ACCELERATED BUSINESS
WITH GERMANY
UNLOCK YOUR FULL POTENTIAL
Business Sweden
ACCELERATED BUSINESS
WITH GERMANY
UNLOCK YOUR FULL POTENTIAL
About the authors
Anna Nordström has been Trade Commissioner and Country
Manager at The Swedish Trade and Invest Council, Business
Sweden in Germany since 2010. Nordström has extensive
experience of internationalisation and business growth on
the European market, with an emphasis on German-speaking
Europe. She has worked in the region for more than 15 years.
Catharina Dreier – a Swedish national and German native
speaker who has spent most of her life abroad, primarily
within Europe – is a Senior Project Manager in Germany.
Dreier is central to Business Sweden’s energy and environmental practice and is also active in the healthcare and life
sciences practice.
Kristin Lindell is a Senior Project Manager with more than
25 years’ experience of Swedish business in Germany. She
is a trusted advisor and one of Sweden’s premier experts on
Swedish business development in Germany. She is part of
Business Sweden’s manufacturing practice.
Jessica Olsson is a Senior Project Manager in Germany.
She has been developing business and advising companies
on internationalisation across Europe since 2007. Olsson
focuses on digital strategy and retail.
Acknowledgements
The authors gratefully acknowledge the input and support
provided by Business Sweden colleagues from Germany,
France and Sweden, specifically Johan Snellman, Fredrik
Fexe, Magnus Runnbeck, Mauro Gozzo and Sofia Öberg,
along with Christian Berg, Swedish Embassy in Germany (at
the time). They also thank all interviewees, including the German investors and Swedish companies.
Graphic design: Business Sweden Communications
Infographics: Otterström Design AB and Business Sweden Communications
Print: Vitt Grafiska Produktion AB, 2016
FOREWORD....................................................................................... 4
EXECUTIVE SUMMARY.................................................................... 6
GERMANY – A GIANT ON A GLOBAL SCALE..............................11
GERMANY MATTERS TO SWEDEN.............................................. 17
THE GERMAN ECONOMY IN TRANSFORMATION.................... 25
AN ACCELERATED GROWTH STRATEGY.................................. 28
SETTING UP FOR CONTINUED SUCCESS.................................. 37
ABOUT THE REPORT..................................................................... 38
FOOTNOTES....................................................................................40
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 3
FOREWORD
There is a great awareness in Sweden of the tremendously important
role that Germany plays in our economy. But at the same time, I have
been struck by the realisation that there are also gaps in the knowledge
of many key people and companies about the specifics of the German
economy and what it means for Swedish business.
The present report from Business Sweden is, to my mind, an excellent attempt to fill those gaps in knowledge. The fact that Germany is our
­largest trading partner does not mean that we have utilised our possibilities fully.
I am quite convinced that there still are many Swedish companies that
have not yet tapped the potential of the German market. Our goal is for
most, if not all, Swedish companies to feel that Germany is part of their
home market.
Another good reason to work on the German market is to use the tailwind that can be provided by the globalised German industry when
Swedish companies aim to increase their sales abroad. There are many
examples of cooperation between Swedish and German companies that
have resulted in increased sales for both companies on third markets.
I also hope that this report can provide some impetus to the efforts to
increase German investment in Sweden. Even though the German presence in Sweden is quite substantial, there are still areas where increased
investment would be more than welcome.
Increased trade and investment are a result of the efforts made by companies, but I strongly believe that it is possible to create a better framework for such efforts if the public and private sectors join hands.
In Germany, we have recently formed Team Sweden, whereby the
embassy, Business Sweden, Visit Sweden, The Swedish Chamber of
­Commerce in Germany and others have joined forces to try and improve
the already good framework that exists.
I am convinced that the report “Accelerated business with Germany
– unlock your full potential” will be a very helpful tool for this important
work.
Lars Danielsson
Swedish Ambassador to Germany
4 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
LARS DANIELSSON
Ambassador to
Germany
Germany is Sweden’s largest business partner. As such, and as the
fourth largest economy in the world, Germany plays a crucial role for
Swedish industry. A large share of what Swedish industry produces and
sells worldwide contains German components. In addition, a significant
proportion of what the Swedish industry sells internationally goes to
Germany. There are also a large number of Swedish enterprises that
reach the world market via Germany. Germany is used as an international
springboard both by delivering input to German export products, and by
becoming a global supplier to German companies that are active around
the globe.
Sweden relies on its relationship with Germany to ensure future competitiveness and thus prosperity. Besides engaging in business, Sweden
also needs to cooperate with German counterparts in R&D activities to
make sure it retains its competitive edge in innovation.
Even though economic growth in Germany is at a relatively low rate
compared to many Asian economies, we should keep in mind the relative
ease of doing business with Germany, which stems both from cultural
similarities and a long tradition of trading between the two nations. There
is also still untapped potential in our business dealings with Germany.
Creating even further potential is the current transformation that Germany, like many other parts of the world, is undergoing with regards to
the demographic shift, the energy transition and digitalisation. These
factors are reshaping the German economy and this plays well into the
hands of Swedish industries that are well-positioned in these areas.
I see a need to maintain and deepen close relations with Germany.
Yet ever fewer people are choosing to learn German in Sweden. And
many choose to look far away for business potential. This is a matter of
concern to me and drives me to urge for a retake on Germany!
It is my hope that this report, “Accelerated business with Germany –
unlock your full potential”, will inspire Swedish industry and lead to a
new strategic approach to doing business with Germany.
YLVA BERG
President & CEO
Business Sweden
Ylva Berg
President & CEO Business Sweden
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 5
EXECUTIVE
­SUMMARY
Business Sweden’s report “Accelerated business with Germany – unlock
your full potential” sets out the
German economy of today and the
changes it is undergoing, explores
common challenges for Swedish companies in Germany and identifies strategic levers for executives to consider
when growing their business with
Germany.
Germany, an open economic superpower with
a large global footprint, is one of Sweden’s
most important business partners. The strong
Swedish business relationship with Germany
goes back for centuries, and Germany is
fundamental to Swedish companies’ global
success, even beyond the bilateral business
relationship.
With strong business relations as a foundation, however, we still see untapped potential
in a number of areas. Specifically, we see it in
exports of services, exports of retail offerings,
R&D cooperations, sourcing from Germany
and FDI from Germany.
In addition, as a globally embedded economy, Germany is changing along with the
world economy. Key factors currently having impact on the German economy are the
demographic shift, the energy transition
6 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
and the digital transformation. There will be
strong demand for solutions to enhance these
changes, and Swedish companies are well-positioned to develop and deliver these solutions.
At the same time, there are a number of
challenges that lead to business potential
remaining untapped and Swedish companies performing below their optimum in Germany. These challenges include giving adequate attention, partnership engagement,
market maturity, innovative edge and global
opportunities.
To actively manage these challenges, five
strategic levers for accelerated growth in Germany should be considered: embracing Germany’s economic importance, securing sales
partnership performance, acquiring and
expanding, leveraging Germany’s innovation
capacity and a presence in Germany for global
business.
By applying the five strategic levers and
draw on the existing and upcoming business
opportunities of the German economy, Swedish companies can accelerate their business in
Germany.
ANNA NORDSTRÖM
Country Manager and Trade
Commissioner to Germany
CATHARINA DREIER
Senior Project Manager
KRISTIN LINDELL
Senior Project Manager
JESSICA OLSSON
Senior Project Manager
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 7
Few countries are as
tightly connected into
the world economy
as ours is. We are a
preferred destination
for foreign investors;
nearly four percent of
international direct
investment flows into
Germany.
(…)
8 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
Germany's international
competitive strengths do
not happen by accident.
Rather education, research,
and innovation are out­
standing positive points
of our country.
