QUESTION
Culture in Germany in terms of social structure, education, and economy
Include case study of a Germany MNC – DHL to relate to the above pointers.
SOLUTION
Country Profile- Germany and PESTEL analysis
Country profile
(CIA World fact book)
Germany is a highly developed nation with huge industrial capability. It is the world’s fifth largest economy (GDP $3.629 trillion) which happens to be one of the most important market in EU. It is known for its automobiles and chemicals all around the world. It is considered to be mechanical engineering hub. It is leading exporter of machinery, chemicals and automobiles. Germany’s share of total world trade is around nine percent. It is facing lots of economic challenges due to recent Eurozone crisis. The projected GDP growth is around 0.6 % in the year 2012. Due to the highly unpredictable external environment, its exports have been badly hit. Hence it can be projected that domestic demand will be the significant driver in the economic growth of the country.
From an industry perspective, the country enjoys the availability of highly skilled labour. The current industrial production growth rate is around 6.7% which can be considered as healthy.
In order to understand the country profile in the current context, PESTEL framework is used as below.
PESTEL analysis
(Solomon, 2011)
In order to understand the factors that may be considered while venturing into UAE market, a PESTEL study can be taken up as follows:
Political environment
It is a democratic country with federal government. There are three levels of Government- Federal level, state level and local level. The government at local level decides the business policies of that location including taxation. The country is prominent member of international organizations like UN, IMF etc.
Economic environment
Germany is a highly developed nation with huge industrial capability. It is the world’s fifth largest economy (GDP $3.629 trillion) which happens to be one of the most important market in EU. It is known for its automobiles and chemicals all around the world. It is considered to be mechanical engineering hub. It is leading exporter of machinery, chemicals and automobiles. Germany’s share of total world trade is around nine percent. It is facing lots of economic challenges due to recent Eurozone crisis. The projected GDP growth is around 0.6 % in the year 2012. Due to the highly unpredictable external environment, its exports have been badly hit. Hence it can be projected that domestic demand will be the significant driver in the economic growth of the country.
From an industry perspective, the country enjoys the availability of highly skilled labour. The current industrial production growth rate is around 6.7% which can be considered as healthy. Infrastructural facilities are very strong in Germany which facilitate the growth of any business in the country. It has one of the world’s most technologically advanced telecommunications systems. The broadcasting media especially TV and radio is deeply penetrated as more than 90% of homes have cable TV, which provides ample opportunities for effective business promotions and marketing. The internet population is 20.416 million which is fifth largest in the world. The country has well developed transportation systems in terms of airways, railways, roadways, ports etc.
Social environment
Germany is the most populous country of EU. The population is well educated with modern and cosmopolitan views. There is fair amount of plurality in the lifestyles and diversity in the cultures.
However, it is having some demographic challenges such as aging population, immigration issues, depleting incomes due to economic crisis.
The business culture in Germany is unique in the world. The engineers and managers are given high appreciation than accountants and lawyers; the people on job have good academics and technical proficiency. Hierarchy is prominent in almost every organization and most of the power is vested in the hands of top level senior managers. The roles and responsibilities are strictly defined and the business processes are very well defined. This may result in individualistic attitudes among the professionals. People tend to be less social in the working environment. Teamwork could probably be best described as a group of individuals working to a specific leader towards a recognisable goal.
One of the qualities of Germans is that they put facts ahead of emotions and hence behave very objectively. They have direct communication style.
Technological environment
Infrastructural facilities are very strong in Germany which facilitates the growth of any business in the country. It has one of the world’s most technologically advanced telecommunications systems. The broadcasting media especially TV and radio is deeply penetrated as more than 90% of homes have cable TV, which provides ample opportunities for effective business promotions and marketing. The internet population is 20.416 million which is fifth largest in the world. The country has well developed transportation systems in terms of airways, railways, roadways, ports etc.
Environmental factors
The business environment is very country specific in Germany. If a new business has to enter then it has to integrate itself with local retailers and distributors. Unless a company understands the local needs of the supply chain, it cannot set up its distribution network. Lot of policies set up by Government also need to be complied with.
Legal environment
The legal system in Germany prescribes strict labour laws with stringent rules against lay-offs. The law also makes it compulsory for the business to publish financial reports even if the business is not publicly listed. The wage standards allow the central bargaining of wages unlike most developed countries.
Cultural profile
(World Business Culture- German Culture, 2012)
Germany is the most populous country of EU. The population is well educated with modern and cosmopolitan views. There is fair amount of plurality in the lifestyles and diversity in the cultures. However, it is having some demographic challenges such as aging population, immigration issues, depleting incomes due to economic crisis.
The business culture in Germany is unique in the world. The engineers and managers are given high appreciation than accountants and lawyers; the people on job have good academics and technical proficiency. Hierarchy is prominent in almost every organization and most of the power is vested in the hands of top level senior managers. The roles and responsibilities are strictly defined and the business processes are very well defined. This may result in individualistic attitudes among the professionals. People tend to be less social in the working environment. Teamwork could probably be best described as a group of individuals working to a specific leader towards a recognisable goal.
