In the present times, the scramble for limited resources such as the skilled workforce, markets for the produced goods and services, and the raw materials have increased more ever before. The stiff competition has turned the local and international markets into a jungle, where only the organizations that have the necessary competitive skills can survive and develop.
To offset the modern-day competition, most organizational managers embrace a wide range of strategic measures, including product design and differentiation, use of technology in various business operations, expanding into foreign markets, and embracing workforce diversity. Expanding to foreign markets has reaped maximum benefits to most organizations, primarily due to workforce diversity, expanded markets, and diversification of operations, especially at these unprecedented economic times.
The management personnel of Moorhen Holdings Limited, a private limited company based in the U.K, has been contemplating expanding its operation in Germany to enhance its markets and profitability. This paper entails preliminary research that is aimed at advising the management of this company whether or not to invest in Germany.
Manufacturing is the most significant sector in German industries, and it accounts for 79% of the total production. In Europe, the German economy is the largest and ranks fourth by GDP in the world (Huws Spencer Syrdal and Holts, 2017). Germany’s economy has been doing well over the last decade, and this has contributed to strong economic growth and low unemployment rates among its citizens.
The German nation has a mixed economy. As an EU member, Germany has adopted the euro, and therefore, like other Eurozone members, it has the power to keep its interests low, and this spurs investment. Germany has a strong manufacturing base and has a lot of exports, which gives companies in the country a competitive edge over others (Eigner Hamper Wickramasinghe and Bodendorf 2019, p.411). The average value of Germany’s GDP in the manufacturing sector between 1991-2018 was 20.49%, with a low of 17.68% in 2009, which was after the financial crisis and a high of 24.85% in 1991. The world’s average GDP in 2018 based on calculation from 153 countries was 12.46%, and this means that Germany’s GDP percentage was higher than the average as it accounted for 20.4% in 2018.
Figure 1: The GDP of Germany (World Bank, 2020).
Therefore, these figures make Germany one of the best countries to invest in with regard to the manufacturing sector. In the 2020 index, Germany’s economy is ranked number 27 as the freest economy with an economic freedom score of 73.5.
The overall score of Germany is one of the best in Europe and is well above world averages. 2020 has been a different year in terms of the GDP, which has shrunk drastically due to the Covid-19 pandemic (Dorn Fuest Göttert Krolage Lautenbacher Link Peichl Reif Sauer Stöckli and Wohlrabe 2020).
Germany’s economy shrank by 2.2% in the first quarter of 2020 by March, which is significant compared to the 0.1% fall in the previous periods. Moreover, 2020 has had the steepest GDP contraction since 2009 and the second steepest contraction since Germany’s unification.
This is due to the effect of Covid-19, which has forced many people to close their businesses as they are urged to stay and work from home. Fixed investments in equipment and machinery fell to 6.9% compared to the 9.9%experienced in the last quarter of 2019. Due to the lack of international flights, the net trade has also negatively contributed to the GDP since the imports and exports fell (Dorn et al., 2020).
When evaluating Germany as an appropriate nation to invest in, Moorhen Holdings Limited should consider the steady GDP in the country except in 2009 and 2020, which have had a drastic economic decrease due to the economic crisis and the Covid-19 pandemic. Based on the judgment of other economic years, it is clear that Germany is an excellent location to invest in.
Aspects of Germany’s business environment
Germany accounts for the largest consumer market in the EU with 82.4 million citizens. This gives an added advantage to a new business venture such as Moorhen Holdings Limited (Beier Niehoff Ziems and Xue 2017, p. 231). Moreover, the significance of Germany’s marketplace extends beyond its borders. Despite the hardships caused by the covid-19 pandemic, Germany is set to maintain its budget in 2020 at 0.9% of the gross domestic product despite the increase in tax receipts as well as the government’s moderate spending and the declining debt servicing costs.
Various past researches have always considered Germany an attractive destination for foreign direct investment (FDI) even though the subsequent Eurozone crisis and the global recession have recently affected the influx of foreign direct investment. A report on World investment presented by UNCTAD showed that in 2020, Germany’s FDI inflows decreased by almost 50% in the previous year reaching $36.6 billion compared to 2018’s $74 billion. Most FDI’s in Germany have bases in the US and the UK among other countries, which means that Moorhen Holdings Limited has a good chance of succeeding in the German Market (Simionescu 2018, p.18). Most of these investments are trade, insurance, real estate, and manufacturing. Since Moorhen Holdings Limited is a manufacturing company, it has a higher probability of succeeding, for instance, successful manufacturing companies that operate in Germany from the UK, such as DHL international Limited, BMW manufacturing limited, and BSH Home Appliances Limited among others.
As showcased in the table below, Germany provides an essential platform for setting up new business.
FDI 2017 2018 2019
FDI Inward Flow (million $) 60,354 73,570 36,359
FDI Stock (million $) 963,099 934,445 953,306
Greenfield Investments 1,190 1,190 860
Value of Greenfield Investments in million dollars 16,895 22,196 21,324
The Greenfield investments represent our case here, which is Moorhen Holdings Limited which wants to start a new business in a foreign nation by building their facilities from scratch. The UNCTAD presented data showing Germany’s index based on the protection of investors.
