BUSINESS IN GERMANY �

Business in GermanyDECEMBER 2007

And when can we welcome you to Cologne?Microsoft, Admiral/EUI Ltd., AIG Life, AMB Generali, Congstar, E wie einfach, Electronic Arts, Fortis, Freshfields Bruckhaus Deringer, German Acorn Real Estate/Oaktree, Granada, HDI-Gerling, Lufthansa, Mapfre Empresas, MindTree, Mitsui Sumitomo Insurance, Pilsner Urquell, Robert Half, RTL, Simon Kucher & Partners, Tente, Unitymedia, Wige Media, Wolters Kluwer – leading companies which are contributing to the strength of the cathedral city by deciding to locate here and ensuring that new records continue to be set on the Cologne property market.

Following the outstanding figures in recent years, the renting volume once again reached a new record mark of 295,000 square metres in 2006. Thanks to excellent figures of the population trend and the numbers of persons employed in office jobs, all the signs continue to point to growth. As a result, Cologne regularly offers new first-class projects and ideal prospects. Take a look for yourself.

Offi ce of Economic Development, Willy-Brandt-Platz 2, D-50679 Cologne, Tel. +49 221 221-25765, Fax +49 221 221-26686wirtschaftsfoerderung@stadt-koeln.de, www.stadt-koeln.de

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BUSINESS IN GERMANY �

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According to the “Global Location Trend Study”, a yearly analysis conducted by IBM, which examined 10,500 investment location decisions in 2006 with a view to country of origin, destination of the investment, and the number of jobs created, foreign investors have high confidence in Germany as an investment site.

Germany is the eighth most popular destination for foreign investment in the world. This result is an increase of four places compared to 2005. Germany also recorded an increase in relation to other European countries. In 2006, it was the third most popular destination for foreign investment in Europe, falling behind only Great Britain and France, an improvement over the sixth-place position within Europe that Germany tallied in 2005.

The leading two regional recipients of foreign investment in Germany were the federal states of Saxony and Bavaria followed by Saxony-Anhalt and Northrhine-Westphalia. Saxony and Saxony-Anhalt are both in eastern Germany, Bavaria is in the south of the country, and Northrhine-Westphalia is in the west. This diversity reveals that all of Germany is benefiting from increased foreign investment.

The top three foreign countries investing in Germany in 2006 were the USA, Neth-erlands, and Switzerland, and the most popular industries for foreign investment in Germany in 2006 were information and communication technologies, industrial machines, and the automotive industry.

This increase in investment is evidence of Germany’s growing competitiveness from the view of international investors. They see Germany as a country with skilled workers, a dense infrastructure, and compensation agreements that are reasonable and predictable. Here’s a more detailed view on the country.

Increased popularity

with foreign investors

� BUSINESS IN GERMANY

Strong infrastructure

The World Economic Forum’s (WEF) Global Competitiveness Report 2007-2008 revealed that Germany is the global leader in terms of infrastructure and business sophistication, and is one of the top five most competitive economies in the world overall. This marked an improvement for the country, which moved up from 7th place in 2006.

Germany’s strong performance is thanks in large part to the country’s modern and innovative companies – it ranked first out of 131 economies in the sophistication of its business sec-tor, a category that accounts for factors such as the quality and quantity of local suppliers and the sophistication of the pro-duction process. In terms of overall business competitiveness – based on the sophistication of company operations and the quality of the national business environment – only the United States scored higher. Additionally, no other economy tops Ger-many in the subcategory of capacity for innovation.

The country is characterised by the value it places on scien-tific and industrial advancement and actively strives to fos-ter the exchange of innovative ideas between the research and business communities. The German government has set out to make Germany the most research-friendly nation in the world by 2020 – the WEF indicators suggest it might not have to wait that long.

With its modern transportation infrastructures, the German economy also scored first place in infrastructure, a category that encompasses the quality and availability of its roadways,

railways, seaports, and airports. In this way, the WEF study clearly supports Germany’s reputation as being Europe’s logis-tics hub. Other strongly performing areas include institutions and market size, where Germany ranks among the top ten.

Based on a series of upcoming reforms designed to make the German economy even more competitive – including generous grants for research and development, a lowering of the corpo-rate tax burden, and a substantial scaling back of bureaucra-tic hurdles – Germany has every reason to be optimistic about moving up even further in the next report.

What recent studies reveal about Germany

BUSINESS IN GERMANY �

Motivated employeesGerman employees are unbeatably loyal and engaged in their work. These are the results of the Global Workforce Study 2007, the largest international analysis ever conducted on employee motivation in the work place. The study by Towers Perrin, a glo-bal professional services firm, shows that German employees are willing to go the extra mile to help their companies succeed more than most other Europeans. With an average of 64 percent highly and moderately motivated employees, only Switzerland ranks higher than Germany in Europe. Moreover, German em-ployees are among the most loyal in the world, with 49 percent of surveyed workers revealing that they have no interest in lea-ving their jobs; the comparable figures across Europe show an average of 32 percent and in the United States, just 37 percent.

After surveying nearly 90,000 workers in 18 countries –in-cluding 3,000 German employees – as well as drawing on the world’s largest employee normative database, the workforce study also found that companies with the highest levels of employee engagement achieve better financial results and are more successful in retaining their most valued employees. “It’s impossible to overstate the importance of an engaged workforce on a company’s bottom line,” emphasised Julie Gebauer, a ma-naging director at Towers Perrin. The results from Germany clearly support a previously unproven linkage between em-ployee engagement and financial performance. At a time when companies are looking for every source of competitive advan-tage, the German workforce itself comprises a reservoir of un-tapped potential for both domestic and international investors.

Attractive location Germany is becoming more and more attractive as a location for business. A study published by the International Institute for Management and Development (IMD) confirms that Ger-many has become significantly more competitive in compari-son to other nations.

The Swiss institute compares 55 economies every year for the World Competitiveness Yearbook. In the latest edition, Ger-many has improved its overall ranking from place 25 to place 16. This is the greatest improvement achieved by any of the countries covered by the study.

