GERMANY

HISTORY
Coping with Division From the mid-1790s until Prussia, Austria, and Russia defeated Napoleon at the Battle of Leipzig in 1813 and drove him out of German territory, much of the area was occupied by French troops. Napoleon's officials abolished numerous small states; as a result, in 1815, after the Congress of Vienna, German territory consisted of only about 40 states.

 By a series of masterful diplomatic maneuvers and three brief and dazzlingly successful military campaigns, Bismarck achieved a united Germany without Austria. He brought together the so-called "small Germany," consisting of Prussia and the remaining German states.

The World Wars: In World War I (1914 18), Germany s aims were annexationist in nature and foresaw an enlarged Germany, with Belgium and Poland as vassal states and with colonies in Africa . Germany s defeat in 1918 meant the end of the German Empire. The Treaty of Versailles, the peace settlement negotiated by the victors (Britain, France, and the United States) in 1919, imposed punitive conditions on Germany, including the loss of territory, financial reparations, and a diminished military. These conditions set the stage for World War II.

 A modest economic recovery from 1924 to 1929 gave the Weimar Republic a brief respite. The severe social stress engendered by the Great Depression, however, swelled the vote received by extreme antidemocratic parties in the election of 1930 and the two elections of 1932. The government ruled by emergency decree. By mid-1933 it had been destroyed by Adolf Hitler, its declared enemy since his first days in the public arena. Hitler was a psychopath who sensed and exploited the worries and resentments of many Germans, knew when to act, and possessed a sure instinct for power.

The Postwar Era and Unification: In the aftermath of World War II (1939 45) and following occupation by the victorious powers (the United States, the Soviet Union, Britain, and France), Germany came to consist of two states. One, East Germany, never attained real legitimacy in the eyes of its citizens, fell farther and farther behind economically, and had to use force to prevent its population from fleeing to the West. The other, West Germany, was resoundingly successful. Within two decades of defeat, it had become one of the world's richest nations, with a prosperity that extended to all segments of the population.

 The economy performed so successfully that eventually several million foreigners came to West Germany to work as well. In 1990 German unification overcame the geographic separation of the two German states, including an infamous wall between West Berlin and East Berlin, but economic integration still has not been achieved satisfactorily. In the first decade of the twenty-first century, the forces of globalization are posing a renewed challenge to the social-market economy in place throughout the nation.

GEOGRAPHY
Neighboring countries: Netherlands, Belgium, Luxembourg, and France to the west, Switzerland and Austria to the south, and Poland and the Czech Republic to the east Size: Area of 357,022 square kilometers (One-third of the country s territory belonged to the former East Germany) 876 kilometers from north to south & 640 kilometers from east to west Length of Coastline: Coastline along the North Sea and Baltic Sea measures 2,389 kilometers. Principal Rivers: The Rhine River, 1,320 kilometers The Elbe, 1,165 kilometers The Danube, 2,848 kilometers

Topography: From north to south, they are the Northern Lowlands, the Central Uplands, the Alpine Foreland, and the Alps. As of the turn of the century, about 34 percent of the country's area was arable, and about 30 percent was covered by forests. Climate: The yearly mean temperature for the country is about 9 C. During January, the coldest month, the average temperature is approximately 1.6 C in the north and 2 C in the south. In July, the warmest month, the situation reverses, and it is cooler in the north than in the south. The northern coastal region has July temperatures averaging between 16 C and 18 C; at some locations in the south, the average is 19.4 C or slightly higher. Land Use: settlement and transportation infrastructure, 12.8 percent; agriculture, 53.0 percent; forests, 29.8 percent; water, 2.3 percent; and miscellaneous, 2.1 percent.

Government type
Overview: Germany is a federal democracy, with rights guaranteed by the Basic Law, or constitution. The federal government shares power with 16 states.

Country Opportunities and Risk for MNEs

 Opportunities:
The broad-based economic recovery benefits from accelerating domestic demand, boosting imports; Bank lending conditions continue to improve, reducing the risk of payment delays; D&B data show that payments performance remains particularly strong in the pharmaceutical, banking, wholesale/retail and engineering sectors; Germany s large export sector remains highly competitive and benefits from its global reach, boosting opportunities for companies with links to the country s export sector.

