From: OVERSEAS BUSINESS REPORTS (WEST GERMANY)
University of Missouri-St. Louis
Match 5 DB Rec# - 21,748 Dataset-MARKET
Source : USDOC, International Trade Administration
Source key :IT
Program key :IT MARKET
Program :Market Research Reports
Update sched. :Monthly
ID number :IT MARKET 111109939
Title :GERMANY,-W. - OVERSEAS-BUSINESS-REPORT - MARKETING - OBR9102
Data type :TEXT
End year :1993
Date of record:07/20/1993
Keywords 1 :
| 9102
| BEST|PROSPECTS
| CC428
| COMPETITION
| DISTRIBUTION
| ECONOMY
| END|USERS
| GERMANY
| GROSS|DOMESTIC|PRODUCT
| INVESTMENT
| MARKET|ACCESS
| MARKET|ASSESSMENT
| OBR
| OBR9102
| TRADE|BARRIERS
| TRADE|CONTACTS
| TRADE|PROMOTION
| ZEC
Country :
| GERMANY
| WEST GERMANY
| EAST GERMANY
| EC
| EEC
| EUROPE
| EUROPEAN COMM.
| EUROPEAN COMMUNITY
| EUROPEAN ECONOMIC COMMUNITY
| OECD
| ORGANIZATION FOR ECONOMIC COOPERATION & DEVELOPMENT
| ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMET
| WEST EUROPE
| WESTERN EUROPE
| WESTERN EUROPEAN COUNTRIES
Text :
GERMANY,-W. - OVERSEAS-BUSINESS-REPORT - MARKETING - OBR9102
SUMMARY:
This report, prepared by Germany Desk, Office of Western Europe,
with the cooperation of the U.S. & Foreign Commercial Service, U.S.
Embassy in Bonn, and analyzes the overall commercial climate and
trends in West Germany, and their significance for U.S. trade, and
includes a lengthy list of contact addresses. It consists of 85
pages and includes the following headings:
Foreign Trade Outlook
German Economy
Government Role in the Economy
Transportation and Utilities
Labor
Distribution and Sales Channels
Advertising and Market Research
Banking and Credit
Investing in the Federal Republic of Germany
Taxation
Business Organization
Industrial Property Protection
Trade Regulations
Guidance for U.S. Business Travelers
Sources of Economic and Commercial Information
Market Profile
Table 1--Germany's Exports to the United States
Table 2--Germany's Imports from the United States
Table 3--Germany's Leading Trading Partners by Exports
Table 4--Germany's Leading Trading Partners by Imports
Table 5--Germany's Exports by Commodity
Table 6--Germany's Imports by Commodity
U.S. and Foreign Commercial Service District Offices.
FOREIGN TRADE OUTLOOK
The major share of Germany's foreign trade is with members of the
European Community (EC). In 1989, EC countries accounted for
55 percent of German exports and 51.1 percent of imports. Germany's
trade policy is also influenced by its membership in the
Organization for Economic Cooperation and Development (OECD),
General Agreement on Tariffs and Trade (GATT) and the International
Monetary Fund (IMF).
Historically, Germany has been a net exporter, and this trend has
continued in recent years, with exports rising from $169.4 billion
in 1983* to $341.4 billion in 1989. Thus, the overall trade surplus
has grown from $16.5 billion in 1983 to $71.6 billion in 1989, while
imports have grown less dramatically, rising from $152.9 billion in
1983 to $269.5 billion in 1989.
With exports accounting for approximately 28.4 percent of German
gross national product (GNP), foreign trade remains the most bouyant
sector of the German economy. Germany's major export markets in
1989 were France, Italy, the United Kingdom, the Netherlands, and
the United States.
Germany's principal suppliers were France, the Netherlands, the
United States, the United Kingdom and Belgium/Luxembourg. (See
Tables 1 and 2.) Trade with East European countries and the Middle
East (OPEC) has receded from the mid-1970 heights. The Soviet Union
is an exception, and trade with that country is once again assuming
important dimensions. In 1989, the value of German imports from
centrally planned economies reached $13.3 billion, while exports to
these countries totalled $15.6 billion.
Approximately 88 percent of German exports in 1989 were manufactured
goods: motor vehicles, electric equipment, office machines, machine
tools, chemicals, plastics, iron and steel fabrications and
textiles. Foodstuffs and beverages accounted for less than
5 percent. Major German imports were petroleum, gas and lubricants,
coal, office machines, electric machinery, aircraft, chemicals,
plastics, edible fats and oils, and grain.
*Note: Deutsche Mark (DM) converted to dollars at average, spot,
middle rate of exchange for the year.
German Unification
On October 3, 1990, the German Democratic Republic (GDR) was
formally merged with the Federal Republic of Germany to form a
federation of 16 states, including the city state of Berlin.
Majorities in both Germanies favored unification, but their
enthusiasm has been tempered by concerns about rising unemployment
in eastern Germany as it shifts from a centrally planned to a
market-oriented economy.
Eastern Germany's economic recovery from 40 years of communism is
expected to be a painful process. The region is already
experiencing a severe recession with growing unemployment and a
sharp decline in industrial production. By the end of July 1990,
industrial production had fallen by 35 percent over the previous
year. The general expectation is that the condition of the economy
will deteriorate further before it improves.
The adjustment to a market economy has meant that east German
enterprises must shed considerable numbers of redundant workers in
order to become competitive. By August 1990, recorded unemployment
in the east had reached 4 percent with another 15 percent of the
work force on "short-time" work status (Kurzarbeit). Kurzarbeit is
a system by which workers continue to receive full salary even
though they are working less than full time or not at all. Firms
that retain such employees on their payrolls receive a subsidy from
the government. It is unclear how long Kurzarbeit can be
maintained. Official estimates have predicted that overall
unemployment will reach 18 percent by the end of 1991.
Germany is embarked on a major privatization of east German firms.
The State Trusteeship (Treuhandanstalt) is attempting to dispose of
nearly 8,000 formerly state-owned enterprises with assets estimated
to be above DM 500 billion. To date, this process has been slow.
The Trusteeship has been granting short-term liquidity financing to
postpone the inevitable bankruptcies and layoffs associated with the
sudden shift to competitive market conditions. German officials are
hoping to attract foreign investment to aid in the restructuring,
although intitial interest has not been great.
Economic reforms currently under way in the east will lead to
greater efficiency and prosperity in the long run. In the short
run, however, the new citizens of the Federal Republic of Germany
are experiencing unaccustomed hardships.
Trade with the United States
U.S.-German trade relations are extensive, with Germany registering
a substantial trade surplus. U.S. trade figures show, however, a
narrowing of the U.S. bilateral deficit to $7.9 billion in 1989,
down from $12.1 billion in 1988. German exports to the United
States reached $24.8 billion in 1989, accounting for 7.3 percent of
all German exports. Imports from the United States of $16.6 billion
accounted for 7.6 percent of all German imports.
Major German imports from the United States include computer
hardware and software, medical equipment, aircraft and parts,
chemicals, office machines, electric machinery, wood pulp and
tobacco. Major German exports to the United States include motor
vehicles and parts, printing machinery, medical equipment, precision
and optical goods, chemical compounds and textile and leather
machinery.
In the past, policy disputes between the United States and Germany
have involved Europe-wide problems, such as the import restrictions
under the Common Agriculture Policy (CAP) or government subsidies of
commercial aircraft. As part of EC-1992, the EC is considering
major changes in telecommunications policy and government
procurement, areas where U.S. companies have at times been denied
full access. However, policy disputes pose few barriers for the
majority of U.S. exporters, who find the market in Germany open,
with strong interest in U.S. products in most industry sectors.
The Challenge of the post-1992 EC Integrated Market
Public and business attention is increasingly focussed on the
European Community's project of an integrated market of the 12
member states after 1992. The Bonn Government has given
enthusiastic support to the 1992 single market objective. The
domestic business sector generally has supported the project, which
has already contributed to a European investment boom, substantially
benefitting Germany. In 1989, 54 percent of Germany's exports went
to EC countries.
German industry has been making acquisitions in other EC member
countries as well as increasing capacity in enterprises already
owned in the EC. Likewise, many German banks have either purchased
or entered into cooperative agreements with financial institutions
in other EC countries. However, individual German sectors that have
benefitted from a protected domestic market and substantial
subsidies (for example, insurance industry, truck transport and
handicrafts) have actively sought to mitigate strong competitive
effects that they expect from the EC's liberalization efforts.
The German public has not demonstrated the fervor for the 1992
project that has been seen in other countries. Worries have been
expressed that this program could lead to a lowering of Germany's
high social standards or the export of jobs to lower wage EC
countries. The government has argued that steps must be taken to
maintain Germany's fitness for a post-1992 integrated EC market.
For example, the government has pledged that it will move on a
business tax reform, probably modifying Germany's local trade tax
and further lowering the country's top marginal corporate tax
rates. To finance such a reform, Germany may raise by a couple of
percentage points its current basic value added tax (VAT) rates (of
14 and 7 percent) as part of an EC tax harmonization scheme.
New-to-market and/or new-to-export U.S. companies looking at Germany
should consider the post-1992 European market. The creation of this
integrated market, including common standards, will influence
greatly the approach of American companies to the market. U.S.
firms should carefully review their marketing efforts in Germany,
and elsewhere in Europe, to take early advantage of the EC program.
As a member of the EC, Germany is subject to the EC's common
external tariff and to the restrictions of its Common Agricultural
Policy (CAP). As part of the EC-1992 process, the EC Commission in
Brussels is acquiring greater authority in many areas that in the
past have been under the jurisdiction of national governments.
U.S. businesses contemplating trade or investment in Germany should
investigate the likely effects of EC-1992 on their particular sector.
Sources of information on EC-1992 include:
1992 Single Internal Market Information Service
International Trade Administration
U.S. Department of Commerce
Room H-3036
Washington, DC 20230
Telephone: (202) 377-5823
European Community Information Service
2100 M Street, NW
Suite 707
Washington, DC 20037
Telephone: (202) 862-9500
EC Committee of the American Chamber of Commerce
50, avenue des Arts
1040 Brussels, Belgium
GERMAN ECONOMY
Since mid-1987 the German economy grew well beyond expectations.
Aided by expansionary macroeconomic policies, rapid growth of world
demand and a weakening exchange rate, real demand and output have
risen strongly. Induced by bouyant exports, a highly favorable
profit situation and increasingly high rates of capacity
utilization, business investment grew sharply. Residential
construction, after a long period of weakness, showed a marked
recovery, benefitting from mild winters in both 1988 and 1989.
Despite terms-of-trade gains and tax reductions, the growth of
private efforts, public-sector spending on goods and services
remained moderate. Real GNP grew 3.6 percent in 1988, rising to
4 percent in 1989, the highest rate recorded in the 1980s.
Given the strength of current and forward-looking indicators, the
stage seems set for continued, albeit somewhat slower growth in the
next 18 months or so. The momentum of exports should be supported
by continuing growth of world trade, while private consumption will
receive a welcome boost from fiscal policy this year with the last
tranche in income tax reductions. Combined with the high rates of
capacity utilization, the favorable profit situation, unification of
the two German states, and the prospect of a single European market
should help sustain strong business investment.
Employment continued to grow, but it was not until late 1988 that
its rise exceeded that of labor supply. Further improvements in the
labor market are likely to occur. Labor force growth is being
augmented as a result of continuing inflows of ethnic Germans and
higher female participation rates, but productivity growth can be
expected to revert to its long-term trend, thus permitting the rate
of unemployment to drop to about 7 percent by the end of 1990.
German Commercial Environment
As one of the world's largest industrial economies, Germany offers a
wealth of opportunity to American exporters of quality products.
Moreover, with the current low value of the dollar, American
products and services are more competitively priced today than in
many years. Germany is currently experiencing the biggest economic
upturn in years. Real GNP in 1989 grew by 4 percent (1988:
3.6 percent), the highest growth rate of the decade. The 4.6
percent increase in GNP registered in the January-June period was
the highest first-half figure in 13 years.
This trend is expected to continue through 1990. Production and new
order statistics are the basis for most of the optimistic
forecasts. Business fixed investment in 1989 rose more than
12 percent over 1988 and is expected to rise by another 10 percent
this year.
The heavy influx of orders to German industry over the past year has
been so strong that there is virtually no excess capacity to cope
with new orders. It has been estimated that capacity utilization in
the manufacturing sector in 1989 reached 90 percent and that it has
risen further since; in some industries, for example, heavy
engineering (92.1 percent), footwear (95 percent), and clothing
(95 percent), there is virtually no excess capacity. The German
automobile industry is a case in point. Despite a sizeable decline
in U.S. sales, output of cars in 1989 set a new record with total
production of some 4.48 million units, or an increase of
3.5 percent over the previous year.
