ABSTRACT

This paper aims at studying German business. The project included all secondary sources of
information (internet, World Bank, OECD websites). The data collection method was reliable on
Internet and Tourist Books and pamphlets. Germany is an active member of EU and ECB is
located at Frankfurt. It lies in the euro trading zone and enjoys certain benefits like other euro
zone countries. MNE like BMW, Siemens AG and Volkswagen are legendary names all over the
world. Germany is an attractive investment region and “MADE IN GERMANY” is a trade
mark. The project/final report encompassed other issues like German culture, business values
and economics, that effect German trade or business.

CHAPTER 1 INTRODUCTION
The official name is “Bundesrepublik Deutschland (Federal Republic of Germany)”. It is based
on the Grundgesetz (Basic Law) of 1949. The states (Lander) of the former German Democratic
Republic (East Germany) acceded to the Federal Republic on October 3rd 1990. Bicameral
parliament. Bundestag, (lower house) currently with 662 members (328 directly elected from
individual constituencies; 334 elected through party lists in each state, so as to obtain
proportional representation). Parties must win at least 5% of the national vote, or three
constituency seats, to gain representation. The Bundesrat (upper house) consists of members,
nominated by the 16 state governments. Last election was held on September 18th 2005
(Bundestag);

The Federal president is elected for a maximum of two five-year terms by the Federal Assembly,
consisting of members of the Bundestag and representatives of the state legislatures. The current
president is Horst Kohler, who was elected on May 23rd 2003. The next presidential election
will be in May 2008. Each state has an elected legislature. State governments and parliaments
have considerable responsibilities, including education and policing. The federal government is
led by the chancellor, elected by the Bundestag on the nomination of the federal president. A
new government was formed on November 22nd 2005, headed by the CDU leader, Angela
Merkel.
The government is composed of a grand coalition of the Christian Democratic Union (CDU, not
present in Bavaria), its sister party, the Christian Social Union (CSU, present only in Bavaria)
and the Social-Democratic Party of Germany (SPD).

GERMANY 2007

Federal President Prof. Dr. Horst Kohler

Federal Chancellor Dr. Angela Merkel

Legal System Basic Law And Civil Law

Government Type Federal Republic

Capital Berlin

Administrative Divisions 16 states (Laender, singular - Land); Baden-

 Wuerttemberg, Bayern (Bavaria), Berlin,
Brandenburg, Bremen, Hamburg, Hessen,
Mecklenburg-Vorpommern (Mecklenburg-
Western Pomerania), Niedersachsen (Lower
Saxony), Nordrhein-Westfalen (North Rhine-
Westphalia), Rheinland-Pfalz (Rhineland-
Palatinate), Saarland, Sachsen (Saxony),
Sachsen-Anhalt (Saxony-Anhalt), Schleswig-
Holstein, Thueringen (Thuringia); note -
Bayern, Sachsen, and Thueringen refer to
themselves as free states (Freistaaten, singular
- Freistaat)

Population 82,400,996

Population Growth Rate -0.033%

Age Structure 0-14 years: 13.9% (male 5,894,724/female

5,590,373)
15-64 years:

66.3% (male 27,811,357/female 26,790,222)

65 years and over: 19.8% (male
6,771,972/female 9,542,348)

Death Rate 10.71 deaths/1,000 population

Birth Rate 8.2 births/1,000 population

Infant Mortality Rate total: 4.08 deaths/1,000 live births

male: 4.51 deaths/1,000 live births
female: 3.62 deaths/1,000 live births

Ethnic Groups German 91.5%, Turkish 2.4%, other 6.1%

(made up largely of Greek, Italian, Polish,
Russian, Serbo-Croatian, Spanish)

Table 1: Source: www.ecnomist.com

5 years 2003 2004 2005 2006 2007

GDP €2164 €2211 €2245 €2,322 €2,410

(billions)

GDP USD $2,447 $2,749 $2,794 $2,916 $3,282

Real GDP -0.2 1.1 2.0 1.7 2.0

Growth

CPI % 1.1 1.7 2.0 1.7 2.0

Population 82.5 82.5 82.5 82.5 82.5

(millions)