As an engine of technology
in Europe, Germany is in
the league table of patents
relevant to international
markets and, measured
according to population
size, is number two world­
wide in this category.
DR. ANGELA MERKEL
GERMAN CHANCELLOR
Source: Germany Trade and Invest
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 9
THE 4TH LARGEST ECONOMY
IN THE WORLD
GDP in EUR billion
15,000
16,174
10,000
9,793
5,000
3,716
3,413
444
0
USA
China
Japan
Germany
GDP
Germany
North-Rhine
Westphalia
Bavaria
BadenWürttemberg
Several German
Federal States
GDP's are larger
than Sweden's.
Sweden
Sweden
8
Germany's overall economy
is allmost eight times larger
than the Swedish economy
Source: Destatis, 2016; SCB, 2016; Statista, 2016; World Bank, 2016.
1 0 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N EFootnote:
S S W I T H GFigures
E R M A N Yreferring
to data from 2015, except German federal states population data from 2014.
GERMANY:
A GIANT ON A
GLOBAL SCALE
While there is general awareness in
Sweden about the important role
that Germany plays for Sweden, only
few have deeper knowledge of what
characteristics make the German
economy stand out. As a basis for this
report, this chapter sets out six main
characteristics: the world’s fourth
largest economy, a dispersed economy, the “Mittelstand” as the backbone of the economy, strong innovation capacity, an open economy with
a large, global footprint and an enabling infrastructure.
THE WORLD’S FOURTH
LARGEST ECONOMY
In Sweden, we tend to see the German
economy as part of the European economy, the
EU or the euro area, sometimes clustered with
other large economies such as the French or
British. However, Germany is a global giant in
its own right and the fourth largest economy
worldwide.1 The German economy dominates
in Europe, generating about 20 percent of
EU GDP.2 It is almost eight times larger
than the Swedish economy3, and two federal
states, North-Rhine Westphalia, Bavaria and
Baden-Württemberg have a higher GDP than
Sweden and many neighbouring countries. 4
Germany is part of the richest region in
Europe, which covers southern Germany and
Switzerland, as well as parts of northern Italy,
western Austria and eastern France. The city
of Hamburg has one of the richest per-capita
populations in Europe.5 Germany as a whole
has approximately the same GDP per capita as
Sweden.6
The export-dependent German economy was hit by the financial crisis but has
rebounded in recent years, with year-onyear growth of 1.4 percent in 2015.7 As global
growth slows down and global value chains
become more regional, the German economy
still shows signs of strength and solidity.
Traditionally, German GDP has been
driven by exports and investments. In recent
years, however, consumption has gained
importance as a growth driver due to low levels of unemployment and relatively stable economic growth. This trend is expected to continue, and German consumers are expected to
stay optimistic.
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 1 1
THE “MITTELSTAND” – THE
BACKBONE OF THE ECONOMY
In Sweden and many European countries, the
economy is concentrated around a few dominant business hubs. In Germany, on the other
hand, enterprises are spread throughout the
country and are clustered around numerous
regional hubs. Many of these are located along
the German “banana”, which stretches from
Hamburg to Munich. Germany is highly
urbanised and the wide spread of companies
is mirrored in the wide spread of cities. In
2014, Germany counted 77 cities with more
than 100,000 inhabitants. Out of these, only
four had more than one million out of the total
population of 81 million: Berlin, Hamburg,
Munich and Cologne.8
With industry centres and large cities dispersed throughout the country, interorganisational networks developed early in Germany. Most companies are a committed part
of an industry organisation, and it is mandatory to be a member of the local Chamber of
Commerce. The government recognised the
importance of networks and clusters early on
and has provided strategic support to them
in recent decades. Today, Germany is seen as
one of the pioneering countries when it comes
to cluster development and the strength of
the German economy is closely linked to its
well-developed clusters.
While SMEs make up more than 99 percent
of both German and Swedish industry,
the German companies are characterised
by being, on average, larger than Swedish
ones. While 96 percent of SMEs in Sweden
are micro companies, i.e. with less than 10
employees, and small and medium-sized
companies only make up 3.5 percent, the latter
category makes up 18.5 percent in Germany.
Looking at the large multinational companies,
the number is proportional to the size of the
economies.9
In Germany, the small and medium-sized
companies are commonly referred to as the
“Mittelstand”. One might expect the majority
of the “Mittelstand” companies to be quoted
on the stock exchange, but to a large extent
they comprise family businesses and foundations. This makes for a unique long-term perspective within the companies, which is a significant reason why the “Mittelstand” drives
Germany’s strong innovation. These companies contribute considerably to the development of “great leaps” innovations, i.e.
new, disruptive innovations with considerable impact. A long-term perspective and family ownership are factors that further explain
why many of the corporations within the
German SMEs
outrank their Swedish
peers in size
Average number of
­employees per company
Germany
Sweden
No. of employees
Germany 16,720,674
Sweden 2,016,909
No. of enterprises
Germany 2,201,144
Sweden 665,819
Germany is highly urbanised with a vast number of large cities
Cities with more than 1 million inhabitants
Cities with more than 100,000 inhabitants
Berlin
Hamburg
Munich
Cologne
3 469 849
1 762 791
1 429 584
1 046 680
Footnote: Figures referring to data from 31.12.2014.
Source: Destatis: Städte (gemeinden mit Stadtrecht) nach Fläche,
Bevölkerung und Bevölkerungsdichte am 31.12.2014, 2015
1 2 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
Footnote: Figures referring to data from 2013.
A DISPERSED ECONOMY
NORWAY
INDUSTRY CENTRES ALONG
THE GERMAN “BANANA”
SWEDEN
DENMARK
NORTH SEA
UNITED
KINGDOM
PR, publishing houses,
marketing, IT, life sciences,
commodity trade.
Europe’s second largest
port and the world’s third
largest aviation centre.
BALTIC SEA
HAMBURG
NETHERLANDS
POLAND
BERLIN
Political centre, ICT, pharmaceuticals, media and
start-ups.
ICT, healthcare, logistics,
chemicals, mechanical,
engineering, media, retail,
nano- and microsystems
technology. It is also the
home of HQ’s of energy
and consulting companies
NORTH
RHINE-WESTPHALIA
BELGIUM
FRANKFURT
CZECH REPUBLIC
Banking and finance.
Home of the European
Central Bank. Chemicals
and medical technology,
pharmaceuticals, automation, logistics and management.
LUXEMBURG
STUTTGART
MUNICH
Automotive industry,
machinery, manufacturing
technology, engineering
and health care.
Automotive industry,
manufacturing, insurance,
transportation, energy, ICT
and consulting.
AUSTRIA
SWITZERLAND
SLOVENIA
FRANCE
ITALY
CROATIA
Source: Business Sweden Analysis
MEDITERRANEAN
SEA
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 1 3
“Mittelstand” keep their headquarters in the
town where the business once emerged, even
if it may be in rather rural areas. The “Mittelstand” also contributes heavily to the German vocational training system, which is a
key driver of Germany’s low youth unemployment.
STRONG INNOVATION CAPACITY
German companies generally prioritise
R&D, especially within the “Mittelstand” as
mentioned above. This translates into a strong
domestic innovation capacity. Germany has
higher R&D spending as share of GDP than
the EU average, at 2.8 versus 1.9 percent in
2014. France spent 2.3 percent of GDP, and
the UK spent only 1.7 percent. Among the G7
countries, Germany ranks second after Japan.
Sweden spends more on R&D as share of GDP
than Germany, at 3.2 percent. Looking at the
figures in absolute terms, Germany spends
almost as much on R&D as the UK and
France combined.10
Germany is home to a number of the
world’s most esteemed non-university
research institutions, such as the Fraunhofer-Gesellschaft, the Helmholtz Association, the Leibniz Association and the Max
Planck Society. Together, these non-university research institutions had an annual R&D
budget of around 9 billion euros in 2014.11 For
these institutions, R&D is no longer limited by
national borders.