The study is based on more than 300 criteria. Two thirds of these are accounted for by statistical data, while the other third is based on surveys of international experts. The criteria are then broken down into four priority areas: economic per-formance, business efficiency, government efficiency and in-frastructure.

It is particularly encouraging to note that Germany improved its position in all four sections. The improvement was most mar-ked in economic performance, where Germany ranked eighth, moving up twelve places from the previous year. Exports were an important factor, with Germany ranked as the world‘s top exporter. The experts also saw Germany‘s increasing attrac-tiveness for foreign investors as a positive factor.

The country also got good marks for the work of the govern-ment. Government efficiency jumped five places as compared to the year before. The excellent infrastructure came in for special mention as a major advantage. From an already strong seventh place, Germany managed to improve its ranking by another two places.

According to the study, the most competitive country in the world remains the United States as in the previous year. Luxem-bourg has the best competitive position of the European coun-tries, moving up five places to rank fourth overall.

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BUSINESS IN GERMANY �

KfW Förderbank and the Federal Min-istry of Transport, Building and Ur-ban Affairs recently commissioned an evaluation of the promotional impact of financing programmes in the sector of energy efficient building and renovation – CO2 Building Rehabilitation, Housing Modernisation and Ecological Construc-tion. The evaluation is presented in two studies, one carried out by a scientific consortium headed by the Bremer Ener-gie Institut and one by the Fraunhofer Institute for Building Physics.

The investments financed in 2006 alone achieve a long-term reduction of more than 1 million tonnes per annum in CO2 emissions. By the end of the Kyoto trading period in 2012 the CO2 reduc-tion impact of modernisation projects promoted in 2006 will total more than 6 million tonnes. With the investments triggered in every further promotional year, there is a corresponding increase in this CO2 reduction. Continuing the package of programmes unchanged will thus make a major contribution to the German government’s integrated energy and climate programme and is ultimately an indispensable part of the German efforts to comply with interna-tional climate protection obligations.

“The results of the studies show that a threefold return is generated by the programmes in the sphere of energy ef-ficient building and renovation”, says Ingrid Matthäus-Maier, Spokeswoman of the Board of Managing Directors of KfW Bankengruppe. “First, there has

been a distinct reduction in the emission of harmful greenhouse gases – which protects the climate. Second, a reduc-tion in the consumption of expensive fossil fuels such as oil and natural gas is achieved. This reduces household en-ergy costs and makes Germany less de-pendent on oil and gas imports, which are steadily becoming more expensive. Third, the modernisation measures are stimulating domestic demand, which creates new jobs, particularly in the skilled crafts sector, which consists pre-dominately of SMEs.”

Owing to the high significance of the programmes in the field of energy ef-ficient building and renovation for the achievement of the German govern-ment’s climate protection objectives, it was decided to extend the promotional support until 2011. The continuation of the support is an important signal for the construction sector.

The CO2 Building Rehabilitation Pro-gramme is the cornerstone of plans to speed up the energy-saving rehabilita-tion of the German housing stock. This programme contains packages of meas-ures to provide financial support for the reduction of energy consumption in ex-isting residential buildings. Since 2007 private individuals may apply for a grant to cover the energy upgrading of their single-family or two-family house.

By contrast, the programme Housing Modernisation will provide support for individual measures and smaller pack-ages of measures regarding energy sav-ing in the housing stock. The Ecological Construction Programme is used to pro-mote new buildings that are particularly energy efficient. In 2006 around 130,000 loans with a promotional volume of al-most EUR 7 billion were granted in the three programmes. This stimulated an investment volume of EUR 12 billion.

Building a better climateThe German Ministry of Transport, Building and Urban Affairs evaluates the promotional impact of support programmes

in the field of energy efficient building and renovation. Good chances for foreign construction companies

Attractive housing: In many German cities real estate companies have put

huge amounts of money in the renovation of older buildings to improve their energy balance, as seen in

this example of a condominium in Berlin.

� BUSINESS IN GERMANY

by Ulrich hottelet

A popular PR campaign by the govern-ment and German business calls Ger-many the “Land of Ideas.” But Germany does not seem to be a country that knows how to transform these ideas into cash. This is the perception that has spread among German industry, academia and government.

The examples are as prominent as noteworthy. While German inventors substantially contributed to the deve-lopment of the fax, the Walkman and MP3 technology, the fruits of their inge-nuity were harvested by American and Japanese companies. The reasons vary, but the common denominator was the failure of the German industry to recog-nize the tremendous market potential of these ideas and to follow through.

Chancellor Angela Merkel keeps addressing this failure to cash in on in-

novation. “We want to bring science and business closer together,” she said at a recent CDU party convention. And at the CeBIT computer trade fair in March this year, she emphasised that if Germany wants to be a world leader in innovation, it needs a climate where “ideas are trans-lated into action, science into marketable products, processes and services.”

Merkels administration has been busy setting up multi-billion euro programs to help achieve those goals. The “high-tech strategy” serves as an umbrella for industry-specific initiatives like “Infor-mation Society Germany 2010” and the recently announced program “ITK 2020” for the IT and communication sector. While there used to be many govern-ment programs to promote fundamental research across scientific disciplines, the new focus is on market oriented appli-cation.

Several recent studies by economic think tanks and the Boston Consulting Group come to the same conclusion.

Making inventions payThe Germans are still innovative. But their ideas don’t always make it onto the

market, because in many companies, it’s no longer engineers who have the say

but lawyers and controllers.

BUSINESS IN GERMANY �

While the public and private sector in Germany invested more money in re-search and development than most of its foreign competitors, it focused on the traditionally strong industries like auto-mobile, machine and electronics manuf-acturing.

But the true growth potential of inno-vation lies elsewhere: in IT, microelec-tronics, optical technologies and medi-cal biotechnology. Still, some experts and the Research Ministry favor this approach of “strengthening strengths”, especially in IT.

