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Assessment of Germany for Investment Options

Info: 3354 words (13 pages) Essay
Published: 10th May 2021 in International Business

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Introduction

The number of investments in a nation is highly dependent on various factors. The economic environment is among the essential factors that determine the number of investments in a nation. Interest rates, employment rates, and the national gross domestic product determine the productivity of investments and hence the attractiveness of nations to investors. Political factors tend to determine the welfare of investments as political crises lower investment returns. The population demographics and cultural factors also determine the rates of investments in a nation. This study, therefore, aims at investigating specific information about German, and hence offering investment advice to aspiring investors, putting into consideration the location and geography of the nation, demographic characteristics, economic, political factors among various other essential aspects that may affect or influence business in Germany. 

Location and geography

Germany is a European nation that borders Denmark, Poland, Czech Republic, Austria, Switzerland, France, Belgium, Netherlands, and Luxembourg. This location can be asserted to be essential for promoting business for German investments. This is essential because investments can receive skilled labor from neighboring nations, or sell their products and services to these nations both in the long run and in the short run.

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The location has enabled Germany to join the European Union and Brexit regional trade unions, which are important towards availing an essential market for the nation. EU and Brexit can be articulated to be vital as they eliminate barriers such as taxes and hence enabling the nations to transact freely with each other. This way, German investments can sell in the European market without incurring additional charges. Investing in Germany will hence investments to sell to the neighboring markets without facing government and legal restrictions, which tend to be very costly and therefore lowering business returns. 

Germany borders the North Sea to the north and the Baltic Sea to the North West. This is also an essential geographical aspect that promotes the ability of Germany to effectively and efficiently carry out business transactions. Shipments are usually transported through the seas, an implication that businesses can easily transport bulky raw materials and products to and from Germany. This geographical aspect hence makes Germany conducive for investments.

Germany's climate also ought to determine the productivity of a business. This, however, depends on the nature of the business that investors ought to initiate. Agriculture-related companies are likely to be seasonal in Germany, given the fact that Germany has a temperate seasonal climate. Since the nations are characterized by significantly hot summers and extremely cold winters, agricultural-based investments ought to be not to do well in the German environment, unless the raw materials are shipped from other markets, which can be expensive, given the existence of various import restrictions in Germany, and especially from the non-Brexit nations.

Reforestation and climatic sensitivity that is continuing in Germany is also another vital aspect that should be considered while investing. Indigenous trees have overtime been planted in Germany, as a way of critically conserving the environment and eliminate adverse climatic conditions such as global warming caused by the increased release of carbon dioxide into the air. Environmental conservation programs in Germany have an essential influence on investment decisions. Carbon intensive investments, which ought to be unfriendly to the environment, are likely to be unattractive in Germany, given the increased information on the part of the people. Corporate social responsibility is an essential aspect that consumers reflect on before making consumption decisions and shareholders research about before making investment decisions. This aspect involves the ability of businesses to maintain a sustainable environment. Hence, carbon-intensive companies are likely to be unproductive in Germany. 

Germany has a massive number of national parks, given the attractiveness of its climate to wildlife. This is also an important geographical factor that ought to attract certain types of investments in Germany. Tourism and hospitality-related businesses are likely to be productive, given the high number of domestic and international tourists visiting the national parks for educational and recreational purposes.

Population statistics

Germany has a population of over 83 million people. The nation is approximately 378,000 square meters in size, an implication that the nation is densely populated, given the size of its population (Tapiador, 2020). The country is also divided into 16 states, which has played an essential role in easing administration tasks. The population distribution is also essential and should be considered when making investment decisions. This distribution significantly implies that there exists a significantly large market for the various products and services that investors ought to produce.

The demographic distribution is also another vital aspect that should be considered when making an investment decision. A majority of Germans are within the elderly age bracket, an implication that products likely to be demanded by this population will sell, than other products that are likely to be purchased by the youths. A high percentage of Germans have settled in cities, and a significantly lower percentage of the total population occupies the rural areas. Setting up businesses in the cities will hence promote productivity, as high transportation costs will be eliminated when availing of the goods in the more productive markets.

Characteristics of the labor force

In 2018, only 49.87% of the total Germans were between the ages of 15 and 54 years, which is the most efficient labor force proportion. 12.83% were between 0 and 14 years, 14.96% were between 55 and 64 years, while 22.36% were over 65 years of age (Kostanick, 2019). The statistics imply that the size of the labor force in Germany is significantly small, an insinuation that corporates are likely to import efficient labor from other nations. The age statistics of people between  0 and 14 years of age are significantly small, an implication that the birth rate in German is also limited. Considering this s factor, the size of the labor force may continue to be significantly small even in the future. The median age in Germany is 47.4 years. The higher number of deaths than births implies that the employable labor force ought to diminish in the future significantly. The negative population growth rate has, however, attracted massive immigration, an implication that a significant number of German workers are actually from other nations (Peñalba, Joseph, & Moritz, 2019).