Risks:
Concerned about the implications of the euro-zone sovereign debt crisis for German banks (especially the fragile regional Landesbanken); A European banking crisis could seriously undermine German import demand due to the importance of bank lending in supporting Germany s recovery; The debt crisis also poses risks to Germany s export sector and its suppliers;

High input prices (e.g. energy) raise costs for German importers and threaten to undermine demand for imports.

Country Opportunities and Risk for MNEs

Natural resources: Iron ore, coal, potash, timber, lignite, uranium, copper, natural gas, salt, nickel, arable land Natural Advantage: -Iron ore, coal, potash, timber, lignite, uranium, copper, natural gas, salt, nickel, arable land Acquired Advantage -Infrastructure, R&D, Knowledge Base, Educational System Comparative Advantage -Automobile, Transportation, Engineering & Machineries, Pharmaceuticals & Chemicals

Country Growth Potential Sector wise

Germany's growth rate in 2010 was 2.2% The German economy - the fifth largest economy in the world in PPP terms and Europe's largest A leading exporter of machinery, vehicles, chemicals, and household equipment and benefits from a highly skilled labor force

Agriculture, Fishing and Forestry: Agriculture, forestry, and fishing accounted for only 0.9 percent of Germany s gross domestic product (GDP) Employed only about 2 percent of the population, down from 4 percent in 1991 Germany is the third largest agricultural producer in the European Union (EU) after France and Italy

Forestry One-third of its territory is covered by forest. Germany is a net importer of wood and wood products. The forestry industry provides for only about two-thirds of domestic consumption. Mining Coal is Germany s most important energy resource

Minerals Germany is the world s fifth largest oil consumer. Proven oil reserves were 367 million barrels, fourth largest reserves in the EU. Proven natural gas reserves were 9.1 trillion cubic feet, the third largest in the EU Industry and Manufacturing Industry and construction accounted for 29.6 percent of gross domestic product in 2007 The sector employed nearly 26 percent of the workforce. Germany manufactured 6.2 million motor vehicles in 2007, and is the world s fourth largest producer of automobiles after the United States, Japan, and China

Country Risk

The 'DB' risk indicator is a composite index of four over-arching country risk categories: Political risk - internal and external security situation, policy competency and consistency, and other such factors that determine whether a country fosters an enabling business environment; Commercial risk - the sanctity of contract, judicial competence, regulatory transparency, degree of systemic corruption, and other such factors that determine whether the business environment facilitates the conduct of commercial transactions; External risk - the current account balance, capital flows, FX reserves, size of external debt and all such factors that determine whether a country can generate enough FX to meet its trade and foreign investment liabilities; Macroeconomic risk - the inflation rate, government balance, money supply growth and all such macroeconomic factors that determine whether a country is able to deliver sustainable economic growth to provide further expansion in business opportunities.

Membership in International Organizations

International Atomic Energy Agency, International Chamber of Commerce, International Civil Aviation Organization, International Development Association, International Energy Agency, International Finance Corporation, International Labour Organization, International Maritime Organization, International Monetary Fund, International Olympic Committee, International Organization for Migration, International Organization for Standardization, Multilateral Investment Geographic Agency, World bank, World trade organization, United nations & many others

Membership of Trade Blocs

EUROPEAN UNION NATO MEMBER COUNTRIES EFTA MEMBER COUNTRIES

Country Government
Branches of Government: The dual executive consists of a chancellor, who is head of government, and a president, who is head of state. The chancellor is the leader of the party or coalition of parties holding a majority of seats in the lower house of parliament. The president is usually one of the senior leaders of the largest party in the lower house of parliament

 The Basic Law explicitly recognizes political parties, which receive government subsidies. The current German administration is a coalition of the moderate-toconservative Christian Democratic Union/Christian Social Union (CDU/CSU), and the center-left Social Democratic Party (SPD). The CDU/CSU controls the following ministerial posts: chancellor, chief of the chancellor s office, interior, economics, defence, family, education, consumer protection/agriculture, culture, and Bundestag president. The SPD controls the following: vice chancellor, foreign affairs, justice, finance, health, environment, international development, labour, and transportation. The opposition parties represented in the Bundestag are the business-oriented Free Democratic Party (FDP), led by Guido Westerwelle; the Left Party, successor to the former East Germany s communist Socialist Unity Party (SED), and the ecologically oriented Green Party.