Exports 744.8 903.5 978.2 1,131 1,349

USD Billion

Imports 600 718 789 934 1,108

USD Billion

Current 46.6 117 129 147.8 186.8

Account
Balance

FOREX 50.7 48.8 45.1 41.7

Reserves ---------------
Except
Gold

Exchange 1.13 1.24 1.25 1.26 1.36

Rate
USD/Euro

Table 2: Source: www.economist.com

COUNTRY PROFILE

Germany is currently experiencing a sustained recovery from its economic depression of the
early twenty-first century. The year 2006 had an economic growth of 2.7 percent and
unemployment fell by 1.4 million, while Germany continues to benefit from high levels of
foreign investment and an international market for its automobiles, electronic machinery, food,
and chemicals. Germany is an advanced and stable democracy with minimal corruption, an
efficient judiciary, and an extremely high standard of living. High personal tax rates sustain a
generous welfare state, and health insurance is compulsory for most taxpayers. Germany’s labor
laws remain restrictive by international standards, and its aging population has led to a deficit in
the state pension system. Eastern Germany continues to suffer from high unemployment and a
population migration to the West, despite an estimated $2 trillion being invested in the region
since reunification in 1990. Germany’s dominant religion is Christianity, although there is also a
large Muslim minority of 3.6 million.

GEOGRAPHY

It lies in the heart of Central Europe, bordering the Baltic Sea and the North Sea, between the
Netherlands and Poland, south of Denmark. It covers an area of 357,021 square kilometers. The
water comprises 7798 square kilometers. Its neighbors include Austria (784 km), Belgium

(167 )km, Czech Republic (646 km), Denmark (68 km), France (451 km), Luxembourg (138
km), Netherlands (577) km, Poland (456 km), Switzerland (334 km).

NATURAL RESOURCES

These include Coal, lignite, natural gas, iron ore, copper, nickel, uranium, potash, salt,
construction materials, timber and arable land.

GEOGRAPHICAL FEATURES

Germany has an extreme variety of landscapes and an attractive place for tourism. From north to
south Germany, is divided into 5 regions:

۞ The North German plain

۞ The Central Upland range

۞ The Terrace Panorama of South West

۞ The Alpine foothills

۞ Bavarian Alps
CLIMATE

Germany is located in the moderate cool west wind zone between the Atlantic Ocean and the
continental climate in the east. In winters, the average temperature is 1.5 C to -6 C. In the
warmest month of the year, temperature is between 18 -20 C.

PEOPLE

Germany has a population of above 82 million (7.3 million Foreigners). The population is
distributed un-evenly. The Berlin region has been growing rapidly since unification. The West
Germany is more densely populated than East Germany. One third of the e population 26 million
lives in 84 large cities. But the majority lives in small towns and villages. 6.6 million Live in
municipalities and 49.7 million in towns. The population began to decline after 1970’s because
the birth rate was falling. Germany has one of the lowest birth rates (10.5/1000). The population
increased after World War II due to immigration of refugees and expellees.

LANGUAGE

German is one of the large groups of Indo-Germanic languages, and within that one of the
Germanic languages. It is related to Danish, Dutch, Swedish, Flemish and English. The
emergence of a common High German Language is attributed to Martin Luther’s translation of
Bible. It has wealth of dialects. These dialects differ greatly. German is also spoken as native
language in Austria, Switzerland, South Tyrol, France, Belgium and Luxembourg. It is third after
English and French.

FOREIGNERS

About 7.3 million foreigners live in Germany. For decades, they have been living in Germany
and were no racial problems. Integration within the EU and the western world the dissolution of
the east bloc and the immigration of people from Asian and African countries naturally meant a
considerable increase in number of foreigners. The category of guest workers includes Greeks,
Spanish Yugoslavs, Portuguese and Turks. Approximately 2.5 millions German repatriates from
East community have come to Germany. The new law Article 16a guarantees protection to
foreigners as well.
ENVIRONMENT

Emissions from coal-burning utilities and industries contribute to air pollution, acid rain,
resulting from sulfur dioxide emissions, is damaging forests. Pollution in the Baltic Sea results
from raw sewage and industrial effluents from rivers in East Germany. The hazardous waste
disposal; the government has established a mechanism for ending the use of nuclear power over
the next 15 years. The government is also working to meet EU commitment to identify nature
preservation areas in line with the EU's Flora, Fauna, and Habitat directive.