A large proportion of the German population, both male and female, are highly educated. 99% of the total people in Germany are literate. This has a large implication on the labor force and the consumption patterns of the people and hence affects business welfare both in the long run and in the short term. Firstly, it is essential to note that high education levels in Germany imply that the labor force is highly skilled and experienced, which they ought to generate a more productive business. The high education levels, on the second note, implies that consumers are well informed and are hence likely to evaluate products before making a consumption choice significantly. Based on this aspect, investors should be willing to offer high-quality goods and services for productivity.

Current economic conditions

Economic conditions should be critically evaluated before making substantial economic decisions. The economic environment of a nation plays a significant role in the determination of business welfare both in the long run and in the short run.

Inflation

The current rate of inflation in Germany is 1.59%. However, 2024 projections show a significant increase in inflation rates up to 2.04%. Although rise has an adverse effect on the economy, a low rate of inflation is desirable due to the tradeoff that exists between inflation and unemployment. The rates of inflation in Germany can be articulated to be desirable, and based on this factor, investors can invest in this economy, given the price stability in the current and future environment.

The price stability in Germany implies that the value of money in Germany ought to be significant. This is, therefore, an implication of business stability both in the domestic and international markets. The stocks for stable markets are also more attractive to investors, thus increasing the rate of money injection in various businesses.

Price stability that resolves from significantly low rates of inflation is also essential in ensuring equal wealth and income distribution in Germany. Equal distribution of wealth promotes the affordability levels of different products and goods in the market and hence promoting demand. The rationality aspect articulates that consumers maximize their utility, subject to their budget constraints. Income equality enhances the affordability levels of a large proportion of the population and hence promoting sustainability.

Price stability also promotes the ability by businesses to set prices for its various products and services in the market. Stable prices enable customers to budget and hence eliminating inconveniences (Haas, 2019). Price competition is more effective in stable economies. Although the stability increases the prices of German exports in relation to those from other nations whose currencies are essentially devalued, price stability enables Germany to participate in price competition with other international firms.

Unemployment

The diminishing population growth in Germany and the increasing investments assert on low rates of unemployment in Germany. The unemployment rates imply that there exists a substantially low number of unemployed skilled personnel who the organizations can hire for overtime productivity. Based on this aspect, the investors must avail of better measures to attract highly skilled personnel. Such measures include better wages, collaboration, and an engaging working environment, as well as a conducive overall organization. Such an environment ought to attract employees. Since German firms avail sufficient wages to the employees, appreciation, recognition, and promotions ought to work better as incentives for attracting skilled laborers. From the hierarchy of needs theory, there exists a different level of satisfaction. Since high wages have already been availed to the employees, their safety and psychological needs, which occur with better wages, may already have been achieved. Recognition and promotions hence ought to promote the achievement of esteem and self-actualization needs, which are paramount in the development of employee efforts. 

Low rates of unemployment also articulate the high affordability levels of a nation. Unemployment increases the household incomes of a nation, and hence enhancing demand for goods and products in the market in such an environment, the market for inferior and giffen goods is substantially low, and firms should focus on producing classy and luxurious goods for productivity (Mattox, 2019).

Interest rates

Interest rates determine the suitability of economies to investments. While low-interest rates attract investments, high-interest rates promote savings. Hence, low-interest rates are important in increasing the rates of investments in Germany. The current interest rates in Germany are -0.31%, which is significantly low and hence providing a conducive environment for investments. Economic rate consistency also enables investors to make tangible predictions, especially in the stock markets, which enables investors to make tangible investment decisions concerning the goods and capital market trends.

Infrastructure

Well-developed infrastructure is a substantial incentive for businesses. Well-developed transport and communication networks ought to play a significant role in availing goods and services in the market, as well as procurement of the different raw materials. Information systems promote business sustainability and are determined heavily by the communication infrastructure. 

GDP

Germany has a significantly high GDP concerning other nations in the world. A high GDP is crucial as it increases the aggregate demand for the different goods and services in the market. The high GDP also increases the per capita incomes for the people, and hence promoting sustainability and productivity of businesses both in the long run and in the short run.

Current political environment

Germany is a democratic nation, which is constituted of different states, each with its laws and constitution. Hence, the business requirements for different states are different, an implication of independence. Businesses should hence research the different legal requirements that relate to investments, before making tangible investment decisions. Democratic nations integrate the people in decision making, which is an essential factor towards promoting business welfare, as individuals with insight about industrial needs are likely to participate in decision making and hence promoting the extent to which essential industrial priorities are put forth.