In Sweden, companies usually either conduct their own research or do so in cooperation with a higher education institution. The
higher education institutions are home to
the largest share of publicly funded research,
and non-university research institutes only
account for a small share. This distinguishes
Sweden on the international stage.
AN OPEN ECONOMY WITH A
LARGE, GLOBAL FOOTPRINT
Globalisation is reshaping the world economy
and facilitates business across markets.
Germany is a highly open economy and
reaches similar levels of openness as smaller
economies such as Sweden normally attain.
In 2014, German exports accounted for 46
percent of GDP compared to 45 percent in
Sweden. Total German imports constituted up
to 39 percent of GDP, compared to 41 percent
in Sweden.12
Germany was the 19th most open economy globally in the International Chamber of
Commerce’s 2015 Open Markets Index, which
puts Germany at the top of both the G7 and
the G20 countries. The index comprises four
key components: openness to trade, trade pol-
Germany almost spends as much on R&D as UK and France combined
Spendings on R&D in BEUR
100
80
60
Germany
4 largest non-university
research institutes*
France
UK
Sweden
40
20
0
*Fraunhofer-Gesellschaft, Helmholtz
Association, Leibniz Association and
the Max Planck Society
Source: Eurostat, 2015; Germany Trade & Invest, 2015.
Footnote: Figures referring to data from 2014.
1 4 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
icy, foreign direct investment (FDI), openness
and infrastructure for trade. Sweden ranked
10th.13 The openness of both the German
and the Swedish economies is also expressed
by numerous multilateral and bilateral trade
agreements, as well as several industry-specific agreements.
German companies are known for their
high degree of specialisation, which is demonstrated by the many German “hidden champions”. This notion was identified by Hermann Simon and describes companies that
are world leaders in highly specialised niches
such as porcelain bathroom fittings or church
organ manufacturing, serve the global market
but largely go unnoticed by the general public.
The “hidden champions” are particularly present within the “Mittelstand”.
ENABLING INFRASTRUCTURE
The German economy relies on a well-functioning infrastructure, including strongly
developed logistics. It has a very well-developed logistics infrastructure. In 2014, the
local logistics market yielded a turnover of
290 billion euros, which makes it by far the
largest in Europe.14 With its central location
in Europe and with nine neighbouring
countries, Germany sees more goods pass
through it than any other European country.
In the north, the seaports, with Hamburg
at the forefront, play an important role in
maritime transportation. A wide network of
roads, rail links and inland waterways spans
the entire country. Road traffic dominates the
modal split with 71 percent of traffic volume in
terms of tonne-kilometres being transported
on road, followed by rail, accounting for 17 percent.15 According to the Logistics Performance
Index (LPI) compiled by the World Bank,
Germany ranks first worldwide. Sweden’s
logistics performance ranks sixth. Germany
also ranks first on the sub-index measuring
infrastructure, where Sweden ranks ninth.16
To keep this outstanding position, continuous
investments in the logistics infrastructure
are needed, due to the high load on German
roads, but also due to changing demands on
e.g. seaports.
Other important enabling infrastructures
are energy and digital infrastructure, which
we will return to later on in the report.
1,307 hidden champions are located in Germany
Germany 1,307
US 366
Japan 220
Austria 128
Switzerland 110
Italy 76
France 75
China 68
UK 67
Definition of hidden champions
▸▸ Among the top 3 global market leaders
determined by market share
▸▸ Revenue below EUR 3.2 billion
▸▸ Low level of public awareness
Examples
▸▸ Duravit (Porcelain bathroom fittings)
▸▸ Lürssen (Shipbuilding)
▸▸ Herrenknecht (Tunnel boring machines)
▸▸ Orgelbau Klas Bonn (Church organ builder)
Source: Simon. H: Hidden Champions – Ausbruch nach Globalia, 2012, Campus Verlag, Frankfurt am Main.
Footnote: Figures referring to data from 2012.
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 1 5
Sweden
Germany
10%
1,5%
18%
1,9%
EXPORT
IMPORT
IMPORT
EXPORT
Swedish export (%)
German import (%)
1. NORWAY
10,3%
1. CHINA
9,7%
2. GERMANY
10,3%
2. NETHERLANDS 9,3%
3. USA
7,7%
3. FRANCE
4. UK
7,2%
4. USA
6,3%
5. DENMARK
6,8%
5. ITALY
5,2%
Swedish import (%)
1. GERMANY
18,0%
2. NETHERLANDS 8,3%
3. NORWAY
8,2%
4. DENMARK
7,7%
5. UK
5,5%
7,1%
other countries
18. SWEDEN
1,5%
German export (%)
1. USA
9,5%
2. FRANCE
8,6%
3. UK
7,5%
4. NETHERLANDS 6,6%
5. CHINA
6,0%
other countries
13. SWEDEN
1 6 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
1,9%
Source: Destatis and SCB, 2016.
Footnote: Figures referring to data from 2015.
GERMANY MATTERS
TO SWEDEN
Germany is, and has for a long time
been, a crucial business partner for
Sweden and many Swedish companies rely on Germany for their international success. In this chapter, we
look into seven major components in
the bilateral business relation: strong
ties on a broad scale, one of Sweden’s
largest export markets, remaining
potential in exports of services, Sweden’s largest sourcing partner, important FDI investor to Sweden with
potential for growth, sales of Swedish
subsidiaries larger than exports and
an R&D partner with more potential.
STRONG TIES ON
A BROAD SCALE
For centuries, Germany has impacted the
development of Swedish society, cities and
trade. This has contributed considerably to the
close relationship between the two countries.
Safeguarding trade relations with the outside
world was a main reason why monk Ansgar of
Bremen travelled to the Viking town of Birka,
from where he began the Christianisation of
Sweden. In the Middle Ages, the Hanseatic
League was the most important trade link
in Northern Europe, with German spoken
alongside Swedish in Stockholm and other
towns along Sweden’s Baltic coast. Gustav II
Adolph’s participation in the Thirty Years’ War
marked the start of almost two centuries of
Swedish dominance in north-east Germany,
laying the ground for the vital link across the
Baltic that survives to the present day.
German was the first language taught in
schools until the end of the Second World
War, and it was only after the war that links to
the Anglo-Saxon world surpassed those with
Germany. After the fall of the Berlin Wall and
German reunification, Swedish interest in
Germany started to increase again, but there
are still fewer and fewer people choosing to
learn German in Sweden.
Germans look to Sweden with appreciation
and in-depth knowledge, not only in terms of
Swedish nature and Astrid Lindgren’s fairytale world, but also the Swedish social system
and welfare state. Furthermore, the close ties
are often evident in economic and political discussions within EU, where Sweden and Germany repeatedly take a similar stand. Sweden
has much to gain from attending to its relationships with Germany on this broad scale,
yet in this report we focus on business relationships.
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 1 7
ONE OF SWEDEN’S
LARGEST EXPORT MARKETS
Swedish exports of goods to Germany
comprise approximately 10 percent of total
exports of goods.17 A high proportion consists
of raw materials and intermediate goods, e.g.
ore, pulp, paper and steel. However, in recent
decades Germany has gradually increased
its imports in other segments, resulting in
a reduced Swedish share of total German
imports. In parallel, the Swedish share of
German imports has declined within other
segments such as telecommunications and
specialised machinery. Areas in which German imports have grown fast, e.g. foodstuffs
and consumer products, are relatively small
export segments compared to e.g. raw materials and intermediate goods.
