Germany Analysis

Germany Analysis INDUSTRY IN GERMANY Country Issues Country issues related to Germany are addressed in four contexts. The areas of consideration are (1) cultural, social, and demographic trends and concerns, (2) political/governmental concerns, (3) exchange rate issues, and (4) macroeconomic issues. Cultural, Social, and Demographic Trends and Concerns Germany is the slightly larger then the combined size of Ohio, Pennsylvania, and New York. (137,691 square miles.) Germany is a nation of 81.5 million people (Hunter, 1997). The rate of population growth in Germany approximates one-percent per year.

The head of the government is Chancellor Gerhard Schroder (elected on October 27,1998). The official language is German. The principal religions are Protestant (Evangelical Lutheran) and Roman Catholic-Christianity. German workers are among the best educated, best trained, and most productive to be found anywhere in the world. Germany’s modest population growth tends to produce market stability, as opposed to market growth. Thus, automobile manufacturers in Germany tend to look to exports for sales growth. Germany’s chief commercial exports include machinery, automobiles (Volkswagen, Mercedes-Benz, Audi), chemicals, iron, and steel. Political/Government Concerns Germany is a parliamentary democracy.

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A proportional representation system assures that smaller parties are represented in the Bundestag. The governing conservative coalition, the Christian Democratic Union (all states other than Bavaria) and the Christian Social Union (in Bavaria where the Christian Democratic Union does not stand), has held power since 1982 (Hunter, 1997). The reunification of East Germany and West Germany into a single state has produced economic, political, and social problems. While not all of these problems have been completely solved, they do not represent a source of instability in the country. Exchange Rate Issues The currency in Germany is called Deutsche Mark.

The economy in Germany is the strongest in Western Europe and is an important member of the European Union. The principals of the social market economy guide its economic activity. Germany has pursued a monetary policy of that emphasized the control of inflation, relatively high interest rates, and a strong mark, often to the complete dismay of the country’s European Community partners. Monetary policy emphasizes interest rates and money supply management. Germany is a key player in the drive toward European Monetary Union.

The mark remains strong at DM1.84/US$1 and DM3.07/61 (Financial Indicators,1998). Germany will qualify for monetary union and the single European currency as of 1 January 1999 (Maastricht Follies,1998). Taxation in Germany The federal government and its States (lands) try to coordinate their policies through such advisory bodies as the economic council and the finance planning council. But the central government cannot order the States (lands) to follow its policy, largely because it has no monopoly on taxing power. In, all the central government receives around 55 percent of all taxes but makes then 45 percent of all expenses. On the other hand the States, spend more then they receive and the federal government makes up the difference.

Macroeconomic Issues Per capita gross national product is US $28,760, gross domestic product is US $2.1 trillion (Hunter, 1997). Germany’s GDP growth in 1997 was 2.4 percent Economic Indicators, 1998). Foreign Trade remains the essential pillar of Germany’s prosperity. It is one of the world’s leading export accounts for over half of it manufacturing jobs. Germany is very sensitive to world economic climates because, its GDP is made 38 percent of exports. Germany’s international trade balance is traditionally in the black (Hunter, 1997).

Exports typically exceed imports by approximately five-percent. Germany’s international trade balance is compared with that of Japan and the United States in Table 1. Table 1 International Trade Balance Comparison: Germany, Japan, and the United States [billions of US$] Country January-March 1998 April 1997-March 1998 Germany + 4.62 + 70.5 Japan +8.79 + 103.8 United States -18.80 – 199.4 [Source: Financial Indicators, 1998] Germany’s exports 46.4 percent of total exports to members of the European Union, these include top two: France at 11.2 percentage and the United Kingdom 8.7 percentage. The United States receives 9.2 percentage of Germany’s exports. Germany’s imports the most from France 11.2 percentage of total imports and then followed by the Netherlands at 8.4 percentage.

The United States imports 8.1 percentage of the total imports of Germany. German monetary and fiscal policy emphasizes the control of inflationary pressures. Consumer prices in Germany have risen by an average of approximately 1.5 percent over the past five years (World Bank, 1997). Industrial activity employs 43 percent of Germany’s workforce; while 54 percent are employed in the service sector of the nation’s economy, and the remaining three-percent are employed in agriculture. Taxes in Germany are unified (Hunter, 1997). Taxes are collected by a central authority, and then are distributed to the federal government, the lander (state) governments, and the local authorities. Taxes are levied on personal income, corporate income, capital gain, turnover and trade (value added), and insurance and accounts.

Additionally, excise taxes are levied on most products. German governments (federal, state, and local) do not engage in deficit financing. Market and Industry Issues Market and industry issues are addressed in four contexts. The areas of concerned addressed are (1) demand conditions, (2) the competitive structure of the German automobile industry, (3) production costs in the automobile industry, and automobile-specific tariffs and trade restrictions. Germany is a part of the European Union.

The EU is a union of fifteen independent states based on the European Communities and founded to enhance political, economic, and social co-operation. Members include: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and United Kingdom. Germany is among the largest and technologically advanced produces of iron, steel, coal, cement, chemicals, machinery, vehicles, and machine tools. Demand Conditions Germany’s infrastructure is among the most highly developed among the nations of the world (Roby, 1994). Infrastructure development varies, however, by region.

No infrastructure major problems exist in the old West German states; however, some problems continue to exist in the old East German states. Germany’s distribution system is among the most highly developed among the nations of the world (Hunter, 1997). The Western European automobile market increased to 12.7 million passenger cars in 1997, maintaining its position as the largest new automobile market in the world (Upper Segment Cars in Western Europe: A Market Under Siege, 1997). Competitive Situation Competition in the automobile manufacturing industry in Germany is not limited to Germany automobile manufacturers. Because Germany is a member of the European Union, all automobile manufacturers within the Union compete on an equal footing within Germany (Short-Term Prospects for the German Motor Industry and market, 1997). Mercedes-Benz has recently experienced sales difficulties for the company’s passenger car line in the United …

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