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Doing Business in Germany

Given a strong economy, doing business in Germany has some advantages. Here's how to get started.
Freelance Writer and editor, Self-employed
March 08, 2012

Toma Haines has arguably one of the best jobs in the world: She is paid to shop. As founder of The Antiques Diva in Berlin, she escorts tourists to flea markets and antique shops all over Europe to find the best gems. Business is going well, and Haines is planning to expand and write a book about the hidden places to shop.

How’d she get her start?

Haines grew up in Oklahoma and caught the travel bug while on a college study-abroad trip to London. In 1999, she and her husband relocated to Paris, then Amsterdam and finally settled on Berlin in 2009. Without a work permit, Haines resorted to a life of shopping, soon becoming an expert. She started writing a how-to shopping book, but when the publisher broke off the deal in 2008, she launched a related blog instead.

“Within three weeks of starting my blog, I had people asking me to take them on tours,” says Haines. And with that, The Antiques Diva was born.

Of course it wasn’t that simple. Haines didn’t have any German business knowledge, so before launching, she turned to the Berlin International Women’s Club. It is there that she met Jill DiGiovanni, another expat entrepreneur. “Jill told me that before I launched my business I needed a good attorney and a good accountant and helped me find both,” says Haines. Since joining the Women’s Club, she’s made valuable business connections through Expatica, an online community, and the German American Chambers of Commerce.

Across town, DiGiovanni, a native of Canada, also has a business as founder and owner of Chef in Berlin, a company that provides private catering services and cooking classes. She started her company in 2010 and, like Haines, is experiencing success—but not before she had to overcome her own set of challenges.

“The ovens and refrigerators are a lot smaller here and markets aren’t open as late,” she says, with a laugh. “But really, I think most of the challenges have been logistical and cultural.”

The logistics

There is a tremendous amount of bureaucracy in setting up a business in Germany, says Melissa Lamson, founder of Redwood City, Calif.-based Lamson Consulting, a cross-cultural communications firm focused on German-American relations. “Here in the U.S., it takes 10 seconds to register your business on the Internet, and you can become incorporated in 90 seconds,” she says. “Things are a lot different in Germany.”

DiGiovanni found this out first hand. Even though she had an accountant and lawyer working for her, it took about eight months to get her tax identification number from the government. “Nothing gets under the radar in Germany; if I didn’t register legally, I would have been open to deportation,” she says.

Haines also sought the help of an attorney when registering her business in Germany. The process includes applying for a business license, registering your business and applying for a legal company name, says Lamson. If you are self-employed, your business name must have your personal name in the title for it not to be confusing to the government come tax time.

However, Angelika C. Geiger, director of Germany Trade & Invest in San Francisco, disagrees with Lamson and DiGiovanni, saying there isn’t much bureaucracy in the country. “I don’t think that at all,” she says. “We are here to help move things along and can connect entrepreneurs with the right people. I don’t recommend doing everything by yourself.”

Bureaucracy or no bureaucracy, things are changing for the better. According to Kenneth W. Bremer, director of Germany Trade & Invest in Chicago, the German government is making it easier than ever before to start a company.

“Since 2008, if you are starting a mini-GmbH (Germany’s version of an LLC), you can set it up with just €1,” he says, adding that Germany Trade & Invest is a trade and investment organization run by the German government that provides free services to foreign entrepreneurs. “It used to cost €25,000 right out the gate, which was a difficult amount of money for new entrepreneurs to come up with.”

The government still wants the full €25,000, but now they are willing to accept it in increments. Bremer says that in an entrepreneur’s first few years in business, they are required to contribute a quarter of annual profits to the government until they hit €25,000. “It’s nice now that they don’t have to come up with that money right away,” he notes.

As for employees, both DiGiovanni and Haines use independent contractors. “I registered my business as a sole proprietorship, but I knew I needed to expand, so I’ve hired freelancers that work as guides for me,” Haines says. “It’s worked out well that way.”

If you do decide to hire full-time employees, there are hoops you need to jump through, says DiGiovanni. “There are a lot of regulations for hiring people; you have to be responsible for several expenses,” she notes. “Because of that, I use contractors on a part-time basis.”

The entrepreneurial climate

Germany is a country built on small businesses, says Mark Tomkins, vice president for the German American Chamber of Commerce in Chicago. “There are 3.72 million companies in Germany, and 99.5 percent of them are small to mid-size businesses,” he says. “Specifically, Germany is focused on the small to mid-size family business. They don’t have the U.S. entrepreneur’s dream of selling quickly; instead, their dream is to build a company for their family for generations.”

Germans are somewhat welcoming to foreign-born entrepreneurs, but unlike in the U.S., where new ideas are met with unending excitement, the climate is a bit different on the other side of the Atlantic. Bremer explains that Germans, by nature, are more conservative and risk adverse. This comes from generations of residents working inside family businesses.