Consequently, the Swedish export industry
lost 17 percent of its import market share in
Germany during the years 2005 to 2015. Norway, Finland and Denmark also lost import
market shares, to an even larger extent than
Sweden. However, Switzerland and the Netherlands have managed to increase their shares
by 13 and 25 percent respectively.18 This shows
that advanced, small European nations are
fully capable of a strong showing in German
import statistics. Then again, many Swedish
enterprises have manufacturing facilities in
Germany and supply the market locally, which
means their revenues are excluded from the
trade statistics.
German imports have kept up well with
exports over the last twenty-five years. This
means that Germany has not been holding back imports, stifling stimulus for other
exporting nations. On the contrary, German imports are in line with its growth. The
winners of German growth and increased
imports have been the emerging markets.
There has also been a debate among economists on whether an undervalued German
euro has stimulated German exports. It lies
beyond the scope of this report to address
this topic here, but when looking at this
one should keep in mind that Germany to a
1 8 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
large extent trades with countries within the
­eurozone.
The previously mentioned increase in German domestic consumption creates opportunities in the retail sector for Swedish
exporters. When comparing trade categories important to both Swedish exports and
German imports from 2010 to 2014, a number of categories show both a below-median
share of Swedish exports going to Germany,
as well as below-median share of German
imports coming from Sweden. This is particularly found within the food and retail segments, e.g. seafood, dairy products, footwear
and cosmetics.
REMAINING POTENTIAL IN
EXPORTS OF SERVICES
In Sweden, services exports are becoming
increasingly important as compared to goods
exports. The share of services exports as compared to total exports of goods and services
increased from 21 to 32 percent between 2005
and 2015. For Germany, on the other hand,
the increase of services exports has not been
as significant, going from 15 to 17 percent over
the same period.19
Germany is Sweden’s fourth largest services exports destination, at 8 percent in 2015.
The main segments consisted of financial services at 50 percent, tourism at 17 percent and
telecom at 15 percent. German imports of services as compared to total imports of goods
and services came to 23 percent in 2015. The
same number was 30 percent in Sweden.20
A common difficulty when exporting services
to Germany is the language barrier. In German-speaking Europe, with its approximately
100 million native speakers, services are
mainly delivered in German. Also, Swedish
companies often have local employees delivering services, given the size of the German
market. It should be noted that those businesses are not covered in the export statistics.
We see potential in increasing Swedish services exports to Germany, and this should be
further analysed. Currently, the main Swedish
Categories with untapped potential in exports to Germany*
Tapped potential
German import**
5
2
REMAINING POTENTIAL
GERMAN IMPORT
UNTAPPED
POTENTIAL
9
14
11
15
10
1
6
7
3
8
4
POTENTIAL
BEING TAPPED
REMAINING POTENTIAL
SWEDISH EXPORT
16 12
13
Tapped potential
Swedish export***
Median
Mutual stand-outs
Latents
1) Turbopropellers and gas turbines
2) Vehicles other than railway
3)Pharmaceuticals
4)Plastics
5)Timber
6) Iron and steel
7) Pulp and paper
8) Optical instruments and devices, etc
Food
9)Seafood
10)Dairy products etc.
The upper right box shows
trade categories where
Swedish exports to Germany
is above the median share of
Swedish exports to Germany across categories, and
at the same time German
imports from Sweden make
up an above median share of
German imports from Sweden
across categories (Mutual
stand outs). This implies a
strong trade relation.
The lower left box, on the
other hand, comprise categories where Swedish exports
to Germany make up a below
median share of Swedish
exports to Germany across
categories, and German
imports from Sweden make
up a below median share of
German imports from Sweden
across categories (Latents).
This indicates room for enhanced bilateral trade.
Non-food Retail
11)Cosmetics
12)Toys and sports equipment
13)Footwear
Miscellaneous
14)Mineral fuels
15)Air and spacecraft
16)Floating structures
*The eight largest categories in every quadrant are shown determined by trade volume in absolute numbers.
**M easured as percentage of German imports in a given trade category originating in Sweden.
The scale of measure varies over the axis”.
***M easured as percentage of Swedish exports in a given trade category going to Germany.
The scale of measure varies over the axis.
Source: Business Sweden analysis based on statistics from Destatis and SCB, 2015.
Footnote: Diagram referring to data from 2010-2014.
exports to Germany are goods, which therefore is the main focus of this report.
SWEDEN’S LARGEST
SOURCING PARTNER
About 18 percent of Swedish imported goods
come from Germany, of which 83 percent
were intermediary and capital goods in 2015.21
These components and capital goods are
often incorporated in Swedish value chains
and play a key role in Swedish end products.
Imports from Germany add significantly
to the value of Swedish exported goods and
services globally. From a German perspective,
exports to Sweden constitute about 2 percent
of total exports of goods, making Sweden
Germany’s 13th most important export
market. This illustrates the imbalance in
the business relationship that can to a large
degree be explained by the different sizes of
the economies.22
AN IMPORTANT FDI INVESTOR
IN SWEDEN WITH POTENTIAL
FOR GROWTH
FDI inflow from Germany to Sweden
amounted to 4.5 billion euros in 2015.23 About
1,300 companies controlled by a German
majority ownership are active in Sweden, with
a total annual turnover of about 46 billion
euros and approximately 106,000 employees
in 2015.24 German majority-owned companies
as a group are the largest foreign employer in
Sweden, followed by US-owned companies.25
Important areas of German FDI to Sweden include the following sectors: retail,
with examples such as Bauhaus, Deichmann, Hornbach and Media Markt; infrastructure, with construction companies such
as Hochtief, Strabag and Züblin as well as
BMW’s and Daimler’s car sharing concepts
“DriveNow” and “car2go”; manufacturing,
with Volkswagen’s investment in Scania and
Siemens Industrial Turbomachinery investing in its first 3D-printing factory worldwide
in Sweden; energy, especially focusing on
wind; healthcare; tourism; R&D, with examples such as the Fraunhofer-Gesellschaft and
the Max Planck Society.
At the same time, while FDI activity from
Germany to Sweden remains robust, FDI
from Germany is growing at a slower rate
German-owned companies* are very important to the Swedish economy
1,300
No. of enterprises
EUR
46.0
billion
Turnover
FDI Inflow from Germany to Sweden in 2015:
German FDI stock in Sweden in 2014: 106,000
No. of employees
EUR 4,5 billion
EUR 17.5 billion
* Referring to companies in Sweden owned by a German majority. Estimates based on data from those 1079
companies having filed a valid number different than 0 for either turnover and/or number of employees.
Source: Business Sweden analysis based on statistics from ORBIS, 2016; Kommerskollegium, 2016.
Footnote: Figures referring to data from 2015.
2 0 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
than from the EU in general. From 2004 to
2014, FDI from the EU to Sweden grew by 111
percent, compared to 40 percent growth in
FDI from Germany.26 While these patterns
require a deeper analysis, this indicates that
there is still potential for enhanced business
relations when it comes to FDI from Germany.
SALES OF SWEDISH
SUBSIDIARIES LARGER
THAN EXPORTS
Swedish companies are present all over Germany, with an emphasis on the economically
strongest regions and the north of the country.
In total, about 1,900 companies controlled
by Swedish majority ownership are active in
Germany, with an estimated total of 135,000
employees in 2015. This makes Sweden one
of the top foreign employers in Germany with
multinational retail companies such as IKEA
and H&M, large manufacturing companies
such as SKF, and Vattenfall with its important
share of the energy market playing a significant role.
