Sometimes, maybe because of how they experience centralism or the infrastructure in their home countries, foreigners imagine that businesses would only flourish within major cities or their exurbs. That is not the case with Germany!
However, it is very important to grasp the regional differences when starting to do business or working on business development in Germany. A business consultant in my network would often encourage companies to focus on just one region when entering the German market, depending on the product in question, the industrial competence of the region itself, and other factors. There are regions where specific competences are aggregated and certain skills or industries have been flourishing for centuries, whereas there are (newer) cluster networks that are often funded by the federal government and federal states to promote certain technologies.
In his book, Hidden Champions – Aufbruch nach Globalia, management consultant and Emeritus Professor of Economics Hermann Simon distinguishes three kinds of industry clusters. Traditional clusters, among others, subsume the retail sector. In the region of Mühlheim / Essen, for example, you would find many retail companies. Solingen is famous for cutlery; roller bearings are produced in and around Schweinfurt; and Nuremberg is the place where you would find the most important pencil manufacturers. Clusters of companies that are specializing in what Simon calls “ripe” products or technologies are, for example, manufacturers of surgical instruments (Tuttlingen), ventilation (Hohenlohe), or metal bending (Siegen / Haiger). The registered society Measurement Valley (Göttingen) currently comprises about 40 companies and organizations from their respective industries and, while Simon uses the term “Chicken Valley” for the city of Vechta, the local people, according to my cursory research, seem to more often refer to the region as the “Silicon Valley of Agricultural Technology.” Looking at the clusters for early stage technologies, Simon (2012, pp. 60–62) mentions recycling (Karlsruhe / Essingen) and carbon fiber (Munich / Augsburg / Ingolstadt). The author has also observed that there are small towns like Neutraubling and Künzelsau that seem to provide a breeding ground for a viral entrepreneurial spirit and an infectious inventive mind.
To identify those regions or clusters that are especially relevant for your purposes, you could peruse the online platform https://clusterplattform.de that is operated by the Federal Ministry for Economic Affairs and Energy. You could also double-check how Germany Trade and Invest’s (GTAI’s) website http://gtai.de can be helpful for your research. GTAI offers in-depth information on the economic structure of Germany for each federal state. Another website that I can recommend in this context: https://make-it-in-germany.com.
If you are an investor, I suggest that you, at some stage in the process, also get in touch with the business promotion agencies of the various states, such as Invest in Bavaria or IMG – Investment and Marketing Corporation Saxony-Anhalt. Some of the things you can ask them to help you include finding office space or connecting you to lawyers and tax consultants. Many (if not all) of their services are free of charge.
You would still find the highest concentration of (successful) SMEs in the West of Germany; after almost 30 years of German unification, there continue to be major structural differences. Table 1.4 [in my book Doing Business in Germany] shows the distribution of the top 10,000 SMEs by federal state, as researched by Die Deutsche Wirtschaft (2018). I have added the English language names of the federal states and the names of the state capitals for your convenience. I have also embedded information on whether the states belonged to East or West Germany between 1949 and 1990.
According to the Federal Ministry of Education and Research, the new German Länder (“New German Länder” (neue Bundesländer) is what we—or at least many—still call the states from former East Germany) Brandenburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt, and Thuringia primarily lack large research-based companies and mid-sized companies that are experienced in the global marketplace. An entrepreneurial funding policy has, therefore, been established. Investors are often attracted by reduced local business taxes; the municipal tax factor can play a major role when making your FDI decision, especially when choosing a location to set up shop!
How may I help you?
You want to develop your business in Germany? Then you may also face some very common pitfalls; the good news is that they can be quite easily avoided! You should hire me if you want to gain a better understanding of your opportunities, and you value a local’s help in finding buyers and potential business partners. Learn more about some past projects and what I can do for you: You’ll make it in Germany!
You are (only) interested in learning more about Germany?
Above are snippets from my new book. You want to learn more about Germany? Then try to grab a copy of Doing Business in Germany : A Concise Guide to Understanding Germans and Their Business Practices. Either ask your bookseller to order a copy for you (might take a few days, though), or look out for it on amazon.
You can also always ask me for help with researching potential business partners!