A GLOBAL COUNTRY REPORT ON “GERMANY” With special focus on industries like Automobile, Textile, IT, Food & Beverages & Chemical Industry SUBMITTED TO 787 - ATMIYA INSTITUTE OF TECHNOLOGY AND SCIECE, RAJKOT IN PARTIAL FULFILMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION IN GUJARAT TECHNOLOGICAL UNIVERSITY UNDER THE GUIDANCE OF Prof. Nishant Dhruv 1 PART-1 ECONOMIC OVERVIEW OF GERMANY CHAPTER-1 INTRODUCTION TO GERMANY 1.1 DEMOGRAPHIC PROFILE Population 81,305,856 (July 2011 est.) Age structure 0-14 years: 13.3% (male 5,569,390 and female 5,282,245) 15-64 years: 66.1% (male 27,227,487 and female 26,617,915) 65 years and over: 20.6% (male 7,217,163 and female 9,557,634) (2011 est.) Median age Total: 45.3 years Male: 44.2 years Female: 46.3 years (2012 est.) Population development rate -0.2% (2012 est.) Birth rate 8.33births/1,000 population (2011 est.) Death rate 11.04deaths/1,000 population (July 2011 est.) Urbanization Urban population: 74% of total population (2010) rate of urbanization: 0% annual rate of change (2010-15 est.) Nationality Noun: German(s) adjective: German Ethnic groups German 91.5%, Turkish 2.4%, other 6.1% (made up largely of Greek, Italian, Polish, Russian, Serbo-Croatian, Spanish) 2 Religions Protestant 34%, Roman Catholic 34%, Muslim 3.7%, unaffiliated or other 28.3% Languages German Literacy Definition: age 15 and over can read and write total population: 99% male: 99% female: 99% (2003 est.) Education expenditures 4.5% of GDP (2007) Health expenditures 8.1% of GDP (2009) 3 1.2 ECONOMIC OVERVIEW OF GERMANY The German economy - the fifth largest economy in the world - is a leading exporter of machinery, vehicles, chemicals, and household equipment and benefits from a highly skilled labor force. Like its Western European neighbors, Germany faces significant demographic challenges to sustained long-term growth. Low fertility rates and declining net immigration are increasing pressure on the country's social welfare system and necessitate structural reforms. Reforms launched by the government of Chancellor Gerhard SCHROEDER (1998-2005), deemed necessary to address chronically high unemployment and low average growth, contributed to strong growth in 2006 and 2007 and falling unemployment. GDP contracted 5.1% in 2009 but grew by 3.6% in 2010, and 2.7% in 2011. The recovery was attributable primarily to rebounding manufacturing orders and exports - increasingly outside the Euro Zone. Germany's central bank projects that GDP will grow 0.6% in 2012, a reflection of the worsening euro-zone financial crisis and the financial burden it places on Germany as well as falling demand for German exports. Domestic demand is therefore becoming a more significant driver of Germany's economic expansion. Following the March 2011 Fukushima nuclear disaster, Chancellor Angela Merkel announced in May 2011 that eight of the country's 17 nuclear reactors would be shut down immediately and the remaining plants would close by 2022. Germany hopes to replace nuclear power with renewable energy. Before the shutdown of the eight reactors, Germany relied on nuclear power for 23% of its energy and 46% of its base-load electrical production. 4 • GDP (purchasing power parity) $3.085 trillion (2011 est.) $3.003 trillion (2010 est.) $2.9 trillion (2009 est.) • GDP (official exchange rate) $3.629 trillion (2011 est.) • GDP - real growth rate 2.7% (2011 est.) 3.6% (2010 est.) -5.1% (2009 est.) • GDP - composition by sector Agriculture: 0.8% Industry: 28.6% Services: 70.6% (2011 est.) • Population below poverty line 15.5% (2010 est.) • Labor force 43.62 million (2011 est.) • Labor force - by occupation Agriculture: 1.6% Industry: 24.6% Services: 73.8% (2011) 5 • Unemployment rate 6% (2011 est.) 6.8% (2010 est.) Germany's Federal Employment Agency reported an annual average unemployment rate of 7.1% for 2011 and 7.7% for 2010. • Taxes and other revenues 43.6% of GDP (2011 est.) • Agriculture - products Potatoes, wheat, barley, sugar beets, fruit, cabbages, cattle, pigs, poultry. • Industries Among the world's largest and most technologically advanced producers of iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages, shipbuilding, textiles. • Industrial production growth rate 8% (2011 est.) • Electricity - production 556.4 billion KWh (2009 est.) • Electricity - consumption 544.5 billion KWh (2008 est.) • Electricity - exports 6 54.13 billion KWh (2009 est.) • Electricity - imports 12.28 billion KWh (2009 est.) • Oil - production 147,200 bbl/day (2010 est.) • Oil - consumption 2.495 million bbl/day (2010 est.) • Oil - exports 470,200 bbl/day (2009 est.) • Oil - imports 2.671 million bbl/day (2009 est.) • Current Account Balance $149.3 billion (2011 est.) $188.4 billion (2010 est.) • Exports $1.408 trillion (2011 est.) $1.264 trillion (2010 est.) • Exports - commodities 7 Motor vehicles, machinery, chemicals, computer and electronic products, electrical equipment, pharmaceuticals, metals, transport