The most important sectors for Swedish
FDI in Germany between 2008 and 2013 were
ICT and software with 21 percent, and textiles
with 18 percent. The investments mainly comprised marketing and sales activities. Looking at the 126 greenfield projects that Swedish
entities have carried out since 2008, Germany
has been the fourth largest destination.27
Swedish subsidiaries in Germany generate an estimated annual turnover of 85 billion euros28. This can be compared to the total
exports of goods from Sweden to Germany of
12.9 billion euros in 2015.29
AN R&D PARTNER WITH
MORE POTENTIAL
There is a wide array of R&D interactions
between Germany and Sweden. This
includes, for example, the Max Planck Society,
which participated in 4,500 international
projects in 120 countries in 201530, 164
of which were conducted with Swedish
partners31. Another example is the Fraunhofer-Chalmers Research Centre for Industrial Mathematics (FCC) that was founded by
Chalmers University of Technology and the
Fraunhofer-Gesellschaft in 2001 to undertake
and promote mathematical research to the
The turnover of Swedish-owned companies in Germany
by far exceeds Swedish export to this market
1,900
No. of enterprises
EUR
46,0
84.6
BEUR
135,000
Turnover*
No. of employees*
billion
EUR 1,4 billion
FDI Inflow from Sweden to Germany in 2015: Swedish FDI stock in Germany in 2014:
EUR 16.9 billion
*Based on data from those 958 companies having filed a valid number different than 0 for either turnover and/or number of employees.
Source: Business Sweden analysis based on statistics from ORBIS, 2016; Kommerskollegium, 2016.
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 2 1
benefit of industry, commerce and public
institutions. In 2015, the Max Planck Society
signed an agreement with the Karolinska
Institutet regarding an investment in a new
research laboratory at the Karolinska Institutet. In 2016, the Fraunhofer-Gesellschaft
is for the second time investing in Sweden,
this time together with the Royal Institute of
Technology and RISE Research Institutes of
Sweden.
In 2014, 192 German universities and colleges were in partnership with 36 Swedish counterparts, adding up to 770 collaborations such as student or professor exchanges,
course credits etc.32
There are several smaller initiatives and
grants for research between Sweden and Germany, such as the Röntgen-Ångström Cluster (RÅC), a Swedish-German research collaboration within structural biology and material
sciences.
Although there are interesting partnerships and projects in place, of which some are
described above, we see potential for expanding the R&D relationship further based on the
position of both Germany and Sweden in the
global R&D arena.
18%
OF SWEDISH IMPORTED GOODS COME FROM GERMANY.
2 2 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 2 3
OG
M
E
D I FT
SH
IC
H
P
RA
GY ION
R
E
EN ANSIT
TR
NS A
TR N
L
A
IT
IO
DIGRMAT
FO
24 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
THE GERMAN ECONOMY
IN TRANSFORMATION
Germany, like other globally embedded economies, is affected by
changes in the world economy.
Current megatrends such as globalisation, technical disruption and
resource scarcity will change the
German economy and business landscape, along with the rest of the
world. We have identified three key
factors that will particularly influence
the German economy going forward:
the demographic shift, the energy
transition and the digital trans­
formation.
DEMOGRAPHIC SHIFT
In 2016, the total number of people in employment in Germany reached the highest level
since German reunification, at approximately
43 million people.33 This signified 10 years
of uninterrupted employment growth. The
German workforce has a lower participation
rate than the Swedish at 60 percent versus 64
percent in 2014.34 With 38 percent of German
women working part-time, Germany has
more women in part-time employment than
Sweden and also lies above the EU average.35
Germany, however, has the lowest youth
unemployment rate in Europe36 as well as the
highest share of foreign-born employees with
68 percent in 2014, compared to 64 percent in
Sweden.37
However, there is an ongoing shift in
­German demographics, driven by three main
factors.
1) Germany has one of the world’s most
rapidly ageing and shrinking populations,
as a result of low birth rates combined with
an uninterrupted increase in life expectancy.
This means that the number of elderly people
in the workforce will increase, and eventually
will need to be taken care of. Simultaneously,
there will be fewer young people to fill both
employment and healthcare resource gaps.
2) There is a shift in values taking place,
often referred to as “the generations X and
Y”. These generations are so-called “digital natives”, i.e. born into the era of the internet. This makes them more open to new ways
of working and consuming, including fostering trends such as the shared economy. This
has, for instance, brought forward the successful development of car sharing concepts in
Germany, and especially in Hamburg. These
generations also place greater emphasis on a
healthy work-life balance.
3) Global migration is highly impacting
German demographics as Germany has, and
still does, play an important role as a migrant
destination. While Germany already has a
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 2 5
high share of foreign-born employees, integrating newly arrived migrants successfully in
the employment market will be crucial from
both a societal and an economic point of view.
Potentially, this could help Germany to soften
the impact of an ageing and shrinking population.
To manage this ongoing shift, Germany
is discussing solutions for further integrating women into the workforce, increasing the
retirement age, making the country attractive
for highly skilled people (labour and lifestyle
migration) and actively integrating migrants
and asylum seekers into the German labour
market.
ENERGY TRANSITION
The energy infrastructure in Germany is
currently undergoing a major transition, the
“Energiewende”, which aims to develop a
sustainable energy system. This transition
is driven by the global threats of climate
change and was accentuated by the apparent
risk of nuclear energy that followed the
natural catastrophe in Fukushima in 2011.
As a consequence, the German government
decided to phase out all nuclear power by
2022 and invest heavily in renewable energies.
In 2015, renewables already made up the
largest electricity source in Germany, with a
share of about 30 percent of gross electricity
generation. Lignite followed at 24 percent,
hard coal at 18 percent, nuclear at 14 percent,
gas at 9 percent and other sources at 5 percent.
Of the renewables, wind energy makes up
the largest share at 13 percent of total gross
electricity generation.38 Future climate targets
include reducing greenhouse gases by at least
80 percent by 2050, compared to 1990 levels.39
Energy consumption is highest in North
Rhine-Westphalia and Lower Saxony in the
west and Bavaria and Baden-Wuerttemberg
in the south, both correlating to the number
of inhabitants and economic activity in these
federal states. This poses a challenge, as an
increasing share of wind energy is generated
mainly at the coastal regions in the north, and
2 6 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
thus needs to be transported to the main consuming areas in the south and west.
The energy shift implies an increased
strain on energy infrastructure, sources of
fuels and energy efficiency. Solutions for more
efficient energy use will be crucial, as well as
more sustainable sources for not only electricity, but also for heating, cooling and mobility.
One way of achieving this is by using electricity from renewables to bring the energy transition to other sectors. This transfer of clean
electricity into other sectors is referred to as
“sector coupling” and is seen as a cornerstone
for a sustainable energy system going forward.
This also implies a need to pave the way for
increased electrification, hand in hand with a
continued need to manage the stability of the
electricity grids.
DIGITAL TRANSFORMATION
Digitalisation is enabling, disrupting and
reshaping the world, including Germany.
The Digital Economy and Society Index
(DESI) is a composite index that summarises
indicators on Europe’s digital performance
and tracks the evolution of EU member states
in digital competitiveness. In 2016, Germany
ranked ninth and Sweden ranked third. 40
Germany is among the countries in Europe
that perform well and comes in above the EU
average. However, it has not yet reached the
digital performance of Sweden and the UK,
for example. Comparing globally, e.g. on the
basis of the Digital Evolution Index (DEI),
Germany is performing well but shows signs
of falling behind. Overall, there is general
agreement in Germany that enhanced digital
infrastructure is needed to secure sustained
economic growth. Specifically, medium-sized
companies within traditional industries are
perceived as lagging behind, which is seen as
a threat to future German competitiveness.
When it comes to digital business and
start-ups, Germany stands out internationally.
One of the world’s most interesting start-up
scenes has emerged in Germany in recent
years, with Berlin at its epicentre and links to
Leipzig in the east, Hamburg in the northwest and Munich in the south. Berlin is cited
alongside Silicon Valley, London, Stockholm,
Paris and Tel Aviv as one of the top start-up
hubs of today. Among the companies that
have emerged are several with German-Swedish ties, such as SoundCloud, which was
founded by Swedish entrepreneurs in Berlin, or Rocket Internet and Zalando, of which
Kinnevik was a significant early shareholder.
