Germany is renowned as the EU’s economic powerhouse and has recently overtaken the UK as the fastest growing G7 economy. Its famed industrial scene and the thriving ‘Mittelstand’ of small businesses are only a few reasons that make it a promising location for startups.
Whilst Germany can be viewed as ‘behind’ certain world powers in the name of digital age, in recent years its been forging a reputation for itself, with the tech company scene growing and startup investments doubling to reach $1.74 billion. The country is an increasingly tempting location for many business owners, and these reasons will give you even more motivation to expand your tech company to Germany.
The booming economy
With the single largest economy in the EU, Germany is rightly labelled as a European powerhouse. While the wider European economy has certainly had problems in recent years, Germany’s resilient economy has seen steady growth and is currently booming.
In 2016 the economy expanded by 1.9%, the fastest rate in five years; in 2017 this rose to 2.2%, with a budget surplus of €36.6 billion. In the final quarter of last year, Germany’s economy grew by 0.6%. The increase was mainly due to a 2.7% rise in exports, compared to a 2% rise in inbound shipments.
Growth throughout the country is continuing to increase, with employment levels also at a record high. These impressive figures have given the government motivation to carry out much-needed investments in both digital and physical infrastructure. Economists predict that the increase in government spending will boost the EU’s economy, and to a lesser extent, Germany’s many trading partners.
The growing tech hub
Berlin is the epicentre of startup culture in Germany, especially for growing tech companies. The capital has recently launched its version of the famed ‘Silicon Valley’, a campus known as ‘Silicon Allee’. This hub is home to thousands of upcoming tech companies, with many international entrepreneurs working and living in the area.
“Silicon Allee’ is the ideal location for small and collaborative startups, with many co-working spaces located nearby. The 7,500m complex offers small to XL offices, apartments, cafes, bars and event spaces. Tenants benefit from affordable shared working spaces with strong transport links, great broadband speed, and a key location to build connections with like-minded individuals.
The German government has also launched a Digital Hub initiative, which aims to strengthen connectivity and cooperation between digital startups. The Digital Hub has 12 innovation centres across the country – from Berlin to Munich to Cologne – all focusing on all different areas of tech. The Hub Agency connects and supports these 12 hubs, creating a strong network between the various disciplines. The initiative is helping Germany to coordinate and utilise the high levels of skill and talent across its tech industries, in an attempt to become more competitive with global opposition.
Electrical engineers that call Germany home are also increasingly venturing out on their own. One such example is LUUV, who provide plug-and-play video-image stabilisers for GoPro cameras, and recently received almost $50,000 via crowdfunding. Panono, producers of the ‘panoramic camera ball’, have also managed to raise $1.2 million against an initial goal of $900,000 during their crowdfunding campaign.
Additionally, Deutsche Telekom recently announced it would be establishing a $620 million fund for investing into German startups. The new fund, ‘Deutsche Telekom Capital Partners’, is meant for startup investments and large rounds of strategic private equity investments.
Its major domestic market
As the EU’s most populous country, Germany has a huge domestic market. With over 82 million inhabitants and a high volume of trade, Germany has the strongest market in the EU, accounting for more than a fifth of the EU’s GDP.
Germany is also home to the single largest software marketing in the EU, accounting for approximately 25% of the European software market. While large organisations such as IBM, Microsoft and Oracle have a presence, the software market is best characterised by the large number of SMEs that make up the world renowned Mittelstand. These SMEs are driving demand for software solutions, creating a significant customer base, particularly for startups specialising in B2B products and services.
The German labour market also remains stronger than ever before, and as of 2017, approximately 43.6 million people are registered as employed, 600,000 more than 2016. Although low unemployment could have a negative effect on startups, the rise in immigration (increasing by 8.5% in 2016) could help to fill any talent shortages.
Its central European location
Germany is perfectly positioned to capitalise on global trade. As centre of the EU, the country shares borders with several of Europe’s major economies, and offers instant access to established markets across the continent. It has many different trading partners, with the largest players including the Netherlands, United States, United Kingdom, France and China.
Although many tech businesses are software based and entirely online, others creating innovative products may consider exporting and importing. Germany is the world’s third-largest exporter behind the United States and China, and in 2017 alone exported $1.445 trillion worth of products, representing roughly 9.1% of overall global exports.
In the same year popular imports included motor vehicles, computer and electronic products and machinery. The gateway to trade and constant influx of both imports and exports can help to open doors to a number of foreign markets, and lead you on the path to global success.
The German federal government offers a wide selection of incentive programmes, including grants and loans. These will depend on the nature of the company and its intended location, with some areas offering capital investment grants of up to 50% for SMEs. Local governments may also offer beneficial tax rates, though these aren’t generally available in the larger cities.
Research and development is considered the future of the German economy, and has been backed with generous public funding programmes. These programmes help to develop new ideas, allowing startups to carry out R&D across the country. Germany’s public and private sectors aim to spend around 3% of national GDP per year on R&D activity, equivalent to approximately €70 billion spent annually.
There are also subsidy programmes in place for all types of technology, which are primarily targeted at SMEs. The ‘Central Innovation Program for SMEs’ is perhaps the best known of these programmes, and aims to promote innovation and competitiveness among SMEs.
Startup tech companies in particular tend to rely on their own capital, particularly in the early stages, so Germany’s public sector funding programmes often provide a welcomed network of support.
Many venture capital firms are also owned or co-owned by the government, and offer equity capital for early stage company development. One example is the High-Tech Gründerfonds, an initiative of the German Federal Ministry of Economic Affairs and Energy (BMWi), which provides innovative startups with mission-critical funding.
In the midst of uncertainty that pervades much of Europe, Germany provides a sense of stability and security within the business world. With a huge domestic market and a wealth of SMEs and consumers, the country is an increasingly tempting location for many tech businesses, backed by a government intent on promoting Silicon Allee on the global stage.
As the founder of Open A European Company.com, Heather Landau has honed her skills in service advisory from the pragmatic to the practical. Heather has 25 years’ combined experience in international marketing and business development, helping a variety of businesses to open or expand their business to Germany