2024: Doing Business in Germany
Part 1: Doing Business in Germany
What is the current business climate in your jurisdiction, including major political, economic, and/or legal activities on the horizon in your country that could have a big impact on businesses?
Germany's business climate remains resilient amidst global economic shifts, underpinned by its reputation as a stable and innovative market. Politically, the country is navigating post-Merkel era dynamics, with a new coalition government emphasizing green policies and digitalization. This transition is expected to bring changes in tax policies, environmental regulations, and investment incentives, potentially impacting business strategies and operations.
Economically, Germany continues to demonstrate strength despite challenges due to the COVID-19 pandemic, the war in Ukraine, and the energy crisis. The manufacturing sector is rebounding, fueled by increased demand for cars, machinery, and electronics. However, supply chain disruptions and inflationary pressure are areas of concern, prompting companies to reassess risk mitigation strategies and explore localized production options.
On the legal front, upcoming regulatory reforms, e.g. regarding foreign direct investment rules or the Supply Chain Act, are expected to shape various industries. In response to global trends, Germany is strengthening the enforcement of data protection laws and intensifying scrutiny over digital platforms, which could impact tech companies and digital services. Additionally, sustainability regulations are evolving, with initiatives to reduce carbon emissions and promote renewable energy sources, influencing investment decisions across sectors.
Moreover, geopolitical tensions and trade dynamics are factors businesses must consider, particularly in light of geopolitical shifts and trade disputes. Uncertainties surrounding Brexit and the EU's future relationship with the UK further underline the need for businesses to adapt to evolving trade frameworks.
In essence, while Germany offers opportunities for growth and innovation, businesses must navigate a dynamic landscape shaped by political transitions, economic challenges, and evolving regulatory frameworks to thrive in the ever-changing business environment.
From what countries do you see the most inbound investment? What about outbound?
"Germany Records Big Rise in Foreign Direct Investment in 2023," states GTAI, Germany's international economic promotion agency, in its latest and annual FDI study. Foreign Direct Investments to Germany increased by over 37 percent in 2023. The renewable energy sector, for example, offers considerable investment potential, driven by the country's ambitious goals for sustainability and decarbonization.
Top 10 – FDI by country in 2023: USA, Switzerland, China, UK, Netherlands, France, Turkiye, Austria, Sweden, Italy.
According to the German Federal Bank, when it comes to outbound investments by German companies, the US, Luxembourg, China, the UK, and France stay at the top.
In what industries/sectors are you seeing the most opportunity for foreign investment?
Germany presents promising opportunities for foreign investment across several key industries. The technology sector continues to attract significant attention, with a focus on artificial intelligence, cybersecurity, and digital transformation. Additionally, the circular economy, as a megatrend, offers multiple investment opportunities across nearly all sectors and is on top of the political agenda in Germany. Healthcare and biotechnology sectors are also burgeoning, with growing demand for innovative medical solutions and pharmaceutical advancements. Furthermore, Germany's automotive industry remains a prime target for investment, especially in electric and autonomous vehicle technologies, as the country pushes towards a future of sustainable mobility.
What advantages and pitfalls should others know about doing business in Germany?
Doing business in Germany offers numerous advantages alongside certain pitfalls to be mindful of. On the positive side, Germany boasts a highly skilled and educated workforce renowned for its efficiency and productivity. The country's strategic location in the heart of Europe provides unparalleled access to the vast European market, offering a gateway for international expansion. Additionally, Germany's robust infrastructure, including modern transportation networks and advanced telecommunications systems, facilitates seamless business operations.
Moreover, Germany maintains a stable political environment and a transparent legal system, fostering investor confidence and ensuring business continuity. The country's strong emphasis on innovation and technological advancement creates fertile ground for companies looking to pioneer cutting-edge solutions and collaborate with leading research institutions.
However, navigating the German business landscape comes with its challenges. The country's bureaucratic processes and high regulations can be intricate and time-consuming, requiring patience and careful attention to detail. As an example, regulatory requirements in the financial sector are much higher than in many other countries. Additionally, Germany's high tax burden, particularly for corporations and individuals, necessitates thorough financial planning and compliance expertise. Also, recent years have seen Germany tighten its FDI regulations to protect critical infrastructure and technologies.
Furthermore, cultural nuances and language barriers may present hurdles for foreign businesses seeking to establish a presence in Germany. Building trust and establishing solid relationships with local partners and stakeholders are essential for success in this regard.
In summary, while Germany offers a conducive environment for business growth, understanding and navigating its unique advantages and challenges are key to thriving in this dynamic market.
What is one cultural fact or custom about your country that others should know when doing
business there?
One cultural fact about Germany that others should know when doing business there is the high value placed on punctuality and efficiency. Germans are very punctual and expect the same from their business partners. Meetings are typically well-structured and follow a clear agenda. Being late can be seen as a sign of disrespect and unreliability. Additionally, communication tends to be direct and straightforward, with a focus on facts and data rather than small talk. Understanding and respecting these cultural norms can significantly enhance business relationships and ensure smoother interactions.
Part 2: About Your Firm
What distinguishes your firm from others in your market?
CMS in Germany is a future-facing firm. With offices in all major metropolitan areas and more than 700 hundred lawyers in Germany alone, we combine deep local market understanding with a global overview, giving us the ability not only to see what’s coming but to shape it. In a world of ever-accelerating change where technology is increasingly important in the deployment of global strategies, our clear, business-focused advice helps clients of every size face the future with confidence. Our lawyers are genuine experts in their fields, with a grasp of detail that's second to none. Our next-generation mindset is woven into all we do. It means we can anticipate the likely challenges, accelerate our pace and create the space to develop innovative solutions. We're diverse, supportive, and inclusive, embracing our corporate social responsibility and creating a culture in which every one of our people can maximize their potential and thrive.
What are three words that describe the culture of your firm?
Future-facing. Client-centred. Team players.
How does your firm participate in Corporate Social Responsibility (CSR) and/or Environmental, Social, and Governance (ESG) initiatives?
CMS is involved in corporate social responsibility (CSR) and environmental, social, and governance (ESG) initiatives through various means. These include providing pro bono legal services to non-profit organizations, promoting diversity and inclusion within the firm and the legal profession, reducing the firm's environmental footprint through sustainable practices in its offices, and supporting community programs and charitable causes. In addition, CMS can advise clients on ESG issues and assist them with regulatory compliance, ethical considerations, and sustainability strategies in their business operations. More information can be found in our Sustainability Report.
Are there any new and exciting initiatives, practice areas, or industry focuses in your firm?
CMS Green Globe: The CMS Green Globe is an interactive platform that allows businesses and clients to stay aware and duly informed about all the main rapidly changing trends and developments in relation to sustainability claims. The CMS Green Globe helps you to avoid greenwashing your consumer. More information: Link
European Legal AI "Noxtua": Noxtua, the first sovereign European Legal AI with its proprietary Language Model, allows lawyers in corporations to benefit securely from the advantages of generative AI. The AI startup Xayn and CMS Germany are developing Noxtua as a Legal AI with its own Legal Large Language Model and AI assistant. Lawyers from corporations can use the Noxtua chat to, e.g., ask questions about legal documents, analyze them, or check them for compliance with company guidelines. More information: Link