In any case, the creativity of Ger-man inventors remains strong. Ger-many ranks third after the U.S. and

Japan, when counting the number of patents submitted at the World Intel-lectual Property Emphasised in Geneva in 2006. However, every fourth patent in Germany is not brought to the mar-ket, according to a study of the Institute of German Business in Cologne (IW). It

estimates the resulting loss for the eco-nomy at a minimum of €8 billion.

Even more sobering are statistics of the Institute for Applied Innovation Re-search in Bochum (IAI), according to which only one out of every 16 inven-tions in Germany turns out to be a com-mercial success. “The rate of true mar-ket innovation even decreased from 42 percent to 37 percent in the past three

years,” says Friedrich Kerka, IAI’s ma-naging director.

Kerka attributes the problem to ma-nagement: “We have inventors, but we lack the elites to promote invention. Controllers and lawyers have replaced engineers on company boards. For many managers, it simply has become unat-tractive to deal with innovation, be-cause restructuring and cost-cutting are better rewarded. Keeping in touch with customers would help to develop ideas for creative new products. Instead, these managers prefer relying on superficial market research.”

Germans have often tried to copy Sili-con Valley, but they got it wrong, accor-ding to Kerka. “Its success was not due to governmental subsidies,” he says. “The breakthrough happened when people were forced to found companies because these subsidies came to an end.”

Christian Rammer, senior resear-cher on innovation policy at the Cen-ter for European Economic Research in

Biotechnology: a major playground for researchers in Germany

Speicherstadt Cologne: preferred site for innovative companies

“The rate of market innovation decreased significantly in the past three years

Friedrich KerKa, iai

�0 BUSINESS IN GERMANY

Guido Baumhauer, Director of

Strategy, Marketing and Distribution

at Deutsche Welle, reveals the ideas

of the broadcaster’s successful

mixed-media approach

MP: What is Deutsche Welle’s overall digital strategy?

Guido Baumhauer: Actually, we have at least 30 strategies – one for each of the languages we offer. There are, of course, bigger differences within some of the language markets – in the Arabic world, for example. What works in Egypt probably won’t work in the United Arab Emirates. We have to deduce what con-tent we need for each target group and decide which platforms will help us to provide that content efficiently. This is

90 million con tacts per weekDeutsche Welle is Germany’s most succ essful international broadcasting station

Mannheim (ZEW), recommends a more relaxed attitude. “Start-ups in the U.S. enjoy the unique advantage that they can quickly serve the largest national market worldwide,” he says. “Moreover, in contrast to the EU, it has one language and culture.“

Rammer approves the federal strategy of strengthening strengths. “The expec-tation that every state in Germany needs to be a world leader in a particular tech-nology is simply unrealistic,” he says. “In the U.S., nobody would expect this from either of the 50 states.” He points out, that Germany actually enjoys an advantage as its car manufacturers and machine builders benefit from impor-ted microelectronics becoming chea-per. “Our worry is more directed at the fact that it will become more difficult to keep the speed of innovation with cars,”

says Rammer. “German manufacturers are poorly positioned for environment-friendly engines since they bet on the high price segment of the market.” The car industry developed and tested alter-native fuel vehicles for decades, but ap-parently not with the intention of intro-ducing them to the mass market in the foreseeable future.

In 1973, engineers at the Technical University in Aachen had already made a hybrid car out of a VW van. Now the German car manufacturers are in dan-ger of missing the bus. Their Japanese and French competitors are ahead in the race of selling more environmentally sustainable cars. Once more, German managers underestimated the potential of innovative products.

But this time, it’s both an economic and an ecological failure.

“Delivery is King Kong”

Up to 750,000 written responses per year – that is the impressive amount of feedback deutsche Welle has received in recent years on dW-radio and dW-tV programmes and the website at dW-World.de. a remarkable indication of how many people make use of the information offered by dW. according to the standards of modern media research, however, the facts and figures from repre-sentative surveys are even more precise and indicative.owing to dW’s global broadcasting range and the cultural differences within it, obtain-

The German Reichstag in Berlin with historical inscrpition

BUSINESS IN GERMANY ��

90 million con tacts per weekDeutsche Welle is Germany’s most succ essful international broadcasting station

ing reliable figures on how well-known dW programmes are, how widely they are used and what people think of them is a special challenge. Since 1980, dW media researchers have carried out over 300 surveys, in addition to numerous target-group and qualitative studies, on the success of dW programming, and have offered advice on how it can be op-timised and strategically positioned. they also analysed data on the demographics of users of dW services and, on occasion, their specific interests and attitudes, such as the image of Germany in their respective countries.

the basis of our multiplatform strategy. Something that is just developing in one market can’t be applied to others for a while. The development of this strategy first of all depends on the development of our content. So we also have to rede-sign our editorial structure in order to react to changes in markets that we can’t influence ourselves. A departure from a clearly defined structure consisting of radio, TV and Internet should lead to the targeted production of content for those platforms.

MP: How do you know which technolo-gies will be important and when do you invest in them?

Baumhauer: In several areas we are try-ing to use our first-mover advantage. In 1994, we were the first German broad-caster to go online and we were the first to offer podcasts ten years after that. But

we have to know what works and what doesn’t – and we are trying to learn from our users in this regard. We are produ-cing and distributing content for clearly defined target groups. When we can’t reach them, we have to adapt our offers and paths of distribution. The devices are already there and for Deutsche Welle that means POPE: produce once – pub-lish everywhere. For example, a radio report is broadcast to listeners in Africa, is available as an audio live-stream by DW-WORLD.DE users in the USA and as a podcast for a user‘s mp3 player in China.

MP: How do you choose your online palette?

Baumhauer: One deciding factor is the usage rights. The other factors are time and effort. We have to test the digital workflow in order to see what amount of

effort we can and want to invest – for example, having our own editors pro-duce content for on-demand use only or adapting other reports. In addition, we have a network of more than 5,000 ra-dio and TV partners worldwide – many of whom know their markets very well. From them, we can learn which content and formats work in their area. All of this together gives us a pretty good idea what type of content we need and which distribution is the right one. Content is clearly king but delivery is King Kong.

