Germany has become the largest economy in Europe and it is also ranked as the fourth largest economy in the world in nominal GDP (gross domestic product) and fifth globally for PPP (purchasing power parity). With a reputation for research and innovation, one of the contributing factors to Germany’s success has been its ability to attract global FDI (foreign direct investment) and there are now over 45,000 companies from around the world carrying on business in the country. The country also maintains a flexible, stable labour market, a benefit gained following its programme of labour market reform in 2003. Germany has also invested heavily in its education system, and 15-16 year old apprentices will spend more hours receiving workplace-based training than they will spend in school, and will also have very good chances of obtaining a full-time permanent job after 3 or 4 years.

Despite its economic success, Germany is ranked by the World Bank and the International Finance Corporation at only 114th out of 190 countries for ease of starting up a new business. This appears to be due to a number of procedural hurdles that a new business must find its way over in order to become functional. The International Finance Corporation further rank Germany against the rest of the world across a range of other areas of ease, finding it: 17th for ease of doing business; 12th for dealing with permits needed for construction; 5th for acquiring an electricity supply; 79th for registering property; 32nd for getting credit; 53rd for giving protection to minority investors; 48th for ease of paying taxes; 38th for ease of trading across borders; 17th for ease of enforcing contracts; and 3rd for resolving insolvency issues.

Difficulties in Entering the German Market

Starting a Business

Those setting up a new business must liaise and work with the local Chamber of Industry and Commerce, as well as the local Office of Business and Standards, local Commercial Register and the professional association of any relevant trade, all of which impose specific requirements that involve considerable work to meet them.

Registering Property

The process of registering a property from which to carry on business also involves a considerable amount of work and is weighed down with a great deal of bureaucracy. Those seeking to register must obtain the appropriate extract from the Land Registry. A notary will examine the extract to ensure that the property in question is not subject to any mortgages or other burdens that will impact upon registration. This has to be completed before any waiver of pre-emption rights can be obtained from the municipality. Transfer tax needs to be paid after these steps have been completed. The whole process can be lengthy, taking up to 40 days in all to complete.

Payment of Taxes and Contributions

The fiscal structure and requirements in Germany are notorious for their complexity and can prove difficult to navigate a path through. A business will need to deal with the processes of making no fewer than 9 tax payments in each year. Some calculations suggest that this can take as much as 207 hours to complete, because as well as tax payments there are also social security contributions to be calculated and it has been suggested these alone can consume as many as 134 hours. There are, in all, 14 different taxes that a business may have to pay, including VAT payments and corporate tax payments.

Trading Across Borders

Trading across borders is a relatively low cost endeavour, but those wishing to do so must prepare four different documents in order to export. Importing requires five. On average, the time needed to import or export goods is a week.

ELV

ELV is an acronym for “Elektronisches Lastschriftverfahren”. This is the German method of making payments electronically through a website. Any business wishing to successfully market and sell online will need to open an account with a German bank and enter into an agreement with a German payment service that can facilitate taking payments via ELV.

ELV is essential as everyone who opens a bank account in Germany will receive a debit card, called either a Girokarte or EC-Karte. These are very different to credit cards, and Germans do not use them as often as other countries in Europe. Most people making payments through the ELV system will use one of these cards.

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A More Detailed Look at the Procedure for Entering the German Market

Checking a Company’s Name

Clearly a search needs to be made of existing companies to ensure that the intended company name is available. This needs to be done through the local Chamber of Industry and Commerce. Accessing the Berlin Chamber of Industry and Commerce through their web pages allows a search to be undertaken and will reveal whether or not the intended name is available. Undertaking a check online is free. If written notification that the intended name is not already registered is required, a fee of EUR25 will have to be paid. Information provided by telephone is also free of charge. The process can be completed quickly, within one day.

Notarizing the Articles of Association and Memorandum of Association

The documents of association need to be formally notarized by a recognised Notary. There are fees involved in this, and the amount is determined by the value of the share capital. For example, if that share capital is EUR1,000 then the fee should be EUR10; if it is over EUR1,000 but not above EUR5,000 then EUR8 is added for each additional EUR1,000 and so on.

Depositing Minimum Capital

Following the notarization of Association minimum capital must be deposited in an appropriate bank account. If the company is a GmbH then the amount of capital deposited must be at least 25% of the initial capital. This deposit cannot be made prior to the notarization process.

