Running header: GERMANY ON THE RISE
Germany on the Rise
Assignment 5
5/18/2012
AMM 457 – Dr. Heimler
Taylor Bittner, Ho Yi Chiu, Lisa Carrasco, Faleecia Bouasry
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Germany is a country with much to offer and endless room for growth. With thriving
industries, advancing technology and the largest economy in Europe, Germany makes a perfect
target when seeking to expand a business. Using PESTLE to analyze the current state of Germany,
it is clear the opportunity for a successful business lies within Germany. By analyzing the political,
legal, economic, social, technological and environmental factors of Germany, drawbacks and
opportunities can be seen clearly – facilitating the process of making an educated business decision.
With developments in renewable energy, advancing technology and a great economic infrastructure,
the technological and economic factors play the most important role when deciding the future of a
business’s success in Germany.
Political/ Legal Environment of Germany
The Federal Republic of Germany is a parliamentary government that emphasizes the
protection of individual liberty and division of powers in a federal structure. Currently, Chancellor
Angela Merkel is the head of government while newly elected Joachim Gauck is the President and
head of state. The President is eligible for a second five year term upon re-election by the Federal
Convention. Bundestag and Bundesrat are the two executive and legislative chambers of parliament
(Taking Up Residence, 2008).
An impression taken within the framework of Roman law, Germany takes its core principles
from the Civil Law system which is divided into three levels: Federal, State, and Local. The
Constitutional Court (Bundesverfassungsgericht) is the highest court in Germany, monitoring
human rights and preservation of justice. Laid out in 1949 the Grundgestz, also known as Basic
Law, was reunited and reconstructed in 1990 rightfully named the Constitution.
According to Transparency International, a global organization fighting against corruption,
Germany is the 14th least corrupted country. In the meantime, German economists predict a quartertrillion-euro decline in 2012 due to a rise in corruption (The Local, 2012).
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Economic State of Germany
Germany has the largest economy in Europe and the fifth largest economy in the world. Its
economy is mainly supported by service, which accounted for 70.96% of its GDP in 2010, followed
by industry weighing 28.17% and agriculture weighing 0.88%. The World Bank classified
Germany’s income as high income (World Bank, 2012). Overall, Germany’s economy has been
doing well in the past five years. As indicated in Table 1-1* (*See Appendix), the GDP and GDP
per capita have been increasing since 2006, and peaked in 2008. Then as the economy of Europe
went south, Germany’s GDP decreased as well. Meanwhile, there were significant decreases in both
unemployment rate and inflation rate from 2006 to 2010. As for the official exchange rate, because
Germany has been using Euro since 2002, the exchange rate shown in Table 1-1 is not truly
reflecting Germany’s economy in relation to the United States. Euro’s value has been fluctuating
over the years. On the other hand, Germany’s Annual Disposable Income, as indicated in Table 12*, has been decreasing from 2008 to 2010.
Germany’s Industrial Market
Germany has a very strong domestic industry being one of the world largest producers in
materials including iron, steel, chemicals and coal. With constantly, Germany also has a large
industry for machinery, shipbuilding, electronics, vehicles, food, and even textiles. With 549
airports, 41,981 km railway and 644,480 km roadway, Germany is ranked within the top five
percent of outstanding infrastructure of 236 countries (CIA, 2012). Germany’s ongoing
infrastructure development is beneficial to international trade, especially trade within Europe.
Germany’s International Relations
On the global scale, Germany participates in a majority of international organizations. Along
with other European countries and the rest of the world, Germany belongs to the EU, UN, NATO,
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IMF, and WTO (CIA, 2012). Major trading partners of Germany include: France, the United States,
Netherland, the United Kingdom, China, and Italy (Federal Statistical Office of Germany, 2012). As
indicated in chart 1-3, Germany has exhibited a trade surplus in the past five years with importing
and exporting values experiencing the same increasing trend until 2009, in which both values
dropped. This drop was most likely due to the poor global economy at that time. However,
importing and exporting values slowly increased in 2010 and are on the rise.