“Delivery is King Kong”

according to estimates based on current studies of various countries, deutsche Welle reaches more than 90 million listeners and viewers every week around the globe. World-wide, an estimated 65 million listeners regu-larly get their information at least once a week from dW-radio. the German and english services – both on air 24 hours a day and all around the world – reach 25.5 million people. the other foreign language services have a to-tal of 39 million listeners.the figures for specific regions and coun-tries are impressive. in Pakistan, more than 700,000 people follow dW-radio; the ma-jority of them listen to the Urdu language service. in tanzania, the number of adults who listen to dW-radio in Kiswahili is 9.5 million.

in Nigeria, 10.5 million people listen to dW each week in haussa. a study carried out in Kenya shows that deutsche Welle reaches 16 percent of the adult population, or approxi-mately 2.9 million people.dW’s television service, dW-tV, is viewed at least once a week by a good 28 million peo-ple. in latin america more than 7.5 million adults watch the service. in eU countries, dW-tV is watched by over 5.3 million people, 1.5 million in Southeast asia, and 2.3 million in the Middle east and Northern africa. and, even in a very radio-dominated country like tanzania, dW-tV reaches 3.4 million view-ers per week, nearly 1.5 in Ghana and over 1 million in Kenya. dW-tV broadcasts bilingual programs in europe, africa and asia.

Guido Baumhauer

�2 BUSINESS IN GERMANY

by roN StarNer

When Red Parcel Post announced in July this year that it would build the first of four planned logistics centres in Stegelitz near the Saxony-Anhalt capi-tal of Magdeburg, it capped a series of sizable investments for the former East German region that’s now bustling with multimodal transport capabilities. RPP intends to invest €130 million and create 260 jobs with the project, which will pro-vide 700 to 800 vehicles to move parcels in and out of the complex. The centre will serve as the corporate headquarters of RPP. “Saxony-Anhalt is increasingly proving to be an attractive logistics lo-cation,” says Dr. Reiner Haseloff, econo-mic minister for Saxony-Anhalt. “That applies not only for the greater Halle-Leipzig area, but for the Magdeburg area, which is an important intersection for street, rail and waterway, because it connects West and East. “We are espe-cially pleased that this large investment will further strengthen the Magdeburg region with many new jobs,” he added. “The fact that the company will have its headquarters location in Saxony-An-halt is an additional important step for strengthening our profile as the logistics location in the heart of Europe.” The RPP

facility, near the A2 highway, is slated to open in the first half of 2008. The sole investing shareholder is entrepreneur Walter Hellmich, chairman of the Hell-mich group of companies.

Hellmich is not the only investor banking on the growth of logistics in Saxony-Anhalt. On May 5, Dirk Ross-mann GmbH opened its expanded cen-tral warehouse in Landsberg, part of a €50-million investment that adds 155 jobs. The largest development in the company’s history brings employment at Landsberg to 430. “Rossmann operates a foresighted company policy with this lo-cation expansion,” said Prime Minister Prof. Wolfgang Böhmer, who attended the opening. “Saxony-Anhalt intends to profit from the DHL commitment at the Leipzig/Halle Airport. The state is well prepared and can react quickly to inves-tor inquiries.”

While much more media attention has been focused on Belgium and the Nether-

lands as logistics hubs for Europe, a quiet renaissance has occurred in and around Magdeburg and Halle, the two principal cities of Saxony-Anhalt. Fuelled largely by the expansion of the Leipzig/Halle International Airport – the new cargo hub for DHL – the German state has been landing huge logistics investments from a bevy of companies. Netto, Otto, Aldi, Edeka, Kaufland, Schlecker, Lidl, and Wolter Koops are just a few of the firms that recently made large capital invest-ments in the region.

The Logistical Advantage“Logistics and transportation companies value the favorable location factors of the state, particularly the centralised po-sition in Europe and the efficient trans-portation infrastructure,” said Haseloff. “These location factors are a significant prerequisite for economic growth and employment in the state. Strategic ma-

Logistics coming on strongAmsterdam. Dubai. Memphis. Mention these locations, and virtually everyone will re-

cognize them as some of the top logistics locations in the world. If recent history is any indication, the German state of Saxony-Anhalt may soon be added to that list.

Saxony-Anhalt

Airport Halle Open bridge waterway crossing closed to Magdeburg

BUSINESS IN GERMANY ��

nagement decisions are determined more than ever by the quality of the trans-portation infrastructure, in particular by the efficiency of the streets, railways, waterways and, not lastly, accessibility by air.“

Among other benefits, Saxony-Anhalt offers companies 600 km (373 miles) of navigable waterways and the modern Port of Magdeburg connecting vessels to the North and Baltic Seas. Other ports and transfer points are located along the state’s waterways, with tri-modal facilities in Magdeburg, Rosslau, Aken, Haldensleben and Halle-Trotha. Five major highways serve Saxony-Anhalt: the A2 connects Dortmund, Magdeburg and Berlin; the A9 connects Munich, Halle and Berlin; and the A14 connects Dresden, Magdeburg and Schwerin. Sa-xony-Anhalt provides some 2,300 ki-lometres (1,428 miles) of railroads and 400 train stations – one of the densest rail networks in Europe. But the crown jewel of transportation is the airport at Leipzig/Halle. With unrestricted air access around the clock for air freight traffic, less than 1,000 kilometres (621 miles) from London, Paris and Copen-hagen, only 630 kilometres (391 miles) from Brussels, and just 515 kilometres (320 miles) from Amsterdam. Air cargo volume last year reached 29,330 metric tons. Passenger volume topped 2.35 mil-

lion. The airport features a 3,600-metres parallel runway system.

Saxony-Anhalt offers plenty of ready-to-build industrial sites close to the air-port. Logistical advantages, however, are not the only big points for the state, officials say. They point to labour costs that are 30 percent lower than those found in western Germany. In fact, the labour costs per man-hour in the East German states are lower than in the U.S., Ireland, the U.K., France, Austria, Swit-zerland and Belgium. With this cost ad-vantage, Saxony-Anhalt combines the advantages of Eastern Europe with the advantages of Western Europe. As part of Germany, Saxony-Anhalt has the same legal and political stability.