GERMAN MATERIAL WEALTH: STRENGTHS & WEAKNESSES

۞ German workers are highly educated, the best in the Index, which is a strong driver of growth
performance in wealthy countries

۞ Other indicators are not exceptional but on a par with European peers, including capital
investment and commercialization of high-tech innovation.

LIFE SATISFACTION: STRENGTHS& WEAKNESSES

۞ Persistently high unemployment rates create a substantial ‘miserable minority’ without jobs.

۞ Equality of opportunity is among the highest in Europe and Germans report they enjoy
substantial freedom of choice and control over their own lives.

۞ Healthcare is excellent and social support networks strong.

PRODUCTIVE INVESTMENTS

Germany has been able to attract a very high level of capital accumulation and productive
investment in new technologies, industries and businesses. This is in part due to high standards
of governance: Germany ranks in the 90th percentile globally for government effective and
regulatory quality, and in the 93rd for the state’s ability to control corruption. This places
Germany among the best-governed countries on the Prosperity Index, although below the best in
Europe. Bureaucratic costs are also low: for example, it is notably easy to get credit to start a
business, with Germany ranking near the top of the global scale on this indicator.

NEW IDEA COMMERCIALIZATON

In this area Germany is quite strong: German workers are by far the best educated of any country
in the Index, with almost a year more schooling than their closest competitors. They have an
average of 5.7 years of secondary schooling compared to the five years earned by their Austrian
counterparts. Germany’s export sector is well-known for its performance, but does not constitute
a huge proportion of GDP, and with high-tech exports of only four percent of GDP, Germany
could do even more to commercialize innovation and take advantage of its workforce’s superior
education.

DEPENDENCY AVOIDANCE

Commodity exports form no more than one percent of GDP, indicating no problems in this area.

FREEDOM AND OPPORTUNIITIES

Most Germans report that they experience a significant degree of control over – and freedom of
choice in – their own lives. This can be attributed to excellent political freedoms, and widely
distributed opportunity. Even previously disadvantaged groups can occupy positions of high
prominence in civil society and politics: Germany’s current head of state is a woman, Angela
Merkel, and a full thirty-two percent of the country’s parliamentarians are women. However,
German workers do choose to work relatively long hours by European standards, working a full
forty-hour week, and this restricted leisure time appears to lower life satisfaction somewhat.

SOURCES OF MISERY

The strength of Germany’s economy translates into a notably high level of wages, with the
country’s GDP estimated to amount to $30,400 per capita. This obscures the unevenness of
Germany’s economic growth, however, and the constant difficulty with integrating former East
Germany – unemployment is at a stubbornly high twelve percent, which creates a substantial
‘miserable minority.’ However, even the unemployed enjoy good access to healthcare, and levels
of life expectancy, adjusted for the presence of debilitating disease, are fairly high even by
European standards.

SOCIAL SUPPORT NETWORKS

Germany possesses one of the most secular societies in the Prosperity Index, with only thirty-
eight percent of the population reporting that their faith is ‘very important’ in their lives.
Community networks, however, are somewhat strong in Germany: thirty-eight percent of the
population report that they trust other people in their country ‘completely’, suggesting that high
levels of social capital are created by affinity groups, leisure activities, clubs and societies
 Pros pe rity Score card

83% 95% 83% 85% 21%

29%

S1

Commercialization

Social Support
Investments

Dependency

Opportunities &

misery Sources
Productive

Avoidance

Alleviation of

Networks
Freedom
New Idea
As a % of W orld's B es t Countries

Figure 1: Germany ranking 2007 Prosperity Index

CHAPTER 2

GERMAN FACT FILE (HISTORY, CULTURE, VALUES & BUSINESS

ETHICS)

The Federal Republic of Germany has a population of 81 million people and is roughly the size
of Montana. Germany’s religions are split evenly between Roman Catholics, who are
concentrated in the southern part of the country, and Protestants, who are found in the northern
region. Germany's economy ranks as the largest in Europe, and the third largest in the world,
behind the U.S. and Japan.