In 2011, both Germany’s top exports and imports were machinery, vehicles, electronics,
plastic articles, and pharmaceuticals. The only exception to this statistic is fuel - the number one
import item of Germany – due to Germany’s lack of this natural resource (FSOG, 2012). With
Germany being highly developed and its people having an overall high income, its comparative
advantage is the machinery and other mechanical related product it’s produces.
Human Capital of Germany
Germany is the 16th most populated country in the world with approximately 81,305,856
people. Germany’s capital, Berlin, the largest nation in Europe, is home to nearly 3.5 million
people. With a declining population of 0.2%, Germany’s projected change in population from 2000
to 2050 is estimated to be 14.48 %. With a high mortality rate of 11.04 deaths compared to 8.33
births per 1,000 people, the decline in population is justifiable (CIA, 2012). The fertility rate as of
2012 showed Germany as one of the lowest in the world with, 1.41 children per mother. With a vast
majority of the population aging, 82.7% are over the age of 15 years old according an estimate
taken in 2011. The total median age is 44.9 years; females with a slightly higher life expectancy
with a median age of 46 years and males 43.7 years (NationMaster.com, 2012).
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German is the predominate language spoken in Germany while many of its immigrants
speak Turkish, Polish, and Russian. With more than 50% of the citizens adhering to Christianity
other practicing religions include: Protestant, Roman Catholic, and Muslim faiths.
Germany on a Technological Front
Known for creating the MP3 and Aspirin, German technology continues to flourish in the
global economy (Goethe Insitut, 2012). The country is most notable for their prestige and
excellence in the engineering and technology industry. Technology is a lucrative sector for
Germany because they remain a strong contributor in many exporting industries through their
leading innovations. In 2011, they set a world record of having exports of a trillion Euros making
them Europe’s largest economy (BBC, 2012). This is credited to the environmental,
biotechnological and automobile technologies they have created and developed. As the country with
the 6th highest GDP in the world, Germany continues to play a large part in the global economy
with countries like the United States and China as their main importers (CIA, 2012).
The White House issued a press release entitled the “U.S.-Germany Science and Technology
Cooperation” (2011). The fact sheet gave an overview of the different technologies that Germany
has started developing for the US under many different contracts. In the Renewable Energy section,
they proposed cleaner technologies, electric car technology, and “green” jobs. In the Medical and
Agriculture Breakthroughs, they proposed plant genetics sequencing, breeding, and bioenergy. In
the National Defense and Security section, they proposed vulnerability/risk assessments,
lightweight armor materials, body armors (now being used by soldiers in Afghanistan), quantum
computing, lightweight ship design, and unmanned vehicles. Lastly, in Cooperating in Space and
Universe section, they proposed space projects such as the Gravity Recovery and Climate
experiment satellite that measures variations in the Earth’s gravity field and dense plasma physics.
All of these proposed technologies illustrate the exclusive interrelationship that the US and
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Germany possess.
China has also shared a tumultuous trading relationship with Germany. In the past, China
was a large importer of German products sharing the same enthusiasm and desire for innovative
design and technology as with many other countries. However, in recent times China has become a
rising competitor to Germany with their economy booming in the technological market. Issues that
have surfaced with both countries include intellectual rights property and the export of technology
to China (Eddy, 2012). Germany has since realized that China is no longer demanding their
technologies because they are now replicating them in their own country.
Germany is considered an innovator in the global economy because they possess asset
technology that is essentially needed by most countries. Since they trade with other large economies
like the US and China, they remain consistent in their products and have remained true to their
reputation as a global brand in design and innovative excellence.
The Environment and Geography of Germany
Germany is located in Central Europe and has a
temperate and marine climate (CIA, 2012). Their top three
natural resources are coal, lignite, and natural gas. Significant
natural disasters within the last 10 years have been mostly
floods and minor earthquakes (Vervaeck, 2011). On the
outlook, Germany has internal geographical issues that they
are currently monitoring and forecasting in order to maintain
their trading ports from these natural disasters.