This cultural difference can make it difficult for U.S. entrepreneurs to raise capital in Germany. “More businesses are financed by banks in Germany, not necessarily by venture capitalists like they are here, and it can be difficult to convince a bank to finance a new venture,” Bremer adds.

Thankfully, things are changing, especially with the younger generation. In fact, a startup boon may be on the horizon in Germany. Bremer says that around 100,000 family businesses will be facing successors by 2014, and many young businesspersons are not overly eager to take the reins of family businesses. Bremer says he doesn’t know what the future will hold, but it may be safe to say that things will be changing soon in the country’s business climate.

Gender discrepancy

Germany’s business culture is largely male-dominated. In fact, as Tomkins explains, about 80 percent of the country’s CEOs are male. “Germany is working hard to encourage more women to be involved at the board level and management level,” he says.

The topic has spurred national discussion in the last few months. So much so that a quota of female participation on corporate boards is being considered, Tomkins says. “Politicians aren’t sure if that quota will guarantee diversity, but we are hoping,” he adds.

Lamson experienced Germany’s male-dominated business culture when, at 28 years old, she opened a consulting practice in the Central European country. “As a young female entrepreneur, I got a lot of ‘OK, little girl, what are you trying to do here?’ They weren’t trying to be nasty, it just took them time to trust me and for me to establish credibility,” she says.

It’s no surprise that startup numbers reflect the culture. Of entrepreneurs ages 18 to 24, only 23 percent are women, Tomkins says, and adds that he hopes it changes over time. “There is a lot of social support for women who want to be entrepreneurs,” he says. “Anecdotally, I can tell you that many fathers are open to staying at home so that mothers can work, which I think is a bit different than here in the U.S.”

Economic outlook

Compared with the rest of Europe, Germany is probably the best country to do business in thanks to its robust economy. Last year the economy grew 3 percent, says Bremer, and in January 2012, unemployment was sitting at an impressive 6.7 percent.

How is this possible when the rest of Europe’s economic structure has been crumbling?

“Germans do a great job at managing a budget,” he says. “They simply don’t spend more money than they earn.”

Bremer says Germany welcomes foreign-born entrepreneurs as long as the services and products are of high quality and can benefit the country’s economy. As for industry, he quotes a U.S. Department of Commerce report that cites promising entrepreneurial industries in Germany, such as management consulting, pharmaceutical, auto parts and services and computer software.

“I also think renewable energies are a place of possible opportunity for entrepreneurs,” he says.

Communication differences

Back in Berlin, DiGiovanni says she enjoys working with German clients, largely because they are straight shooters. She says there is an interaction protocol and her clients never deviate. “Everything is always in order, there is always a process; I like that, it helps me know what to expect,” she adds.

Unlike here in the U.S. where informal communication (i.e. using a person’s first name) is somewhat normal, Germans exhibit formal communication and expect expats to do the same. Always address someone as Mr. or Ms. (never by their first name unless they instruct you to do so), advises DiGiovanni.

“People are just much more formal here; I don’t recommend addressing someone by their first name the first time you meet them,” she says.

Another difference: German businesspersons exhibit a "sellers market mentality," says Haines. When talking with antique dealers for her company, she finds that they don’t often bend over backwards to make a sale. Instead, they are content to wait for the right customer or the right fit. “The customer is not always right in Germany,” she says. “Businesspeople expect customers to adhere to their rules, and they aren’t heartbroken if they don’t sell something.”

However, Lamson says, while it can take a lot of time to secure a customer, once you land them, they are yours for life. Customer loyalty is definitely a bonus of doing business in Germany. Both Haines and DiGiovanni report having repeat customers.

Beware of how you greet those customers, however. Coming from Oklahoma, Haines was surprised the first time she addressed someone on the street by saying, How are you? "They really tell you how they are," she says. "It isn’t just a greeting here." While she finds Germans to be friendly, it took some time to get used to their mode of communication. “If you ask someone if they know what time it is, they will probably just say 'yes' instead of giving you the time,” she says. “It takes them a little while to warm up.”

E-mail etiquette also varies in Germany. American workers are largely expected to work more than 40 hours per week and answer e-mails from clients on weekends, but in Germany this practice is not acceptable. “If you answer e-mails too quickly or on off-hours, you are seen as not being good at time management,” says Lamson. “I recommend waiting after meeting someone at a networking event to follow up with an e-mail. It’s like dating; you can’t sound too desperate. I recommend waiting from three days to a week to touch base.”

Startup advice

Thanks to a strong economy there, Lamson says that now is a great time to start a business in Germany. She urges small-business owners to set up shop in the country, but just to make sure they know the language first, especially if you will be living in the countryside.

DiGiovanni adds, “Network, network, network. Talk to people and know the laws. Also, be open-minded and have fun with it. Know that things won’t happen as fast as [you] want them to, so try to be patient.”

Haines also advises all entrepreneurs to hire an attorney as soon as possible and not to worry if you don’t speak the language. She says, “As long as you live in a big city, you will be just fine.”

Photo credit: Thinkstock

Freelance Writer and editor, Self-employed