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Parliamentary representation is also outstanding as it promotes the extent to which the needs of different states are well comprehended through careful analysis and hence eliminating the chances of making drastic errors that may be costly for businesses. Devolution is also an important political factor in Germany, which promotes the implementation of effective decisions. Since different states have an independent constitution, the specific statutory business requirements ought to be articulated upon and effective solutions implemented to solve the prevailing business issues.

In individualistic nations, people tend to focus on the achievement of their various personal needs while the community needs are reflected upon in collectivist nations. Since Germany is individualistic, the needs of the individuals are reflected upon, and people are aimed at maximizing their welfare both in the long run and in the short run. Hence, the consumption characteristics of the people should be separately reflected upon when making investment decisions (Somers, 2019). Demographic characteristics of the people, tastes and preferences, incomes, and other tangible personal characteristics determine the consumption patterns, as opposed to the collectivist societies, where the cultural aspects and societal organizations are reflected upon when setting up a business.

Business environment

There exist significant business laws at the state and federal levels in Germany. The importance of maintaining a decent and functional business environment is well articulated in business regulations. Decency is promoted through the ability to dress decently while at work and critically to follow stipulated codes of work and corporate values. Examples of aspects captured in the codes of work include fairness, commitment, and accountability.

Tangible business relations are also a tangible factor that has been implemented and documented in Germany. Effective relationships with different stakeholders and the community have been asserted to be important towards the promotion of business productivity. Communication is also another business environment aspect that tends to promote a conducive working environment and has been adopted in Germany (Ball, & Kittler, 2019).

Corporate social responsibility and consumer values are other important business environment and regulation factors for businesses. This relates to the ability to ensure a sustainable general environment by avoiding emissions and pollution. Consumer value promotion requires organizations to critically evaluate consumer needs and achieve them for satisfaction.

Culture

High masculinity levels, low power, and high individualism are important cultural aspects that Germany incorporates in the determination of its business welfare. For success, in such an environment, individual, organizational decisions have to be made for overtime productivity. Decentralization, communication, low inequality gaps, sufficient wages, and authority dispersion are an essential aspect that should be embraced by organizations given the asserted low power distance cultural aspect. Security, low number of female managers and “best man wins” policy are factors that businesses ought to consider per the high masculinity cultural aspect (Trianni et al., 2019).

Etiquette

Negotiation criteria are a vital etiquette consideration that is usually followed while solving business misunderstandings in Germany, meetings are another aspect that gives insight on tangible business development to stakeholders, and attire promotes convenience and staff establishment. Confidentiality and avoiding interruption are also essential business etiquette requirements for German firms.

Risk factors

Low profitability on the part of German banks is tangible risk factors that ought to limit the long term productivity of businesses. The unproductivity of the capital market has a tangible negative effect on the goods and service market. The reducing population, which reduces the workforce is also a vital risk factor for businesses.

Conclusion

Germany's business environment seems to be conducive for new ventures, given the overtime economic and political welfare of this nation, in comparison to other countries. However, there exists certain weaknesses, such as the unproductivity of the capital markets, given the low interest rate and the retarding population growth, which essentially reduces the labor force. These factors should hence be considered and solutions reflected upon for overtime productivity and sustainability.

References

  • Ball, C., & Kittler, M. (2019). Removing environmental market failure through support mechanisms: insights from green start-ups in the British, French, and German energy sectors. Small Business Economics, 52(4), 831-844.
  • Haas, T. (2019). Comparing energy transitions in Germany and Spain using a political economy perspective. Environmental Innovation and Societal Transitions, 31, 200-210.
  • Kostanick, H. L. (2019). Population and migration trends in Eastern Europe. Routledge.
  • Mattox, G. A. (Ed.). (2019). Germany through American eyes: foreign policy and domestic issues. Routledge.
  • Peñalba, J. V., Joseph, L., & Moritz, C. (2019). Current geography masks dynamic history of gene flow during speciation in northern Australian birds. Molecular ecology, 28(3), 630-643.
  • Somers, F. (2019). European Business Environment: Doing Business in Europe. Routledge.
  • Tapiador, F. J. (2020). Population: Sudden Ongoing Changes. In The Geography of Spain (pp. 303-325). Springer, Cham.
  • Trianni, A., Cagno, E., Neri, A., & Howard, M. (2019). Measuring industrial sustainability performance: Empirical evidence from Italian and German manufacturing small and medium enterprises. Journal of Cleaner Production, 229, 1355-1376.

 

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