In addition to capital investment, foreign trade also constitutes a
major pillar of the current upturn. In 1989, for example, German
exports rose 13 percent to $341 billion from a year earlier; imports
registered an even sharper rate of increase--15.2 percent--to
$269 billion. German economists are concerned that economic growth
could lag in some of Germany's export markets, reducing export
growth and holding real GNP growth to less than 4 percent in 1990.
The current high performance business cycle is expected to continue
well into 1991. With the volume of orders on hand and a generally
satisfactory level of profitability, the only significant domestic
reservation of some economists is that settlements on new contracts
with the country's major trade unions this year may not be
consistent with the maintainance of stable unit labor costs.
U.S. exports to Germany in 1989 reached $16.9 billion, up
18.2 percent compared with 1988 exports of $14.3 billion. U.S.
imports from Germany of $24.8 billion in 1989 were 6 percent less
than in 1988 ($26.4 billion). The U.S. bilateral trade deficit
declined 34.7 percent to $7.9 billion in 1989, a significant
improvement over the 1988 deficit of $16.3 billion. This compares
with 1985/86 bilateral trade deficits in the $16 billion range.
Industrial Policy and Trends
Germany's industrial structure, which has traditionally been based
on capital goods, is changing its focus toward the new industries of
microelectronics and data processing. Traditionally, energy,
construction, and chemicals have accounted for over 20 percent of
industrial production, followed by steel, machinery and vehicles,
electric equipment and communications, and food and beverages. In
recent years, both the steel and shipbuilding industries have
suffered losses and declining output, with continuing dependence on
government subsidies. The steel industry plans to reorganize its
five major steel producers into two groups, the Rhine Group
comprised of Thyssen and Krupp, and the Ruhr Group composed of
Hoesch, Kloeckner, and Salzgitter.
Although Germany does not have an overall industrial policy, it
does have programs that provide financial assistance to troubled
industries and support for R&D in high technology industries. The
government argues that these exceptions from market rule are
vigorously policed and do not constitute a government-directed
industrial policy.
The market philosophy of the German Government stresses that market
forces and private initiative must be the basic motor of economic
growth. In industrial policy issues, the government encourages
increased R&D through indirect means and tries to avoid the
temptation to pick "winners" or keep "losers" indefinitely. The
Germans are vocal opponents in the EC of protectionist trade
policies such as industrial targeting and subsidization and argue
against Europe-wide support for "future-oriented" industries.
The German Government is taking steps to further reduce its
involvement in the marketplace through privatization of state-owned
enterprises, including a reduction in the federal government's share
in Lufthansa Airlines. The government maintains control of
telecommunications infrastructure via the Bundespost but allows
private companies to compete freely to provide services and
equipment at both ends of transmission links. Finally, the
government is committed to easing access to venture or risk capital
by medium and small firms, particularly for firms in the high
technology field.
The Ministry of Research and Technology (BMFT) plays a key role in
the government's relations with high technology industries,
virtually setting industrial policy for those sectors. Research
contracts are granted to approximately 6,000 individual recipients,
from industrial and university researchers to major science
foundations and the German space research establishment. Most of
the BMFT's resources are earmarked research on advanced micro-chips
and future-generation high performance computers.
GOVERNMENT ROLE IN THE ECONOMY
Government's Role in Industry
As in most countries of Western Europe, the German Government plays
a broad role in industry. It has a direct or indirect ownership
interest in a broad range of industries, from iron mines to public
utilities, as do state (Land) and local governments.
Government-owned industries are generally operated on the same basis
as private industries. Their managers are paid at prevailing
industry scales and are expected to earn a profit. Although
government enterprises are under the jurisdiction of the Federal
Ministry of Finance (Bundesministerium der Finanzen), they are not
financed by the government but must qualify for loans from
commercial and private banks.
Cartels.--The 1957 Law Against Restraints on Competition (Gesetz
gegen Wettbewerbsbeschraenkungen), as amended, is designed to
safeguard market competition as the basic regulating factor in the
economy. The law deals not only with cartels, but also with trusts,
monopolies and other forms of unfair competition. It also contains
provisions covering trademarks and patents, fair trade practices,
unfair competition, and resale prices. The intent of the law is
regulatory rather than prohibitive.
In principle, cartels are prohibited in Germany. However, there are
certain types of cartels that are expressly permitted: conditional
cartels, rebate cartels, structural crisis cartels, nationalization
cartels, and specialization cartels. Such cartels must be approved
by and registered with the Federal Cartel Office in Berlin
(Bundeskartelamt, Mehringdamm 129, 1000 Berlin 61).
In addition, some sectors of the economy such as communications,
agriculture, banking, insurance, energy, and ocean shipping are
freed from the general prohibition against cartels. The law's
application in these areas is limited to preventing abusive
restrictions on competition. The law contains a general clause
authorizing the Federal Ministry of Economics to approve individual
cartels if restrictions on competition are in the national interest
and other conditions are fulfilled.
Agreements permitted include those dealing with uniform application
of standards, terms of trade, deliveries, and payments, including
discounts, but not prices; rebates on delivery of goods insofar as
the rebates represent genuine compensation for goods or services and
are not discriminatory, or lead to the formation of export cartels,
provided the restrictive effects are limited to markets outside the
country; and resale price enforcement on trademarked goods and
products of the publishing industry that compete with similar goods
of other producers or dealers.
These types of agreements must be reported to the Federal Cartel
Office and will be valid only if no official objection is raised.
The Cartel Office in Berlin, under the Ministry of Economics,
administers the Cartel Law. The Cartel Office is also empowered to
restrain firms that dominate the market from abusing their position
and has exclusive jurisdiction over business mergers. The courts
handling cartel matters are state courts of appeals (Oberlandes-
gerichte) and the Federal Supreme Court (Bundesgerichtshof).
Mergers resulting in combinations controlling 20 percent or more of
the total domestic market for specific types of goods or services
must be reported to cartel authorities. Mergers must also be
reported by firms having more than a specified annual volume of
business, or more than a specified capitalization.
The prohibitions under Articles 85 and 86 of the Treaty of Rome
against anticompetitive agreements and the abuse of a dominant
position are applied by the EC Commission in close and constant
collaboration with the Federal Ministry of Economics and the Federal
Cartel Office. The Federal Cartel Office takes care that
anticompetitive agreements and practices governed by the German Law
Against Competitive Restraints do not violate the EC's Treaty of
Rome provisions.
Government Procurement
There are three distinct procedures used for government procurement,
depending on the type of commodity or service to be procured, the
number or qualifications of potential suppliers, and whether
proprietary information is involved. The three types are: the
public tender, the selective tender, and the private contract. The
public tender is generally used when there are large numbers of
qualified potential suppliers. Information on such tenders is
published in the Supplement of the Official Journal of the EC,
through notices in two German Government publications--the
Bundesausschreibungsblatt (Federal Register) and/or the
Bundesanzeiger (Federal Gazette)--or through the press.
Procurement by selective tender occurs when special qualifications
are required and the number of suppliers is limited, though
adequate, such as for office machines, supplies, and furniture;
kitchen equipment; textiles and textile products; and trucks. In
general, procurement of these items is not publicly announced.
Private contracts are awarded when only a single potential supplier
or a limited number are able to meet specialized requirements, or if
the contract specifications are subject to security restrictions.
These requirements may include special know-how, protection of
patents, services in connection with former contracts, special
brands, etc. The regulations stipulate, however, that, whenever
possible, an unofficial inquiry into prices shall be undertaken
among an unspecified number of suppliers or government agencies.
Purchasing for publicly owned enterprises is done by each enterprise
for its own account.
Technical specifications of German public tenders generally
incorporate the German industrial (DIN) and other standards, but
special requirements exist for defense items. The Ministry of
Defense maintains an index of approximately 2,000 military
procurement standards, referred to as the "Verzeichnis der
Technischen Lieferbedingungen des Bundesamt fuer Wehrtechnik und
Beschaffung" (Guide to technical procurement conditions). The index
and standard sheets listed in it may be procured from the Bundesamt
fuer Wehrtechnik und Beschaffung, Postfach 73 60, 5400 Koblenz 1.
In principle, U.S. companies able to furnish the needed goods and
services and in sound financial condition are eligible to bid on
public tenders. Foreign bidders theoretically enjoy the same
treatment as German bidders. Military and other government orders
are often placed abroad as a matter of national policy. In contrast
to public tenders and selective tenders, private contracts are not
publicized. Therefore, U.S. companies interested in bidding on
commodities or services handled under these procedures should
approach the appropriate German agencies and have their names and
addresses filed with those agencies.
German procurement officials have expressed great interest in having
U.S. companies on their lists of potential suppliers. They express
the view that U.S. companies coming to Germany are usually very
efficient and, therefore, contribute to a healthy competition.
Although many lucrative contracts are awarded through selective
tender and private contracts, only those companies listed with the
procuring agency can expect to receive invitations to bid.
Legal Provisions.--Principal legal provisions covering government
procurement in Germany are contained in the following regulations,
copies of which can be purchased from the Werner Verlag, Berliner
Allee 11a, 4000 Duesseldorf.
Verdingungsordnung fuer Bauleistungen (VOB--Procurement Ordinance
for Construction Projects) governs the contract awards for
construction projects. American firms may compete on contracts for
local construction. German Government projects over a certain value
are bid EC-wide. According to VOB, foreign and domestic bids must
be treated equally. Verdingungsordnung fuer Leistungen
(VOL--General Procurement Ordinance) governs the procurement of all
other products and services with the exception of professional
services. There are special supplements in order to meet the needs
of particular sectors, such as the VOL/EBV issued by the Ministry of
Defense to regulate awards of defense contracts.
The original VOL dates back to 1936. In 1984 the amended version
was passed within the DVAL--Deutscher Verdindungsausschuss fuer
Leistungen (German committee on government procurement contracts
other than construction work contracts). The panel consisted of
representatives of the federal government, the states (Laender),
cities, industry, and the German Federation of Labor (Deutscher
Gewerkschaftsbund). The amended VOL came into force at the end of
1984 at the federal level and at the end of 1985 at state and local
government levels.
The VOL was developed in accordance with the principles of the
German budget law and competitive market conditions. The latter is
the central criterion for awarding contracts. This does not mean
that price is the only measure, rather it is a fair and reasonable
price/quality relationship. Only contract-related circumstances
count for the award, which means that political considerations may
not determine or influence the awards. Bids from domestic and
foreign bidders must be treated equally.
International Rules
Germany, as a member of the European Community, must observe EC-wide
rules on the awarding of government procurement contracts. Thus,
the EC Directive of 1976 coordinating procedures for the award of
public supply contracts (77/62.EEC) has been integrated into
national rules.
Moreover, Germany has to comply with international rules on
government procurement adopted at the Tokyo Round of Multilateral
Trade Negotiations (MTN) in the Agreement on Government
Procurement. The agreement seeks to limit the signatory
governments' use of discriminatory government procurement
practices. Its provisions apply to government entities on the
federal level and to purchases above a threshold of 150,00 ECU
(European Currency Unit).
Certain products, such as security devices and telecommunication
equipment, and some government entities, are not subject to the
agreement's provisions.
Central Government Purchasing
Following are some of the major German Government agencies handling
a substantial volume of procurement:
Bundesamt fuer Wehrtechnik und Beschaffung
(Federal Office for Defense Technology and Procurement)
Postfach 73 60
5400 Koblenz
Beschaffungsstelle des Bundesministers des Innern
(Procurement Office of the Ministry of the Interior)
Villemombler Str. 78
5300 Bonn-Duisdorf
Bundesbahn-Zentralamt Minden
(Federal Railways Central Office, Minden)
Weserglacis 2
4950 Minden/Westf.
Bundesbahn-Zentralamt Muenchen
(Federal Railways Central Office, Munich)
Arnulfstr. 19
8000 Muenchen 2
Posttechnisches Zentralamt
(Central Postal Administration Office)
Wilhelminenstrasse 1-3
6100 Darmstadt
Fernmeldetechnisches Zentralamt
(Central Office for Telecommunications)
Am Kavalleriesand 3
6100 Darmstadt
German Government tenders are published in the following
publications:
"Supplement to the Official Journal of the European Community"
The Supplement contains tender notices of construction and
supply contracts on an EC-wide basis, according to Community
and GATT rules.
Bundesanzeiger
Postfach 10 80 06
5000 Koeln 1
"Bundesausschreibungsblatt"
(Federal Public Procurement Register
Postfach 20 01 80
4000 Duesseldorf 1
"Submissions-Anzeiger"
Verlag und Druckerei Hintze und Sachse
Postfach 20 16 65
2000 Hamburg 19
"Bundesausschreibungsblatt" and "Submissions-Anzeiger" are Germany's
national registers for government procurement tender notices,
including construction projects, as well as supply contracts on the
federal, state, and local level.