FDI Haven for FactoriesAs the European Union continues to ex-tend eastward, offi cials in Saxony-An-halt say the state is poised to take advan-tage of Europe’s expanding economy. Companies like Dell, Bayer, Novelis, Total, and Guardian have made major capital investments in Saxony-Anhalt, and those are likely to continue. With 2.6 million people, Saxony-Anhalt still offers the lowest labour rates in all of Germany, while producing highly skil-led technical workers, thanks to the pre-sence of seven major universities. The University Magdeburg offers a course of study unique in Germany: a program called “industrial engineering logistics”. The school cooperates with the Fraun-hofer Institute for Factory Planning and Automation. A Virtual Development and Training Center (VDTC) is offered by the institute as well.

The state’s gross domestic product in-creased by 2.8 percent in 2006, rising from EUR 48.1 billion in 2005 to EUR 50 billion in 2006. This made Saxony-An-halt the fastest growing state economy in Germany two years running.

Foreign direct investment contributes to this economic growth. Of all the FDI flowing into eastern Germany, 41 per-cent goes to Saxony-Anhalt. Much of this capital goes into manufacturing investments. Factory output in Saxony-Anhalt climbed 8.12 percent in 2005 and 12.2 percent in 2006. Investments in buildings and machinery in 2004 (the most recent year measured) totalled EUR 1.6 billion. The state ranks as Germany’s 10th-leading exporter out of 16.

The largest categories of exported goods include glass, iron and steel pipes, and semi-finished chemical products. The largest single investor is Dow Che-mical, with sites in Schkopau, Bohlen, Leuna and Bitterfeld. Other top-per-forming industries in Saxony-Anhalt include paper, publishing and printing, food processing and metals. In each case, these industries in Saxony-Anhalt outperform their counterparts in wes-tern Germany.

Saxony-Anhalt makes available in-centives to companies doing expansions in the state. The public grants and subsi-dies include R&D grants, workforce cost subsidies, investment grants and loans. Saxony-Anhalt is an EU-subsidy re-gion. Nowhere in the EU are there higher grants for investors. A typical industrial company making an investment of €30 million in Saxony- Anhalt, for example, could qualify for up to €12 million in in-centives.

More than �600 years separate the manufacturing dates of these artefacts.Left: modern photovoltaic discs, Q-Cells AG, right: the mysterious Sky Disc of Nebra, Juraj Liptak.

Saxony-anhalt presents itself as an at-tractive, economically dynamic region that welcomes investors. it has by far the gre-atest volume of direct investments in the new German states and a strong tradition in the chemicals industry and mechanical engineering. investors in automotive-sup-plies and wood-processing industries from both Germany and abroad are creating a new tradition. Up-and-coming industries such as ict, biotechnology and medical technology are showing high growth po-tential here. the opening of the new mo-torway a14, linking the a2 and a9 routes, will enhance this region‘s advantages as a commercial location. there are more than 1,500 hectares of vacant, well-developed, reasonably priced business land available in this catchment area, of which 350 hec-tares are designated preferential sites.

�� BUSINESS IN GERMANY

There has been a further improvement in access to credit for SMEs in Germany. That is the key finding of this year’s com-pany survey conducted by 26 professio-nal and regional business associations. In detail: A distinct improvement in fi-nancing conditions was reported by 16 percent of the enterprises surveyed – the highest figure since the first joint survey in 2001. At the same time, the share of enterprises complaining of a worsening in the financing climate also fell from 33 to 22 percent, the lowest level since 2001.

It is particularly encouraging to note that, for the first time, far fewer small enterprises with an annual turnover of less than EUR 1 million reported that it had become more difficult for them to obtain a loan.

“Anyone obtaining credit from a bank

is in a position to invest and thus to con-tribute to growth and create jobs. It is pleasing to see that there has generally been a clear easing of the corporate fi-nancing situation,” says a spokesperson of the institute that conducted the study.

On behalf of the SME sector, Hanns-Eberhard Schleyer, Secretary General

of the German Confederation of Skilled Crafts (ZDH), points out that size-related financing difficulties occur irrespective of the age of the enterprise: “Business support must cover the entire life cycle of an enterprise. The promotion of small

loans has so far been too strongly biased towards business start-ups and young enterprises. In providing support for SMEs, greater attention needs to be paid to small enterprises that are already in existence.”

The most important findings of the 2007 company survey are: 16 percent

(2006: 12 percent) of the enterprises re-port a noticeable easing in borrowing compared to the previous year. The per-centage of those being refused a loan by the bank has gone down from 18.5 per-cent to 15.5 percent.

Corporate financing on the riseWhile the conditions for financing business processes have improved, small and medium-sized companies still complain

that their specific needs are not met by the banks‘ efforts to offer better services. A recent survey gives hope, though.

“Business support must cover the entire life cycle of an enterprise

haNNS-eberhard Schleyer, Zdh

BUSINESS IN GERMANY ��

One reason for the overall positive de-velopment is – in addition to the good development of the economy – that more and more enterprises have adapted to the requirements arising from the changes in the financial market. For instance, 42 percent of the enterprises improved their rating last year. Only six percent of the respondent enterprises reported a worsening of their rating. In addition, 45 percent of the enterprises increased their equity ratio, whereas only 14 per-cent reported a lower ratio.

Despite this positive trend, the situ-ation is still that the smaller an enter-prise, the more exacting the financing conditions. The percentage of small en-terprises indicating greater borrowing difficulties in the 2007 business survey

is still around four times as high as that of large enterprises. They also report virtually no change compared to the previous year regarding the basic pro-blem of obtaining a loan. One enterprise in two refers to this problem.

On the subject of ratings, there is evi-dence of a persistent communication de-ficiency between enterprises and their local banks. Of the respondent enter-prises, 13 to 24 percent of the smaller enterprises still do not know whether they have been rated by their bank. Not really surprising, since the main reason why the enterprises do not know their rating is that they simply have not asked their bank about it.

