How to test the German market without taking too many risks? How can we avoid having to go through a lot of red tape in the first place? What to do when you make your first sales? The choice of a form of establishment results from a trade-off between two necessities: that of reducing the costs of and that of "Germanising" your image in order to reassure your prospects. If a virtual presence or a liaison office allows you to prospect at a lower cost, the subsidiary (GmbH) is a very advantageous solution as soon as the activity is
Several implementation solutions are available to you, to choose according to your prospective stage, the progress of your business plan or the importance of your investment over time. Here we will briefly present four possible forms of implantation, from virtual presence to subsidiary, with a distinct legal identity.
This is the first step. You just test the market from France, without any presence in Germany. You have no real activity in Germany, you only make contact with potential customers, everything is managed from France. You may have a virtual secretariat in Germany, which transfers your communications to your company.
This solution is the most financially advantageous and flexible at the beginning of a business, when you are not making any turnover. All possible contracts are concluded with the French structure. In this case, make sure that you have a good Internet presence. Follow the example of your competitors and get advice from a graphic designer.
Give an address and a landline telephone number in Germany, even if it is linked to a mobile phone number or a German-speaking virtual secretariat. Your prospects will be less reluctant to pick up the phone than if they have to dial a foreign number.
Once you are convinced of the opportunity to export to Germany, you sign a contract with a person who works for your company in the country. This may be a distribution partner, who will organize the sale of your products in Germany. Alternatively, you can conclude a self-employed contract with a sales agent who represents your products, who usually works for other companies at the same time. Finally, you can also hire a full-time sales representative or VIE, who works from his home in Germany and does not have the power of representation. This solution allows you to prospect the market directly while maintaining a flexible and relatively inexpensive organisation. The presence of a sales representative on site facilitates communication with your prospects and listening to the customer. He or she will be able to reassure the customer about the after-sales service.
Note that it is not necessary to have a legal structure in Germany to hire an employee in the country, the work contract can be concluded between the French company and the employee based in Germany. On this point, see our Technical and Legal Clarification in Chapter 6 (Hiring an Employee in Germany).
As with the virtual presence, all contracts are concluded with the French company. The French company is responsible for the entire accounting, bears all risks incurred by the business in Germany and retains the power of representation. Profits are taxed in France.
« From the moment your agent makes his first sales, the German tax authorities may consider that there is a de facto permanent establishment. This results in income being taxed in Germany and the company having to keep separate accounts from the parent company. The risk exists that the company will be subject to double taxation and that it will have difficulty in recovering its costs. »
It's a hybrid legal form. It enhances your credibility with German prospects because it is registered in the commercial register. It can have a name and a manager, but has no legal identity of its own. It allows you to avoid the costs of setting up a company (no notary fees, no share capital to be set up). However, beware of the obligations that accumulate as soon as you make turnover!
« The branch allows the German terrain to be probed, but it is a solution that must remain temporary. First of all, because it involves a significant amount of additional administrative work. As it is considered a permanent establishment for tax purposes, it requires its own accounting system and entails obligations and administrative costs comparable to those of a subsidiary. In addition, the parent company is obliged to document the costs of its branch in a separate register in order to be able to claim them from the German tax authorities. »
When you start making sales and profits, it is imperative that you establish a legal identity in order to comply with German tax law. Ask your lawyer or tax advisor for advice.
The GmbH (Gesellschaft mit beschränkter Haftung - Limited Liability Company) is in some details the equivalent of the French SARL (SARL). It is the most suitable legal form for an SME activity, even when its turnover starts to be important. It is the presence that will give you the greatest credibility with your prospects and clients.
Don't be afraid to set up a GmbH. It will make your life much easier and save you costly inconveniences from the moment your business makes its first sales.
It also reduces costs: you only pay trade tax on your profits, which saves you money on your expenses. You benefit from a corporate tax rate of 15%. You also benefit from German company car legislation, which provides for full VAT recovery and depreciation of the vehicle.
A GmbH concludes all contracts in its own name, issues invoices, has its own accounting system and bears the risk. It has its own accounting system.
The share capital of a GmbH is always 25,000 euros, of which you must transfer at least half to the company's account at the time of its creation, i.e. 12,500 euros. 12,500. This sum can be used immediately to finance the company's operations. It is possible to transfer just one euro to set up a UG (Unternehmergesellschaft) or mini-GmbH, but this is not advisable as you risk casting doubt on your credibility at the time you set up the company.
need it the most. German law does not require you to state the amount of capital on your official papers, unlike in France. This gives all
its importance to the mention "GmbH" .