In addition, important tenders are reported through the Foreign
Commercial Service in Bonn and Brussels to the Department of
Commerce and made known to U.S. firms through TOP (Trade
Opportunities Program), which lets more than 200 U.S. Embassies
worldwide find new sales leads for American exporters. TOP provides
leads on overseas firms seeking to represent or buy U.S. products
and services. These leads are telexed to the Department of
Commerce's computer center in Washington. Included are direct sales
opportunities, overseas representation opportunities, and foreign
government tenders. The leads are also made available to exporters
as follow:
Journal of Commerce
110 Wall Street
New York, NY 10005
Telephone: 1-800-221-3777
TOP leads are also available electronically from:
CompuServe Information Service Inc.
1655 North Fort Myer Drive
Arlington, VA 22209
Telephone: (703) 524-6900
For more information, contact the nearest U.S. Department of
Commerce District Office.
TRANSPORTATION AND UTILITIES
Transportation
Germany has an efficient, well-developed transportation system, but
it has recently been plagued by financial problems. Railways carry
about 9.8 percent of the country's freight, ships about 11.3 percent
(inland 7 percent and ocean 4.3 percent), trucks 77.1 percent, and
pipelines 1.8 percent.
Railways.--The German Federal Railways (Bundesbahn) have a network
of 27,431 kilometers of track, and private lines operate another
2,904 kilometers. The Bundesbahn electrification program covered
11,493 kilometers by year-end 1987 (the latest date for which
statistics are available).
The container ports of Hamburg, Bremen and Bremerhaven are linked by
daily rail service with primary container terminals in Frankfurt,
Hanover, Bochum, Cologne, Duesseldorf, Mannheim, Ludwigsburg (near
Stuttgart), Nuremberg, and Munich. In addition, container cars can
be transported to a number of secondary terminals. In this way,
practically all points in Germany can be reached either directly by
rail or by truck or trailer. Container services of the Federal
Railways also are linked with those of adjacent European countries.
Eastern Germany does not have container ports and is expected to
rely heavily on the western port of Hamburg.
Highways.--Germany's highway system is extensive. In 1988, the
total of first class roads extended to 173,600 kilometers, including
8,618 kilometers of super highways. In addition, there are
approximately 320,000 kilometers of roads maintained by
municipalities or private entities. There are 31,196 kilometers of
federal highways, 63,393 kilometers of state highways and
70,383 kilometers of county-maintained roads. In 1988, there were
28.9 million passenger cars registered.
Freight.--In 1987, goods carried totalled 3.1 billion metric tons.
Roads accounted for the largest share with 2.4 billion metric tons
(77.1 percent), followed by railroads with 306.9 million metric tons
(MMT) (9.8 percent), inland waterways with 221.0 MMT (7 percent),
sea vessels with 134.3 MMT (4.3 percent), pipelines with 57.1 MMT,
and air freight with 800,000 metric tons.
Inland Waterways.-- Germany's inland waterways system, the busiest
in Europe, is centered along the Rhine River. In 1987, it carried
7 percent of the nation's freight traffic. The system has over
60 inland harbors and is 4,452 kilometers long. The Rhine-Main
canal does not give Rhine ports access to the North Sea. Moreover,
its completion date is estimated to be sometime in 1992. It is in
use, but about 60 kilometers have still to be completed.
Ocean Shipping.--Germany has several important sea ports, including
Hamburg, Bremen, Bremerhaven, Wilhelmshaven, Cuxhaven, and Emden on
the North Sea and Kiel and Luebeck on the Baltic. Ocean freight
handled by seaports in the Federal Republic in 1987 totalled
134.3 million metric tons. Major German ports are connected with
U.S. ports through frequent sailings of both conference and
non-conference lines. Air connections are also convenient with
nonstop or through flights connecting numerous American urban
centers with major German cities.
Most sea cargo shipped from the United States enters Germany through
the ports of Hamburg, Bremen, and Bremerhaven, although many
industrial raw materials are also unloaded at Dutch and Belgian
ports, and transported by barge directly to the manufacturing areas
along the Rhine and its tributaries. Special container handling
facilities are available. Facilities designed specifically for
certain types of bulk cargo or handling of unusual shipments are
also available at the more specialized ports of Wilhelmshaven,
Emden, and Cuxhaven. Relatively few U.S. goods move to Germany
through the Baltic ports of Kiel and Luebeck. Bremen, Bremerhaven,
Cuxhaven, Emden, Hamburg, and Kiel have free port facilities where
foreign goods may enter and be stored generally without customs
inspection or declaration.
The goods may, in addition, be repacked, modified, or improved, as
prescribed by regulations which vary for the different free port
areas. Specific, up-to-date information with regard to facilities
and current regulations regarding operations permitted should be
obtained from German port authorities.
Adequate storage and handling facilities for any type of commodity,
including frozen foods and perishables, usually can be located
without difficulty. Many of the large transportation and freight
forwarding companies maintain warehouses, including bonded
facilities, in or near every large city. They also maintain offices
in the United States. There are several regional and national
organizations of transport and warehouse firms.
Air.--Air freight is extensively used by U.S. exporters. The use of
domestic air freight, although growing, is limited by the
comparatively short distances between major cities and the rapid
service provided by surface carriers. In 1987, air freight of
800,000 metric tons was a small fraction of total freight volume.
Freight forwarders in the United States should be consulted for
information regarding selection of ocean freight or air carriers,
customs formalities, and estimates of transportation time and cost.
Utilities
There is a high degree of private ownership in the German electrical
system, especially in the generation and transmission of electric
energy.
Electric power generation has decreased in recent years with the
diversification of energy sources. Information on electricity and
supply rates is available from the Vereinigung Deutscher
Elektrizitaetswerke e.V. (VDEW), Stresemannallee 23, 6000 Frankfurt
70. Germany's primary sources of energy are crude oil, gas and
coal. Germany is heavily dependent on imports of crude oil and gas.
Coal is the only indigenous energy fuel produced in substantial
quantities. Germany depended on coal for 27.6 percent of its
primary energy requirements in 1987, and reliance on coal is
expected to rise to 31 percent by the end of the century. The major
anticipated change in the pattern of energy consumption is a reduced
dependence on oil, and an increased reliance on coal and nuclear
power, as well as on renewable sources whenever feasible.
Environmental constraints place limits on the increased use of coal
and nuclear power.
Petroleum.--Imports of crude have continued to decline. In 1989,
imports declined from 72 MMT in 1988 to 66.4 MMT. The petroleum
industry in Germany itself is facing problems. Consumption is down,
domestic production is declining, many refineries have closed and
price competition remains fierce.
Additional information on utilities is available from the
Bundesverband der Deutschen Gas und Wasserwirtschaft e.V.
(Association of German Gas and Water Utilities), Postfach 14 01 54,
5300 Bonn 1.
Telecommunications
Communications is an integral part of the national infrastructure.
It affects directly and indirectly all areas of trade and industry,
and administration. The communications industry continues to have
above-average growth potential. The industry is composed of many
independent companies. Although there are few large industrial
corporations, there are numerous specialized small and medium-sized
firms that employ over 100,000 workers and reach an annual
production level valued at $8.1 billion.
The Bundespost is responsible for the technical approval and
technical supervision of all private facilities. It checks to see
that safety requirements are met and issues new regulations to
ensure the compatibility of terminal devices. These tasks are
carried out by their Central Licensing Office for Telecommunications
in Saarbruecken (Zentralamt fuer Zulassungen im Fernmeldewesen--
ZZF, Postfach 30 50, 6600 Saarbruecken).
In Germany, 1988 investment in telecommunications reached
DM 11.5 billion ($6.5 billion). Deutsche Bundespost (German Postal
Service), which plays a substantial role in the entreprenurial
implementation of communication developments, is the largest
investor with investments totalling about DM 10 billion
($5.7 billion).
Recent Reforms
The German Government has begun a reorganization of the Bundespost
telecommunications section that will allow virtually any company to
provide equipment and services. Until now, the Bundespost has
monopolized the market, but the Bundespost's reorganization of its
telecommunications units is expected to lead to more competition.
Early in 1988, the Bundespost eliminated traffic restrictions on
domestic leased circuits, lifted tariff restrictions on
international fixed connections, and reduced the tariffs for
international leased lines. The Bundespost introduced a
cost-oriented flat rate, replacing usage-time-related tariffs for
domestic leased circuits and international fixed connections for
data transmissions, with bit rates below the voice transmission rate.
The German Government has implemented the liberalization in the
supply of terminal equipment required by the EC Commission and is
expected to implement the EC Commission's Directive on the Mutual
Recognition of type approvals by January 1, 1991.
Firms which have established distribution, sales and strategic
alliances in the European telecommunications sector note that the
most effective vehicles for entering the marketplace are trade
shows. For information about trade fairs, contact the Germany Desk,
Room H-3043, International Trade Administration, U.S. Department of
Commerce, Washington, DC 20230. Telephone: (202) 377-2435;
Telefax: (202) 377-2155.
LABOR
In 1989, the highest GNP growth rate in a decade brought relief in
the country's relatively high unemployment rate. Total employment
rose approximately by 375,000 to 27.7 million. Of all wage and
salary earners, approximately 53.0 percent were in manufacturing,
including mining and construction, 22.8 percent in commerce and
transportation, 17.6 percent in services, and 6.5 percent in
agriculture and forestry.
As with most other industrialized countries, Germany's structural
change from an industrial to a service economy continued, with most
of the new jobs created in the service sector. Average unemployment
in 1989 decreased by 204,000 to a level of about 2.04 million. This
represented a marginal decrease in the unemployment rate of the wage
and salaried work force to 7.9 percent from 8.7 percent in 1988.
The persistently high unemployment rate in recent years reflects a
combination of factors: relatively slow economic growth; demographic
trends, e.g., an increase in the female labor force participation
rate, as well as in the number of foreign workers, youth, and ethnic
Germans arriving from East European countries; lackluster investment
before 1988 in new capacity, high nonwage costs (averaging more than
80 percent of wages), and low skill levels among the jobless. In
1990, even with real growth of around 4 percent, employment gains
may not be sufficient to absorb the further increase in the labor
force as a result of the unexpectedly large increase in ethnic
German and other immigrants from Eastern Europe.
According to the German Employers' Association in Cologne, in 1989
Germany had the shortest work-year (1,634 hours) among 19 Western
industrialized nations: compared with 1,920 hours in the United
States and 2,104 hours in Japan. In the last few years, the two
outstanding features of collective bargaining agreements have been
the continuing trend toward multi-year contracts and the movement
toward a 35-hour workweek. In 1989, negotiated wage level index rose
3.7 percent, higher than the Consumer Price Index rise of
2.8 percent. A workweek of less than 40 hours in capital goods
manufacturing sectors was negotiated in 1988, while a three-year
agreement for the 1.2 million federal, state, and municipal
employees, members of the Public Service Workers Union (OETV),
provided for a 38.5 hour workweek by 1990.
There is widespread discussion among political parties, unions, and
employers over the issue of working time reductions as a means of
generating additional employment opportunities--and the extent to
which the employed should sacrifice to help the jobless. In 1989,
the annual conference of the Metalworkers Union (DGB Metall) advised
its members overtime work may be inconsistent with the goal of a
35-hour workweek.
Tourism
Directly and indirectly employing more than 1.6 million people
(1987) or 5.8 percent of the work force, tourism has become the
largest single industry in Germany, according to the Institute of
the German Economy in Cologne (Institut der deutschen Wirtschaft).
Nearly a million jobs in hotels and restaurants, and professional
services such as travel agencies, travel guides, and drivers are
supported directly by tourism. Jobs indirectly dependent on
tourism--in insurance, banking, and advertising industries for
example, as well as in such peripheral activities as concerts at
spas--add up to about 26,000. Another 350,000 jobs are generated
in industry and the trades, manufacturing camping equipment and
facilities or souvenirs, for example.
Germany's Aging Population
The number of young people in Germany has declined by more than
25 percent during the past ten years, according to figures released
recently by the federal government. Government statisticians found
that there are currently fewer than 11 million young people in
Germany under 18, compared with 14.2 million at the end of 1980.
The trend should begin to reverse itself by the early 1990s,
reflecting the higher birth rate recorded since 1985. The birth
rate in Germany has risen from 9.5 in 1980 to 11 births per 1,000
inhabitants in 1988. Despite the increase, the figures are still
well below the 17 births per 1,000 inhabitants recorded during the
"baby boom" years of the 1960s.
Impact of East European Immigrants
According to a survey by the Cologne-based Institute of the German
Economy, the recent influx of ethnic German and other immigrants
from Eastern Europe should boost demand and German growth prospects
in the 1990s. The survey suggests a significant increase in GNP and
consumption from the increased labor force, as well as higher tax
revenues and contributions to Social Security and health insurance.
The study also suggests additional government expenditures of about
DM 7 to 8 billion more than the anticipated increase in tax revenues
generated by new arrivals. According to the Federal Labor Office in
Nuremberg, however, the possibility of finding work for resettlers
has worsened, while their numbers entering the labor market are
growing. More recent resettlers do not possess the same knowledge
of German as earlier resettlers or training to meet the requirements
of the German labor market. Immigrants with a crafts training--
despite language difficulties--have no problem finding a job.