Both small and fairly large enterprises point to the increased requirements of the credit institutions regarding the disclosure of business information, the documentation of investment plans and

the provision of collateral as most im-portant reasons why the climate become worse.

Applications for investment loans by small enterprises are still turned down just under four times as frequently as those made by large enterprises. The two most frequent reasons for rejecting in-vestment loan applications were – as in the previous year – insufficient collate-ral and too low an equity ratio on the part of the applicant.

The manufacturing industry is en-joying an excellent business situation. Whereas 83 percent of the enterprises in this sector made investments in the past twelve months, the average for all sectors was only 69 percent. In the re-tail business, which is one of the sectors

most adversely affected by the change in financing conditions, less than half the enterprises made any investment at all last year. Investment was also less frequent in the skilled crafts sector.

The quality of the advice given by the banks is perceived by most enterprises as largely unchanged since 2006. The percentage of enterprises reporting an improvement is, at 17 percent, higher than the percentage reporting a wor-sening (11 percent). Larger enterprises have a more positive view of both the development and the extent of the ad-visory services than smaller enterprises. The fact that the positive assessment of the quality of the advice increases in line with the size of the enterprise is an indi-cation that banks are focusing more and more on larger-volume and presumably more profitable business with larger cus-tomers.

The UK Limited in Germany

It is estimated that more than 30,000 UK Private Companies Limited by Sha-res (“Ltd.”) are operating in Germany and the numbers are increasing by app. 1,000 to 2,000 every month. When eva-luating which legal entity shall be used, more and more founders in Germany prefer the Ltd. against the German limi-ted liability company (“GmbH”) or other German legal entities. From an US or UK perspective, it may appear that there are no legal issues if a Ltd. operates in Ger-many.

However, German law strictly oppo-sed the use of non-German legal entities in Germany until 2003 so that it was not advisable to use a Ltd. in Germany. A se-ries of recent decisions of the European Court of Justice (“ECJ”) changed this fundamentally, and as a consequence there is a competition of the different corporate law systems in the European Community since 2003. There are some advantages to use a Ltd., e.g. the capital requirement for incorporating a GmbH is EUR 25,000, whereas a Ltd. may be incorporated with a share capital of just GBP 1 or the incorporation of a Ltd. is much faster and significantly cheaper than the incorporation of a GmbH.

But the German lawyer and notary Dieter Grafflage, founding partner of the law firm Grafflage & Kollegen, still recommends the GmbH: “The Limited has incontestable advantages compared with the GmbH, but the missing ac-ceptance of the Limited in the German legal relations is usually an underesti-mated barrier. Besides the contact with the companies house and the companies secretary is unaccustomed for a German businessman.”

The other key to Einstein’s success clearly lies in the prepara-tion of coffee drinks. Here, the difference is in the 2 “M´s”: Machinery and Man. Numbers can resemble the hard facts about coffee: 92 degrees Celsius, a pressure of 15 bar, brew-ing time 24 seconds. These parameters are very crucial to the preparation of a coffee drink, but they are also a prerequi-site. The “Man” operates the machine but he also needs to be able to control it: The proper degree of grinding for example varies with the humidity and outside temper-ature. To see this and develop a feeling for those soft factors is one of the skills that need training, just as it is necessary to foam the milk. This is also the point where the Einstein training programs start.

At Einstein, a variety of training programs have been devel-oped and teach the necessary skills to prepare the perfect cup. Classes are given to private clients (“foaming milk”) as well as professionals (for example “working under pressure” or “Latte Art”)

All this has yielded in a very profitable coffee shop operation that is now aiming for additional franchisees in Europe. Not surprisingly, Einstein has managed to attract a different, well off and educated class of customers who are willing to spend the extra penny for the extra quality rendered.

EINSTEIN in figures:

Coffeeshops TOTAL: 17 (Franchise Shops: 10)EINSTEIN ROASTERIES: 1

A steady growth / expansion of EINSTEIN Coffeeshops is planned for 2008 and the near future with focus on metropolitan regions throughout Europe

EINSTEIN Coffeeshops & Cof-fee Roastery | Franchise Con-tact: +49-30-93931283 | Email: franchise@einstein-coffeeshops.comwww.einstein-coffeeshops.com

The success of EINSTEIN KAFFEE started with the Einstein Café in Berlin, a coffee house run in the tradi-tional “Viennese style” which was established in 1978 in former West Berlin. It developed quickly to become one of the hotspots for a decent cup of coffee and Viennese snacks.

Inspired by its success, a first branch was opened in the mid 1990s on one of the prime locations in Berlin. In 1998, the first American style coffee shop concepts hit the German market and Einstein took the opportunity to blend that ap-proach with its continental European heritage. As a result, the first Einstein Coffeeshop opened in 1999 in Berlin and received very good consumer response from its first day.

Over the following years Einstein expanded deliberately and now runs 7 coffee shops in Berlin and has 10 franchise operations throughout Germany and Egypt. Very early, it became clear that Einstein’s claim for quality could only be met by controlling the production process as far as possible. This led to the foundation of the Einstein Coffee Roastery in early 2000 which helped to decrease the time between roast-ing and brewing the coffee. At this time, most of the German coffeehouses still bought their coffees and espresso blends

from Italian roasters, which meant that the roasted cof-fee had to travel several weeks before being served. Today the Einstein Coffeeshops are re-ceiving freshly roasted coffee every single day to ensure its freshness. And here is the dif-ference to red wine: both are drinks, but coffee´s quality does not improve over time.

EINSTEIN KAFFEE CoffEE KNow How fRom BERlIN, GERmaNy

Roasted on a daily bases: 6 Blends and 18 Single Origins

EINSTEIN famous for Latte Art

�� BUSINESS IN GERMANY

Federalfertiliser

KfW Mittelstandsbank offers targeted promotional support

for many and varied purposes in the different stages of

development of an enterprise. Foreign investors often are

not informed about the many ways to obtain a low-interest

funding. “Business in Germany” gives a brief overview.

