German FDI: Investing for Business in Germany - Essay Sample

Introduction

Germany is among the world's most attractive business destinations and the top foreign direct investment (FDI) country in Europe. Danakol, Estrin, Reynolds, & Weitzel, (2017) believe that FDI is an investment that is made by an individual or organization in one country for business interests that are located in another nation. Germany is acknowledged for its rewarding and secure investment location. However, carrying out business in Germany is still challenging for those who lack familiarly of the business environment and domestic necessities. Germany is the most flourishing economy in Europe and ranks fourth in the universe. These FDI companies have hired over 3.7 million people. Germany also boasts of its excellent infrastructure, largest consumer market and the modern finance system on the European continent. Germany provides foreign enterprises with stable and favourable economic situations and increased competitiveness. Whenever it comes to issues of hoards and forming organizations, Germany does not discriminate on the nationality of the investors. Instead, the country favors the principle of freedom in payment and foreign trade. Direct investors look into various factors concerning the ways they operate in foreign nations. These include, among others the rules and regulations related to operations and entry of foreign investors. Other factors include the efficiency and functioning of domestic markets, trade and privatization policies, and the business facilitation measures such as incentives, promotions, and steps towards reducing costs of conducting businesses.

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Business Environment of Germany

The PESTLE analysis tool for management helps with the assessment of the macro-environmental factors. The analysis is carried out for countries, projects, and companies. The Federal Republic of Germany is made up of 16 states, with a population of 81.8 million (Buettner, Overesch, & Wamser, 2018). Germany is also among the leading European powers and is also seen as a technological leader. At the same time, Germany has the world's fourth-largest economy, being the second-largest and third-largest exporter and importer, respectively. Throughout the years, the Germans have established high standards of social security and living. Germany also takes pride as home to the most influential inventors and scientists. Most people know Germany because of its cultural and political history.

Political Environment

Germany is a parliamentary, representative, and federal democratic nation. The president is the head of state, while the Chancellor is the governmental head and wields executive power through the Cabinet. The Chancellor executes roles akin to that of the Prime Minister in other world democracies. German has maintained good relationships with France and other nations since 1990. The partnership has significantly contributed to the establishment of Germany among the most European Union's powerful countries. Alongside being a member of the EU, Germany also belongs to NATO, G20, G8, International Monetary Fund (IMF), and the World Bank. On the same note, Germany is the largest contribution to the European Union's budget and ranks third in its contributions to the United Nations (Buettner, Overesch, & Wamser, 2018). While the country is hugely identified as one of the strongest yet closest allies of America in Europe, some of the recent studies have suggested that the bilateral relationship has experienced some difficulties. For example, 73% of Germans claimed that the relationship between their countries with America is not noble.

Economic Environment

Germany is the world's fourth-largest economy, with a nominal gross domestic product (GDP) of $4.2 trillion (Lee, & Werner, 2018). At the same time, the GDP reduced by 0.2% in 2018, failing to grow in the subsequent months (Lee & Werner, 2018). There are grave concerns expressed over the economy because of the declining manufacturing orders and industrial production since 2019 February. While there are concerns over the health of different industries, the job market in Germany is in good health with unemployment rates of 3.2% (Lee, & Werner, 2018). The unemployment rates in Germany are among the world's lowest. On the same note, Germany is acknowledged for its convenient working conditions for both expatriates and citizens. The German workers have enjoyed many benefits such as the longest holidays in the European Union, the highest salaries, and job protection. Another issue of economic concern is the national German corporate tax rate, which is at 15% (Lee & Werner, 2018). Businesses are required to pay solidarity surcharge on their company taxes. When these are combined, they make up 30% of the taxes. For the workers, the rates of income tax begin at 14% (Lee & Werner, 2018). A 42% tax rate applies when the annual income of an individual is more than $55,961. Alongside the income tax, workers have to pay solidarity tax. Germany also various important goods and some of the high incomes are vehicle parts, cars, chemicals, pharmaceuticals, and agricultural products. Most of the imports in Germany come from china, the Netherlands, the USA, Italy, and France.