The decision-making process in Germany is much slower than in the United States, and this can
be troublesome to U.S. executives. One should always be prepared for the process to take much
longer, as there is often a "hidden" group of advisors and decision makers that must approve of
any transaction that is to occur.

HISTORY

The medieval empire stemmed from a division of the Carolingian Empire in 843, which was
founded by Charlemagne on 25 December 800, and existed in varying forms until 1806, its
territory stretching from the Eider River in the north to the Mediterranean coast in the south.
Often referred to as the Holy Roman Empire (or the Old Empire) , it was officially called the
Holy Roman Empire of the German Nation. Starting in 1448, to adjust the title to its then
reduced territory. The monk Martin Luther wrote his 95 Theses questioning the Roman Catholic
Church in 1517, thereby sparking the Protestant Reformation. A separate Lutheran church was
acknowledged as the newly sanctioned religion in many German states after 1530. Religious
conflict led to the Thirty Years' War (1618-1648) , which devastated German lands. The Peace of
Westphalia (1648) ended religious warfare among the German states, but the empire was de
facto divided into numerous independent principalities. From 1740 onwards, the dualism
between the Austrian Habsburg Monarchy and the Kingdom of Prussia dominated German
history. In 1806, the Imperium was overrun and dissolved as a result of the Napoleonic Wars.

RESTORATION AND REVOLUTION (1814-1871)

Following the fall of Napoleon Bonaparte, the Congress of Vienna convened in 1814 and
founded the German Confederation (Deutscher Bund) , a loose league of 39 sovereign states.
Disagreement with restoration politics partly led to the rise of liberal movements, demanding
unity and freedom. These, however, were followed by new measures of repression on the part of
the Austrian statesman Metternich. The Zollverein, a tariff union, profoundly furthered economic
unity in the German states. During this era many Germans had been stirred by the ideals of the
French Revolution, and nationalism became a more significant force, especially among young
intellectuals. For the first time, the colors of black, red and gold were chosen to represent the
movement, which later became the national colors.

GERMAN EMPIRE (1871-1918)

The state known as Germany was unified as a modern nation-state in 1871, when the German
Empire was forged, with the Kingdom of Prussia as its largest constituent. After the French
defeat in the Franco-Prussian War, the German Empire (Deutsches Kaiserreich) was proclaimed
in Versailles on 18 January 1871. The Hohenzollern dynasty of Prussia ruled the new empire,
whose capital was Berlin. The empire was a unification of all the scattered parts of Germany
except Austria (Kleindeutschland, or "Lesser Germany"). Beginning in 1884, Germany began
establishing several colonies outside of Europe.

WEIMAR REPUBLIC (1919-1933)

After the success of the German Revolution in November 1918, a republic was proclaimed. The
Weimar Constitution came into effect with its signing by President Friedrich Ebert on 11 August
1919. The German Communist Party was established by Rosa Luxemburg and Karl Liebknecht
in 1918, and the German Workers Party, later known as the National Socialist German Workers
Party or Nazi Party, was founded in January 1919.

THIRD REICH (1933-1945)

On 22 June 1941, Hitler broke the pact with the Soviet Union by opening the Eastern Front and
invading the Soviet Union. Shortly after Japan attacked the American base at Pearl Harbor,
Germany declared war on the United States. Although initially the German army rapidly
advanced into the Soviet Union, the Battle of Stalingrad marked a major turning point in the war.
Subsequently, the German army commenced retreating on the Eastern Front, followed by the
eventual defeat of Germany. On 8 May 1945, the German armed forces surrendered after the Red
Army occupied Berlin.