DISTRIBUTION AND SALES CHANNELS
While U.S. exports to Germany have increased in recent years, intense
competition from domestic suppliers and EC producers make it
imperative that U.S. suppliers compete vigorously and follow sound
business practices. This section provides guidance on these points,
covering, for example, such key factors in the selling process as
import and distribution channels and German commercial customs and
practices. American business people visiting Germany are invited to
make use of the extensive commercial and trade promotion services
offered at U.S. and Foreign Commercial Service (US&FCS) posts.
(See page 73 for a list of US&FCS offices in Germany.)
Import Channels
The German market can be approached through various channels, some
entailing little or no participation by the exporter and others
requiring direct and active involvement. The choice of an
appropriate channel depends upon the product itself, financial
considerations, and such other factors as the size of the market;
long-term sales potential; and the need for promoting, installing,
or servicing the products.
Branch offices.--A number of foreign firms, particularly large
multinational corporations, import (or produce) and sell their
products through their own branch offices or subsidiaries. This
clearly offers the most effective means of reaching the market,
since the branch office can devote its full attention and resources
to the parent firm's own product. However, since a branch office
would require a relatively greater capital investment than other
techniques, it may be appropriate only if the supplier anticipates a
large sales volume or has a diversified line of products to sell.
Among the wide range of products imported and distributed by branch
offices are business machines, communications equipment,
agricultural implements, chemicals, cosmetics, pharmaceuticals,
sporting goods, books, and packaged foods.
Franchising.--Distribution through franchises can often be as
effective as a branch office operation, yet without the expense
entailed in overhead, payrolls, and direct management. Although the
term "franchising" was not widely known in Germany, arrangements of
this kind long existed, usually in the form of "concessions."Large
oil companies, for example, Esso AG (Exxon) and Shell, have granted
thousands of franchises to operate service stations. Franchises
granted by major soft drink producers and a number of fast or
convenience food restaurant chains are spread throughout Germany.
There are also several retail chains, like EDEKA, that have had
success with franchising or similar sales functions for many years.
More recently, franchises have been granted in such fields as the
service industries, including photo processing and supplies, dry
cleaning, rug cleaning, and shoe repair.
Franchising, described as a vertically structured strict form of
cooperation, has developed into a well-accepted business practice in
Germany over the last decade, and is expected to gain even greater
importance in the years to come. According to a prominent German
franchising expert, franchising will soon account for 30 percent of
total retail sales in Germany, and 70 percent of total sales volume
in German service industries.
In 1988, about 180 franchisors with approximately 10,000 franchises
were operating in Germany, not including the automobile dealers,
gasoline service stations, and beverage bottling companies. Their
total retail sales that year are estimated at $5.7 billion, an
increase of 12.4 percent over 1987. The average annual growth rate
in retail sales by franchises through 1991 is projected in the 5-10
percent range. Industry sources expected 1,100 new franchise
outlets to be opened in Germany in 1989. U.S. franchisors are found
in nearly every product/service field in Germany.
General Importers.--By far the greatest portion of Germany's imports
move through import houses, wholesalers and other general importer-
distributors. These firms handle all kinds of consumer and
industrial supplies (except bulk commodities) as well as smaller
types of equipment. They buy and sell for their own account. For
industrial goods, they provide a source of spare parts and
maintenance to their customers. Many, however, will not purchase
parts for their own account and ask the manufacturer to supply them
"on consignment," which permits them to sell to customers and pay
the manufacturer as the need arises. Moreover, only in exceptional
cases will they bear the entire expense of providing warranty
maintenance services to customers. In most cases, the foreign
supplier is expected to finance all, or a significant portion, of
such warranty services.
The suitability of the typical importer to handle industrial
commodities depends on the degree of technical skill required to
market the product. In some cases, a combination of an importer and
one or more sales agents has proved satisfactory. In such an
arrangement, the importer tends to the business of receiving,
warehousing, and clearing the goods, while the agents provide the
technical skills necessary to develop and expand markets.
Importers of technical consumer goods, such as household appliances,
are faced with service problems similar to those of industrial goods
distributors. They will seldom purchase foreign consumer goods
unless necessary maintenance and parts are offered, comparable to
the generally reliable services provided by German suppliers. Large
German manufacturers and several German mail-order houses, for
example, maintain customer service centers in metropolitan areas.
Specialized Importers.--Many German importing firms specialize in
product lines, often exclusively. These firms have been in the
trade for a long time and may know as much about the products they
handle as the suppliers and end-users themselves. They appear to be
most active in the bulk commodities, although they also trade in
consumer and small industrial lines where special product expertise
affords some advantage. Among bulk commodities, specialized
importers account for most imports of cotton, grains, oil cake and
meal, fruit, and coal. They also deal in other bulk products, such
as lumber, oils and fats, wood pulp, paper, cardboard, hard fibers,
herbs and spices, and synthetic and natural rubber; but these
products are just as often bought directly by the end-users.
Importers of bulk commodities generally purchase for their own
stocks, unless they prefer to stock the goods in warehouses under
bond if the goods are not shipped directly to the final
destination. The Free Port of Hamburg, in particular, offers bonded
warehouses for stocking. These warehouses are owned by importers,
forwarding agencies, port authorities, processors, etc.
Indentors.--Manufacturers' representatives, brokers, and other sales
agents play an important role in the import and distribution of all
types of goods. Their main function is to find customers and place
orders on behalf of the foreign supplier. They rarely buy and sell
for their own account, operating instead on a commission basis. The
commission usually varies with the product and with the degree of
service performed. Some agents, particularly those appointed by the
foreign supplier as exclusive sales representatives for the product,
a particular region, or both, would normally be expected to have
facilities for storing spare parts and servicing what is sold.
End-users.--Equipment of considerable size and value is generally
purchased directly by the user, who may send technically qualified
personnel abroad to investigate models and systems under
consideration. Technical data sheets are carefully evaluated by the
potential purchaser's engineers. Many end-users also purchase their
bulk raw materials directly from abroad, particularly such
commodities as tobacco, oil seeds, timber, ores, and metals. In the
consumer goods area, the importance of department stores, mail-order
houses, and cooperative purchasing organizations as direct importers
has been growing rapidly. Many have their own purchasing agents in
the United States.
Distribution Practices
Marketing Areas.--For suppliers of manufactures, the principal
marketing area in Germany is a great urban-industrial complex
running north to south along the Rhine and Main River systems.
Richly endowed, densely populated, and heavily industrialized, this
area is among the most productive in the world. It includes the
Ruhr cities of Dortmund, Bochum, Essen, Duisburg and Solingen,
Duesseldorf, and Cologne; the Saar basin; and Koblenz, Wiesbaden,
Mainz, Frankfurt, Offenbach, Darmstadt, Mannheim, Ludwigshafen, and
Karlsruhe in central Germany. Major industries in this area include
coal mining, iron and steel, vehicle manufacturing, metallurgy,
electrical equipment, chemicals, cement, and textiles.
Outside this major Rhine/Main River complex, a number of specialized
marketing areas also exist, and particular industries have tended to
congregate there. For example, the shipbuilding industry is centered
in Bremen and Bremerhaven; electric and electronic industries in
Berlin and Munich. Similarly, Munich, Nuremberg, Wuerzburg,
Wetzlar, and Stuttgart are noted for optical and precision
instruments; Freiburg and Pforzheim for clocks and watches; Munich,
Berlin, Nuremburg, Wuerzburg, Hamburg, and Bremen for beer; and
Berlin, Munich, and the Czech border areas in Bavaria for glass,
china, and ceramics.
Although agriculture accounted for only 1.6 percent of German GNP in
1989, farming nevertheless is a major activity in some sections of
the country. For suppliers of farm materials and equipment, these
marketing areas are located principally in the southern states of
Bavaria and Baden-Wuerttemberg, but also in North Rhine-Westphalia,
Lower Saxony, and Schleswig-Holstein. Suppliers of consumer goods
will find important marketing areas throughout Germany.
Distribution Centers.--Major entry points into Germany for
country-wide distribution are the seaports of Hamburg and Bremen
and, for air traffic, Frankfurt and Cologne/Bonn airports. Although
Berlin is another major point of entry for air freight, its limited
access until 1990 lessened its attractiveness as a country-wide
distribution center, a situation likely to change drastically with
reunification.
In addition to their importance as international seaports, Hamburg
and Bremen are also the major distribution centers of the northern
portion of Germany, the states of Schleswig-Holstein, Lower Saxony,
and the city states of Hamburg and Bremen. As eastern Germany does
not have container ports, Hamburg will increasingly be serving the
eastern states as well. The exposition city of Hanover and, to a
lesser extent, Braunschweig, are also key distribution points in the
north. Closer to the center, the Rhine cities of Cologne and
Duesseldorf, together with Essen, serve as the important points of
access to North Rhine-Westphalia, the country's most populous state,
including the highly industrialized Ruhr area.
Frankfurt is the focal point for commercial activity in the
centrally located state of Hesse, particularly the densely populated
Rhine/Main region. Frankfurt is Germany's financial capital. As
the seat of the German Bundesbank and the largest stock exchange in
the country, it serves as the headquarters for major domestic and
foreign banks. It is also known throughout the world for its
international trade fairs.
Other important distribution points in central Germany include
Offenbach and Wiesbaden (in Hesse), and Koblenz, Mainz, and
Ludwigshafen (in Rhineland-Palatinate). Further south, in the
prosperous industrial state of Baden-Wuerttemberg, Stuttgart,
Mannheim, and Karlsruhe are the major distribution centers. Access
to the state of Bavaria is mainly through Munich and Nuremberg.
Practices of U.S. Firms.--U.S. firms generally appoint one or more
distributors to cover the major marketing areas of Germany. Their
number and locations will depend on the products and the locations
of important groups of customers. The use of established German
distributors for nontechnical product lines is quite common. Many
American firms have also found it desirable to establish their own
offices in Germany. Such facilities permit them to maintain parts
inventories, introduce their own marketing and advertising
techniques, and achieve market penetration more rapidly.
German and foreign firms alike are finding service guarantees to be
a promotional factor of great significance. The practices of
American firms in meeting the maintenance problem vary widely. One
company may provide factory-based service and have a factory
representative inspect all installations in Germany once a year.
Another may rely on its factories in Europe and the United States
for parts and train German repairmen. Repair parts for which there
is little demand are sometimes stocked in the United States by some
firms and shipped as the need arises, frequently by air freight.
Wholesale and Retail Channels
Rapid changes in the structure and operating methods have blurred
traditional functions of wholesalers and retailers. New marketing
concepts are contributing to a dynamic process characterized by
increasing concentration at all distribution levels.
Wholesaling.--Wholesalers' turnover rose 5.6 and 6.8 percent in 1988
and 1989, respectively. These data include the sales of import
-export firms, which are grouped statistically with the wholesalers.
Most German wholesalers import to some extent, an activity which is
intensifying with the growth of the European Community. Most German
wholesalers and import-export firms belong to one or more of 68
trade associations represented in the National Federation of German
Wholesalers and Traders in Bonn (Bundesverband des Deutschen
Gross-und Aussenhandels e.V.-- BGA, Postfach 13 49, 5300 Bonn 1).
Retailing.--Retail sales continue upward. After rising 4.2 percent
in 1987, turnover eased to 3.9 percent in 1988 but rose 4.9 percent
in 1989. The bulk of retail outlets are one-line retailers followed
by department stores, mail-order houses, and consumer cooperatives.
German retailing is highly competitive and continually undergoing
changes. The trend toward bigger sales units, use of trademarks,
new marketing systems and computerization becomes more significant
in retailing than in wholesaling. At the retail level, new mass
distribution outlets are developing at the expense of the small-size
one-line retailers. For example, the number of self-service
centers, self-service stores (more than 4,000 square meters of floor
space), discount houses (Kleinpreisgeschaefte), consumer markets
(Verbrauchermaerkte), shopping centers (Einkaufszentrum) and
mini-markets, convenience stores, drugstores, boutiques and
coin-operated vending machines has risen dramatically. Germany has
the most restrictive retail shopping hours in Europe, but
experimentation has begun by allowing evening shopping hours on
Thursdays.
Many shops normally classified as retail outlets, such as bakeries,
tailor shops, and shoe and watch repair shops, are not included in
the German retail trade statistics. These enterprises, together
with small machine shops, saw mills, flour mills, building
contractors, and several other trades, are listed as handicrafts
(Handwerk) and account for appreciable sales volume.
There is a retail trade association for each geographic area and for
virtually every type of retail store in Germany. All regional
organizations and many specialized trade groups belong to the
Principal Association of German Retailers in Cologne
(Hauptgemeinschaft des Deutschen Einzelhandels e.V. -- HDE,
Sachsenring 89, 5000 Koeln 1).