With its programme “Unternehmer-kapital” KfW Mittelstandsbank offers long-term subordinated loans to foreign investors. These loans are characterised by the fact that the lender‘s claims are junior to those of all other debt capital providers, which gives the loans quasi-equity character.

Normally, no collateral is required. It should be ensured, however, that final borrowers are natural persons and per-sonally liable for the repayment of the loan. In this way, subordinated loans pool the advantages of debt and equity capital, thus improving a company‘s credit standing and making it easier to access additional funding.

Every business goes through vari-ous phases of development, which is re-flected by the loan-system. Accordingly, the Unternehmerkapital is composed of three building blocks: ERP Capital for Start-ups: targets start-ups and young companies up to two years after the start of the busi-ness.

ERP Capital for Growth: targets young companies that have been in business for more than two years but less than five years.

Capital for Work and Investment: tar-gets established companies that have been operating in the market for more than five years.

Start-ups and growing businesses are eligible to receive loans with lower in-terest rates from the ERP Special Fund. Subordinated loans granted to growing businesses and to established businesses carry different interest rates depending on the applicant’s credit standing.

Businesses with good credit standing will benefit from low interest rates, whe-reas weaker or smaller companies are offered access to capital at risk-adjusted interest rates.

What all of the elements of the Un-ternehmerkapital have in common is that the banks are relieved from the risks of a possible loss of the subordinated capital.

Micro loans

Many entrepreneurs start small. They begin by pursuing their activities on the side, or they found a business to exit unemployment. In many cases, a small amount of capital is enough to get them started.

The Micro Loan Programme is especially suited for these types of start-ups. Micro loans finance expenses of up to EUR 25,000, or up to EUR 10,000 under the variant Micro 10.

ADVANTAGES 100% financing for investments and working capital

80% exemption from liability for re-gular bank. This makes it easier to ac-cess a loan.

Fixed commission for regular bank, enabling it to finance smaller pro-jects.

Redemption-free grace period of six months

BUSINESS IN GERMANY ��

StartGeldStart-up capital for business founders, small companies and self-employed pro-fessionals, targets business founders, small entrepreneurs and self-employed professionals whose project does not cost more than EUR 50,000.

ADVANTAGES 100% financing for investments and working capital

80% release from liability for regular bank. This makes it easier to access a loan.

Fixed commission for regular bank, en-abling it to finance smaller projects.

Redemption-free grace period: up to two years

Prepayment possible at any time at no extra charge

Unternehmerkredit

The Unternehmerkredit is available to start-ups, self-employed professionals and commercial enterprises that want to invest in Germany. The working capital variant of the Unternehmerkredit can be used to finance working capital or to bridge temporary liquidity bottlenecks.

ADVANTAGES 100% financing for investments Attractive interest rates fixed for 10 or 20 years

Redemption-free grace period Prepayment possible at any time at no extra charge.

May be combined with public promoti-onal funds

ERP Regional Promotion Programme

The ERP Regional Promotion Programme offers small and mid-sized enterprises in the Joint Task promotional areas a favourable and long-term financing for investments.

ADVANTAGES Terms of up to 20 years with up to five repayment-free start-up years

Attractive fixed interest rates for a pe-riod of ten years

100% disbursement Combination with other promotional funds

ERP Innovation Programme

The ERP Innovation Programme (Loan Variant) can be used to finance both R&D measures and the market introduc-tion of new products or processes.

ADVANTAGES Low-interest loan financing with ERP funds

Up to 100% financing in the R&D phase

Far-reaching exemption from liability depending on the company turnover; the smaller the company the higher the percentage of financing through KfW.

CITY APARTMENTSa m B r a n d e n b u r g e r T o r

YOUR HOME AWAY FROM HOME !

Apartments am Brandenburger Tor Behrenstr. 1B, 10117 BerlinFon: +49-(0)30-200 757-0Fax: +49-(0)30-200 757-11www.apartments-mitte.deinfo@apartments-mitte.de

20 BUSINESS IN GERMANY

Germany’s strengths in medical devices go beyond ser-ving Europe’s largest market and owning the legacy of great scientific discovery. Rather, the German govern-ment is working to enhance research and development (R&D), thus ensuring the industry’s staying power. As part of Germany’s high-tech strategy, the country is making EUR 800 million available for research and de-velopment in health research and medical technologies through the end of 2009.

In 2006, EUR 21 billion were spent on medical de-vices in Germany making the country Europe’s largest medical devices market, and it is growing. In the same year, domestic sales in the German medical devices in-dustry revenuedsome EUR 16 billion, an increase of 8.1 percent over the previous year. Export sales also in-creased hitting a total of EUR 10.2 billion in 2006 – an improvement of 11.1 percent over the previous year and moving Germany’s rank to second in medical devices exports.

The German medical device industry has major play-ers such as Siemens Medical Solutions and Fresenius both among the world’s top ten in the industry. Besides these leaders there are many small and mid-sized com-panies that are market leaders in their respective sub-segments. Market conditions such as Germany’s track record in precision production and its excellent R&D landscape make it an attractive place for foreign me-dical devices companies. For example, leading players, such as Johnson & Johnson and GE Healthcare Techno-logies are major investors in Germany.

The country’s demographic development combined with its high standard of health care also leads it to demand world-class medical devices. Nearly one-fifth of the German population is over age 65. This fact has meant a growing sophistication and commercialization of healthcare and homecare products and services.

Europe‘s leading market for medical devicesForeign investors find high demand and favourable

conditions when entering the German market for

medical devices. Despite tough competition, there

are plenty of opportunities for healthy growth.

Sophisticated medical devices are the backbone of today‘s intensive care

and surgical medicine. In Germany, many

companies are focussing on the development of high-precision medical

equipment.

BUSINESS IN GERMANY 2�

Berlin - Frankfurt - Düsseldorf - Hamburg - München - Stuttgart

- Airport Transfers Business Travel Customers´Own Itinearies -- Private Sightseeing Tours Private Tours of Germany Evening Hires -

- S C L S -

British aircraft legend Rolls Royce is continuing to invest in Germany and says that it prefers Europe’s largest eco-nomy to its home market. According to a recent article in the Financial Times the company decided to increase their in-vestment in Germany, after negotiations with authorities in the town of Derby, where it has its headquarters, had shown that investing in Germany made more sense economically.