Along with international venture capital, traditional industry players are increasingly looking to these start-up companies for new solutions that can enable future relevance and
competitiveness.
The digitalisation of traditional industry is supported by governmental initiatives
such as “Industrie 4.0” and “Smart Service
Welt”. “Industrie 4.0” represents a shift from
centralised to decentralised, smart manufacturing and production, where intelligent
ICT-based machines, systems and networks
independently interact to manage industrial
production processes. “Smart Service Welt”
aims to make Germany the digital lead provider of smart services and their underlying
platforms, based on the development of intelligent networks.
To drive digitalisation forward, the German economy will need further investment in
its digital infrastructure. Companies will also
need to revise their sales channels, production
processes, value chains and offerings to create
a more digital business and stay relevant.
costs will also be needed. The demographic
shift in values will lead to a continuously
growing customer base for digital solutions, as
well as an increased demand for sharing solutions and offerings relating to and supporting a desirable and flexible work-life balance.
Initially, solutions that help to overcome language barriers will be of interest, especially in
terms of successfully integrating migrants, as
will solutions for housing and efficient administrative processes.
The energy transition will open up for business opportunities related to enhanced energy
efficiency, renewable energies, smart grid
solutions and sustainable heating, cooling and
transportation.
The digital transformation will require further investment in digital infrastructure, both
on a societal level and within each and every
industry, from manufacturing to energy and
healthcare. It will also promote new business
models and cooperations to enable the digital
transformation of individual companies.
There will be strong demand for solutions
to enhance these changes, and Swedish companies are well-positioned to develop and
deliver those solutions.
RESULTING BUSINESS
OPPORTUNITIES
A number of business opportunities result
from the three factors described above.
When it comes to the demographic shift,
the ageing population implies a greater need
for health and elderly care, especially at home,
as well as more efficient and ergonomic ways
of working to take care of the shrinking and
ageing workforce. Since healthcare and other
public expenditure will need to be carried by a
smaller workforce, solutions that help to save
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 2 7
AN ACCELERATED
GROWTH STRATEGY
In the previous chapters, we have
reviewed the significance of the German economy as an economic superpower and a critical business partner
for Sweden and Swedish companies’
international success. We have also
looked at the new business opportunities resulting from the current transformation in the German economy
and how Swedish companies are well
positioned to reap the resulting benefits. Next, we will reflect on why many
Swedish companies perform below
their optimum on the German market
and develop strategic recommendations on how to best to go about
achieving full business potential.
UNTAPPED POTENTIAL
In spite of the German market’s dominance in
the world economy and its importance to the
Swedish economy, there are a number of areas
where Swedish companies tend to perform
below their optimum. These challenges often
translate into untapped potential for the companies. We have defined five main areas that
are often challenging or unexploited: giving
adequate attention, partnership engagement,
market maturity, innovative edge and global
opportunities.
2 8 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
ADEQUATE ATTENTION
As the world’s fourth largest economy with its
geographical position in the center of Europe,
the German market attracts companies
from all over the world resulting in intense,
global competition. To fully succeed on the
German market and compete with the strong
competition, it is crucial to have a well-adapted
offering that meets the local preferences and
conditions.
To Swedish companies, this translates into
a need to research and understand the German market, including customer preferences,
buying behaviour, sales channels and competition. Once the local conditions are grasped,
the offering must be tailored. This includes
sourcing, features and price points, marketing
strategy, sales channels, distribution model,
after sales service etc. The German market
holds large potential, but is not an easy win
just because of its size or the geographical,
cultural and social proximity to Sweden.
The adaptation of the offering to the specific German preconditions must be balanced with existing, internal structures. What
changes in terms of product, marketing etc.
are fundamental to succeed in the German
market, and what is the adaption cost? To what
extent does the company board approve of the
“German mindset”, and how far is the Swed-
ish company willing to go to become German?
Is it willing to accept German ownership or
other strategic partnerships?
ency tends not to show in terms of time and
effort spent on the partnerships.
PARTNERSHIP ENGAGEMENT
Like any highly advanced, mature and
competition-intense market, organic growth
strategies alone are sometimes not enough
to penetrate the market. In Germany, this is
particularly seen within professional services
and high-tech or knowledge-intensive industries. Rapid access to local networks is critical
within these industries.
Acquiring or merging with an existing
player with well-operating local networks enables direct access to important customers
as well as stakeholder relations. The ownership provides information that could not be
obtained beforehand. The company becomes
part of a cluster that, in addition to crucial networks, also provides immediate capability and
knowledge of growth areas and market opportunities.
The shared relations and knowledge enables a fast track to a German footprint, shorter
time-to-market and a more secure and steady
expansion that is more likely to last. Swedish
companies trying to expand on the German
market without these critical networks and
relations often find it difficult to achieve sustained success.
Local German sales partners are the most
desired sales channel for Swedish companies
entering the German market. However, a
significant part of what is offered on the
market is domestically produced as Germany
has a large domestic producing industry
under both German and international
ownership. Hence the desired sales partner
may not exist as such but rather in the form of
a strategic partnership with a producing entity
and strong sales channels.
Swedish companies generally want one single partner to cover the whole country and all
customer segments. This is not realistically
done in an efficient way, given the size of Germany. They also often want the sales partner
to cover all costs for storage, marketing and
sales. This might be negotiable once the company is well-established.
Swedish companies also tend to rely on
their sales partners to a large extent, not being
active themselves in sales at a more detailed
level. A lack of regular performance reviews,
customer visits and follow-ups is common,
often leading to decreasing motivation for the
sales partner. Other products in their portfolio
suddenly seem more interesting and rewarding, leading to stagnant or decreased sales for
the Swedish company. Also, low sales involvement often leads to low understanding of who
the customers are and their feedback, resulting in little insight in terms of product or service development needs.
This is not only the case for sales partnerships but also for strategic supplier partnerships. There, the below optimum situation often translated into long lead times, low
quality and high costs. As previously mentioned, many Swedish end products are highly
dependent on imported German goods, specifically within the fields of intermediary and
capital goods. Still, this high level of depend-
MARKET MATURITY
INNOVATIVE EDGE
An important contributor to Germany’s global
business competitiveness and attractiveness
is its strong innovation capacity. Not only does
Germany, as previously mentioned, invest
heavily in R&D, it is also home to some of
the world’s most prestigious non-university
research institutions. R&D conducted within
these organisations is no longer limited by
national borders, and the organisations are
increasingly collaborating internationally. Still,
Swedish organisations and companies tend not
to harness this innovation capacity fully.
The significant innovation and R&D capacity of German organisations and companies
indicates that there is still extensive potential
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 2 9
in terms of innovation cooperation and collaboration between Germany and Sweden.
Engaging in deeper R&D relations with Germany not only enables access to cutting-edge
competence in Germany, but also pioneering innovation on a global scale. As innovation becomes increasingly important to compete globally, such access is likely to become
vital for the future competitiveness of Swedish
enterprise.
GLOBAL OPPORTUNITIES
Given the size and geographical reach of
many German companies, doing business
with German companies often implies doing
business globally. To Swedish companies, this
represents a door to the global market.
Analysis of German and Swedish business
with multinational companies in the US and
large emerging markets shows that a close
relationship with the global headquarters is
key, often resulting in companies setting up a
new presence close to their clients’ headquar-
3 0 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
ters. Furthermore, strategic business decisions such as pricing, product features etc.
are generally taken at the global headquarters. The headquarters often also influence the
choice of suppliers. German multinationals in
the US tend to use the same suppliers in the
US as they are already using back in Europe,
and the same applies for emerging markets.
This means that a Swedish supplier to a German multinational in the German market
could be supplying multinational customers
globally. At the same time, the need to be a
local player is also often stressed, for instance
being accepted as a US company in the US or
being a part of the local business community
in India.