Image 1: Map of Germany (CIA, 2012)
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Conclusion
Germany is country with many opportunities, a rapidly growing economy, thriving
industries and is on the forefront of many new technologies. Germany’s economy is the 5th largest
in the world and has an outstanding infrastructure which is very beneficial to the businesses within
the country. With high disposable income, Germany’s population has money to spend and keeps the
economy stable. Germany’s economy is strongly supported by the advancing technologies created
there. Exporting mechanical and electronic goods and being one of the leading exporters of
automobiles, money is constantly flowing into the country allowing for a strong domestic
marketplace. Businesses in Germany have access to new technologies, including sustainable energy
sources putting them a step ahead of businesses located elsewhere in the world. The economic state
of Germany and technological advancements make Germany an ideal location to open a business.
On the contrary, there are a few negative factors which must be taken into account before
expanding a business in Germany. One of the most notable is the declining population within the
country. Although Germany has one of the highest populations in the world, the population is
steadily declining due to Germany’s low fertility rate and is expected to drop 14.48% by 2050.
Another downfall of expanding within Germany is the possibility of government corruption. As
stated, due to a rise in corruption economists predict a quarter-trillion-euro decline in 2012. Both of
these factors should be carefully examined to prevent negative effects on a business in the long run.
After using PESTLE to analyze Germany as a potential country to expand a business in – it
is clear that this country has endless room for growth and offers a business high possibility to thrive.
The most important factors when analyzing were the economic and technological factors which are
directly related as Germany’s constantly advancing technology fuels its thriving economy. A
business should take the opportunity to establish here and reap the benefits which Germany has to
offer.
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Appendix
Table 1-1: Trends in Some Major Economic Factors of Germany from 2006 - 2010
2006
2007
2008
2009
2010
GDP (US$ billions)
2,902
3,323
3,623
3,298
3,280
GDP per capita (US$)
35,238
40,403
44,132
40,275
40,116
1.6
2.3
2.6
0.3
1.1
10.3
8.6
7.5
7.7
7.1
0.829
0.76
0.711
0.748
0.785
Inflation, consumer prices (annual %)
Unemployment, total (% of total labor
force)
Average Exchange Rate for Converting
Euro into US Dollars
Source: World Bank Database and Internal Revenue Service
Table 1-2: Trends in Annual Disposable Income of Germany from 2008 - 2012
Annual Disposable Income (US$ billions)
2008
2009
2010
2011
2012
2,400
2,257
2,201
2,395
2,398
Source: Euromonitor
Table 1-3: Importing and Exporting Balance of Germany from 2006 - 2010
2006
2007
2008
2009
2010
Goods exports (BoP, current US$ Billion)
1,136
1,354
1,502
1,161
1,303
Goods imports (BoP, current US$ Billion)
938
1,084
1,239
972
1,099
Balance of Trade (Export - Import)
198
270
263
189
204
Source: World Bank Database
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US$ Billions
Chart 1-4: Importing and Exporting Trend of Germany from 2006 to 2010
1,600
1,400
1,200
1,000
800
600
400
200
-
Goods exports
Goods imports
2006
2007
Source: World Bank Database
2008
2009
2010
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Works Cited
BBC. (2011, January 10). German cities threatened by flooding after winter thaw. Retrieved from BBC
News: http://www.bbc.co.uk/news/world-europe-12149935
BBC. (2012, February 2012). German exports set record of a trillion euros in 2011. Retrieved from BBC
News: http://www.bbc.co.uk/news/business-16941142
Central Intelligence Agency. (2012). The World Factbook: Germany. Updated May 1, 2012, Retrieved May
2, 2012, from https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html
CIA. (2012). CIA-The World Factbook.
Retrieved from https://www.cia.gov/library/publications/the-worldfactbook/rankorder/2001rank.html
CIA(2). (2012). CIA-The World Factbook.
Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html
EconomyWatch. (2010, March 24). Germany Exports, Imports & Trade. Retrieved from Economy WatchFollow the Money: http://www.economywatch.com/world_economy/germany/export-import.html
Eddy, M. (2012, April 23). Trade Unites and Divides Germany and China. Retrieved from The New York
times: http://www.nytimes.com/2012/04/24/world/europe/trade-unites-and-divides-germany-andchina.html
Euromonitor International. (2012). Country Fact File: Germany. Retrieved May 2, 2012, from
http://www.euromonitor.com/germany/country-factfile
Federal Statistical Office of Germany. (2012). Data retrieved May 2, 2012, from GENESIS Database.