The company is buil-ding a mechanical, ma-terial, vibration, and test facility in Dah-lewitz, Brandenburg, close to Berlin. It is ex-pected that the facility will have roughly 100 employees. Rolls Royce already operates other plants in Germany, both in Dahlewitz and Oberursel (Frankfurt).

The major reasons for choosing Germany in favour of its home mar-

Rolls Royce strengthens position in Germany

ket were that Germans value manufac-turing, achieve higher standards of pro-ductivity than the U.K., and also have a better education system. The availability of trained engineers and subsidies from

the Brandenburg state government were also important factors in the investment decision.

Brandenburg is providing the firm with nearly EUR 18 million in incentives for investing in the eastern German state. The subsidies are able to cover both 30 percent of capital costs, the maximum legally allowed for large companies, and some employee training expenses.

Such incentives are common in the eastern states Germany. For example, small companies investing in recover-ing areas can sometimes take advantage of subsidies that make up 50 percent of the investment costs.

Rolls Royce’s investment is part of a positive trend in the German aerospace industry in recent years. Since 1995 the sector has grown at an average annual rate of nine percent.

Assembly of a jet engine:At the plant in Dahlewitz, Rolls Royce workers are testing aerodynamic parameters.

Aircraft manufacturer plans to build new factory in Dahlewitz, Brandenburg

22 BUSINESS IN GERMANY

Germany is a prime location for bioplas-tics investments. “The country provides optimal governmental support, a world-class research landscape, and a domestic market that is keen to purchase environ-mentally friendly products, such as bio-plastics,” says Raphaël Winkler, Senior Manager for bioplastics at Invest in Ger-many.

The country is an excellent market for bioplastic investments because of favour-able legislation and a base of consum-ers that buys environmentally friendly products. Data indicate the strengths of Germany’s bioplastics industry: a mar-ket volume of 5000 metric tons per year puts the German market for bioplastics in the development phase. This means that there is still great potential for in-vestors, as proven by the industry’s 30 percent growth in recent years.

German bioplastics are aided by the country’s being the largest European market for plastic products. An aver-

age of 18.2 million tons of plastic are produced in Germany each year and, of those, 3.8 million are devoted to plastic packaging. Germany has also exempted bioplastic materials from its mandatory product recycling system for the next five years. This legal change will lead to a savings of 1,500 €/t over plastics de-rived from fossil fuels. There is great po-tential for bioplastics to profit by replac-ing traditional plastics.

The government also offers funding for R&D projects. This initiative has cat-alyzed the formation of industry clusters, (e.g. Bio-Pro Baden-Württemberg, which includes 54 companies and 34 research institutes), encouraging cooperation be-tween industry and research centres.

78 percent of German consumers are willing to pay higher prices when pucha-sing organic food. This market creates a demand for environmentally friendly packaging, thus aiding the bioplastics industry.

Bioplastics on the rise

Many consumers are willing to pay

more, if that little extra expense

relieves their conscience. That is

one of the main reasons, why orga-

nic food sells like crazy in the land

of Eisbein and Sauerkraut. And it‘s

a challenge for the packaging in-

dustry. Manufacturers are desperately

seeking for enviromentally friendly

materials - and the government puts

a lot of effort in funding advanced

research in this sector.

BUSINESS IN GERMANY 2�

Hessian Ministry of Economics,Transport, Urban and Regional Development

Hessen is situated at the centre of the European market and is economically one ofthe strongest regions in Europe. The highest gross domestic product per head of thepopulation has been generated here for years.

Hessen – Outstanding Business Location in the Heart of Germany

Top reasons to do business in Hessen:

• Huge market: more than 35 million consumers within 150 miles

• Gateway Frankfurt Airport: Europe’s No. 1 cargo and Germany’s leading passenger airport

• International atmosphere: people from 195 countries

• Dense British network: more than 14,000 UK citizens, British Consulate General, British Chamber of Commerce and 8 British and international schools

• Strong industries: banking and finance, consulting, ICT, life sciences,biotech, logistics, automotive and chemical engineering

• Top trade fair location: 40 exhibitions with approx. 1,5 million annual visitors every year in Frankfurt

• Leading R & D region: more than 100 research institutes including Max-Planck and Fraun hofer institutes and 18 universities

Our services for you:

• advice on setting up a company

• establishing contacts to your preferred location (city, district)

• assistance finding suitable office premises or corporate sites

• putting you in touch with interesting networks

For further advice and support, please contact:

HA Hessen Agentur GmbHMs Stella NeuhofenAbraham-Lincoln-Strasse 38-42 | 65189 Wiesbaden | GermanyPhone: +49-(0)611-774-8954 | Fax: +49-(0)611-774-58954www.invest-in-hessen.de | www.hessen-agency.comwww.standorte–in-hessen.de

ha_imageanzeige_engl_07_5:Layout 1 30.11.2007 17:54 Uhr Seite 1

The expansion of the Otto Group’s operating site in Haldensleben, Saxony-Anhalt, was supported by the EU Regional Development Fund ERDF and has helped to create more than 1,600 secure jobs since its foundation.

“You can’t move more anywhere else.” Dieter Urbanke, Hermes Warehousing Solutions GmbH

More and more companies from thelogistics and distribution industry aregetting excited about the most eco-nomically dynamic federal state in theeast of Germany. Like the Otto Group’s Hermes Warehousing Solutions GmbHin Haldensleben. Thanks to quick and unbureaucratic support as well as the smart investment of EU funding, today Sachsen-Anhalt is at the top in nearly allcriteria for a business location. So if youwant to move more, get information at:

www.invest-in-saxony-anhalt.com

PROJECT PART-FINANCED BY THE EUROPEAN UNION.

img_az_businessingermany.indd 1 28.11.2007 12:48:02 Uhr