In what later became known as The Holocaust, the Third Reich regime enacted governmental
policies directly subjugating many parts of society: Jews, Slavs, Communists, Roma,
homosexuals, freemasons, political dissidents, priests, preachers, religious opponents, and the
disabled, amongst others. During the Nazi era, about eleven million people were murdered in the
Holocaust, including six million Jews and three million Poles. World War II and the Nazi
genocide were responsible for about 35 million dead in Europe

DIVISION AND REUNIFICATION (1945–1990)

The war resulted in the death of nearly ten million German soldiers and civilians; large territorial
losses; the expulsion of about 15 million Germans from its former eastern territories and other
countries; and the destruction of multiple major cities. The German Reich within its borders of
1937 continues, but the national territory and Berlin were partitioned by the Allies into four
military occupation zones. The sectors controlled by France, the United Kingdom, and the
United States were merged on 23 May 1949, to form the Federal Republic of Germany; on 7
October 1949, the Soviet Zone established the German Democratic Republic. In English, these
two German states are sometimes called "two Germanies", which is misleading as both were
separate states within one Germany as a whole. They were informally known as "West
Germany" and "East Germany" and the two parts of Berlin as "West Berlin" and "East Berlin".
In the face of a growing migration of East Germans to West Germany via Hungary and mass
demonstrations during the summer of 1989, East German authorities unexpectedly eased the
border restrictions in November, allowing East German citizens to travel to the West. Originally
intended as a pressure valve to retain East Germany as a state, the opening of the border actually
led to an acceleration of the reform process in East Germany, which finally concluded with the
Two Plus Four Treaty a year later on 12 September 1990 and German reunification on 3 October
1990.

RELIGION

R e ligions

Other

M uslims

Roman Cath olics

Protes tan ts
0%

5%

%
%

%
10

15

25

30

35
20

Figure 2 (Source: www.oecd.org)

APPEARANCE

۞ Business dress is conservative: People wear white shirts with ties.

۞ Women dress conservatively with dark suits and white blouses.

۞ Chewing gum in business meetings or while talking to some one is considered rude.

BEHAVIOR

۞ Germans are strongly individualistic

۞ The German thought process is extremely thorough, with each aspect of a project being
examined in great detail. This process is often times very time-intensive. However, once
 the planning is over, a project will move very quickly and deadlines are expected to be
honored.

۞ Germans do not like surprises. Sudden changes in business transactions, even if they may
improve the outcome, are unwelcome.

۞ German citizens do not need or expect to be complimented. In Germany, it is assumed

that everything is satisfactory unless the person hears otherwise.

۞ German citizens do not need or expect to be complimented. In Germany, it is assumed

that everything is satisfactory unless the person hears otherwise.

۞ Punctuality is necessity in Germany. Arrive on time for every appointment, whether for
business or social. Being late, even if it is only by a few minutes, is very insulting to a
German executive.

۞ In business situations, shake hands at both the beginning and the end of a meeting.
Additionally, a handshake may be accompanied with a slight bow. Reciprocating the nod
is a good way to make a good impression, as failure to respond with this nod/bow
(especially a superior) may get you off to a bad start. Be sure to look directly into the
person's eyes while shaking hands

۞ When being introduced to a woman, wait to see if she extends her hand.

۞ Business is viewed as being very serious, and Germans do not appreciate humor in a
business context

۞ In business meetings, age takes precedence over youth. If you are in a group setting, the
eldest person enters first.

۞ Germans keep a larger personal space around them, approximately 6 inches more space
than North Americans do. However, it is not unusual that when in line at a store cash
register, Germans will crowd up very close to the person in front of them.

۞ People that have worked together for years still shake hands each morning as if it were
the first time they met.

۞ Germans are able to consume large quantities of beer in one evening, but public
drunkenness is not acceptable. It is best to know limits, especially in Bavaria where two
liters of beer is an ordinary evening. Pace yourself and eat plenty of food.
 WAYS OF COMMUNICATION

@ German is the official language.

@ Approximately ninety-nine percent of the population speaks German. However, there

are several different dialects in the various regions

@ Germans love to talk on the telephone. While important business decisions are not
made over the phone, expect many follow up calls or faxes

@ Germans guard their private life. No one can call a German executive without his
permission.

@ Titles are important. Usually full name addressing should be used.

HOFSTEDE’S ANALYSIS

Power Uncertainty Individualism Masculinity Long term

Distance avoidance orientation
35 65 67 66 31

Hofstede's Analysis

Long Term Orientation

Individualism

Masculanity

Uncertainty Avoidance

Power Distance
0

10

20

30

40

50

60

70

Figure 3: Hofstede’s Analysis

GERMAN BUSINESS ETHICS

When it comes to making introductions in Germany, there is a noteworthy difference between

how it is done in private life and how it should be done professionally. Within an organization,
the individual of higher rank is responsible for introducing anyone who is new to the group. For
example, a trainee would be introduced to his or her new colleagues by his supervisor or his
mentor. A new professional employee would be introduced by his or her manager.