One of the qualities of Germans is that they put facts ahead of emotions and hence behave very objectively. They have direct communication style.
GEERT HOFSTEDE index analysis
Power distance
The country is having a strong middle class which believes in equality of power. There is good communication across all the sections of societies as well as at the workplaces. Meetings at workplace are often two way communication and hence participative ones.
Individualism
As mentioned, the society consists of individualists. Nuclear families are the most prominent ones and people focus on their immediate families only. Individual goals may conflict with the organizational goals and hence they must be handled carefully. Owing to individualistic nature, people are often direct in communication.
Masculinity / Femininity
Germans are competitive in nature. Right from their school days they are taught to be winners in every field. No surprise that Germans are workaholics and hence may not be concerned about their work-life balance to stay competitive. Seniors mangers are often very assertive and command authority to make strategic decisions. People usually show-off their status symbols. Hence Germany can be considered as masculine country.
Uncertainty avoidance
Since the decisions are taken in most objective manner, the country is said to be one of the uncertainty avoidant countries. In order to avoid uncertainty, the Germans believe that expertise is the key for taking decisions and hence the person who has the domain expertise is given powers to take decisions.
Long term orientation
With vast history in its kitty, the country shows great respect to its traditions and at the same time its people tend to be dynamic enough to keep up with the changing trends. It can be said to be country with short term orientation. The people want quick results and hence the immediate profits are of more concern for a business rather than taking risks to gain in long term.
Case study-Wal-Mart
Wal-Mart, the world’s largest retail company faced lot of issues during its entry into the German market in late 1998. It entered through acquisition routes by acquiring local chains such as Wertkauf, In-terspar etc. But the company could never make mark in the market and suffered losses of more than € 1 billion.
If we analyse the reasons for the failure of Wal-Mart, it will become clear as to what extent the cultural know-how of the country affects the success of a business. Specific points are as follows:
Failure to understand the consumer behaviour
Any MNC aiming to expand its business in a new country should understand the differences in consumer behaviour shown in that country compared to other countries. The main idea behind the Wal-Mart’s operations is to make customers shop for long time. The stores are designed for people who love shopping for long hours under one roof. But the local people at Germany are not inclined to do that. This is due to the reason that shopping markets get closed by the evening and are closed on Sundays. Another behavioural characteristic is that Germans want to shop on their own without the interference of store assistants as done in other Wal-Mart stores.
People are even specific about the items they want to purchase from retail stores. The Germans prefer to buy more of food products from retail chains rather that electronic goods and clothes. Wal-Mart stocked less of food products and hence could not tap the potential. Being individualistic in nature, Germans never liked the Wal-Mart’s public displays of corporate moral such as the morning cheer.
Failure to integrate with the local distributors
Since there was a strong distributor network already in place in German market, the company should have devised a concrete plan to integrate its business with them. But due to lack of local market knowledge and language barriers, they failed to do so and hence faced lots of issues in supply chain management.
Organizational reasons
The top managers at Wal-Mart stores were expats from countries like US, who never had the knowledge and experience of understanding German consumers. Their lack of knowledge of German language created a huge gap between the customer requirements and the offerings at Wal-Mart stores.
Failure to comply with the legal systems
The top management failed to comply with the local laws of retails markets due to their ignorance. Once they issued a caution against supervisor-employee relationships. This caused uproar as Germans considered it as ban on inter-office romance. They suffered loss of reputation when they did some lay-offs. The employees were not happy by the opposition of the company the central bargaining of wages. There were some other legal issues over the time; hence they could never integrate their operations in German stores.
Conclusion
Any MNC trying to expand its presence in Germany must have a clear understanding about the political, economic, social, technological, environmental and legal aspects of the country. Based on these parameters, the company can decide its strategy and operations in the country. Most important is that the company should understand the local needs of the people by doing a fair analysis of the culture of the country. Even the organizational structure and the organizational culture should be according to the German standards. Even a small ignorance of a minor cultural consideration can tarnish the image of that company, however big and reputed it is, as in the case of Wal-Mart. So, proper research must be done while doing business. Various frameworks such as GEERT HOFSTEDE index can be utilized for better understanding. Overall, the best strategy can be summed up as “Be global, think local.”
Bibliography
Hague, Paul, Hague, Nick, Carol-Ann Morgan; 2004; Market Research in Practice
Hooley, Graham, J.; 2011; Marketing Strategy and Competitive Positioning
Salas, Purdie, Laura; 2006; Germany (Countries & Cultures)
Solomon, Michael, R.; 2011; Consumer Behaviour: Buying, Having, and Being
CIA World Fact-book; viewed 22 March 2012 ;< https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html >
World Business Culture- German Culture; viewed 22 March, 2011; <http://www.worldbusinessculture.com/German-Business-Style.html>
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