What to pay attention to when setting up a company in Germany in 2021 

2020 was a very challenging year for all of us. The COVID-19 pandemic has had a significant impact on businesses all over the world, including Germany. In the following post we would like to highlight some points that you should consider if you are toying with the idea of setting up a company in Germany. We will talk about the general environment as well as the pros and cons of starting a business during the Corona pandemic.

 

5 implications of the Covid-19 pandemic on business and economy in Germany

1) Consumer behavior

According to McKinsey’s latest survey on German consumer sentiment during the coronavirus crisis, Germans are expecting the economy to bounce back but not without an impact on 2021. Germans are now more cautious about their spending. 77% of Germans are either pessimistic or unsure about the speed of their country’s economic recovery and only 23% believes that it will only take 2-3 months. The majority believes that it will take 6-12 months.

• Up to 56% say that they have shifted their focus to value and essential goods while decreased spending on discretionary categories.
• Up to 20% changed their purchasing habits from offline retail stores to their digital online equivalents.
• 56% of consumers switched from their favorite brand and stores to others. This change alone has a significant impact on customer loyalty.
• 91% of Germans are prepared to continue their in-house and home-office activities instead of resuming their out-of-home activities.
• 26% believe that their finances will not return to normal until the second half of 2021.
• Apart from groceries and entertainment at home consumers expect to decrease spending on other categories. The most negative categories are restaurants, travel services and apparels. In the same time delivery and pick-up services are at bigger demand than any time before.

 

2) Work

According to KPMG’s CEO Outlook 2020 special COVID-19 edition, business leaders all over the world are facing big challenges in terms of driving societal and economic changes with purpose and impact. They need to protect their people, build trusted relationships with customers and communities while making sure that the future brings growth and success for their organizations. Businesses need to make sure that their purpose is clear and well defined, that their priorities are the right ones, and that their strategy ensures growth and prosperity.

• Purpose: 79% needed to re-evaluate their purpose to better address the needs of their stakeholders. This re-evaluation provided a clear framework for making quick and effective COVID-19 related decisions.
• Priorities: 77% of businesses will continue to build on the use of digital collaboration and communication tools. 69% will shift to working from home while downsizing office space. Also 68% of the business leaders expressed that their communication with the employees have improved during the crisis.
• Prosperity: While only 32% of business leaders are confident about the growth prospects for the global economy, 45% of them are more confident in their own country, 55% in their own sector and 67% in their own company.

 

3) Trade shows and exhibitions

UFI, the Global Association of the Exhibition Industry, has released the latest edition of its Global Exhibition Barometer research, which represents up-to-date information on the development and outlook of the global exhibition industry with a focus on the Covid-19 pandemic and its impact on the industry. 85% of global companies reported normal exhibition activities in January 2020 but by March it has dropped to 15% and even to lower percentage figures by May. During the summer 73% of companies worldwide reported no activity.

• The majority of German companies believe that local and national trade shows will not open again at least until spring of 2021 while international exhibitions might need to wait even longer.
• On average globally, revenues for the first half of 2020 represented only 33% of the revenues produced for same period last year. Looking at 2020 as a whole, it is currently expected that the revenues will represent only 39% of those of 2019.
• Overall, 87% of companies applied cost reductions, and of more than 50% of overall costs for 17% of them.
• Results indicate that, on average, companies consider that the transition of the exhibition industry is more than halfway for digitalization, 50% of companies have increased their investments in that area.
• 82% of companies consider that there is “A push towards hybrid events, more digital elements at events” (30% “Yes, for sure” and 52% “Most probably”).

 

4) Retail

According to the German Federal Statistical Office (Statistisches Bundesatmt – Destatis) the real turnover of retail trade in Germany in April 2020 was almost at the same level as in April 2017, which considering the year-over-year growth is a significant, close to double-digit decrease vs. pre-Covid conditions.