Filing the Articles of Association

The Articles of Association must be filed through the Notary Public with the local Commercial Register. The Articles of Association have to be sent together with deed of appointment of directors if this information is not already included in the Articles, a list of the company’s shareholders, and an assurance that the minimum amount of required capital has been deposited in an appropriate bank account. These documents, accompanied by others, must be sent electronically to the Commercial Register. The Commercial Register is then required to make a decision about registering the company without unnecessary delay. Once a decision has been reached to register the company, the details must be made available through publication on a central website (www.handelsregister.de). A decision is required by law within one month of a company having filed for registration.

Not surprisingly, there are fees involved in filing for registration. The applicable law has resulted in fees not being based on the amount of start-up capital but on statutory fixed amounts.

Advising the Local Office of Business and Standards

Once registration is complete and the company has been established, the local Office of Business and Standards must be notified. The Office will then issue a trading license. Advising the Office will also cover formal registration with the central office of statistics, the local Labour Office, the offices of social security and health insurance and the appropriate Chamber of Industry and Commerce. All of the necessary registration procedures are covered for all aspects of the company and its employees. The process takes one day. There are fees and these are based on the number of shareholders in the company.

The Labour Office and Health and Social Insurance

Once the local Office of Business and Standards has been advised of all necessary details, the local labour office will issue an eight digit number for the company that can be used for all social security issues. Similarly, the company’s employees will be registered for unemployment, health and annuity insurance and payments for these will be collected. These processes of registration are all completed at the same time as the process of advising the local Office of Business and Standards, as detailed above.

Advising the Local Tax Office

Registration with the local Tax Office must be completed within one month of the company being set up, and not more than one month after the Articles of
Association have been notarized.

The Trade Office subsequently provides notice to the Tax Office that the company is operating. The Tax Office then sends a questionnaire to the company which must be completed and returned. This questionnaire should contain all of the data relevant to the company and its operations.

Register with the Professional Association of Any Relevant Trade
Associations of German professionals carry occupational accident insurance. As such, it is a requirement that any company having links with a specific profession or trade must register with that association within a week of the notarization of the Articles of Association. This process should be completed at the same time as those listed above.

How Not to Enter the German Market!

A further example of the failure of a company with a global reputation failing to appropriately adapt to the German market is the case of Wal-mart. In 1997 Wal-mart adopted the practice of acquiring an already-existent business to enter the German market and bought the well known Wertkauf chain of 21 stores for what is estimated to have been $1.04 billion. Wal-mart then acquired, a year later, the 74 hypermarkets of the Interspar chain from Spar Handels, the German arm of the French Intermarche Group. This purchase cost Wal-mart €560 million. Both of these chains were already extremely profitable, Wertkauf having revenue of €1.2 billion, Interspar €850 million.

Despite acquiring already-successful business interests, Wal-mart’s entry to the German market was not successful, for a number of reasons that can teach us much. The practice of entering the German market by acquisition was itself flawed, as the Interspar stores were not in the best condition, were poorly placed, and needed much improvement to fit in with and make a contribution to the Wal-mart brand.

Wal-mart simply sought to transfer its American practices to the German market. This blatantly failed to address any of the issues that were specific to the German people and economy and demonstrates the dangers of ‘internationalization.’ Picking up American-focussed business practices and dropping them, without modification, into the German market simply didn’t work.

Another failure of Wal-mart’s entry to Germany was a lack of understanding of how the labour force functioned. In Germany, unions are held in high regard, and have much influence and a quarter of Germany’s retail labour force are members. Of Wal-mart’s labour force in America, only 12 out of over a million workers were members of a union. Wal-mart’s attitude provoked a clash of cultures that saw many employees actively seeking positions elsewhere due to low pay, poor quality merchandise and the company’s practice of rotating store managers. The company also attracted negative publicity by ignoring and flaunting German business regulations and procedures.

Faced with ever increasing losses, Wal-mart resorted to staff cuts. Due to the German regulations that protect worker’s rights, the company found the process of creating redundancies to be both a costly and lengthy one.
Had Wal-mart taken a closer look at how the German people function and the regulations and requirements involved in entering the German market, they might have been more successful. They may also have come to the conclusion that simply trying to recreate in Germany what was successful in America would not work due to cultural differences and expectations.

