Save Germany for later, experts say
Berlin, the capital and cultural center of Germany, is booming after being divided by the Berlin Wall during the Cold War. Forests, parks, gardens, rivers and lakes make up about one-third of the city’s landscape.
Several years ago, in 2007, to be precise, McDonald’s, the franchise equivalent of Christopher Columbus, hosted a media tour of three European countries to show the progress the company was making in three areas: Design (Paris); healthy and sustainable food (a farm outside London); and R&D (Munich). The tour took three days.
No one would argue that Paris was the spot to see good design, and it was a no-brainer that the precision part of the tour would be in Germany, since Germans are known for their slow, methodical planning and execution. (Good food and England weren’t quite as synonymous at the time, however.)
But that methodical—“just give me the facts, ma’am”—business style may also be something that will frustrate U.S. franchisors hoping to do the deal quickly. And while Europe is not on the hot list, like the Middle East and Asia, for most franchisors, Germany is still attractive as a mature economy with a stable government.
According to the CIA’s World Factbook, Germany’s economy is the fifth largest in the world and Europe’s largest. But “it’s a highly developed, sophisticated and therefore, challenging market,” says Robert Shaw, an international franchise consultant who is researching the best way to introduce Right at Home, a senior-care franchise, to the German market.
German business people by nature tend to be risk averse, he says, an observation backed up by the business/cultural guide, “Kiss, Bow or Shake Hands.” “Germans have a fairly high index of uncertainty avoidance,” the authors write. “They also buy every conceivable sort of insurance: life insurance, theft insurance, travel insurance, personal liability insurance and so on.” Tax franchisors, take note.
Risk aversion translates into fewer entrepreneurs than found in other countries, especially the U.S. “Most Germans who have capital,” Shaw says, “tend to have secure positions (in large corporations) and see no need or incentive to risk that capital in a new venture.”
Society doesn’t always reward risk-takers, he adds. While Americans view business failure as a learning experience and are willing to give the person another shot, that’s not the general sentiment in Germany, where failing in a start-up can be seen as a stigma and not worth the risk.
That may be why another franchisor, The Alternative Board, an executive coaching firm, has had success. “TAB has sold out Germany and we now have five master franchisees there,” says Michele Fishman, vice president of international development for the Westminster, Colorado, company.
While advanced preparation is always advised before launching a franchise overseas, it’s even more crucial in Germany. “People with the capital to invest expect you to come in with detailed information on their market,” Shaw says. German business people aren’t interested in how many units your brand has open in Texas or how many agreements you’ve signed overseas; they want to know how it’s going to work in their market.
“Come prepared with an understanding of their market,” he warned, along with a clear plan on how your concept differs from the competition and why it will work in Germany. In addition, prospects will expect strong training and support.
With all those hurdles against U.S. franchisors, Shaw believes Right at Home will be right at home in Germany because of the company’s strong international support team and the fact that Germany is a significant market opportunity with an aging population.
What workers expect
Another cautionary note is the minimum wage is high and unions are strong. Workers are protected by tough labor laws that provide them with more substantial rights than in the U.S., according to the U.S. Commercial Service website. For instance, the Mother Protection Law grants 36 months leave for the mother, including 14 weeks of paid leave. Social Security and healthcare costs are equally split between the employee and employer.
Average working hours are similar to the U.S. — 37.5 hours/week — but annual leave varies between 20 and 30 working days.
The population is also highly educated with a 99 percent literacy rate. Eighty percent of the population either works in an occupation that requires formal training or has completed university studies, according to the German Franchise Association. This might prove a challenge for businesses that need to attract a lot of entry-level employees.
Home-grown franchises are also competition, such as Engel & Volkers, a travel agency; and Fressnapf, a restaurant chain with locations in 27 countries. Mrs. Sporty, a 30-minute circuit-training franchise founded by tennis champion Steffi Graf, is an example of a franchisor that did its homework: Only 10 percent of European women reach the minimum recommended amount of exercise, its website says.
And while punctuality is essential for meetings in Germany, you may want to take your time getting to that point.