Doing Business in Germany: 10 Pitfalls You Have to Avoid
Last update: 12 July 2023 at 05:24 pm
5.00/5If you’ve expanded and just entered new territory with your business, it cannot be easy to get to grips with international differences. Business in Germany feels like Mars: navigating etiquette at home is tough, let alone across borders.
Knowledge of taxes, rebates, and 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 ten pitfalls, and you’ll get the advantage you need to make breaking the German market successful. Because the last thing companies want is for anything to get ‘lost in translation’ – literally or otherwise.
Getting Started Doing Business in Germany
Cultural variations in global business can be crucial; understanding norms is vital for success.
But it’s not just about understanding the culture of the country.
For example, ways of working in Europe can be pretty 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 succeed in the German market, we’re looking to reach “adaption” and eventually “integration” with the German culture, personally and in business.
Therefore cultural sensitivity is essential to succeed internationally. But on a more practical level, recognizing and understanding how culture can affect international business is vital. Prevent misunderstandings, and present your business effectively to new markets for success.
Understanding how the business world is structured is critical before entering a new territory. It may feel time-consuming, but detailed information is invaluable when ensuring your company is well set up in a new region.
Consider the significant things you need to know about employment, regulations, tax, and laws. Explore residence permits, GDPR, IP rights, and key organizations for comprehensive knowledge.
There’s a lot to consider.
Pitfall 1: Not Understanding the German Landscape
Before expanding, grasp the essentials of Germany for business success in Europe.
Germany is a key export market, E.U. powerhouse, and gateway to Western Europe. It has weathered ongoing economic flux better than its neighbors, with the German economy on an upward trend.
Industrially forward-thinking, Germany’s primary industries include machine building, automobiles, electrical engineering, electronics, chemicals, and food processing. Service industries, however, are also a vital pillar of 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 V.W., 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 in perfect harmony. Germany excels in the industry, manufacturing, services, transport, and hospitality sectors.
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 about the German market?” “Is my product or service new or traditional? Core or peripheral”?
If you are a U.K. company and are asked to form a quote, do so in euros, not GBP. Also, make sure you’re providing the contact details of the European market and not the phone number of the U.K. where your company is based. These are quick wins.
Pitfall 2: The Wrong Name for Your Company
In Germany, your business name must be related to your name or 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 must decide on the type of company you need – a more challenging task.
Germany’s best-known company structure and legal entity is a Limited liability company, GmbH. This requires a minimum capital investment of 25,000 EUR and positions you as a severe company and one that is German.
Germans are risk-averse and like to buy ‘German.’ So our first advice is to look more German operationally 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 ensure 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 consider the need for visas and permits when other employees visit or stay.
Pitfall 3: Taxes, taxes, taxes…
You’ll also need to stay on top of your annual turnover when doing business in Germany, as tax implications and laws can be complex.
This can include additional fees such as the solidarity surcharge (Solidaritaetszuschlag) and other added taxes.
But it can also work the other way around. Knowing when you’ve got a rebate or qualify for an E.U. grant could significantly impact you.
When you’ve got to pay
As do states and municipalities, the federal government levies taxes, so you would be wise to employ a professional tax advisor. It’s also wise to speak to the tax office or join a local chamber of commerce for advice on your sector.
Even the language around taxes is complicated. Take into account these different terms:
- Steueridentifikationsnummer
- Steuerliche Identifikationsnummer
- Persönliche Identificationsnummer
- Identifikationsnummer
- Steuer-IdNr
- INR
- Steuer-ID
What links them? These are all names for one entity—your unique, permanent tax number.
When can you 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 (E.U.).
These funds support companies in different project stages: setting up new production or service facilities for R&D activities.
If you have employees performing ‘skilled trades, ‘ you can 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 tricky bit done, but getting your company or headquarters up and running is probably easy. 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 must let people know who you are and what you do.
Firstly, you need a website, and it’s strongly recommended that this be in German. It’s worth getting this professionally transcreated to ensure no hiccups when it comes to correctly saying what you want to say.
Transcreation is different from 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 inform potential customers 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 standouts 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.
However, commercial activity in Germany is pretty 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 significant role in German society, so they are well worth considering.
The flip side is that print titles (including magazines) can be expensive – especially if you’re targeting a niche market.
Pitfall 6: Using the Same Adverts
Once you have booked your advertising and thought about creative executions, you must stay aware of German cultural and language nuances.
Again, simply translating copy from English to German (for example) may not have the same message when changed from one language to another. So having a local eye read over what you’re saying is essential. Imagery is also crucial, so it’s worth considering if it will resonate with your target audience.
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, and even. Sometimes a little bit raunchy. But notice the difference in benefits presented between the American and German ads.
The American Version:
The German Version:
They use a German football star – that’s easy to guess – and 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, 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 Etiquette: Essential to Doing Business in Germany
So your advertising worked, and it grabbed you your first meeting! Congratulations!
This is where the real work starts, however – and you should avoid a few pitfalls if you want to 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 respect 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 are kept strictly separate.
One thing that perhaps is different compared to the USA and U.K. 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.
One exception: Germany’s millennial generation is much more progressive, with the lines burling between work and play. They are very well-traveled and often start an email with ‘Hey or Hi’.
However, many of their older colleagues will still insist an email must start with ‘Dear Mr. Surname’. This is despite two colleagues having decades of working years together.
Pitfall 8: Ignoring the Formalities
A third-party introduction is often easier to get an appointment with the right person.
Firstly, phone to double-check that 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 lunchtime (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 also formal in their dress code. So for your meeting, make sure you’re conservatively understated and in a suit, regardless of gender.
However, 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 essential, 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 a formal ‘Mr’ or ‘Mrs’ greeting, a short firm handshake at an acceptable distance, and maintain eye contact. Ensure you have your business card ready, and exchange them at the start.
Don’t expect it 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 shared by many people from Eastern European countries.
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 a decision will not be changed once it is made, so be ready for a graceful goodbye or a quiet high-five.
They are some of the most exciting and unique 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 your feet on the ground.
We have a tried and tested method of ensuring that our partners get started in Germany correctly. We ensure that your investment in the country pays dividends for your business. Contact us to discuss your commercial marketing in Germany.