Using a Professional German Translation Service when Entering the German Market

Presenting a business that is not native to the German market requires a considerable amount of thought and planning. Clearly, every aspect of a company that is not already speaking in sound, appropriate German, and fit for consumption by the German market, will need to be translated. You should certainly want to search for a professional German translation service. But successfully entering the German Market is not simply a matter of good translation, as some of the examples below will demonstrate.

Poor Translation: the Vicks Affair

Perhaps the worst example of failure to ensure accurate and appropriate translation into German was when the Vicks company launched their cough drops in Germany. When Vicks is translated into German, the V becomes an F and the resulting word is the same as a German expletive.

A similar example is Clairol’s launch of a hair curling iron the company named the ‘Mist Stick’. In German slang, mist means manure. Not surprisingly, the German people were not keen to buy sticks of manure.

There have been some very famous companies that have failed to successfully launch products in Germany due to their failure to ensure that their products and written material were presented in a German-friendly form. There are other issues as well, for example, giving very careful consideration to German culture and how any advertising or product name or description relates to it.

Getting Things Wrong

One of the most infamous failures to appropriately embrace the need to make products and marketing appropriate for the German market was when Starbucks created a Gingerbread Latte. Assuming that the word Gingerbread alone would be appealing to the German people, as gingerbread itself is hugely popular in Germany, especially at Christmas, Starbucks did not translate the English form of the word Gingerbread into German, keeping instead the English spelling. The product was not a success. However, when Starbucks latterly re-launched their gingerbread latte using the correct German – “Lebkuchen Latte” – sales dramatically rose. What this indicates is the need for products to be marketed appropriately, with all due regard to the German language and culture.

Former German Chancellor Willy Brandt once said that if he was selling, he would speak the language of whoever he was selling to; when buying, he would expect the seller to speak his language, German.

Starbucks made a simple mistake of not translating the name of their product into German and were eventually successful by applying a simple fix of translation. The matter was not without an ongoing issue, however, because the word ‘Latte’ in German is also slang for a male erection. Starbucks kept the word Latte for their product and this has proved an ongoing source of amusement for the German people. Such a simple error cannot only influence sales in an extremely negative way but can also make the company responsible the object of derision, impacting upon its overall image. All that was needed from the start was a simple consideration of how the whole name of the product would translate into German and an understanding of German culture and slang.

Finding a Good Translation Agency

The above examples illustrate the importance of adapting language and branding to fit the German language and culture. Making use of a good German translation agency will yield considerable benefits. With appropriate German language in place across the company, from website pages to advertising and marketing material, it is possible to raise the company’s profile amongst the German business community and demonstrate respect for the German people and culture.

Poor translation and sloppy linguistic mistakes will give an impression of a lack of professionalism that in turn will damage the image of the whole company. It will also demonstrate a lack of respect for German speaking people, hardly a pre-requisite for success.

The key to successful translation of any business into the German market is engaging the right agency. The translation and consideration of German culture should not just be adequate; it should be to the highest standard and match that of any English-based features.

Translation agencies are amongst the fastest growing in the United Kingdom’s economy. Many agencies are specialising in the accurate translation of business material and language for websites, advertising, commercial and other uses. An across-the-board approach needs to be adopted, rather than a focus centred on basic translation of existing words and texts into German. Content that is unique and specific to the German market should be considered, rather than simply translating what already exists. The illustrations of the difficulties Vicks, Starbucks and Clairol encountered, as detailed above, demonstrate the damage that ignorance of German language and culture can do to a product and the company trying to market it.

Resources:

Starting a Company in Germany – Basch Consult Market Entry
Consultancy company for Germany – basch-consult.com
Top 10 challenges of doing business in Germany | TMF Group
Starting a Business in Germany – Doing Business – World Bank Group
Why did Wal-Mart fail in Germany? – The Tim Channel
Failure of Wal-mart in Germany – Assignments Box
10 Reasons Why your German Website Might not be Selling – Kwintessential
How to Decide If Your Client’s Product Names Need Translating – Gala Global
15 brands that learned how to translate the hard way – Printsome Insights
13 Marketing Translations gone wrong – Socialnomics
Expanding an Online Business into Germany – Vision64 SEO for Germany

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