Getting into the German market – Difficulties and challenges

Getting into the German market – Difficulties and challenges

Getting into the German market is a big challenge for Japanese companies that can be mastered only with good preparation. Especially for SMEs recruiting and lack of business concepts cause major problems.

By Hadi Tunc

The Japanese corporate landscape in Germany has changed considerably in the past five years. Originally it was mainly Japanese conglomerates that opened subsidiaries in the Federal Republic in order to be in the German market. Some companies soon regarded their commitment in Germany as a possibility to expand their activity into the European and world market.
During the last years the number of “finished goods manufacturers” opening subsidiaries in Germany has been continuously decreasing. In fact there is a variety of companies which work as supplier for German product manufacturers. Within this category a clear trend to switch from high volume business of the consumer goods industry to specialized investment goods markets is clearly emerging. These products are sold not only in Germany but partly also worldwide like for instance the machine and equipment industry or also the automobile industry show.

Making an advantage out of a disadvantage

A Japanese manager in Southern Germany recently explained that Germany is a very expensive country for Japanese companies due to the strong Euro but on the other hand it can be advantageous to be there. His company produces most components in Japan. The strong devaluation of the Yen leads to a favourable Euro import price. At the moment these currency effects make the country more and more to an attractive location for Japanese companies.

Japanese imports

Furthermore Germany is very attractive being the economic centre of Europe with a high political stability and continuity. Besides German quality still has an excellent reputation in Japan and it is considered as a seal of quality on other international markets.

Coming prepared

Several challenges await the Japanese companies once arrived in Germany. Particularly Japanese SMEs are often not aware of the necessity to be well prepared for a commitment in the Federal Republic. Beside the financial means a good market entry strategy and support from the mother company should be available. Basically every company wants to get a share of the German market – at least this should be the goal. But to achieve it, a high degree of professionalism and commitment is required. So it is very surprising how unprepared Japanese companies sometimes come to Germany.

Japanese companies

The following problems are mostly observed in Japanese companies with business ambitions in Germany:

  • Strategically not well thought-out concepts
  • Poorly adapted products
  • Poor language skills – referring to English and not German
  • Insufficiently trained and unskilled personnel from Japan
  • For the tasks unsuitable selected local staff

This often raises the question whether Japanese companies focus too much on product technical details and thereby neglect other important crieteria.

For example it occurs that Japanese CEOs search for employees with good knowledge of the Japanese language. For some positions like assistants and partly for administrative functions that might be necessary and in many cases suitable staff can be found. But searching for highly specialized professionals the situation is a different one. How many well-trained and qualified foreign engineers, for example in the field of compressor technology, are looking for a sales position and are willing to work “hands-on” in a small Japanese office in Germany and on top of that speak fluently Japanese? The answer is easy: too few. In such cases Japanese companies need to find compromises without losing too much time. Otherwise initial problems with recruiting can jeopardise the start and success of a district branch.

Strategies and success stories

On the other hand there is also a number of Japanese organizations that are very successful in Germany. Just think of the many automotive suppliers or companies in the computer hardware industry. They are all in a tough competition of course and have to demonstrate almost weekly their efficiency.

Japanese direct investments

However these companies have managed to establish in Germany mainly because they have done their homework in the following points:

  • Specific and realistic strategic planning
  • Strong support of the German and respectively European product policy from Japan
  • High level of communication and involvement of local staff
  • Assistance of local staff
  • Professional image on the local labour market

For the Japanese companies in Germany the same frame conditions apply as for local companies. Some might even be more difficult. A long-lasting and successful activity requires good preparation, continuous monitoring and adaptation to the market. If these criteria are fulfilled Japanese companies with perseverance and with the already existing high quality standards should be able to continue to be successful in Germany.