As previously mentioned, Swedish companies often work through distributors, which
means they are not in direct contact with the
local or global German companies. This can
be a disadvantage when positioning the Swedish company as the preferred global supplier.
To Swedish com­
panies, Germany
is a neighboring
­economic super­
power. Close atten­
tion and adaptation
of business strat­
egy is a must to
reach full potential.
JOHAN SNELLMAN
VICE PRESIDENT, HEAD OF
REGION WESTERN EUROPE,
BUSINESS SWEDEN
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 3 1
5
STRATEGIC LEVERS
For an accelerated growth strategy in Germany.
EMBRACE GERMANY’S ECONOMIC IMPORTANCE
– Internalise Germany into your company DNA
SECURE PARTNERSHIP PERFORMANCE
– team up for success
ACQUIRE AND EXPAND
– fast track your growth
LEVERAGE GERMANY’S INNOVATION CAPACITY
- join local clusters
IN GERMANY FOR GLOBAL BUSINESS
– global reach through German global players
3 2 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
10%
+
ACCELERATING GROWTH
WITH GERMANY
Based on common challenging or unexploited
areas, Business Sweden has derived five
strategic levers for Swedish companies to
consider in growing their business with
Germany. These levers are a collection
of strategic measures for future business
development in Germany, aiming to tackle
common challenges that we perceive among
Swedish companies. The extent to which
these measures are relevant varies depending
on the business model and industry, and
the recommendations can be implemented
independently of each other.
EMBRACE GERMANY’S
ECONOMIC IMPORTANCE
Long-term success on the German market
requires giving adequate attention, and
embracing the German market as your
company´s home market is key. This implies
a shift in mindset for the Swedish company.
It will go from seeing the German market
as part of the internationalisation strategy to
seeing it as part of the company DNA along
with the Swedish market, i.e. becoming a
(northern-) European company. The German
and Swedish markets should be part of the
company’s foundational strategic business
platform, business model and value chain.
The full product and service portfolio should
be introduced on the German market, just as
in Sweden.
The characteristics of the German market
should be considered, as well as the way it is
evolving. Combined with the specifics of the
Swedish market, this should be the starting
point for all business development at the company. This could, especially for smaller companies, mean a complete shift in corporate
strategy, including their product development
and internationalisation strategies. To support
this process, it may be advantageous to internationalise the board and include German
representatives as board members.
EXAMPLE: When a Swedish outdoor
company first set up business in the
German market, it struggled for years
to succeed. At a certain point, it
decided to change the way it viewed
the German market and labelled it its
“home market”. With this new perspective, the German market received
greater focus and the company was
prepared to go further in order to build
and defend its position. Today, Germany is one of the company’s largest
markets.
SECURE SALES PARTNERSHIP
PERFORMANCE
Local German sales partners are often perceived as underperforming, often due to lack
of partnership engagement from the Swedish
company. Stepping up and securing partnership performance implies investing time and
money in the partnership through activities
like providing proper on-boarding, increasing
the amount of continuous training, providing
greater access to the company’s own strategic
competencies, sharing enhanced market
insights and marketing support, introducing
and following up incentives and KPIs. It also
means terminating relationships with poorly
performing partners, and entering into new
relationships with new partners with better
conditions for success.
Sometimes, a way to step up partnerships is
to open up strategic partnerships between the
German and Swedish entities, with the aim
of increasing the partnership performance
to both parties’ mutual benefit. Digital sales
and marketing channels should ideally also be
included in the sales partnership strategy.
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 3 3
EXAMPLE: A Swedish company delivering ergonomic solutions to a variety
of industries had been working in
Germany through a partner for many
years. As sales progressed, the Swedish
company was not involved, merely
delivering modules to the partner, who
then sent them to the end customers.
Suddenly, as a generational shift took
place at the German partner company,
it launched its own range of products
and ended the partnership. The Swedish company, highly reliant on the
German market, suddenly had no
revenue from Germany, no information
on what assembled products they had
actually sold and no overview of who
the end customers were. Had the
company been more engaged, it would
have had some of its own market
knowledge on which to draw. Also, the
reason for why the German partner
wanted to develop its own product
portfolio might have been recognised
earlier, which could perhaps have paved
the way for a negotiation regarding
possible solutions.
ACQUIRE AND EXPAND
Swedish companies, especially in professional
services and high-tech or knowledge-intensive
industries, should consider investments in
strategic companies as a preferred strategy
for penetrating the German market. Joint
ventures with, or acquisitions of competitors
or partners in the supply or distribution chain
can give faster and more secure access to
new growth areas in the market, rather than
growing organically or through partners.
Market growth through joint ventures or
acquisitions enables access to new technologies or solutions, new services and brands,
new client or stakeholder relationships, new
sales or distribution channels and new suppliers. This allows the companies’ operations to
reach a critical mass, as well as tackling competition and gaining a more preferred market position. It is also a way to meet market
3 4 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
demand by providing a wider offer, as well as
responding with quality and flexibility – ideally locally and in German.
EXAMPLE: A Swedish organisation in
healthcare and life sciences acquired a
German company and thereby not only
grew in size, but also gained access to
local networks, clusters and cutting­edge R&D. This gave it a significantly
stronger position on the global market.
LEVERAGE GERMANY’S
INNOVATION CAPACITY
By strategically focusing R&D and innovation
on the German market, either by establishing
partnerships, setting up a direct local presence
or acquiring local entities, Swedish companies
can access strong German clusters made up of
world-class R&D players with a strong innovative edge. These players pose global demands
on suppliers and are potential investors in the
Swedish parent company.
As previously mentioned, new products
and services, new companies, new R&D activities and new patents are common outcomes of
activities within a cluster. The development of
world-leading products or services by Swedish
companies will be more likely when pushed to
satisfy some of the world’s most demanding
clients and when leveraging the cutting-edge
innovation capacity available in Germany.
This is particularly important for areas in
which Germany is globally leading, e.g. within
energy and ICT solutions where large innovation investments have been driven by initiatives like “Energiewende”, “Industrie 4.0” and
“Smart Service Welt”.
EXAMPLE: A Swedish company offering a next-generation type of sensors
that turn analogue signals into digital
data cooperated with Fraunhofer-­
Gesellschaft in Germany in the production process. This enabled them to
combine and leverage the innovation
capacity available both in Sweden and
in Germany, which led them to the
forefront of technological development
worldwide.
IN GERMANY FOR
GLOBAL BUSINESS
POTENTIAL FOR TAKE OFF
Besides the five strategic levers proposed,
we also see new business opportunities for
Swedish companies based on the three previously defined factors changing the German
economy: the demographic shift, the energy
transition and the digital transformation.
There will be strong demand for solutions
to enhance these changes, and Swedish
companies are well-positioned to develop and
deliver those solutions. Also, there will be a
need for new solutions to match the changes
in German society and the economy.
The successful internationalisation of
German companies combined with the high
degree of openness of the German economy
means that German business decisions
influence Swedish companies far beyond
the German market. As German companies
are highly internationalised, building relationships with German global key accounts
that offer the potential to become preferred
suppliers on a global scale opens up global
business opportunities.
Unleashing this potential requires global
standards in quality and functionality as well
as service and maintenance on-site. A key success factor is to work closely with the German
company to collaboratively target global markets, enabling shorter lead times and more
flexibility to meet the German client or partner’s global demands.
EXAMPLE: A Swedish producer of
advanced components and subsystems
for industrial clients acquired a German
company. The aim of the acquisition
was to substantially increase the
business in Germany and with German
companies globally through the German subsidiary. Today, the company
supplies its products around the world.