• During the coronavirus crisis food retail turnover in supermarkets and in specialized retail trade increased significantly due to the increased demand. Compared to 2018 the increase is around 10% while compared to 2015 level the increase is almost 20%.
• In October 2020, the turnover in retail rose by 8.2% (real) and 9.4% (nominal) compared to the same month of the previous year. In comparison to February 2020, the month before the outbreak of Covid-19 in Germany, the turnover in October 2020 was 5.9% (in real terms, calendar and seasonally adjusted) higher.
• In the non-food retail sector, sales in October 2020 rose in real terms by 9.0% and in nominal terms by 9.4% compared with the same month of the previous year. The largest increase in turnover compared with the previous year’s month in real terms by 29.8% and 31.1% in nominal terms was achieved by the internet and mail order business.
• Trade in furniture, household appliances and building materials also increased, with a real plus of 14.2%. Trade in textiles, clothing, shoes and leather goods as well as the retail trade in various types of goods (e.g. department stores) did not yet return to the previous year’s level, with real growth of -6.4% and -2.3% respectively over the previous year.
• According to McKinsey’s latest survey on German consumer sentiment, more than 60% of consumers responded that the reason for shopping at a new retailer/store/website since Covid-19 has started was value and convenience. Through value and convenience consumers can access products more easily from their homes and can get better value for their money. Factors like hygiene, supporting local businesses and availability also play a role in the decision-making process.

 

5) Services

If you have a company or plan to set up one which provides business services to its clients, you are in more favorable situation than those in retail. More than 90% of German companies in the travel, transport and hospitality industry notice an impact of the Covid-19 on their business. Business-related services are at a lower level, around 70%.

• According to Destatis producer prices of services in third quarter of 2020 increased by 1.8% versus the same quarter of the previous year and by 0.2% versus the previous quarter.
• Taking 2015 values as 100% the total services industry increased prices by 5.8%. The greatest increase happened in the Administrative and support service activities, 13.1% while the smallest increase in the Information and Communication services, 1.3%.
• Professional, scientific and technical activities increased by 7.9% and Transportation and Storage services by 6.1%.
• In general, the hospitality and travel services suffered a big hit from Covid-19 while professional business services that can provide “virtual” solutions are displaying convincing results.
• According to McKinsey, businesses that largely depend on global supply chains, such as mechanical and plant engineering, automotive, electronics, and retail are being hit much harder by the crisis. In contrast, the chemicals and pharma, IT and telecommunication, and healthcare sectors—given their increase in demand with their roles in fighting the virus and leveraging technology to enable working from home—were the most likely to expect revenue increases in the shorter term.

 

 

5 reasons to set up a business in Germany during the Corona crisis

1) Strong economy

• Despite the Covid-19 pandemic Germany is still in the top 5 list of the world’s strongest economies based on Gross Domestic Product (GDP)
• In addition, Germany represents a 4.4% share of the total global economy, after the US (24.41%), China (26.34%) and Japan (5.79%)
• The German economy has a strong foundation of Small and Medium-sized Enterprises (SME’s), also known as the Mittelstand
• Consumers have significant spending power
• Innovative climate supporting start-ups, with highly skilled workers
• Efficient infrastructure and transport network

 

2) Stable political environment

• Predictable economic policies
• Separation of powers preventing abuse
• Protected intellectual property
• Clear and reliable competition law

 

3) Made in Germany

• According to a YouGov poll, products made in Germany have the best reputation with international consumers
• Global consumers value products manufactured in Germany above all others
• The origin of products continues to play a significant role in how they are perceived
• Made in Germany = High Quality

 

4) Multinational mindset and multicultural background

• According to the EF English Proficiency Index, Germany is at the top 10 position of English proficiency worldwide behind countries like The Netherlands, Sweden, Norway, Denmark, Singapore
• Limited language barrier although you might need some basic knowledge for dealing with traditional German authorities
• There are several nationalities and cultures live together in Germany, providing companies wide range of targeting opportunities

 

5) Business funding and support

• Strong support and funding from the government to Start-Ups and SMEs
• Strong network of Entrepreneurs
• Vibrant start-up environment with the central capital of Berlin and other centers like Frankfurt, Dusseldorf and Munich
• Efficient advisory services like Your German Company (YGC) and information centers that help new companies with their questions and even finding support

 

What can YGC offer you in 2021?

1) Our famous “Customer First – First Customer” attitude: there’s no higher priority for us than our customers’ satisfaction. We work with every customer as if they were our first, going the extra mile and making sure that our services and relationship help them to reach their business goals, through a delightful brand experience.

2) Seamless company formation services in a perfect English-speaking environment. There’s no need to speak German, you can rather keep focusing on how to start generating revenue ASAP.

3) Extensive business network for you to find the best partner and grow your network.

4) Maximize your business’s efficiency: do you struggle with administration and bureaucracy? Let us help you rethink how you spend your valuable time the most effectively.