Goethe Institut. (2012). Step into German - German Matters - Top 40 Inventions-Goethe-Institut. Retrieved
from Goethe-Insitute: http://www.goethe.de/ins/us/saf/prj/sig/gem/top/enindex.htm
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Heimler, Ron. (2012, April). Retreived from Cal Poly Pomona Blackboard
Jens-Uwe Wunderlich, M. W. (2007). A Dictionary of Globalization. London: Routledge.
Kunz, G. & Garner, M. (2011). Going Global. New York, NY: Fairchild Books.
NationMaster.com. (2012). Germany. Retrieved from
http://www.nationmaster.com/country/gm-germany/peo-people
Taking Up Residence. (2008, July). Germany: Security. Retrieved from
http://www.takingupresidence.com/germany/security/political-stability.3.html
The Local. (2012, March 12). Corruption ‘will cost Germany 250 billion’. Retrieved from
http://www.thelocal.de/money/20120316-41373.html
The White House (2011, June 7). Fact Sheet: U.S.-Germany Science and Technology
Cooperation. Retrieved from The White House: http://www.whitehouse.gov/the-pressoffice/2011/06/07/fact-sheet-us-germany-science-and-technology-cooperation
United States Department of Treasury: Internal Revenue Service. (2012). Yearly Average Currency
Exchange Rates. Retrieved from
http://www.irs.gov/businesses/small/international/article/0,,id=206089,00.html
Vervaeck, A. (2011, September 4). Earthquake swarm is hitting the Czech Republic / Germany border – new
swarm on September 4. Retrieved from Earthquake-Report: http://earthquakereport.com/2011/08/26/earthquake-swarm-is-hitting-the-cheb-vogtland-area-on-the-chech-germanyborder/
World Bank. (2012). Data retrieved May 2, 2012, from World Development Indicators Online (WDI)
database.
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World Fact Book. (2012, May). Europe: Germany. Retrieved from
https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html
Glossary
Executive: that branch of the government which is charged with the execution of the laws (Oxford English
Dictionary, 2012).
Exports: referred to goods shipped out of the producing country (Stall-Meadows, 2011, p. 226).
Gross domestic product (GDP): the market value of the output of products and services produced within a
country in a year.
Gross domestic product (GDP) per capita: gross domestic product of a country divided by the number of
people in the population, after GDP has been adjusted by purchasing power parity.
Intellectual Rights Property: the protection of a person’s or company’s creative ideas for a certain period
of time (Wunderlich, 2007, p. 167)
Interdependent: The concept of interdependence is closely associated with the globalization process,
international trade, neo-liberal institutionalism, the activities of multinational companies, foreign
direct investment and transnational capital flows. Interdependence is a condition where the decisions
and actions of one actor affect other actors (Wunderlich, 2007, p. 184).
Legislative: the power of legislating or making laws; the body in which this power is vested, the legislature.
Opposed to ‘executive’ (Oxford English Dictionary, 2012)
Parliament: A formal conference or council, esp. an assembly of magnates summoned (usually by a
monarch) for the discussion of some matter or matters of general importance (Oxford English
Dictionary, 2012).
Trade Surplus: a positive trade balance; value of exports exceeds value of imports (Kunz & Garner, 2011,
p. 436).
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Trade Balance: the quantitative relationship between exports and imports of a country (Kunz & Garner,
2011, p. 436).
European Union (EU) : Political and economic alliance between European countries that agreed to support
mutual economic growth, includes 22 member countries (Heimler, 2012)
United Nation (UN): An international organization which maintains international peace through collective
security; promotes international co-operational in economic and social affairs; promotes respect for
human rights and universal freedom (Jens-Uwe Wunderlich, 2007).
North Atlantic Treaty Organization (NATO): An international governmental organization which aims to
ensure the USA’s defence commitment to Western Europe (Jens-Uwe Wunderlich, 2007).
International Monetary Fund (IMF): Works in tandem with the World Bank; helps integrate countries into
the global economy by assisting member countries; monitors international currency transactions
(Kunz & Garner, 2011, p. 433).
World Trade Organization (WTO): An organization with more than 153 countires as members; deals with
global rules of trade among nations (Kunz & Garner, 2011, p. 437).