JUDICIARY
Germany has an independent judiciary, with most judges appointed for life. The Federal Constitutional Court resolves issues relating to the Basic Law and conflicts between the branches of government. Germany has five types of courts: ordinary courts for criminal and civil matters, labour courts for employment disputes, administrative courts to provide protection against government acts, social courts for social security cases, and fiscal courts for tax-related disputes.

Economic Parameters
GDP (purchasing power parity): $2.94 trillion (2010 est.) Country comparison to the world: 6 $2.841 trillion (2009 est.) $2.98 trillion (2008 est.) GDP - real growth rate: 3.5% (2010 est.) GDP - per capita (PPP): $35,700 (2010 est.)

Labor force: 43.49 million (2010 est.) Budget: Revenues: $1.427 trillion Expenditures: $1.535 trillion (2010 est.) Inflation rate (consumer prices): 1.1% (2010 est.)

Sector wise break up of GDP

GDP - composition by sector: Agriculture: 0.9% Industry: 27.8% Services: 71.3%

Foreign Trade
Germany conducted 65 percent of its trade within the 27- member EU, Followed by Asia with a share of 11 percent and America, meaning the Western Hemisphere, with a share of 10 percent. France is Germany s top trade partner for both imports and exports.

Imports
$1.21 trillion f.o.b. (2007 est.) principal merchandise imports were Chemical products, motor vehicles, oil and natural gas, machinery, and computers Other imports: Textiles, Foodstuffs import partners were: France (8.5 percent), the Netherlands (8.3 percent), China (6.8 percent), the United States (6.7 percent), Italy (5.7 percent), the United Kingdom (5.6 percent), Belgium (4.6 percent), and Austria (4.1 percent)

Exports
$1.361 trillion f.o.b. (2007 est.) principal merchandise exports were: Motor vehicles, machinery, chemical products, metal products, and electricity production equipment. Main export partners were: France (9.5 percent), the United States (8.7 percent), the United Kingdom (7.2 percent), Italy (6.6 percent), the Netherlands (6.3 percent), Austria (5.5 percent), Belgium (5.2 percent), and Spain (3.9 percent).

Trade Balance: In 2007 Germany posted a total trade surplus of US$151 billion. Balance of Payments: In 2006 the current account balance was a positive US$152 billion. External Debt: In 2006 total public debt was about US$2.1 trillion, or 64 percent of gross domestic product. Foreign Investment: In 2006 net foreign direct investment was outbound US$41.8 billion.

Inbound and Outbound FDI

Sectoral structure of outward fdi

Inward FDI
The legal framework for FDI favours the principle of freedom of foreign trade and payment transaction, which is laid down in the Foreign Trade and Payments Act Foreign entities wishing to purchase more than 25 percent equity in German manufacturers are required to notify the Federal Ministry of Economics and Technology, which then has one month in which to veto the sale Other than in the defense sector, there is no broad authority to review foreign direct investment.

Foreign Relations
Previously bound to a close transatlantic relationship with the United States, in 2003 Germany resisted pressure from the United States to participate in Operation Iraqi Freedom. Germany also distanced itself from the United States by supporting the Kyoto Protocol on climate change and the International Criminal Court. Germany is a member of the North Atlantic Treaty Organization (NATO). In general, Germany advocates the solidification and expansion of the European Union, although it has not committed to admitting Turkey into the organization. Germany has given increasing weight to human rights in its relationship with China and Russia, sometimes to the detriment of economic ties. Germany helped spearhead the Group of 8 (G 8) decision in June 2005 to cancel US$55 billion of debt owed by the countries of sub-Saharan Africa

Country Culture Environment

Language: German is the official and predominant spoken language in Germany Religion: 64.1 percent of the German population belongs to Christian denominations. 31.4 percent are Roman Catholic, and 32.7 percent are affiliated with Protestantism Low context culture- less extensive use of similar experiences and expectations to communicate Much more is explained through words or verbalization, instead of the context Germany is one of the most monochromic cultures in the world There is a time and place for everything, and careful planning allows for both work and leisure

Business Etiquette and Protocol in Germany-Implications for MNE s

Germans do not need a personal relationship in order to do business. They will be interested in your academic credentials and the amount of time your company has been in business. Germans display great deference to people in authority, so it is imperative that they understand your level relative to their own. Germans do not have an open-door policy. People often work with their office door closed. Knock and wait to be invited in before entering. German communication is formal. Following the established protocol is critical to building and maintaining business relationships. Germans will be direct to the point of bluntness.