A law firm or tax consultancy can take care of the formalities involved in setting up the company (notarial deed, registration in the commercial register, costs of
translation, lawyers' fees, etc.). The costs depend on the share capital and amount to between 2,000 and 3,500 euros excluding tax. In addition, the bookkeeping of a GmbH requires tax consultancy fees. These costs vary between EUR 2,000 and EUR 2,500 per annum per EUR 100,000 turnover. You will find the steps involved in setting up a GmbH in Chapter 6 of our Technical and Legal Information.
Céline Koch, a tax consultant in Stuttgart at Daiber Partner, who specialises in assisting French companies in Germany, emphasises the need to "arm" oneself legally from the outset:
« This is a classic mistake of small French companies setting up in Germany: believing that they can bill their German customers from France by having only a liaison office in Germany. They call us in a hurry because they have received a letter from the tax authorities asking them to reimburse the VAT not collected and therefore not collected, which sometimes amounts to several thousand euros! We must then regularise the situation. This costs the company a lot more than if it had set up a GmbH and had run its accounts independently of its subsidiary from the outset. »
The GmbH is widely considered by specialists as the most suitable structure for the establishment of a French company in Germany. However, other forms of company are also possible: the partnership, the public limited company, the limited partnership. For the sake of brevity, we will not detail them here. For more details, please consult our bibliography or ask a lawyer if you think that a particular legal status would be more suitable for your company.
A very good command of German is essential to start up a business stream. All export consultants are unanimous on this point. "Germans really appreciate it when you speak their language. The relationship of trust is established when the German sees that you speak his language well," explains a sales representative. Beyond that, your sales representative should not be bewildered by a local dialect. Bavaria, for example, a rich region in southeast Germany, is particularly proud of its traditions, especially its dialect. If your sales representative does not have to speak it, at the very least his or her ear should be aware of it. Knowledge about Germany and its regions is also desirable. The best way to do this is to... watch regional television, which is very important in Germany.
Have a verifiable, well-chosen address. Have a FIXED phone number, not just a mobile number. Have an Internet presence in German. The presentation of German websites has certain rules: company information must be clearly indicated. The imprint is mandatory (see chapter 6).
Also pay attention to the graphic quality. Pixelated logos are unacceptable! You can no longer do without a serious site, the online presence is a reflection of your offline presence. The "contact" tab is one of the first to be consulted. It must include your location and your landline number in Germany.
As already mentioned, a prospect will ALWAYS be reluctant to dial a foreign number for fear of not being understood, you could lose an interested prospect. Your sales representative should speak fluent German, be equipped with business cards and not change in an untimely manner.
All your commercial communication must be translated by a specialised translator, including your website. You will not sell anything with documentation in English. And take care of the translation! There is nothing worse than a poorly done translation, with gross mistakes or inappropriate terms. They immediately give the impression of an unreliable or poor quality product.
Freddy Dreher, export consultant for the German market :
« For a German, a promise, a deadline and documentation are as important as the product itself. »
Don't wait to respond to a customer request. If you have missed a call, call back as soon as possible. Give an interested prospect the information he or she requires within the day, especially if it is a quote.
A former VIE tells:
« I learned to be very reactive in Germany. Here we can't afford, as in France, to drag out an application for two or three days. In Germany, you have to take opportunities when they come up. As a challenger, you have to respond immediately.. »
Trade fairs (Messe) are THE great German speciality. These major industry events have a long tradition in the country: since the 18th century, they have been a meeting place for customers and suppliers in dedicated areas, huge congress halls. Today, Germany is considered to be the leading country for trade fairs. They are held annually or every two or three years, as the case may be. The IAA, the Frankfurt Motor Show, attracts one million visitors every two years. The CeBit in Hanover, the major electronics trade fair, attracts 850,000 visitors annually. Bauma, a specialist in machine tools, takes place every three years in Munich and attracts 530,000 people. The Grüne Woche, the equivalent of the French Agricultural Show, also brings half a million visitors to Berlin every year.
Not all trade fairs are of this importance, many of them are more intimate and more specialized, with lower stand costs. Find out exactly how these meetings are held from the federations representing your sector of activity and target those where you can meet or review the prospects you are targeting.