In Germany, shaking hands is a common custom. However, who initiates a handshake can be
more perplexing than expected. In deciding whether or not to initiate a handshake when
introducing, this should be kept in mind that the colleague higher up the corporate hierarchy
always has the "handshake initiative", or the right to offer his or her hand first.

In the business arena, especially when clients are present, unprofessional clothes like jeans,
shorts, biking pants, leggings, and T-shirts should not be worn.

While attending a business conference, both lunch and dinner are considered important
components of the conference. Meals allow those attending to make personal contacts and to
continue discussing business issues in a more casual atmosphere.
CHAPTER 3

GERMANY TRADE THEORIES

The United States, China, Germany and Japan all have a comparative advantage in
miscellaneous manufacturing; the U.S., China, Japan and Singapore have comparative
advantages in electronic components; the U.S., Germany and Japan have advantages in
transportation equipment (mainly cars and trucks) and in non-electrical machinery; the United
States and Germany have an edge in chemicals; China and Germany both have comparative
advantages in basic manufacturing, while Japan has just lost it advantage. In information
technology and consumer electronics, China, Japan, and Singapore are rivals, with the United
States having lost ground but still close enough to recover its advantage with a little effort.
Comparative advantage is a dynamic function, subject to change over time as rivals actively
compete, trying to better their position and knock out the others.
CHAPTER 4

INTERNATIONAL TRADE AND FOREIGN INVESTMENT

It represents German domestic demand for foreign goods. The headline number is the percentage
change in the value of imports.

The value of imports is an important input in calculations of the Trade Balance, the Current
Account and GDP. Imports are rarely considered in isolation. Rather, they are most often
analyzed in comparison to Exports. German imports (and exports) are separated by intra-
community trade and extra-community trade. Intra-community trade covers trade within the EU
member countries while Extra-community trade covers trades with the rest of the world.

According to WTO, Germany is the world top exporter. It is also the world leader in mechanical
engineering and holds a 20% of global market. Brands include BMW, SAP, Siemens, Mercedes
Benz, Volkswagen, Adidas-Salomon and Porsche. German made machine tools are also in high
demand in China.

GERMANY TOP 15 TRADE PARTNERS (IMPORTS)

۞ France

۞ Netherlands

۞ US

۞ China

۞ UK

۞ Italy

۞ Belgium

۞ Austria

۞ Spain

۞ Switzerland

۞ Japan

۞ Czech Republic

۞ Russia
 ۞ Poland

۞ Ireland

GERMANY TOP 15 TRADE PARTNERS (EXPORTS)

۞ France

۞ US

۞ UK

۞ Italy

۞ Netherlands

۞ Belgium

۞ Austria

۞ Spain

۞ Switzerland

۞ China

۞ Spain

۞ Sweden

۞ Russia

۞ Japan

FOREIGN DIRECT INVESTMENT

Foreign direct investment (FDI) in Germany largely mirrors the ebb and flow of the global
economy. When global business confidence weakens, the investment drops. When optimism
rises, so does FDI. That pattern is consistent with Germany’s status as a mature, benchmark
economy. All things being equal, investment patterns repeat themselves. But in the hyper-
competitive world of international business, few things remain equal. Indeed, the German central
bank has documented considerable fluctuation in FDI flows to Germany over the past few years.
But that fluctuation says more about the dynamic nature of global markets than it does about
Germany itself; the factors that make Germany attractive to foreign investors are strikingly
constant. Investor interest in Germany is being sustained by long-term fundamentals pertaining
to location, infrastructure, and market access and labor productivity.