Social Environment

Globally, Germany is one of the best nations that one can live in, concerning education, quality of life, health and wealth. With its over 82 million populace, Germany is Europe's most populous country. Men have a life expectancy of 78, while women's expectancy is at 83 years (Pavlinek, 2018). Nonetheless, most experts have increasingly raised concerns over the increasing numbers of retired persons and the reducing population numbers. Germany is among the countries with the world's lowest birth rates. As a cosmopolitan country, Germany and its society have been shaped by different lifestyles. 60% of the people identify as Christians, while 4.4% are Muslims (Pavlinek, 2018). Around 35% of people do not have any religious affiliation. Most Germans have higher living standards. Germany is a welfare nation, and people have the freedom to shape their lives. At the same time, different challenges must be considered. For example, the low birth rates, ageing population, reduced purchasing power, expensive lifestyle, and falling wages. German society pays emphasis on privacy, hard work, structure, perfectionism, and diligence in every respect of life. These aspects explain why Germany is among the world's largest economies. Germany is among the best countries in sports such as football, ice-hockey, tennis, and golf among others.

Technological Environment

Many people have identified Germany as the champions of World Cup Football and a leading car-producing nation. While there are no issues in these positions, most people lack awareness that Germany is the world's fifth-most technologically advanced nation. Germany's history is rich in research and innovation. Germany is also a leader in different markets such as scientific research, military technology, design, engineering, infrastructure, and medicine. The information communication technology (ICT) sector hires over a million Germans and is abreast of most big organizations such as chemicals, pharmaceuticals, and mechanical engineering. With its global market share, Germany is a leading country in the development of green products, services, and processes. The government allocated three billion euros for research and development services into artificial intelligence up to 2025 (Meunier, 2017). The goal of the resources was to close the gap in innovation between Germany and other Asian and American giants.

Environmental Factors

Tourism is among Germany's main industry, contributing directly to 4.5% of the GDP (Hlavacek & Bal-Domanska, 2016). Germany is also among the top tourist destination areas in the universe, receiving over 37.5 visitors (Hlavacek, & Bal-Domanska, 2016). The German culture, historic cities, towns, grand palaces, history, mountains, among other attractions, makes the country unique. While the country is a great place for people to visit, it has faced some significant environmental issues. Germany faces global warming effects. Air and water pollution, acid rain, emissions from industries and coal-burning utilities, automobile exhausts and damaging forests are some of the country's biggest environmental threats. The German government has undertaken different initiatives towards handling these issues. For example, the government has settled on using fewer resources while also ensuring that there is the maintenance of the same prosperity.

Legal Environment

The German law demands that there are no disparities between foreign and German nationals concerning investments or establishing organizations. Germany promotes establishing every kind of business. The government has undertaken an open approach, whether the business is for German nationals or foreigners. The written contract of employment that underline the main elements of the employment must be issued to German workers (Hlavacek, & Bal-Domanska, 2016). It is a common practice for workers in Germany to enjoy one month of holiday yearly. These factors are important for any business seeking to engage in foreign direct investment in Germany.

Challenges and Opportunities of Carrying out a Business in Germany

From the PESTLE analysis, it is vital to have an awareness of some of the primary challenges of conducting businesses in Germany. Understanding these challenges would provide the benefit of having domestic help towards successfully navigating any tax, cultural, and legal barriers.

Challenges

Despite the modern outlook and global standing of Germany, the World Bank ranks the country as 114th for ease of beginning business. The ranking is mainly because of the different procedures organizations are needed to navigate. One of the primary challenges people face informing businesses is the opening of a bank account and the know-your-customer (KYC) processes. However, there are workaround solutions, including buying a company with the existing bank account. Starting an enterprise in Germany also involves checking on the availability of company names in the local chamber of commerce and industry. Another challenge is handling construction permits (Krause, 2019). Germany also boasts the best procedures for obtaining electricity for business, within three business days. Property registration is also another duty that is quite challenging in Germany. The registration of property needs six procedures, where organizations have to register the ownership of the property to the Land Registry and to notarize transfer agreement. Germany is home to the current financial sector operating in a strict legal environment. The rates that are determined by the market, especially for credit, are available to both foreign and domestic investors. Obtaining credit is a streamlined procedure, but banks need written presentation of the business plan, complete with data on the legal structure, cost, profitability projections, and contracts. FDI needs an able workforce. Germany boasts highly-educated employees that include the migrant population. There is still a skilled shortage of labor, especially in the construction and information technology industries. There is increased competition among industries to employ the best workers.

The worker shortage in Germany led to the passing of the skilled labor immigration law in 2018. The law made it simpler for companies to hire skilled workers they need from outside the European Union. Organizations do not go through the earlier tiresome processes of showing that there is no one within the EU or Germany to fill the position. Having a working visa for a qualified foreigner takes three months, and needs paperwork. The l...