Advice from a VIE to make the most of your presence at a trade show :
« The first sign to give is a smile. You have to be pleasant, ready to engage in conversation without being intrusive or insistent. This is where being French can be an advantage. But only if you have a perfect command of your technical arguments. Of course, you have to visit the competition, get to know each other, see what they do and how they do it. You also glean valuable information to answer customers' questions. Trade fairs allow you to see the trends in a sector, the changes in demand and possibly adapt your offer to the needs of the moment. »
Your salesman is the one who has the best report to the market. It is essential to listen to him and to take his remarks into account to adapt your product to the customers' expectations.
François Gaillard, consultant:
« We go into detail, in the field, we do interviews, we go to see customers, distributors, we accompany the sales representatives for several days if the company is already active. We quickly get back on track and we can see where the stumbling blocks are. The company must be made to understand that it is necessary to completely adapt its offer. »
Nicolas, field commercial:
« One of the Germans' strengths is their responsiveness to market developments. They therefore expect the same from their service providers. You can't succeed in Germany without being very attentive to your customers and prospects. »
Cécile Boutelet is a freelance journalist. As a specialist in the German economy and companies, she has been a correspondent for the newspaper Le Monde since 2010. She has been very interested in this book and she has found great interest in it: she has devoted her first years abroad to creating and developing a little company.
Illustrations : Katharina Bußhoff. www.katharinabusshoff.de
This is probably the most difficult thing for you, because this is often what gets stuck in the approach of French SMEs that want to export their product to Germany. The golden rule of exporting across the Rhine is to adapt your offer TOTALLY to the customer's demand. "A German has no tolerance for products that you would like to 'box' in Germany to save money," explains Didier Lenhardt, sales representative. When you are responsible for the German market in a French company, you are obliged to sell twice. Once to the German customer and once internally to have the product adapted!
Just accept this cultural fact without getting discouraged or annoyed. Take the time to adapt your product exactly. All the consultants and sales people are unanimous, the time invested pays off.
Didier Lenhardt, salesman :
« As soon as a German sees that you speak his language, he is ready to give you a chance. He will gladly tell you: "These are the characteristics of this
that we're asking for in terms of product. We'll give you as much time as you need, let us know when you're ready." That lead time can be weeks to months. Your contact person will accept it perfectly. On the other hand, when you say you are ready, you must be able to deliver without fail. That's why you need a buffer stock to be ready to respond to any incoming order. That's what confidence is built on in the long run. »
As mentioned above in the chapter on timing, the initial two-year phase is almost incompressible. Too many French companies fail because they do not meet this deadline or withdraw their confidence from a salesperson while he or she is in the process of transforming his or her prospective work.
Germans are not impulsive. The country's decision-making culture is based on consensus and the long term, especially in family-owned SMEs. When a company decides to make an investment, it will plan it well in advance, usually in two-year cycles.
That is why it can take a prospect a very long time to react to an offer, but that does not mean that he is not interested. A delay can be explained by a decision taken jointly within the company, by a gap between the offer and the state of the investment cycle, or by the time needed to think about the risks associated with a new supplier.
Nicolas, salesman, tells :
« I've learned from my clients that if I make a phone call between April and June and they say, "We have a framework agreement for the whole year, from that date on we can get back in touch", you have to take note of it, be patient without harassing them. On D-Day we have to call back, show that we are present, that we would like to meet the company again. That's where you get results. In France, companies have an average size of 50 or 100 employees. In Germany, the family company has 300, 500 employees, a family management for several generations. This necessarily has consequences in terms of decision-making time. »
Didier Lenhardt, salesman :
« Many French SMEs let themselves be discouraged by the length of time. You have to have a good financial situation to be able to invest in the German market because at the beginning you invest. In the French logic, a salesman after six months has brought back significant business. In Germany, you have to accept that a year goes by without any visible results. This is the famous period when this confidence is established. »
A former VIE tells :
« One of my great difficulties was to convince my company that this prospecting time was normal. I have multiplied the examples of SMEs around me to show that this period is essential for success in the German market. »
If you choose to sell your product with a French-German speaking sales representative or with a VIE
here's some advice for him.
This is a cultural difference that recruitment agencies sometimes find it difficult to explain to French companies. What is expected of a good sales person is very different in France and Germany.