REASONS

Investment volume would continue leaping forward in staggeringly huge amounts over the next
three years. Between 1996 and 1999 the figure more than doubled each year. Then in 2000,
inflated by skyrocketing tech stocks, Germany’s inward FDI hit the stratospheric altitude of €215
billion. (Vodafone’s takeover of Mannesmann accounted for the lion’s share of that.) Needless to
say, this momentum could not be sustained.
The bursting of the new economy bubble brought foreign investment down to earth. Yet,
remarkably, Germany survived the crash with little more than a few bruises. And that says a lot
about Germany’s fundamental strengths. In the year 2001 Germany posted a very respectable
FDI figure of €23.6 billion, its third best result ever.
Even more remarkable, however, is what happened in the following year. In 2002 foreign
investment in Germany shot up by more than 60 percent to €38.3 billion. That made Germany
the envy of its economic rivals, including the U.S. For the first time ever, Germany attracted
more foreign investment than the United States of America.

Germany’s FDI achievement in 2002 was impressive. Investment flows into the United States,
for example, declined by nearly 80 percent that year. Britain saw a 60 percent decline to $25
billion during the same period. All together, FDI fell in 108 countries. Ranked fourth in Deutsche
Bank’s list of most attractive investment locations overall, Germany bucked the worldwide trend
in a big way.

The enthusiasm didn’t carry over into 2003. Net FDI flows into Germany dropped back to €11.4
billion. According to Bundesbank, a lot of foreign investment that entered Germany in 2003
came from France and the U.S. That’s not surprising, given that the two are among Germany’s
most important trading partners. The year before it was the Netherlands (another of Germany’s
big commercial partners) that topped the list of countries, investing in Germany. Before that
Belgium headed the list, preceded in 2002 by Luxembourg. France was the big spender in 1999.
Of course, in this age of transnational corporations, a company’s legal address isn’t always an
accurate indication of an investor’s national identity.
 FD Inve s tors in Ge rmany

0
.00 .00 .00 .00 .00 .0 .0
€ 0 € 2 € 4 € 6 € 8 € 10 € 12
0

US

ium
ce

nd
ds
ma
an

a
an

lg
erl
ha
Fr

Be
rl

itz
Ba

the

Sw
Ne
Figures in billions of Euros

Figure 4: Foreign Investment in Germany

Countries with FDI

00 0 0 0 0 0 0 0 0 0 0 0 0
0. 10. 20. 30. 40. 50. 60.
€ € € € € €

UK
nd

ce
in

er
n
pa

h
€

an
la
Sp

Ot
Ja

er

Fr
itz
Sw

Mark et capitalization: billions of euros

Figure 5: Investing Countries

SMALL MEDIUM ENTERPRISES

The German economy is characterized first and foremost by around 3.4 million small and
medium-sized enterprises as well as the self-employed and the independent professions. Some
99.7 percent of all companies are small and medium-sized enterprises. These are firms with
annual sales of below EUR 50 million and a payroll of less than 500. Around 70 percent of all
those in employment work in this type of SME; almost 82 percent of all apprenticeships are
provided by SMEs. A look at the various economic sectors reveals that 48.9 percent of all SMEs
operate as service providers, 31.4 percent in manufacturing, and around 19.7 percent in
commerce. Most SMEs are managed by the owners themselves, meaning that the majority
shareholder and management of the company are frequently one and the same. Companies are
often handed down from one generation to the next. Over the years the share of women in them
has risen to 22.5 percent. Around 37.4 percent of all SMEs were founded after 1995. In 2004
alone, 572,500 new companies started up (compared with 428,700 cases of bankruptcy). In
support of SMEs the Federal Government is planning a “Small Companies Act” that will give
them more leeway and generally facilitate doing business by reducing bureaucracy and making
legal processes easier. The strengths of SMEs include the swift realization of marketable
products, an international focus, a high degree of specialization and the ability to successfully
claim niche positions in the market.

TOP MNC OF GERMANY

۞ Siemens

۞ Karl Zeiss

۞ BMW,

۞ Mercedes

۞ Volkswagen

۞ Audi Group

۞ AEG

۞ Blaupunkt

۞ Klockner Moeller

۞ Porsche

CHAPTER 5

BALANCE OF PAYMENTS AND FOREIGN EXCHANGE

CENTRAL BANK
Deutsche Bank is a pre-eminent provider of liquidity in the world's foreign exchange markets.
The Bank's recognized leadership in all aspects of foreign exchange, from spot, forward and
options to FX Prime Brokerage, is based on a superior understanding and analysis of flows at a
global and a regional level.