Department Stores.--Karstadt AG, Kaufhof AG, Hertie Waren- und
Kaufhaus GmbH, and Horten AG (see addresses below), Germany's four
largest department store chains, had sales of $6.9, $6.0, $2.9 and
$1.4 billion, respectively, in 1989. All have purchasing agents in
New York and regularly stock U.S. merchandise.
Karstadt AG
Postfach 10 21 64
4300 Essen-Bredeney 1
Kaufhof AG
Leonard-Tietz-Str. 1
5000 Koeln 1
Hertie Waren- und Kaufhaus GmbH
Postfach 31 68
6000 Frankfurt 71
Horten AG
Am Seestern 1
4000 Duesseldorf 11
Germans generally differentiate between a regular department store
(Warenhaus), which has a food department and offers a broad
selection of merchandise; and a specialized department store
(Kaufhaus), which offers no food but features specific commodity
lines, such as textiles, furniture, and household goods, or several
commodity lines combined. Together with mail-order firms and large
variety store chains, the department stores are represented in the
National Working Group of Medium-sized and Large Retail Trade in
Cologne (Bundesarbeits-gemeinschaft der Mittel- und Grossbetriebe
des Einzelhandels e.V., Lindenallee 41, 5000 Koeln 51).
Mail-order Houses.--National Association of German Mail-order Trade
(Bundesverband des Deutschen Versandhandels, e.V., Johann-Klotz-Str.
12, 6000 Frankfurt 71), with some 140 member firms, estimates that
almost the entire volume of business is done by the top 20 firms.
The two largest, which also operate retail stores, are: Otto
Versand GmbH & Co. (Wandsbeker Str. 3-7, 2000 Hamburg 71) and G.
Quelle-Schickedanz-Gruppe (Nuernberger Str. 91-95, 8510 Fuerth).
The two had sales of $7.6 and $6.7 billion, respectively, in 1989.
Quelle operates 30 retail outlets and derives the bulk of its
revenues from catalog sales (mailed to some 10 million households).
Retail Chains.--The largest branch store concerns (Filialunternehmen)
are retailers of foodstuffs, but other branch store chains operate
in numerous nonfood sectors. There has been a steady decrease in
the number of food branch stores and a marked tendency toward fewer,
but larger, outlets with more emphasis on self-service. Food,
textiles, household furnishings, electrical appliances, radio and
television sets, and stationery are among the many categories in
which the growth of chains has been significant. The largest food
retail chain is Tengelmann & Co. KG, which had sales of
$19.7 billion in 1989.
Cooperative Purchasing.--In certain branches of the trade,
independent wholesalers and retailers have formed various voluntary
groups to concentrate their purchasing power. The organizations
have steadily expanded their services to small and medium-sized
firms which generally make up their memberships. Textiles,
foodstuffs, shoes, hardware, toys, sporting goods, furniture,
leather goods, and silverware are typical of the product lines
affected by such cooperative purchasing arrangements.
Consumer Cooperatives.--There has also been a period of
consolidation and concentration of consumer cooperatives into larger
and more efficient units. Consolidated purchasing for all German
consumer cooperatives is handled by the cooperative Zentrale AG,
Besenbinderhof 43, 2000 Hamburg 1. It also operates manufacturing
establishments (primarily in the food sector). The cooperatives are
combined with the cooperative Zentrale in the Revisionsverband
deutscher Konsumgenossenschaften e.V. (Federal Association of German
Consumer Cooperatives) at the same address in Hamburg.
Commercial Practices
Quotations and Terms of Payment.--German buyers generally prefer
cost, insurance, freight (c.i.f.) quotations based on delivery to a
German or other continental port. Larger firms that handle their
own shipping arrangements are willing to accept quotations free on
board (f.o.b.) U.S. ports. For consumer goods, it is customary to
quote landed prices, including German import duties.
For investment goods and raw materials, it is generally sufficient
to quote cost and freight (c.& f.), c.i.f., or f.o.b. prices.
C. & f. is a pricing term indicating that the cost of the goods and
freight charges are included in the quoted price; the buyer arranges
for and pays insurance. C.i.f. is a pricing term indicating that
the cost of the goods, insurance and freight are included in the
quoted price.
F.o.b. is a pricing term indicating that the quoted price includes
the cost of loading the goods into transport vessels at the
specified place. When quoting c.i.f. or c.& f., the supplier must
specify port of destination; when quoting f.o.b., the port of
shipment.
American firms should be prepared to quote prices on the basis
preferred by the prospective buyer. The terms of the offer should
be presented in a clear and detailed manner. German firms may ask
for a pro forma invoice showing how the actual invoice would
appear. The currency in which prices are quoted and invoiced is
generally determined by mutual agreement between buyer and seller.
Payment terms vary widely, depending in part on the commodities
involved, and may fluctuate slightly with changing market
conditions. Sales may be made against payment, letter of credit, on
consignment or on open account. Booklets explaining these terms are
available from the international departments of major banks, or the
American Bankers Association, 1120 Connecticut Avenue, NW,
Washington, DC 20036.
Exporters who insist on cash or near-cash terms, however, stand
little chance of realizing their true export potential. Exporters
in other leading industrial countries, frequently with the support
of their government-sponsored credit insurers, readily grant payment
terms to their customers in Germany. American exporters should make
a serious effort to be competitive in this respect. For sales on
open account, payment within 30 to 90 days is the usual practice.
Terms for expensive machinery built to customer specifications might
call for progress payments according to an agreed payment schedule.
German buyers sometimes complain that American firms are too rigid
in their payment requirements compared with other foreign
suppliers. EC suppliers frequently extend terms calling for
payment in 90 days and open credit. German importers also complain
that some American firms routinely insist on confirmed letters of
credit, even when the credit standing of the purchaser is good.
Discounting for prompt payment is a common practice in Germany, the
most common schedule permitting the buyer a 2 to 3 percent discount
for settlement within ten days. Orders received should be
acknowledged promptly and delivery schedules observed strictly.
Shipments should conform to the terms of the contract and should be
consistent with any samples that may have been inspected by the
German importer.
Credit information on German firms is available in the form of World
Trade Data Reports (WTDRs), compiled by the U.S. & Foreign
Commercial Service posts and available upon request through local
ITA district offices, U.S. Department of Commerce. There is a
charge of $100 per WTDR. Similar information is available from
private rating agencies and commercial banks.
ADVERTISING AND MARKET RESEARCH
Germany has a well-developed network of promotional services and
vehicles to facilitate the introduction and distribution of
products. U.S. exporters should be prepared to share promotional
costs with their German agents and representatives, especially when
launching a new product.
Advertising
German advertising is extremely versatile and resembles its American
counterpart in most aspects. Under the impact of the European
Community, advertising is expected to adjust further to the
subtleties of a multinational market and continue expanding its
services. It should be noted that use of comparisons and
superlatives in advertising in Germany is strictly regulated.
Agencies.--Numerous agencies provide a complete line of services in
the American manner. Major U.S. agencies have subsidiaries or
branch offices in Germany or have entered into joint ventures with
well-known German agencies. Some firms list market research among
their services, while others offer this service in cooperation with
specialized research institutes. Agencies generally provide
counsel, creative art and copy work, and translations, as well as
media selection and placement services. Full-service, partial
service agencies, advertising consultants, and straight space
brokers are organized in trade associations that are united with the
media and major groups of advertisers through the Zentralausschuss
der Werbewirtschaft e.V.--ZAW (Central Committee of the Advertising
Industry, Postfach 20 14 14, 5300 Bonn 2).
The ZAW Jahresbericht (Annual Report) provides a useful reference
work and contains a number of statistical compilations on
advertising expenditures and other aspects of the industry.
Media.--The media in Germany are essentially the same as those in
the United States, although complex federal, state and local
controls circumscribe the use of billboards, neon signs and certain
other media.
Newspapers and periodicals rank high in importance in terms of
annual advertising expenditures. In 1986, the most recent year for
which figures are available, Germany had 1,260 newspapers, of which
356 were considered major, and 6,908 magazines, issued by 1,545
publishing companies. Daily newspaper circulation averages
25 million copies, while the corresponding annual average for
periodicals was 275 million copies. There were 2,223 companies
engaged solely in publishing, including 305 newspaper publishers.
Sales volume reached DM 28.6 billion in 1986, including
DM 13 billion in advertising revenues. Audited circulation data are
available from the Information Center for Measuring Advertising
Media Circulation in Bonn (Informations-gemeinschaft fuer
Feststellung der Verbreitung von Werbetraegern, e.V., same address
as ZAW), an agency comparable to the Audit Bureau of Circulation in
Chicago).
Newspapers exist for every type of reader. Many carry color
advertising and in some instances use the most modern techniques.
German periodicals cater to a wide range of general and specialized
reading tastes. Popular magazines, enclosed in folders bearing
additional advertising, are circulated in cafes, restaurants, barber
shops, and beauty salons. Many popular titles reach the Austrian
and Swiss markets. Some of the specialized trade, technical, and
professional publications also have international followings.
Television stations, which have carried commercials since 1956, are
operated by regional authorities, with only a limited number of time
spots being allotted to advertising. Deregulation of the
broadcasting industry is significantly increasing the number of
private stations, including satellite and cable systems, making much
more advertising time available. Private channels such as SAT 1,
RTL-plus or Sky channel reach a growing number of households. They
are financed in part by advertising and come closer to U.S. TV
channels than public TV programs. Radio advertising, like TV
commercials, is subject to state controls and reaches a large
audience.
Cinema advertising in the form of slides and motion-picture shorts
still offers an effective and significant medium although its growth
has been adversely affected by the impact of television and home
video equipment. Use of posters and placards is widespread. They
are displayed on billboards and on the well-known Plakatsaeulen--
cylindrical columns on corners, near bus stops, and in other public
places. Placards can also be placed on buses, streetcars, trains,
and other public carriers. Show window displays are effective and
generally of high quality.
Market Research and Trade Organizations
Market Research.--Measured by the number of firms, institutes and
professionals involved, and most other standards, market research in
Germany is among the most advanced in Europe. It is being used
increasingly to market investment goods and industrial components,
but most of the German market research firms are still oriented
toward consumer goods.
Reports and findings of Germany's leading economic research
organizations frequently provide valuable source materials for
marketing studies. Several of the organizations are interested in
fields directly related to marketing, such as retailing, consumer
behavior and wholesaling. The names of German advertising agencies,
market research organizations, and management and public relations
consulting firms (including U.S. subsidiaries) may be found in the
International Directory of Market Research Houses and Services,
published by the American Marketing Association, 420 Lexington
Avenue, New York, NY 10017; and Bradford's Dictionary of Marketing
Research Agencies and Management Consultants in the United States
and the World, P.O. Box 276, Fairfax, VA 22030.
The U.S. Department of Commerce's U.S. & Foreign Commercial Service
offers a "Comparison Shopping Survey -- CSS," a mini survey of the
country market for specific products, including consumer products.
Depending on the backlog, a CSS survey, ordered through the nearest
district office of the Department of Commerce, can be completed in
four to six weeks; contact your local Commerce Department district
office for pricing information.
Trade Organizations.--There is a German trade association for almost
every type of commercial and industrial endeavor, several of which
have been identified elsewhere in this report. Altogether 36
manufacturers' associations, representing some 100,000 firms, are
members of the Federation of German Industry in Cologne
(Bundesverband der Deutschen Industrie e.V., Postfach 51 05 48, 5000
Koeln 51). Some 67,000 manufacturers' agents are members of the
Zentralvereinigung Deutscher Handelsvertreter- und Handelsmakler-
Verbaende (CDH), in Cologne (Geleniusstr. 1, 5000 Koeln 41).
The 69 chambers of industry and commerce, make up the National
Chamber of Industry and Commerce (Deutscher Industrie und
Handelstag--DIHT, Postfach 14 46, 5300 Bonn 1).
German trade organizations conduct market research on behalf of
their members and prepare other reference material. They sometimes
make information available to nonmembers, but many choose to do so
only within the framework of a reciprocal exchange of data.
The American Chamber of Commerce in Germany, founded in 1903 in
Berlin, has its main office in Frankfurt (Rossmarkt 12, 6000
Frankfurt 1). Locations of the Chamber's representatives in other
parts of Germany are given elsehwere in this report.
Trade Fairs
Historically, Germany has long been the world leader in trade
fairs. Some 60 percent of all important fairs worldwide and some
85 percent of trade fairs in Europe take place in Germany. Trade
fairs are the most important sales tool in the German market and
offer ideal forums for introducing new firms and products. German
fairs serve as meeting places for producers to check on competitive
lines, for licensors to negotiate arrangements, and for technicians
to exchange ideas and catch up on recent developments in their
fields. For certain "restricted" products, exhibition in a trade
fair is a precondition for obtaining an important quota allocation.
Cologne, Duesseldorf, Frankfurt, Hanover, Leipzig, and Munich are
main sites for the 100 or more international trade fairs held each
year in Germany, more than in any other market in the world. Other
cities also host major international fairs, scheduled to coincide
with the purchasing patterns of the specialized markets and
industries they serve. Among them are Berlin, Hamburg, Stuttgart,
Offenbach (leather goods), Pirmasens (shoe industry), Nuremberg
(toys), and Essen.