Susanne, Recruitment Officer for Eurojob-Consulting :
« The French often say to me, "How is this person going to do this prospecting if he is so withdrawn?" They get the impression that German salesmen are cold, unmotivated because they're not all fire and brimstone. They can't imagine how the commercial aspects will work with someone who barely moves in his chair. But you have to understand! A German doesn't speak with his hands, he doesn't make a lot of faces, he's not "up for it" like a warm-blooded Frenchman. He puts the emphasis on technique, numbers, precision. »
Didier Lenhardt, salesman:
« Germans appreciate people who keep their word, as the saying goes: Ein Mann, ein Wort (one man, one word). Of course, you have to have good interpersonal skills, but the flamboyant salesman, who talks a lot, on the verge of showing off, will be very badly perceived. It is better to speak little but well, do what you say and say what you do. »
« We can be spontaneous. However, avoid "blah, blah, blah, blah" and empty promises. When you promise something, when you make a commitment, you must absolutely
stick to it. »
« I've learned to cut to the chase. As a Frenchman, we always believe in starting with an introduction, talking about something else before getting to the subject at hand. The Germans don't understand that, they feel that we're trying to confuse them. They expect us to be very direct, to answer questions clearly, to approach things without making any fuss. Once you understand that, you can be very natural. »
A consultant :
« There is no "ja aber" (yes but). It's yes or no, it's square, the answers must be precise. When you don't know, you say: "Sorry, I don't have the answer yet, but next week you will." As long as you keep your word, everything's fine. Communication has to be explicit. The Germans are
mechanics, they like things that work! »
Remember, you don't seduce a German, you convince him. Learn to be extremely precise and concrete in your sales pitch. You must have a perfect command of the technical references in your file. Learn how to secure your client, to offer him the maximum guarantees, especially on after-sales service. Back up your sales pitch with evidence such as punctuality, the reliability of your commitments and the seriousness of your approach.
Didier Lenhardt, salesman :
« The good salesman in Germany is a persevering, stubborn personality who is in the construction business. Someone who is very organized and methodical, diligent, who doesn't give up, who is explicit, consistent and rigorous in his communication. After-sales service and troubleshooting are almost as important as the sales act itself. A good salesperson in Germany is someone who has a technical-salesman's touch. He or she will be attentive to detail, very interested in turnover, but will not obsess about it either. You have to know how to refuse a sale if you are not sure you can honour it. It is a form of rigour that is based on construction and respect for the interlocutor. »
Contrary to what happens in France, a business relationship excludes remarks of a private nature, at least initially. These remarks make your interlocutor uncomfortable, he may have the impression that you are trying to bog him down. They do not play in favour of your credibility.
Yannick Henry-Befort, consultant :
« It is a classic mistake to believe that the French have a habit in Germany of relaxing the atmosphere in a professional conversation by telling stories, anecdotes and jokes. This is not done in Germany. We have an agenda, we have points to deal with. What is important is not the personal relationship that needs to be developed, but the purpose of the meeting, which is at the
center of everything. »
Didier Lenhardt, salesman :
« It is only once the day-to-day business relationship has been experienced and is going well that one can consider deepening a relationship and talking about one's life.
private, to make a joke. »
Germans appreciate French-style creativity. Minus the chaotic impression that seems to be linked to it. To avoid falling into this kind of pitfall, learn to respect what the Germans call a Prozesse (a Prozess), a word close to the English word workflow, which can be translated by procedure or task scheduling. It's a set of steps to be followed in a certain situation. Decisions to buy, produce or invest are made according to certain procedures to be respected, according to a certain agenda. This may seem very rigorous to some French people at first glance, but once integrated into your approach, respecting these ways of doing things makes the work much easier. Identifying them will allow you to gain the confidence of your interlocutors, from which you will be able to exercise your creativity to stand out from the competition.
A fromer VIE:
« I learned in Germany how to structure my ways of doing things, it's a rigour I didn't have in France. From making contact to placing an order on paper, everything is
written down, everything's set, everything's in black and white. It's reassuring to work like that too. You avoid unpleasant surprises. »
Un field commercial:
« In Germany, paper is the authoritative document. You have to back it up with writing. Germans are very fond of legal proceedings. You know that when you don't pay your bill within three days, you always get a reminder, within 10 days you get a warning, you have to be able to get into that framework. »