Business Meeting Etiquette

Appointments are mandatory and should be made 1 to 2 weeks in advance. Letters should be addressed to the top person in the functional area, including the person's name as well as their proper business title. Punctuality is taken extremely seriously. If you expect to be delayed, telephone immediately and offer an explanation. It is extremely rude to cancel a meeting at the last minute and it could jeopardize your business relationship. At the end of a meeting, some Germans signal their approval by rapping their knuckles on the tabletop. There is a strict protocol to follow when entering a room: The eldest or highest ranking person enters the room first.

Legal System
The legal system is based on principles of Roman law, and courts rely on a comprehensive system of legal codes rather than on precedents from prior cases as in the Anglo-Saxon tradition. Defendants enjoy the presumption of innocence, the right to an attorney, and the right to appeal. Germany is less litigious than the United States. In fact, Germany has only about 100,000 attorneys.

IPR Compliances
Patents Patents are granted for technical inventions which are; New, Involve an inventive step, And are industrially applicable. The duration of a patent is 20 years Under German patent law, patents are granted by ruling of the German Patent and Trade Mark Office (Deutsches Patent und Markenamt, DPMA). Trade Marks A mark can be protected as a trademark by recording it in the register kept at the German Patent and Trade Mark Office (Deutsches Patent und Markenamt, DPMA). The fee for registration of a trademark is EUR 300. Protection is valid for a period of 10 years. It can then be extended for another 10 years.

 Intellectual property is well protected in Germany. Germany is a member of the World Intellectual Property Organization and a party to most of the major international intellectual property protection agreements (including the Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention, the Patent Cooperation Treaty, the Brussels Satellite Convention, and the Treaty of Rome on Neighboring Rights).

Incentives by Government for Inbound and Outbound FDI

Germany tries to encourage MNC s. Among the reasons overseas MNC s find Germany attractive are the following: A developed infrastructure including speedy and efficient access to all Europe. A skilled labor force, with a good command of English and other languages. A developed scientific and technological infrastructure. As a general rule, 100% overseas ownership is recognized in most sectors and there is no discrimination against foreign companies compared to local companies. This is true as well in the privatization of national bodies in the telecommunications, mail and other sectors.

 Tax Incentives: Special depreciation allowance, capital reserve allowance. Investment Grants: Improvement of Regional Economic Structures Program, grants for research and development, consulting fees and training costs. Credit Programs: Loans with below-market interest rates from the Equalization Funds Bank, Reconstruction Funds Bank, Marshall Plan funds, European Union programs, loan guarantee programs and other programs for small technology firms and environmental demonstration projects.

Efficient Capital Markets and Portfolio Investment Conversion and Transfer Policies: There are no restrictions on transferring funds associated with an investment. There are no restrictions on currency convertibility at the market rate and no queuing for foreign exchange. There are also no restrictions on inflows and outflows of funds for remittances of profits or other purposes Expropriation and Compensation: In the event of expropriation, German law provides that private property would be expropriated for public purposes only, in a non-discriminatory manner, and in accordance with established principles of international law. There is due process and transparency of purpose, and investors and lenders to expropriated entities receive prompt, adequate, and effective compensation. Dispute Settlement: Germany is a member of the International Center for the Settlement of investment disputes (ICSID). The German courts are fully available for foreign investors to raise investment disputes. The government does not interfere in the court system.

Prominent MNEs
Audi Allianz Bayer BMW Daimler AG Deutsche bank GEA group Luftansa MAN Siemens Tetra Volks Wagen

Implication for outside MNEs

Lead market forTransportation & automobiles as well as Engineering Machineries & Heavy Equipments Major member of EuropeanUnion (Still increasing importance) M&A is a very active way