The trend is toward the so-called Fachmessen, or specialized trade
fairs, and away from the so-called universal or horizontal
multi-industry fair, as Leipzig has been in the past. This trend is
already well enough established so that German executives in
specialized fields normally have only a limited number of fairs a
year that they regularly attend or in which they participate as
exhibitors.
Space is limited and often rented by perennial exhibitors. Newcomers
wishing to participate must apply early. Space application deadlines
at major fairs and exhibitions can be as early as 16 months before
the opening date. At the same time, individual fair companies are
generally prepared to quote a firm price per square meter of exhibit
space that much in advance. German customs regulations permit
foreign products to enter duty free for display at scheduled fairs
and exhibitions. Contact the Germany Desk for information on how to
recover value-added tax (VAT) charges assessed on participants in
German trade fairs.
Participants can achieve best results by supplying fair management
with the necessary promotional and pictorial material, preferably in
the German language about ten weeks before opening day. Since fair
catalogs are used as a standard reference source long after the
gates close, care should be given to the preparation of the firm's
entry and advertising in the catalog, particularly where individual
product listings are desirable.
An ample supply of catalogs, product literature (preferably
illustrated), price lists and other promotional literature
(preferably in German) should be on hand for distribution throughout
the exhibit. Consideration should also be given to the organizing
of press conferences, with attendant press coverage of products or
services being exhibited. The US&FCS in Germany maintains close
contacts with leading trade fair companies and assists with adequate
space allocation for Commerce-sponsored American group exhibits at
selected industrial trade fairs each year.
The US&FCS encourages greater American participation in German trade
fairs as an excellent, cost effective method for introducing new or
improved products to the lucrative German market. Trade promotion
events with Commerce Department support include major German
international trade fairs featuring: industrial safety and security
equipment (A+A and SECURITY), sporting goods (ISPO and SPOGA),
textiles and apparel (HEIMTEXTIL and TECHTEXTIL), automobile parts
and accessories (AUTOMECHANICA), biotechnology (BIOTECHNICA),
analytical and scientific instrumentation (INTERKAMA and ANALYTICA),
seafood (ANUGA), electronic components (ELECTRONICA), electronic
industry production and test equipment (PRODUCTRONICA), computers
and peripherals (SYSTEMS), medical equipment (MEDICA), selected
consumer goods (AMBIENTE), computer databases (INFOBASE), and
refrigeration and air conditioning (IKK).
There is no substitute to exhibiting at a trade fair for testing and
developing the German and European markets. However, participation
may not be possible for every American company. To help both
exhibiting and visiting firms take advantage of these unique sales
fora, US&FCS Germany has developed the Marketing Assistance and
Research Center (MARC) program. MARC is a program to assist the
U.S. firm in getting optimum value and effectiveness from the firm's
visit or participation to an international trade exhibit in Germany.
MARC offers: message reception services, appointment services,
confidential assistant services, market counseling, credit checks,
market research reports, advance mailing services, and advertising
services. MARC Services are available to companies seeking to sell
American goods or services at German trade fairs. MARC services
will vary at individual shows, depending on the wishes of the show
organizers, the presence of a U.S. Pavilion, and availability of
US&FCS staff and resources. Further information on the events with
MARC services and international trade shows in Germany in general
can be obtained from the Germany Desk at (202) 377-2435.
See last page for a listing of US&FCS offices in Germany.
Additional information on German trade fairs may be obtained from
the Exhibitions and Fairs Committee of the German Economy in
Cologne (Ausstellungs- und Messe-Ausschuss der Deutschen Wirtschaft
e.V. - AUMA, Lindenstr. 8, 5000 Koeln 1). The committee publishes
semiannually the AUMA Handbook of Trade Fairs in Germany.
All major German trade fair companies are represented in the United
States. For more information on international trade shows in
Germany contact:
Berlin
AMK Berlin
101 West Grand Avenue, Suite 601
Chicago, IL 60610
Telephone: (312) 245-5230
Telefax: (312) 245-5239
Dusseldorf
Dusseldorf Trade Shows, Inc.
150 North Michigan Avenue
Suite 2920
Chicago, IL 60601
Telephone: (312) 781-5180
Telefax: (312) 781-5188
Frankfurt and Cologne
German-American Chamber of Commerce Inc.
Trade Fairs Department
666 Fifth Avenue
New York, NY 10103
Telephone: (212) 974-8830
Telefax: (212) 974-8867
Hanover
Hannover Fairs USA, Inc.
P.O. Box 7066
103 Carnegie Center
Princeton, NJ 08540
Telephone: (609) 987-1202
Telefax: (609) 987-0092
Munich
Kallman & Associates
5 Maple Court
Ridgewood, NJ 07450
Telephone: (201) 652-7070
Telefax: (201) 652-3898
BANKING AND CREDIT
Banking System
Germany has the capital markets and credit machinery of any modern
economy, including a central banking system, commercial and saving
banks, building and loan associations, insurance companies, and
special credit institutions. All larger commercial banks offer a
full range of banking services, including sales and purchases of
securities and have many branches throughout the country and abroad.
The three largest commercial banks are the Deutsche Bank, Dresdner
Bank, and Commerzbank. Commercial banks serve primarily the
investment needs of private industry. They engage in every kind of
banking business, although traditional functions continue to receive
substantial emphasis and they concentrate on financing small
business.
Local savings banks cooperate closely with municipal and regional
authorities, contributing significantly to a geographically balanced
development of the economy. The savings banks central institutions,
the Landesbanken-Girozentralen, have increasingly engaged in the big
German banks' business, that is, in wholesale corporate and
international business. The cooperative credit unions' principal
purpose is to promote retail trade, handicrafts and agriculture.
They too offer all types of banking services but concentrate on
accepting sight and time deposits and extending short- and
medium-term credits to their members, with the share of long-term
loans increasing steadily. In addition to regular banking services,
commercial banks in Germany are authorized to handle public
placements for local governments and industrial concerns.
As of May 1989, there were 4,312 banks, including 310 commercial
banks, 584 savings banks, 12 central clearing banks, 3,322
cooperative credit unions, 6 cooperative credit banks, 36 mortgage
banks, 13 specialized banking institutions, and 29 building and loan
associations; in addition, there were 15 postal giro and postal
savings bank offices.
The Bundesbank is an autonomous agency whose capital is held by the
federal government. The main functions of the Bundesbank are to
regulate the money supply, to support the general economic policy of
the federal government and to issue banknotes. It sets the key
discount rate and the Lombard rate (the latter for loans against
eligible collateral), as well as minimum reserve requirements.
Credit institutions are regulated by the Banking Law
(Kreditwesengesetz) and monitored by the Federal Banking Supervisory
Office in Berlin (Bundesaufsichtsamt fuer das Kreditwesen), whose
main responsibility is to protect depositors.
Credit
Currency.--The monetary unit is the Deutsche Mark (DM), which equals
100 Pfennig (Pf). Banknotes are issued in denominations of 5, 10,
20, 50, 100, 200, 500, and 1,000 Mark. Coins are issued in
denominations of 1, 2, 5, 10, and 50 Pfennig and 1, 2, and 5 and
10 Deutsche Mark pieces. All coinage is of base metal, except for
10 Mark pieces which, are silver alloys. After reaching an 11-year
high of DM 3.19 in 1984, the U.S. dollar has depreciated against the
Deutsche Mark, averaging DM 1.88 in 1989 and DM 1.50 in 1990.
Under the present system of floating rates, the DM is not tied to
either gold or the dollar. "Official" parities are now expressed in
terms of SDRs (Special Drawing Rights). Germany has been in the
forefront of European efforts to restore greater cohesion of
exchange parities. In 1979, the European Monetary System came into
existence. Rather liberal margins for permissible rate fluctuations
are combined with agreed upon modalities for support intervention
and assistance from a common fund. The European Monetary System
(EMS) was launched by the President of France and the German
Chancellor to stabilize exchange rates and promote monetary
integration within the EC. The European Currency Unit (ECU), a
basket of trade weighted EC member countries' currencies, serves as
a reserve asset and means of settlement for EMS central banks.
Foreign Exchange Controls.--The Bundesbank is authorized to
introduce foreign exchange controls, but has not done so since the
last exchange restrictions were lifted in 1957. There are no
restrictions on the repatriation of capital, earnings, or the
convertibility of the Deutsche Mark.
Monetary Policy
Traditionally, the Bundesbank has pursued a tight monetary policy to
keep inflation at a low level. With virtually no inflation from
1985-87, as measured by consumer price index, the discount rate was
lowered to 2.5 percent in 1987 -- the lowest level since the 1880s.
It was up to 3.5 percent by the end of the following year and stood
at 6 percent by mid-1990. The Lombard rate (for loans against
eligible collateral), traditionally 1 percentage point above the
discount rate, was raised to 8 percent.
The Bundesbank continues its policy of safeguarding the purchasing
power and the external value of the DM and reining in above-target
money supply growth and inflationary pressures. In mid-1990,
installment credit interest rates ranged from 11.87 to 14.72
percent, with an average of 13 percent. Mortgage loans averaged
9.86 percent. Also as of mid-1990, interest paid on savings
accounts ranged from 2.5 to 3.5 percent, on fixed deposits for one
year 3 to 4.5 percent, for four years or longer 4 to 6 percent.
Domestic Credit Facilities
Short-term financing is available through discounting trade bills at
certain commercial banks and through use of overdraft facilities
payable on demand. Bank lending to domestic enterprises and
individuals, as of June 1990, totalled DM 1,987.5 billion, of which
DM 399.4 billion were short-term and DM 1,588.2 billion medium- and
long-term loans. Also common are promissory notes and industrial
warrants. These are similar to trust receipts in the United States
where collateral remains in the possession of the debtor.
Consumer Financing.--Installment credit to the consumer plays a
significant role in retail merchandising. The introduction of
credit cards has gained widespread acceptance.
Installment credits are extended by nearly all banking groups,
including commercial banks, savings banks, credit cooperatives, and
special installment credit institutions (Teilzahlungsbanken).
Installment credits are sometimes extended by retail outlets
directly to the consumer. While consumer installment credit is
widely used in Germany, it cannot compare to the volume of such
credits extended by American banks to American consumers.
Factoring.--The steady trend toward selling on open account instead
of by letter of credit has stimulated the rapid growth of
factoring. In contrast to American business practices, Germans
prefer the "silent" assignment of accounts receivable. Companies in
the consumer goods sector, with payment terms up to 90 days, are
particularly suitable clients for factors.
Leasing.--Leasing has made great strides as a way of financing
investment in Germany, with over 600 businesses involved in leasing.
Such items as aircraft, buses, catering, hospital equipment, EDP
equipment, administration, and factory buildings are often leased.
Capital Market
The Frankfurt Exchange is the leading stock exchange in Germany.
Other stock exchanges are in Berlin, Bremen, Duesseldorf, Hamburg,
Hanover, Munich and Stuttgart. They are supervised by the state
governments and controlled by local chambers of commerce. There is
no counterpart in Germany of the U.S. Securities and Exchange
Commission. Securities are traded in an unregulated "free market",
comparable roughly to the over-the-counter market in the United
States. Although this market has no official standing, its
quotations are published daily.
Despite having the largest GNP in Europe, Germany's stock market is
relatively underdeveloped. Equity financing plays a minor role.
One reason why many companies do not go to the stock market to raise
cash is the relative ease of bank credit. The number of joint stock
companies (AGs) has risen from 2,190 in 1986 to 2,373 at the end of
1988, while the number of limited liability companies (GmbHs) rose
from about 346,371 to 376,429 in the same period.
INVESTING IN THE FEDERAL REPUBLIC OF GERMANY
Germany's central location, its liberal attitude toward foreign
investment, and its predominant economic position in Europe are
highly attractive to U.S. firms seeking a base in Europe. American
investors establishing businesses in Germany do not however receive
any special tariff or trade concessions. However, investment in
eastern Germany is eligible for liberal depreciation allowances,
favorable credit terms, and other incentives.
Germany is a party to the General Agreement on Tariffs and Trade
(GATT) and grants most-favored-nation treatment to all signatory
countries. Germany is also a member of the European Community (EC)
and the Organization for Economic Cooperation and Development (OECD).
Traditionally, Germany has been a free and open market, with minimal
restraints on movement of goods, funds and people. Nevertheless,
businesses operating there have to cope with some irksome features.
For example, Germany has the highest labor costs and the shortest
work year among the world's industrialized nations. Other
frequently cited factors vis-a-vis European neighbors are the higher
commercial electric rates, stricter and costlier environmental
standards, more rigorous (and expensive) transportation regulations
and slower deregulation, with a consequent lag in innovation, as in
telecommunications.
