Trade and Investment Update - Case Study Example

International Business-Foreign Investment Guide Introduction With the current advances in technology being realized in the world today, transactions that used to be time consuming and difficult to conduct are becoming easier to do. These advancements in technology have taken business to a whole new dimension. Many businessmen are identifying foreign markets and investing heavily. This is in an effort to increase their profits margins and experience phenomenal growth; something that would have been a dream three centuries ago. To date, foreign market identification and investment opportunities have taken center stage in many business oriented forums. Many businesses are being faced with great challenges when it comes to making critical decisions with regards to which foreign market offers the best investment opportunities and optimal returns on the investments made. This paper intends to focus on Germany as an investment destination for a Canadian Investor. Background Germany is a country with a parliamentary democracy system of government. The parliamentary democracy system of government, is a political system in which parliament (legislature) has the authority to select the government. The government in this case comprises of the prime minister, chancellor or premier and the cabinet ministers. The selection of the government is based on the party strength which in turn depends on the election outcomes. Under this system of governance, the government is responsible to both the people and the parliament (CIA.gov). Germany has the highest population in the European Union. According to a population census conducted in 2010, Germany’s population stood at 81.6 million people up from 72.7 million people in the year 1960 (Trading Economics). Germany has approximately 1.19% of the world’s population. This basically means that one out of every 84 people resides in Germany1. Germany is currently the tenth largest Canadian foreign investor. This demonstrates the cordial international trade relationship that exists between Germany and Canada. Germany’s total FDI in Canada was in excess of 10 million Canadian dollars as of 2010. Some of the German businesses that hold major investments in Canada include BASF, Siemens AG, Bayer AG and Daimler (Foreign Affairs and International Trade Canada). Siemens AG is a German multinational that is listed in the Frankfurt Stock Exchange. It is a global powerhouse in electrical engineering and electronics that operates in the energy, healthcare and industry sectors of the economy. Germany conducts business with Canada in terms of imports and exports. In a 2010 ranking, Germany was ranked sixth as a top ten partner to Canada in merchandise export trade. Canada exported goods worth over 3 billion Canadian Dollars to Germany in the same year. Some of these exports include mineral ores and inorganic chemicals (Foreign Affairs and International Trade Canada). In terms of imports, Germany was ranked as the 5th largest supplier of goods in 2010 with imports standing at 11.4 million Canadian dollars. Canada imports automotive parts from Germany, electrical machinery and equipment (Foreign Affairs and International Trade Canada). On the international business perspective, Germany ia an active member of WTO, IMF, OECD, and World Bank Group. Germany is a signatory to EU but not to APEC. Germany is also not a signatory to NAFTA. This is based on the organization’s list of member countries. Geographically, Germany is bordered by Denmark and the North Sea to its north. To its south, Germany is bordered by Switzerland and Austria. To its east, Germany is bordered by Czech Republic and Poland. To its west, Germany is surrounded by Belgium, France and Netherlands. It is the third largest country worldwide, with the number of immigrant s being highest. Within the European continent, Germany has the biggest economy (Invest in EU). Germany’s social market economy is one of the most liberal thereby presenting a good business environment. Looking at Germany’s technological capabilities, they rank as one of the best that can be found in Europe. Germany is a leading global economy both in technological advancement and innovation. Within the European Union, Germany is the third largest importer and second largest exporter. Germany has an aggressive international policy that makes her one of the best destinations’ for foreign investment (Invest in EU). Each of the 16 States of Germany play an axiological role in attracting foreign investors. Each of the states has State investment agencies that promote foreign investment within the state2. Competitive Advantage Germany stands out as a foreign investment destination in multiple aspects. Germany is one of the world’s leaders in telecommunication and transport infrastructure. Germany’s telecommunication and transport infrastructure is easily accessible to foreign investors. The transport system is properly planned and laid out. Each and every section of the country is easily accessible either by road or railway. Additionally, Germany’s transport system is well interconnected with that of the surrounding countries. This makes it easy for any investor who intends to extend his business venture to the neighboring countries to easily access them (invest in EU). With her latest technology, Germany offers foreign investors the best there is within the European countries in terms of technology. Investors who invest in the various sectors of the economy are therefore able to access and utilize the technology to their advantage. The investors benefit from utilizing one of the most scientifically advanced forms of technology available globally (Invest in EU). In terms of labor force, Germany has labor costs that are influenced by tight laws of labor and marginal income tax rates that are considerably high. The labor laws regulate the laying off of staff and their hiring. This is a fundamental consideration that any Canadian planning on investing in Germany has to make (Foreign Affairs and International Trade Canada). Despite this, Germany boasts of good education systems, and offers investors a labor market that is highly skilled and technically qualified for any kind of work that the foreign investor may be interested in. The labor force offers skilled labor ranging from business managers, accountants, marketers, financial analysts, risk managers, engineers, lawyers and many other professions that are essential for business excellence. Not only does Germany have a skilled labor market, her population was estimated to be 81.6 million persons as of 2010. This is a huge population that can provide ready market for the products. Many of its laborer’s are proficient in English thus eliminating the language barrier that may be the worry of some Canadian Investors (Invest in EU). Although English is rapidly becoming a common language in Germany, it is often advisable to have a good command of German language for the purposes of attracting and retaining customers (Foreign Affairs and International Trade Canada). Germany has a strong economy. As depicted by the graph and table below. Germany’s GDP has fluctuated overtime as shown. But, just like many other countries, Germany was hit by the economic crunch that saw the world economy fall. Fortunately Germany is on the path to recovery and is even predicting a GDP of 1.5 in 2013 up from 0.6 in 2012. Table 1 Germany’s GDP from the year 2006 to 20133 Year 2006 2007 2008 2009 2010 2011 2012 2013 GDP 3.7 3.3 1.1 -5.1 3.7 3.0 0.6 1.5 Graph 1 Graph depicting Germany’s GDP from the year 2006 to 20133 One of the biggest problems that many foreign investors face is the discrimination against them by the government. Many governments discriminate against foreign investors and instead favor the local investors. This makes it difficult for the foreign investor to perform well. In Germany though, the case is different. The German government levelized the playing field such that foreign investors in Germany have access to all the benefits that the local investors have. In effect, it means investing in Germany is way simpler (in terms of registration process and legal requirements) and more rewarding in term of economic benefits (Invest in EU) than in many other countries.. Lastly, Germany is strategically located within the European continent and provides the best access to other countries that the Canadian investor may be interested in. Additionally, Germany has a liberal taxation policy which is highly competitive. Although Germany is a country with a liberal taxation policy, the taxation system can be complicated at times and it may be advisable to seek the advice of a legal expert in German tax law (Foreign Affairs and International Trade Canada). This advice will go to great lengths in saving the business many taxation problems. Being a country with a low level of corruption, Germany offers one of the best foreign investment opportunities. Cultural Information Germany is a large country with a population of over 81 million people. Germany also boasts of being the country with the highest number of immigrant workers. With this kind of population, Germany is rich in terms of culture and ethnic backgrounds. It is composed of people who are of different races, ethnic backgrounds and beliefs and practices. The country has its own culture of business. Germany’s business culture may vary from one state to another and even within a single state. These differences in business culture are to be expected by the Canadian Investor. There is also a need to familiarize one self with certain aspects of formality, intra and inter office communication, procedures and reporting structures. It may be beneficial to acquire an advisor on German business culture while establishing presence in Germany and evaluating a prospective opportunity to invest. Recommendations and Conclusions a. While evaluating a prospective to invest in Germany, it is beneficial that an Investor seeks the advice and guidance of an expert in Germany’s business culture and more importantly Germany’s system of taxation. b. It is also critical that the Canadian Investor familiarizes himself/herself with the regulatory approvals of Germany. It is vital that the Investor familiarizes himself with the processes and timelines that are required for the receipt of approval. This is with regard to the various essential stages of the establishment of the business in Germany, and operating the business. c. The Canadian advisor might find it vital to familiarize oneself with the division of competencies. This will allow the investor to identify the major government players in the business sectors of the industry. A good way to do this is to attend trade fairs held within Germany and have an opportunity to meet the major industry players/stakeholders in person. d. Germany has one of the most thorough environmental regulations. The investor may find it prudent to seek advice from an expert on the best way to navigate through all the environmental regulation jargon and set up a lawful business enterprise. In conclusion, Germany has one of the best technology, telecommunication and transport network, and skilled labor force that would be useful to any foreign investor. With a good insight into the legal requirements of setting up a foreign business in Germany, a foreign investor (Canadian Investor) would find Germany a good investment destination. Works Cited Page A guide for Canadian firms Considering Investing in Germany. Foreign Affairs and International trade Canada. 9 Apr. 2012.web. 10 Apr. 2012. Canada’s State of Trade: Trade and Investment Update 2011. Key Developments in Canadian Merchandise Trade. Foreign Affairs and International Trade Canada. 9 Apr. 2012. Web. 10 Apr. 2012 “Field Listing: Government Type” cia.gov. Central Intelligence Agency. 3 Dec. 2009.web. 10 Apr. 2012 “Germany- A Major Destination for Foreign Investment”. investineu.com. Invest in EU. n.d. web. 10 Apr. 2012 Trading Economics. Germany Population. n.d. web 10 Apr. 2012 Read More