BALANCE OF PAYMENTS 2006

Last year German exporters again benefited from the generally strong growth in export markets.
The heavy global demand for capital goods, which account for a substantial part of Germany’s
range of exports, also played a role. Overall, the value of Germany’s exports of goods grew by
133.4% in 2006. Imports actually grew somewhat more vigorously at 161.2%. This was due
largely to the surge in the prices of energy and industrial raw materials. Even so, the surpluses in
the trade balance and in the current account reached record highs. The current account balance
rose to 5% of GDP.

The counterpart within the balance of payments is to be found in Germany’s extensive net capital
exports. German banks, in particular, saw a sharp increase in their net external assets last year, a
development which can certainly be regarded in part as a reflection of the current account
surplus. Germany also experienced fairly substantial outflows of capital as a result of direct
investment.

By contrast, portfolio investment, which usually reflects changing conditions in the financial
markets particularly quickly, closed almost in balance in 2006.

FOREIGN TRADE (BY CATEGORY O F GOODS)

EXPORTS

All major German export sectors participated in the dynamic growth in the world economy in
2007. The manufacturers of capital goods, who account for 44% and therefore constitute the
largest group of German exporters, benefited from the brisk pace of global investment. The
manufacturers of machinery and equipment, for example, achieved a 101.2% increase in export
earnings. The car industry increased exports by 71.2%. Exports of goods in the information and
communications technology (ICT) sector expanded by 41.4%. Growth was probably much faster
in real terms as the prices of these goods again fell significantly.
 E xports

En e rg y , 2.40%
U n d a s s ifia b le Go o d s ,
7.30%
C a p ita l Go o d s ,
In te rm e d ia t e Go o d s ,
44.10%
30.10%

A g ric u lt u ra l Go o d s ,
0.70%
C o n s u m e r Go o d s ,
15.40%

Figure 6: Germany Exports

IMPORTS

Nominal imports of goods grew by 161.2% in 2007, therefore faster than exports. In real terms,
foreign trade flows expanded at the same rate in both directions as the price of imports increased
more than twice as much as exports. This rise was due principally to the substantially higher
prices of imported energy and intermediate goods, which generally absorb a large percentage of
raw materials. Furthermore, the increased price of raw materials in world markets was offset to
only a marginal extent by the appreciation of the euro against the US currency, in which
approximately one third of the imports from non-euro-area countries were invoiced in 2006. By
contrast, the import prices of consumer goods rose only moderately, and imported capital goods
were actually cheaper.3 All in all, the value of the increased imports of the various categories of
goods diverged more in 2007 than the corresponding volumes.
 Imports

In termed ed iate Cap ital Go o d s ,

Go o d s , 28.40% 29.10%

Un d as s ifiab le Go o d s ,
9.10%
Co n s u mer Go o d s ,
En erg y , 12.30% A g ricu ltu ral Go o d s ,
18.70%
2.40%

Figure 7: Germany Imports

 REFERENCES

SEARCH ENGINES:

www.google.com.pk

WEBSITES CONSULTED:

www.germany-tourism.de

www.cia.gov

www.fita.org/countries

news.bbc.co.uk

www.fao.org

en.wikipedia.org/wiki

www.worldbank.org

www.biztradeshows.com

eupolitics.einnews.com

www.economist.com

www.tatsachen-ueber-deutschland.

www.imf.org

comtrade.un.org

www.oecd.org

BOOKS CONSULTED:

Berlitz Pocket guide “Germany” (travel guide Germany) APA publications, Gmbh & Co

“Facts about Germany”, Press and Information office of Federal government Germany, 2000

“Business Guide to Germany”; Dr. Horst Dietz Managing Director, Invest in Germany GmbH
ARTICLES:

“Germany as an economic hub”, Thomas Straubhar, 2007

Danninger, Stephan & Joutz, Frederick L (2007); “What Explains Germany's Rebounding
Export Market Share”., IMF publication

Dennis P. J. & Danninger, Stephan; (2007); “Tax Reform and Debt Sustainability in
Germany: an Assessment Using the Global Fiscal Model”, IMF publication