German labor costs are high, but so is labor productivity. Work
hours per year averaged only 1,634 in 1989. While this is only
marginally lower than in France, it is well below the United
Kingdom's 1,770, the United States' 1,920, and Japan's 2,104. But
this is offset in part since Germany in recent years has lost only
one day per thousand workers to strikes and other work stoppages.
Labor costs vary from industry sector to industry sector, accounting
for 40.5 percent of turnover in the heavily subsidized aerospace
industry, but only 25 percent in the infrastructure-heavy petroleum
sector. In the bellweather automotive, machine tool and chemical
industries, labor costs are 20.5 percent, 28.6 percent, and
17.9 percent, respectively, of turnover.
Electric power is also more expensive than in competing trading
nations. Dutch, Belgian, British and French businesses pay only
93.6 percent, 81.1 percent, 73.9 percent and 67.5 percent,
respectively, of the electric power bills of their German
counterparts. Deregulation of the transport and telecommunications
industries is generally conceded to be lagging behind most European
countries.
All of these factors, plus aggressive wooing of new investors by
other European states, are among disincentives for investment in
automation and more efficient production equipment. The 7.9 percent
unemployment ratio (1989 average for western Germany) might still be
lower but for a shortage of skilled workers in some trades, most
notably of machinists and electricians. Given the traditional
reluctance of workers to relocate, these shortages are exacerbated
for manufacturers located away from the traditional centers of those
industries. Industry argues that the situation was brought about by
union-caused delays in plant modernization while critics fault the
producers for dragging their feet in installing the latest equipment
on which workers could be trained. One aspect on which there is
agreement is that more young Germans are abandoning the vocation of
their parents in favor of white collar jobs.
Despite some areas of concern, German labor and political stability
is unmatched in Europe and the country enjoys an impressive
infrastructure, the tendency to seek social consensus rather than
confrontation and a manufacturing sector accustomed to meeting a
high standard of quality.
According to the Federation of German Industry (BDI), German foreign
direct investment will exceed DM 200 billion ($127 billion) in
1990. More than 90 percent of such German investment flows into
industrialized nations in the West. Rising direct investment in
other EC countries reflects German industry's early and quick
reaction to the challenges of the EC single market. Developing
nations attracted less than 10 percent of Germany's 1990 foreign
direct investment.
German manufacturers, primarily in chemical, electric and automotive
industries, account for more than 60 percent of all foreign
investment. However, these industries invest abroad increasingly in
services and trade, less in production. Nearly 50 percent of all
foreign investment is targeted toward development or expansion of
service and distribution capacities, leading to the conclusion that
German foreign direct investment is not in lieu of investment at
home, but in support of German exports.
For the U.S. exporter, Germany's market for high-end products and
services, the wealth of its population, current exchange rates, the
relative absence of formal barriers and its many international trade
fairs provide a favorable commercial and business environment. The
approach of the integrated European market in 1992, together with
normalization of relations with Eastern Europe and the U.S.S.R.,
buttress Germany's position as an ideal business location.
American private direct investment in Germany has been in the usual
form of branch offices, subsidiaries, joint ventures, or acquisitions
of established firms. In most cases, the management has remained in
German hands. Other countries with substantial private investments
in Germany are Switzerland, the Netherlands, the United Kingdom, and
France.
Ministries of economics of the various states (Laender) in the
Federal Republic and Berlin share trade development and reverse
investment functions with local governments and the private sector.
At the time of this writing, the five eastern states are still in
the process of establishing local administrations. The addresses
for the ministries of economics in western Germany are as follows:
Baden-Swabia
Ministerium fuer Wirtschaft
Theodor-Heuss-Str. 4
7000 Stuttgart 10
Bavaria
Staatsministerium fuer Wirtschaft
Prinzregentenstr. 28
8000 Munich 22
Berlin
Senator fuer Wirtschaft
Martin-Luther-Str. 105
1000 Berlin 62
Bremen
Senator fuer Wirtschaft
Bahnhofsplatz 29
2800 Bremen 1
Hamburg
Behoerde fuer Wirtschaft
Postfach 11 21 09
2000 Hamburg 11
Hesse
Ministerium fuer Wirtschaft
Kaiser-Friedrich-Ring 75
6200 Wiesbaden
Lower Saxony
Ministerium fuer Wirtschaft
Postfach 1 01
3000 Hannover 1
North Rhine-Westphalia
Ministerium fuer Wirtschaft
Postfach 11 44
4000 Duesseldorf 1
Rhineland-Palatinate
Ministerium fuer Wirtschaft
Postfach 32 69
6500 Mainz 1
The Saar
Ministerium fuer Wirtschaft
Hardenbergstr. 8
6600 Saarbruecken 1
Schleswig-Holstein
Ministerium fuer Wirtschaft
Duesternbrooker Weg 94
2300 Kiel 1
TAXATION
Tax System
The German Federal Parliament has the power to enact all tax
legislation submitted by the Ministry of Finance. The Parliament
also has the power to legislate customs, duties and excise taxes.
The state parliaments, on the other hand, have the authority to
legislate local taxes, such as the real estate acquisition tax. The
Ministry of Finance is responsible for overall tax administration.
Regional tax offices, which include both Federal and state
authorities, handle the assessment and control of taxes. Customs
offices administer import duties, fiscal monopolies, excise taxes
and customs inspection at borders and ports of entry.
Each state has a Minister of Finance who is responsible for tax
administration within the state. Subject to approval by state
authorities, municipalities have the power to set rates related to
certain trade and real estate taxes which are fixed by federal law
and their bases are determined by the state tax offices.
Municipalities issue the assessments on trade and real estate and
maintain their own tax offices for collection purposes.
Taxpayers may protest assessments made by the tax office. A protest
is filed with the office that has determined the tax. If the tax
office rejects the protest, an appeal may be filed with the Fiscal
Court, a special court that decides tax disputes. Decisions of the
Fiscal Court may be reviewed by the Federal Supreme Tax Court if the
amount in dispute is at least DM 10,000. If the appeal is rejected
by the Federal Supreme Tax Court, the case may be carried to the
Federal Constitutional Court, the highest German court.
Principal Taxes
The principal taxes on income are the personal income tax, covering
wages, salaries and capital gains, corporation tax, and the
municipal trade tax on business profits. Property taxes include the
property tax, the real estate tax, and the municipal trade tax on
business capital. Turnover taxes are the value-added tax, the real
estate transfer tax, stock transfer tax, the company tax, and the
inheritance and gift tax.
The federal government is entitled to retain revenues from customs,
excise and capital transaction taxes (company and stock exchange
turnover taxes). State governments are entitled to the revenue from
property, real estate transfer, inheritance and gift taxes. The
municipalities retain revenue from trade and real estate taxes.
Revenue from value added tax, personal income tax, and corporation
tax is shared by the federal and state governments. Revenue from
personal income tax is shared also by the municipalities.
Personal Income Tax
Under the German income tax law (Einkommensteuer), a distinction is
drawn between unlimited and limited income tax liability. Persons,
regardless of citizenship, who have their residence in Germany have
unlimited income tax liability, that is, they are subject to income
tax on all of the taxable income, regardless where earned. Persons
who do not reside in Germany have limited tax liability, that is,
they are subject to income tax only on taxable income earned in
Germany. Special provisions govern tax deduction at the source
(wages, remuneration for members of a board of directors, income of
writers, etc.).
Wage Tax (Lohnsteuer).--Employers are required to withhold income
taxes from wages and salaries. Foreign-owned affiliates in Germany
must also follow this procedure.
After residing six months in Germany, foreigners automatically
become subject to unlimited tax liability. State tax authorities
can fix an annual lump-sum payment for a period of ten years. The
lump-sum can include both income in Germany and income earned in
other countries. This settlement is often applied when tax
officials cannot determine taxable income earned abroad.
Taxable Income.--Income tax is levied on earnings during the
calendar year, from any of the following sources: agriculture,
forestry, and business enterprises; wages and salaries; independent
work; rents; interest; and dividends. Income includes all revenue
after deducting losses and special expenses. In computing income,
all expenditures directly or indirectly connected with the business
enterprise are deductible in full (losses can be carried forward
over a five-year period).
In general, capital gains from the sale of business property are
treated as straight income. Gains from the sale of non-business
property are subject to tax only if the property is disposed of
within specified periods of time; capital gains from the sale of
movable assets are taxed, if the time between the purchase and
resale is less than six months; for the sale of real estate, the
capital gains tax applies if the same period is less than two years.
Deductibles for tax assessment purposes are:
1. Expenditures designed to acquire, safeguard and maintain income
(Werbungskosten). These include certain types of interest payments,
real estate taxes, transportation to and from work, extra
expenditures for maintainance of two households due to employment
away from the taxpayer's permanent residence, and expenses for tools
and clothes required for work.
2. Specified insurance premiums, deposits with building and loan
associations, property and church taxes, outlays for vocational
training, fees for professional tax advisers, and contributions for
charitable, religious, scientific or political purposes. If such
outlays exceed the automatic lump-sum deduction allowed for every
employed person, actual expenditures must be shown.
3. Extraordinary burdens include: the support and professional
training of each dependent not otherwise qualifying for exemptions;
cost of household help, under certain conditions, such as advanced
age of taxpayer or spouse, etc.
Interest and Dividend Income.--Interest income is taxable, but some
types of securities are granted special treatment. A change in the
German corporate tax system in 1977 introduced the concept of an
"imputation credit" on dividends, enabling a resident taxpayer to
offset taxes already paid by the corporation paying the dividend,
against his own tax liability. Nonresident investors are precluded
from taking advantage of this imputation, and the United States has
been seeking an amendment to the 1954 treaty, to extend to
nonresidents the advantage enjoyed by residents.
Corporate Tax
The corporate tax (Koerpershaftssteuer) applies to corporations,
limited-liability companies, cooperatives, mutual insurance
companies, other private juridical persons, associations, societies,
foundations, institutions, and enterprises owned by public
corporations operated for profit. If either a corporation's seat or
its management is located in Germany, its entire income is subject
to corporate tax, regardless where earned (unlimited tax
liability). If a corporation is not domiciled or managed in
Germany, only income derived from German sources is subject to the
corporate tax (limited tax liability). Effective 1990, the general
tax rate for retained profits was reduced from 56 to 50 percent.
Distributed profits are taxed at 36 percent.
Contributions for charitable, religious, and political purposes are
deductible up to 5 percent of net taxable income before such
deductions or 0.2 percent of total corporate payroll and turnover,
whichever is larger. Property tax and income taxes are not
deductible, but tax deferments may be granted for investments in
developing countries. Dividends from subsidiaries are not taxable
when received by parent corporations subject to unlimited tax
liability if they own at least 10 percent of the stock of the
subsidiary.
Depreciation.--Depreciation is deductible similarly as in the United
States. Movable assets (that is, all assets except fixed assets
such as buildings, roads, etc., and intangibles such as licenses and
patents) may be depreciated by either the straight-line or
diminishing balance methods. Other assets are normally depreciated
under the straight-line method.
Allowable rates are not fixed by law, which provides only that rates
shall be fixed according to actual acquisition costs and economic
life expectancy under the particular operating conditions. In
practice, however, standard rates for many major items of equipment
are determined in cooperation with the industrial organizations. To
get a more favorable rate, taxpayers must take the initiative to
justify their case. When no standard rate has been established,
taxpayers submits their own rate for approval by tax authorities.
Expected obsolescence is taken into account in determining
depreciation rates. The law also provides for adjustment of
depreciation schedules in case of exceptional physical wear or
unexpected obsolescence. In no case, however, may the diminishing
balance rate exceed 30 percent per year, or three times the
straight-line rate.
Buildings are normally allowed an annual depreciation rate of
2 percent. Owners of new buildings can deduct 5 percent in each of
the first eight years. New office and factory buildings can be
depreciated at accelerated rates over 25 years. Similar rates are
allowed for mines, quarries and other enterprises which deplete
their raw material assets.
For further information about taxation in Germany, major U.S.
accounting firms may be contacted. Requests for further information
about the double taxation convention may be directed to the Office
of the International Tax Counsel, U.S. Department of Treasury,
Washington, DC 20220.
Double Taxation
The United States and Germany concluded in 1954 a double taxation
treaty to avoid taxation of the same income by both countries. This
is done by allowing exemptions and by applying the credit
principle. The treaty also provides for administrative cooperation
between tax authorities. In August 1989, the two governments signed
a convention for the avoidance of double taxation and prevention of
fiscal evasion with respect to taxes on income and capital. When
ratified, it will supercede the 1954 treaty.
The treaty covers the U.S. federal income tax, the German income tax
and corporation tax, trade tax, and capital property tax.
Industrial and commercial profits of an enterprise in one country
are exempt from being taxed by the other country, unless the
enterprise maintains a permanent establishment, as defined in the
convention, in that other country.
Avoidance of double taxation by the United States is made possible
by allowing credit against the U.S. tax for income taxes paid in
Germany. For Germans, income from sources in the United States is
not included in the German tax base, provided the income has been
taxed by the United States, or a credit is granted for the U.S. tax
paid.