equipment, foodstuffs, textiles, and rubber and plastic products. • Exports - partners France 9.4%, US 6.8%, Netherlands 6.6%, UK 6.2%, Italy 6.2%, China 5.7%, Austria 5.5%, Belgium 4.7%, Switzerland 4.4% (2009 est.) Imports $1.198 trillion (2011 est.) $1.058 trillion (2010 est.) • Imports - commodities Machinery, data processing equipment, vehicles, chemicals, oil and gas, metals, electric equipment, pharmaceuticals, foodstuffs, agricultural products. • Imports - partners China 9.7%, Netherlands 8.4%, France 7.6%, US 5.7%, Italy 5.2%, UK 4.7%, Belgium 4.2%, Austria 4.1%, Switzerland 4.1% (2009 est.) • Reserves of foreign exchange and gold $216.5 billion (31 December 2010 est.) • Debt - external 8 $5.624 trillion (30 June 2011) $4.713 trillion (30 June 2010) • Fiscal year Calendar year 1.3 Trade industry overview Germany Trade and Invest is the new foreign trade and inward investment agency of the Federal Republic of Germany. Formed following the merger of the German Office for Foreign Trade and Invest in Germany GmbH, Germany Trade and Invest officially came into being on January 1, 2009. Germany Trade and Invest’s mission is to promote Germany as a location for industrial and technological investments and to identify investors for the German market. The organization advises and supports foreign companies seeking to expand into the German market, and assists German companies looking to enter foreign markets. Germany Trade and Invest provides comprehensive and client-oriented economic and industry data as well as information about calls for proposals in foreign countries, investment and development projects, and legal and customs authorities. The promotion of economic activity in Germany’s new federal states, including Berlin, also forms an integral part of the agency’s external trade and business location marketing remit. Germany Trade and Invest can count upon an international network of industry analysts who perform on-site research into foreign markets and supports foreign businesses looking to establish a company in Germany. 9 Our international team of experts works closely together with the German Chamber Network. This growing partnership allows German exporters and potential foreign investors alike to benefit from a centralized first point of contact overseas, with client-specific information and consultancy services all provided under one roof. 10 1.4 Business and trade at international level • Market Overview • Market Challenges • Market Opportunities • Market Entry Strategy Market Overview The German economy is the world's fourth largest and, after the expansion of the EU, accounts for more than one-fifth of European Union GDP. Germany is the United States' largest European trading partner and is the sixth largest market for U.S. exports. Germany’s "social market" economy largely follows free-market principles, but with a considerable degree of government regulation and generous social welfare programs. Germany is the largest consumer market in the European Union with a population of over 82 million. However, the significance of the German marketplace goes well beyond its borders. An enormous volume of worldwide trade is conducted in Germany at some of the world’s largest trade events, such as MEDICA, Hannover Fair, Automechanika, and the ITB Tourism Show. The volume of trade, number of consumers, and Germany’s geographic location at the heart of a 27-member European Union make it a cornerstone around which many U.S. firms seek to build their European and worldwide expansion strategies. 11 Market Challenges The German economy has improved markedly in recent years. The economy took a serious hit during the economic crisis, but recovered quickly. Like most other OECD countries GDP declined significantly in 2009 (by 4.7%), but grew by 3.6% in 2010, the highest rate since unification. Following a 3% growth in 2011, the pace of expansion is expected to slow in 2012. Most economic research institutes have lowered their 2012 GDP forecast to 0.6% from 1.0% predicted in October 2011. The labor market remained resilient during the economic crisis and continued to be strong in 2011. In addition to a series of labor and social reforms implemented in recent years, many experts credit the government-funded short-time work program for limiting unemployment. Other factors, such as moderate wage increases, flexibility in bargaining agreements, numerous company-level alliances to retain jobs, and employers’ willingness to accept higher unit labor costs, also contributed to the stability of the German labor market. Job cuts in logistics and manufacturing have been offset by job creation in other sectors, such as services and health care. Also due to a declining workforce, average unemployment dropped to 2.976 million over the course of last year, with an average jobless rate of 7.1% – down from 7.7% in 2010. For 2012, the government expects unemployment to decline to an average of 6.8%.