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 3 5
3 6 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
SETTING UP FOR
CONTINUED SUCCESS
Germany is an economic superpower with
a large global footprint. It is one of Sweden’s
most important business partners, and our
relationship spans all aspects of international
business. While business relations between
Germany and Sweden are already substantial,
challenges often leading to untapped business
potential remain. The German market must
be placed in a global context and carefully
considered when developing the company’s
own growth strategy in order to unlock the
full business potential with Germany on the
global market.
To secure continued success in business
with Germany, it will be fundamental to track
the evolution of the market. Important key factors such as the demographic shift, the energy
transition and the digital transformation will
change the German economy, and Swedish
companies will need to adapt to new needs,
preferences and conditions. Also, Swedish companies should be prepared to leverage those changes in their business with Germany. New potential will arise, e.g. increased
demand for health and elderly care, sustainable immigration, energy and clean technology
and ICT solutions.
The German market is a highly competitive market, but Swedish companies are well
positioned to increase their market share. By
managing common pitfalls and actively monitoring the development of the market, Swedish companies can accelerate their business
with Germany. This is key to Swedish companies’ internationalisation, since Germany will
remain one of Sweden’s main business partners in the common, global arena for some
time to come.
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 3 7
ABOUT THE
REPORT
BACKGROUND AND PURPOSE
Germany plays a significant role in the world
economy and specifically for Sweden as one
of our largest trade partners. But after many
centuries of close business ties between
Germany and Sweden, a holistic view of our
business relationship in terms of trade, investment and R&D from a Swedish perspective is
still lacking. In addition, there are a number
of common challenging areas that Swedish
companies should be aware of going forward
if they wish to increase their business with
Germany. Business Sweden has studied
the trade, investment and in part the R&D
relationship between Germany and Sweden,
as well as areas of untapped potential and how
to act on these findings.
The purpose of this report is to provide
insights into the German market to Swedish
company executives, aiming to support them
in their growth strategy with Germany. The
goal is to better depict the significance of Germany as a business partner to Sweden and to
identify areas of untapped potential. The report
focuses on trade (specifically trade of goods,
as it is the dominant aspect of the trading relationship), investment and, in part, R&D.
Future publications could include in-depth
studies of the areas showing large potential
for enhanced business between Germany
3 8 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
and Sweden: common challenges and proposed strategic levers as well as opportunities arising from the identified key factors. It
could also include further analysis of services
exports (trade), increasing retail demand,
R&D cooperation and strategic sourcing from
Germany. To a large extent, these areas are
relevant from both a trade and an investment
perspective.
ANALYTICAL APPROACH
AND KEY QUESTIONS
What is the significance of the German
economy in a global context? How important
is our business relationship with Germany for
the Swedish economy? How is the German
economy and business landscape currently
evolving? Are we reaching our full potential
in the field of trade and investment, and what
can be done in order to keep and further
increase our business relationship with
Germany? These questions have guided the
work in this study.
As a basis for understanding, Business
Sweden has compiled an overview of the German economy from a Swedish perspective,
focusing on size, structure of the economy,
segmentation according to size, the “Mittelstand” and its role in German enterprise, the
growth drivers, key enabling infrastructure,
the workforce, R&D activities and Germany’s
degree of internationalisation.
Business Sweden has further conducted
in-depth analyses of the composition, volume and flows of trade, investment and R&D
between Germany and Sweden today as well
as the development over time.
In addition, the current transformation of
the German economy with specific regard to
the demographic shift, energy transition and
digital transformation has been described. On
this basis, resulting business opportunities for
Swedish companies have been derived.
Finally, untapped potential in strategic
approaches to the German market have been
analysed and five strategic levers for reaching
full business potential, not least within the
business opportunities evolving from the current transformation, have been developed.
Underlying the work are insights from the
thousands of business cases that Business
Sweden has been engaged in at first-hand
in everyday operations, as well as research
and interviews with German companies and
organisations. In addition, Swedish companies with experience of business in Germany
have also been interviewed, as have selected
Swedish organisations.
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 3 9
FOOTNOTES
World Bank: Gross domestic product 2014,
2016
1
Germany Trade & Invest: Economic Activity,
2016
2 World Bank: Gross domestic product 2014,
2016
3
Destatis – German Federal Statistics Office:
Volkswirtschaftliche Gesamtrechnung –
Bruttoinlandsprodukt, 2016
4
Destatis – German Federal Statistics Office,
2016
22
Kommerskollegium: Sveriges utrikeshandel
med varor och tjänster samt
direktinvesteringar – Helåret 2015, 2016
23
Business Sweden analysis based on statistics
from ORBIS, 2016
24
Growth Analysis – Swedish Agency for
Growth Policy: Utländska företag 2014
25
Eurostat: Europe’s richest and poorest
regions, 2013
26
Eurostat: GDP per capita in PPS, 2016
27
5
6
Macrobond, 2016
7
Destatis – German Federal Statistics Office:
Städte (gemeinden mit Stadtrecht) nach
Fläche, Bevölkerung und Bevölkerungsdichte,
2015
8
Fortune: Global 500, 2016
9
SCB: Foreign Direct Investment, Assets &
Income 2014
Germany Trade & Invest: Ausländische
Direktinvestitionen in Deutschland –
Potentiale Schweden, 2014
Business Sweden analysis based on statistics
from ORBIS, 2016
28
Kommerskollegium: Sveriges export till
Tyskland, 2016
29
Max Planck Society: International – Facts &
Figures, 2016
OECD: Research and Development (R&D),
2016
30
Germany Trade & Invest: Invest. Innovate.
Internationalize. Industry Clusters in Eastern
Germany, 2015
31
10
11
OECD: International trade, 2016
12
Max Planck Society: Europe, 2016
Destatis – German Federal Ministry of
Education and Research: Statusbericht
Schweden, 2015
32
Destatis – German Federal Statistics Office:
Erwerbstätigkeit kurz erläutert, 2016
International Chamber of Commerce: ICC
Open Market Index, 2015
33
Deutsche Bank Research: Logistik in
Deutschland: Vorerst nur geringe Dynamik,
2015
34
Deutsche Bank Research: Logistik in
Deutschland: Vorerst nur geringe Dynamik,
2015
35
13
14
15
World Bank: International LPI Global Ranking,
2016
16
Business Sweden analysis based on statistics
from SCB, 2016
17
Business Sweden analysis based on statistics
from Destatis, 2016
18
Business Sweden analysis based on statistics
from OECD and SCB, 2015
19
Business Sweden analysis based on statistics
from OECD and SCB, 2015
20
Kommerskollegium: Sveriges import från
Tyskland, 2016
21
4 0 | B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y
World Bank: Labour force participation rate,
total (% of total population ages 15+)
(modeled ILO estimate), 2016
OECD: Employment, 2016
Statista: Youth unemployment rate in EU
Member states as of February 2016
(seasonally adjusted), 2016
36
OECD: Migration, 2016
37
Federal Ministry for Economic Affairs and
Energy: Bruttostromerzeugung in
Deutschland 2015
38
Federal Ministry for the Environment, Nature
Conservation, Building and Nuclear Safety:
National climate policy, 2014
39
European Commission: The Digital Economy
& Society Index (DESI), 2016
40
B U S I N E S S S W E D E N | AC C E L E R AT E D B U S I N E S S W I T H G E R M A N Y | 41
This report gives decision-makers within Swedish
enterprises a basis for making decisions linked to
their internationalisation strategy. While the business relations between Germany and Sweden are
already substantial, we have seen that there is still
untapped business potential. The German market
must be put into a global context and be carefully
considered when developing the company’s own
accelerated growth strategy, in order to reach full
business potential in Germany. For Germany will
remain one of Sweden’s main business partners for
some time to come.
BUSINESS SWEDEN Box 240, SE-101 24 Stockholm, Sweden
World Trade Center, Klarabergsviadukten 70
T +46 8 588 660 00 F +46 8 588 661 90
[email protected] www.business-sweden.se