Double taxation by Germany is avoided on dividends from the United
States by granting credit for the U.S. tax paid, instead of by
exemption from German tax, except for dividends from American
subsidiaries to German parent corporations in which case the
exemption method applies. The current tax withholding rate is
15 percent on all dividends except those received by the United
States parent corporation from a German subsidiary. The German
corporation must withhold 25 percent, but 10 percent is refunded to
the U.S. shareholder by the German Federal Finance Administration
(Bundesfinanzverwaltung). If the amount reinvested exceeds
7.5 percent of the total dividend and is reinvested in the year the
dividend is received, or the following year, Germany may impose a
tax of 25 percent on the dividend reinvested.
Reciprocal exemption of earned income is provided if an individual
resident of one country is temporarily present in the other for a
period not exceeding 183 days in the taxable year and the
compensation is derived from services performed as an employee of a
person or corporation of his country of residence, provided the
employer does not have a permanent establishment in the other
country.
Information in the taxation sections below applies to American
citizens and companies only when consistent with the treaty on
double taxation. Most German taxes are regulated uniformly by
federal law, but a few are only local in application.
BUSINESS ORGANIZATION
Types of Organization
A business person setting up an enterprise in Germany may choose any
one of several types of organizations, some of which are not found
in the United States. In general, the tax repercussions of a given
type of business organization would influence, if not dictate, the
ultimate choice.
Individual Proprietorship (Einzelfirma).--An individual may open a
business in Germany under single ownership. If he or she carries
any of the trades enumerated in Sections 1 and 2 of the German
Commercial Code, he or she is considered a "merchant" and must list
the firm in the Commercial Register (Handelsregister). An inventory
must also be established at the time of opening. In addition, all
commercial transactions must be entered in books in accordance with
recognized principles of German business accounting, and at the end
of each year, an inventory and a balance sheet must be prepared.
Reciprocal exemption is also provided covering: (1) interest;
(2) royalties for the use of copyrights, patents, trademarks, etc.;
(3) profits from the operation of ships or aircraft; (4) remittances
received by students for defraying their expenses of study and
maintenance; (5) remuneration received by teachers for a period not
exceeding two years; (6) compensation received by an employee of an
enterprise of one of the two countries who stays in the other
country for not more than one year, in order to acquire experience
from someone other than his employer, and provided his total annual
compensation for services, where ever performed, does not exceed
$10,000, and is paid by such enterprises; and (7) long-term capital
gains from alienation of assets situated in the other country,
except real property. Income from real property is taxable only by
the country in which the property is situated.
General Partnership (Offene Handelsgesellschaft, OHG).--A
partnership is a group of two or more persons jointly conducting
trade. Each partner is liable for any business debts to the full
extent of his or her personal assets. The partnership must be
entered in the Commercial Register. Application must be filed by
all partners. The partnership itself may acquire rights, incur
obligations, and own real estate. Both the partnership and
individual partners may sue and be sued in connection with business
claims or debts. The death of a partner dissolves the partnership.
Each partner may act for the others except when the partnership
agreement provides that a partner does not have this authority.
A limitation of a partner's authority is not binding upon third
parties. However, a partner acting outside the scope of the
partnership business must obtain the consent of the others or else
be liable to them for damages.
Unless the partnership agreement provides otherwise, partners are
entitled to a share of the yearly profits equal to 4 percent of
their contribution to the firm's capital. If yearly profits do not
yield 4 percent, the return must be decreased accordingly. Yearly
profits in excess of 4 percent must be evenly divided. Because of
legal liability considerations, the partnership may not be a
suitable form for a foreign entity to do business in Germany.
Limited Partnership (Kommanditgesellschaft, KG).--A limited
partnership is a group of two or more persons conducting business
jointly, with at least one partner fully liable for business debts
(general partner) and at least one partner whose liability is
limited. Limited partners are not entitled to act for the others,
nor do they participate in the management of the business. They are
liable to creditors only to the extent to which the partnership
agreement calls for their contribution to the partnership's capital,
provided this limitation is recorded in the Commercial Register.
Legally, the limited partnership appears to be a combination of a
partnership and a capitalized corporation, similar in form to the
general partnership.
Silent Partnership (Stille Gesellschaft mbH).--A silent partnership
is established when a person engages in a business enterprise by
furnishing capital in return for the right to share in the profits.
In this arrangement, ownership is retained by the original owner who
alone remains fully liable for the firm's business debts. Any
natural or juridical person, or business association, may act as a
silent partner.
Limited Liability Company (Gesellschaft mit beschraenkter Haftung,
GmbH).--The limited liability company (GmbH) is a legal entity, but
the transferability of its ownership shares is restricted. A GmbH
may acquire rights, incur obligations, own property, sue, and be
sued. Only the company itself is liable for any business debts.
A l980 revision of the GmbH Act makes it possible for only one
individual to create a GmbH, instead of a minimum of two as
theretofore.
A shareholder's liability is limited to the amounts stipulated in
the association agreement, which must be notorized and contain:
(1) the name of the company and its principal place of business;
(2) the purpose of the business; (3) the amount of capital; and
(4) the amount to be contributed by each share owner. The minimum
capitalization required is DM 50,000.
The company must be entered in the Commercial Register
(Handelsregister), kept in the court (Amtsgericht) of the district
in which it has its seat of business. The application for
registration must include supporting documentation such as the
association agreement and the list of share owners, with the amount
of shares held. Its structure and ease of formation make the
limited liability company or GmbH a popular form of business
association with foreign businesses.
Combination of Limited Partnership and Limited-Liability Company
(GmbH & Co. KG).--In recent years, a form of business organization
combining the two types described above has come into use. From the
legal standpoint, such an organization is a limited partnership. It
differs from the normal type of limited partnership in that the
general partner is a limited liability company, responsible for
business debts only to the extent of its assets, while the person or
persons listed as limited partners are responsible only to the
extent of their registered shares. This form of business
organization combines the advantages of limited liability with
certain tax benefits.
Corporation (Aktiengesellschaft, AG).--As in the United States, a
corporation differs from an ordinary partnership in that the
shareholders are not personally liable for the debts of the
corporation. The corporation, an entity separate from its
shareholders, holds title to the corporation property and may enter
into contracts, litigation, etc. Public corporations are required
to publish annual reports.
The certificate of incorporation must be filed and entered in the
Commercial Register. At least five persons must subscribe to the
stock of the corporation. The minimum capital of a corporation is
DM 100,000. However, the Ministry of Justice, jointly with the
Ministry of Economics, may allow exceptions to this requirement.
The minimum face value of a share in a corporation is DM 50.
Corporation-Partnership (Kommanditgesellschaft auf Aktien, KGaA).--
A corporation can be established with shareholders in the normal
sense and also at least one person who is personally liable for all
business debts. This type of business organization is not common.
Organization of Foreign Firms
Establishment of Branch.--To open a foreign firm's branch in
Germany, it must be entered in the Commercial Register. Application
for the establishment of a branch must be signed by the owner of a
single proprietorship, by each partner of a partnership, and by all
members of the board of directors of a corporation.
Establishments of an Agency.--A foreign firm may also do business in
Germany through an agent. If the agent is a German citizen, no
mandatory procedures regarding the establishment of an agency need
be observed beyond a clear agreement (preferably written) defining
the rights and obligations of both sides.
If the agent is a citizen of a third country, the relationship is
normally governed by the law of that country; if he or she is a
national of Germany, the relationship is subject to German law. As
of January 1, 1990 new legal requirements for contracts with agents
and distributors have been put into effect. All existing agreements
must be modified by January 1, 1993 to conform with the new
legislation. The changes affect minimum notices for cancelling a
contract, reconciliation payments upon termination, and limits on
restrictive clauses barring parties from activities in the same
sector following contract termination.
These changes covering contract arrangements with agents and
distributors were intended to bring German law in harmony with
EC-wide regulations. In theory, adherence to German rules should
ensure a valid contract in all EC countries.
To terminate a distributor contract, both parties must adhere to the
new legal minimum notice requirements. For contracts in effect up
to one year -- one month, for contracts in effect one to two years --
two months, for three to five years -- three months, and for
contracts over five years -- six months. Notice requirement for
both agent and the principal must be the same. Any contractual
agreement to the contrary will be deemed invalid, although the
parties may negotiate longer notices. Calculation of the contract
validity and the notice is to the end of the next full calendar
month, for example, a contract of less than one year for which
notice was given on January 5 would terminate on February 28.
Under former rules, a commission had to be paid to the agent for any
contract that was signed prior to the termination of the agency.
Under the new law, the commission is due on any contract that has
been under negotiation, regardless when the final transfer of goods
or services takes place. This rule was established to prevent the
principal from saving orders until the agency is terminated and thus
avoid paying the commission.
Agents
Sections 84-92 of the Commercial Code and Sections 663-665 and
672-675 of the German Civil Code govern the principal-agent
relationship. The law allows choice of law clauses as well as
choice of jurisdiction; however, waivers of the agent's right to
receive compensation for unjust termination of the agency agreement
are not recognized as valid. The Commercial Code provides for
minimum termination notice terms, which vary in relation to the
duration of the agreement. Otherwise, the parties are free to agree
on the terms of their agreement.
Agency contracts terminate by operation of law in the event of death
of the agent, bankruptcy of the principal, or due to termination of
the business. Either party may terminate an indefinite term
agreement by giving the other adequate termination notice. Failure
to serve notice may only be excused if termination is for just
cause. Definite term agreements may also be terminated, before
their date of expiration, for just cause.
The agent's right to receive compensation for unjust termination
generally amounts to the value of the benefits that would have
accrued to the agent during the omitted notice period. In cases
where adequate termination notice is given to the agent,
compensation may be claimed for the value of the goodwill developed
by the agent. However, the agent's maximum compensation may not
exceed an average commission for one year. Insurance agents, on the
other hand, may be entitled to receive three years' commission upon
termination of the representation, based on the average commissions
for the proceeding five years.
A principal is under no obligation to compensate the agent if the
agent fails to perform according to the requirements of the
contract. Exclusive representational agreements effective within
the European Community should be carefully worded to avoid violation
of Article 85-86 of the Treaty of Rome on antitrust and restrictive
business practices.
Establishment of a Subsidiary.--To establish a subsidiary, a foreign
firm may choose any of the forms of business organization
permissible under German law. Usually, it is set up as a limited
liability company because of the greater flexibility of this form of
business organization.
In deciding between the limited liability company and a stock
company, the following factors should be considered:
Partners, directors, or shareholders need not be German citizens.
A foreigner living outside of Germany, however, who is an owner, a
member of a board of directors, or an executive authorized to sign
for the company (called a Prokurist), may become liable under German
law for taxes on his or her entire income rather than just that
portion earned in Germany. Two sources should be consulted for
details: Section 14 of the law of October 26, 1934 (Steuer-
anpassungsgesetz) and the Begruendung zum Steueranpassungsgesetz
(Reichsblatt 1934, page 1408).
Minimum Capitalization and Other Requirements
for Corporations (AG) and Limited Liability Companies (GmbH)
Stock Corp. Ltd-liability Company
Minimum capital DM 100,000 DM 50,000
Minimum face value
per share DM 50 DM 500
Number of founders at least five one or more
Management Board of Managers, Managers; Board of
supervised by the Directors optional
Board of Directors unless company has
2,000 or more
employees
If profits earned in Germany are to be remitted to a foreign parent,
a subsidiary usually provides a greater after-tax return than a
branch. If earnings are to be retained or reinvested in Germany
indefinitely, a branch may be more attractive than a subsidiary.
INDUSTRIAL PROPERTY PROTECTION
Patents
Patents are protected in Germany by the Patents Act of 1936, as
amended in 1980. Trademarks are protected by the Trademark Act of
1936, as amended in 1979. Copyrights are covered under the basic
law of September 9, 1965, as amended in 1974.
German law provides for issuance of a basic patent on an invention
for a period of 18 years following the effective filing date of the
application, if filed before January 1, 1978; 20 years if filed
after December 31, 1977. Under the law, a "patent of addition" can
be granted for the unexpired term of the principal patent. The law
also provides for a Gebrauchsmuster registration (sometimes known as
a utility model patent or a petty patent) on a manufacturer's model
product. The term of protection for a Gebrauchsmuster is three
years, renewable for an additional three-year period. Patent
applications are published as soon as possible after the expiry of
a period of 18 months from the date of filing or, if priority has
been claimed, it may be published earlier upon request.
In order for an invention to be patentable, it must be susceptible
to industrial application, be novel and involve an inventive step.
An invention is considered to be new if it does not form part of the
state of the art, that is, the state of the art held to comprise
everything made available to the public by means of a written or
oral description, by use or in any other way before the date of
filing. An earlier disclosure is not prejudicial in two cases only,
that is, if it occurs no earlier than six months preceding the
filing of the patent application and if it was the result of an
evident wrongdoing against the applicant or its display at a certain
trade exhibition.
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