The table below shows the Germany’s index compared to other countries.
Investor protection by countries Germany OECD Countries US
Transaction Transparency index 5.0 6.0 7.4
Manager’s Responsibility index 5.0 5.0 8.6
Shareholders’ Power Index 5.0 7.0 9.0
Larger indexes represent the protection levels of the investors, and the vice versa applies. The table above shows that Germany is doing well compared to the OECD countries and the USA, which are the world’s largest economies. Moreover, higher indexes represent opportunities for personal responsibility as well as the transparency of transaction conditions (Benassi Durazzi and Fortwengel 2020).
Some of the strengths which will benefit Moorhen Holdings Limited include; the strategic location of Germany as it is in the center of Europe, the presence of consolidated public finances, the largest population in the EU, advanced technology, skilled labor, strong exports, which forms almost a third of the gross domestic product and well-developed infrastructure. However, Germany also has weaknesses for FDI, including a low investment/GDP ratio, an aging population, and an unproductive service sector (Walcott and Liefner 2017, p.113). The government implements measures that aim to encourage local and foreign investments to curb the FDI weakness, such as setting up favorable incentives for investing in research and funding startups through the European Union and other German federal entities. Therefore, this indicates that Germany’s foreign direct investment is under protection from the German government, providing Moorhen Holdings Limited with an essential opportunity for succeeding in Germany.
The Hofstede model consists of five dimensions representing independent priorities of various affairs that distinguish countries (De Mooij and Hofstede 2010, p.96). The model consists of six dimensions, and it dictates that culture can only be utilized using meaningful comparisons. According to the Hofstede model, Germany’s society has a strong effect on its citizens’ values. In terms of power distance, Germany surprisingly has a lower power distance compared to other countries with a score of 35. The country’s culture has a participative and direct communication style similar to the UK, which would make it easier for Moorhen Holdings Limited to communicate and work with skilled labor from Germany.
Germany is considered a pragmatic country in terms of long-term orientation, considering its high score of 83. Societies which have a pragmatic orientation drive individuals to have the belief that the truth depends on context, time and the current situation (Chudzikowski Fink
Mayrhofer Minkov and Hofstede, 2011). Therefore, Moorhen Holdings Limited has to show the ability to adapt to German traditions or to change according to the present conditions to invest, persevere, and thrift towards achieving the expected results.
Germany is a democratic and federal republic whose government is led by a chancellor. Germany has had a good alliance with France and other nations since the 19990’s and this has made it one of the most powerful countries in the European Union. Moreover, despite being a member of the EU, it is also a member of NATO, the IMF, OECD, and the World Bank. Germany provides the largest contribution to the European Union budget and is the third-largest contributor to the United Nation’s budget. Therefore, this means that Moorhen Holdings Limited will set up a startup company in a politically stable location.
Germany boasts a low rate of unemployment, accounting for 3.2%, which is among the world’s lowest rates (Rahman 2019). Although the recent economic downfall caused by the pandemic has shaken every nation globally, Germany has a strong economic foundation. It looks set to remain established as an economic power. Therefore, this gives both international and local industries a platform to establish themselves with the hope that they will rise despite the economic hardships.
Germany is advanced technologically and is among the leading manufacturers in the world, especially in automobile brands, including Volkswagen, Mercedes, and BMW. On a global scale, the country is considered the leading most advanced nation in terms of technology. It has adequate expertise in multiple sectors, including infrastructure and engineering, among others. As a manufacturing company, Moorhen Holdings Limited stands a chance of benefiting from the highly skilled labor in Germany and benefiting from the significant technological advances in machine learning and AI.
Figure 2: The Most Innovative Economies in the World (Ghosh, 2020)
Along the rest of the world, Germany faces threats from climate change and global warming. The country is home to the world’s largest wind farms and wind turbines and is working its way towards having a sustainable utilization of resources. This means that manufacturing companies such as Moorhen Holdings Limited and automobile industries will have first-hand access to sustainable energy. The country looks forward to minimizing the effects of climate change (Ringel Schlomann Krail and Rohde 2016, p.1298).
Therefore, it is advisable for the management personnel of the Moorhen Holdings Limited to proceed with the decision to implement the investment decision in Germany. Moorhen Holdings Limited is a manufacturing company, and its core operations are highly favored by Germany`s manufacturing sector, which is among the major building blocks of its gross domestic product. Consecutively, Germany is ranked fourth across the globe as the most developed country. Additionally, Germany and the U.K are trade partners where each country enjoys foreign direct investments from the other, which means that Moorhen Holdings Limited has a golden opportunity to succeed in the German markets. Furthermore, Germany is extensively advanced in terms of technology, and this will provide an excellent platform for Moorhen Holdings Limited to not only acquire new skills, knowledge, and techniques of using technology in the production systems, which will, in the long run, enable it to enjoy economies of scale.
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