may not have the exact same message when changed from one language to another. So it’s important to have a local eye read over what you’re saying. Imagery is also key, so it’s worth considering if that will resonate with your target audience too.
What works in the USA for example, may not translate well into the German market, so it’s best practice to always stress-test images as well as the copy to make sure that when the right audience sees the adverts, they’ll resonate and hit as hard as possible, with the right message for that locality.
Take Coca-Cola as an example. Coca-Cola has a distinct tone and personality, humorous, absurd, even. Sometimes a little bit raunchy. But notice the difference in benefit presented between the American and German ad.
The American Version:
The German Version:
Not only do they use a German football star – that’s easy to guess – but they also emphasize the benefits, nutritional value, and taste.
That’s a common thread – German audiences are much more receptive to these benefits. That’s in contrast to other markets such as the United States, where more aspirational aspects, as well as convenience, brand name, and customer satisfaction, hit harder.
Data laws in Germany are also incredibly rigid, so be aware of this if you’re looking to grow or use databases as a promotional or sales tool.
That’s something that’s not to be taken lightly.
Meeting Ettiquete: Essential to Doing Busines in Germany
So your advertising worked and it’s grabbed you your first meeting! Congratulations!
This is where the real work starts, however – and there are a few pitfalls you should look to avoid if you want to make sure you make a perfect first impression. Because, as you might expect, meeting etiquette is different in Germany compared to other countries…
Pitfall 7: Behaving as you would in meetings at home
The first thing to note is that German business culture is incredibly formal, so be respectful of the German values of punctuality and planning, order and organization, privacy, and perfectionism.
And don’t be upset if you find it hard to strike up personal relationships-personal life and work is kept strictly separate.
One thing that perhaps is different compared to the USA and UK is that authority is held in the highest regard, and you’ll need to negotiate your way around strict vertical hierarchy within most companies.
Most decisions come directly from those at the top.
There is one exception: Germany’s millennial generation are a lot more progressive with the lines burling between work and play. They are very well-traveled and often start an email with ‘Hey or Hi’ whilst many of their older colleagues will still insist an email must start with ‘Dear Mr Surname’ despite two colleagues having decades of working years together.
Pitfall 8: Ignoring the Formalities
A third-party introduction is often an easier way to get an appointment with the right person.
Firstly, phone to double-check your contact is correct, then send an email to confirm that they’re interested in you and your product. Next, call back and arrange a meeting, avoid lunch-time (1 pm – 3 pm) and Friday afternoons.
The first thing to note is that German business culture is incredibly formal, so be respectful of the German values of punctuality and planning, order and organization, privacy and perfectionism.
German citizens are formal in their dress code too, so for your meeting, make sure you’re conservatively understated and in a suit, regardless of gender. However, read your industry, creative industries globally don’t require a tie unless you are stuck in the 1960’s drama, Mad Men.
Arrive 15 mins early and you’ll be on to a winner. Punctuality is extremely important, as is a strict agenda for what will be discussed. Don’t be late (you must let your contact know if this is the case) and don’t let your meeting run over.
Start your meeting with formal ‘Mr’ or ‘ Mrs’ greeting, a short firm handshake at an acceptable distance and maintain eye contact. Make sure you have your business card at the ready, and exchange them at the start.
Don’t expect to be any longer than one hour. Skip the small talk and get down to business.
Pitfall 9: Coming Under-Prepared
Direct, specific and backed up by facts, figures and charts will be expected, so make sure you are well prepared.
Germans often expect informative and well-documented answers to their questions. Also be aware they can also be direct to the point of bluntness. Don’t be offended by this. Not to generalize, that’s just part of their nature. In fact, in our experience it is a common trait, one also shared by many people from Eastern European countries.
Germany places a strong emphasis on transparency and accuracy in financial reporting and investors are always expecting detailed and precise information. Using equity management software like for example Ledgy is vital when establishing a business in Germany to navigate the country’s complex regulations, maintain transparency, efficiently manage equity plans, and effectively engage with investors, ultimately contributing to your business’s success in this market. Ledgy’s equity management software provides a real-time, transaction-based cap table that keeps your equity data up to date, providing a clear and accurate overview of your company’s financial health
Pitfall 10: Impatience When Doing the Deal
Be aware that the decision-making process in Germany is detailed and slow. Your deal will be looked at by many, many executives, with every area scrutinized and reviewed.
Remember, patience is a virtue as you won’t be able to speed up this process.
Final decisions are usually accompanied by specific action steps that you can expect will be carried out with adherence to every detail. Be aware that once a decision is made, it will not be changed, so be ready for either a graceful goodbye or a quiet high-five.
They are some of the most interesting and amazing people at the end of the day and remember, although work is often work, they do like to go out for a beer.
And with that, the deal is done. Congratulations on navigating the different pitfalls of business in Germany!
About SWC Partnership
If you need help to succeed in Germany with your advertising and marketing, SWC Partnership’s team in Berlin can work as an extension of your team and offer you feet on the ground.
We have a tried and tested method of making sure that our partners get started in Germany in the right way. We make sure that your investment in the country pays dividends for your business. Contact us to discuss your commercial marketing in Germany.
