November 2015 | Chris Torney
Time for Tata to think Germany
Europe's largest economy, its manufacturing powerhouse and its geographic centre, Germany exerts a strong gravitational pull for global businesses such as Tata.
It may be the fourth-largest economy in the world, but Germany is not accustomed to the spotlight. For the past 50 years or so, it has chosen to tie its political and economic fate closely to that of the European Union (EU) and the alliances that preceded it. For much of that period, it has often been happy to emphasise its European-ness rather than its German-ness.
|The Reichstag building in Berlin is home to the Bundestag, Germany’s parliament|
However, in more recent years, the perception of Germany’s position in Europe and the wider world is beginning to change. Within the EU, whether it’s the future of the Eurozone, the big political issues such as nuclear negotiations with Iran, or the response to migration into Europe, Germany’s voice is increasingly dominant. The country’s increased political weight is, to a substantial extent, the result of its continued economic success. All in all, it is no surprise that Germany’s attraction to foreign business remains high.
Throughout recent history, Germany’s industry has continued to stand out in Europe. It is one of the few EU nations that runs a balance of trade surplus, exporting more than it imports. That makes it doubly interesting to global groups like Tata that have a strong regional presence.
Many countries and regions in Europe remain attractive to investors. Berlin, the largest city in Germany by GDP, ranks only 11th in Europe, well behind London and Paris; both Italy (Rome and Milan) and Spain (Madrid and Barcelona) have stronger individual cities. But taken as a whole, Germany’s sheer size and diversity of industry is highly attractive.
Germany has a population of 81 million, recorded year-on-year GDP growth of 1.6 percent in the second quarter of 2015, and delivered exports exceeding $1.5 trillion last year, making it the third-largest exporter in the world. Its strength as an exporter is the result of manufacturing output exceeding domestic consumption requirements for several decades.
Global demand for this output, helped by a weak euro, has managed to keep employment high through the recent downturn — at 6.2 percent in June, the unemployment rate was at its lowest level since 1991. Germany also undertook years of structural reforms, keeping unit productivity costs competitive, which helped it retain a leading global position as a manufacturing juggernaut.
Peter Modelhart, managing director of Jaguar Land Rover (JLR) Deutschland, says that the German economy has been traditionally geared towards manufacturing. “The automotive sector is the most important industry, employing more than 750,000 people,” Mr Modelhart says. “Other major industries include the industrial sector, ranging from metals and mechanical engineering to chemicals. Additionally, there’s a growing services sector, with many companies developing and applying cutting-edge technologies for industrial application.”
As Europe’s largest economy and biggest manufacturer, it is logical that Germany should be highly attractive to Tata companies. In fact, the group already has a considerable presence through a number of companies, including Tata Steel, Tata Technologies, Tata Consultancy Services (TCS), TKM Global and JLR. Now, given that Germany is such a key market in Europe, the group is working to ensure that the Tata group brand is better known, to complement the profile of the individual companies.
That’s not to say Tata brands aren’t already active. For JLR, competing with the likes of BMW and Audi on their home turf is clearly a big challenge. However, Mr Modelhart says, “Since 2010 JLR has managed to improve its sales in the German market steeply. Due to a highly attractive product portfolio that has been completely renewed under the ownership of Tata — and a German Market Plan, which was launched in 2010 — Jaguar and Land Rover have both shown impressive double-digit growth figures and gained market share in the upper segment of the premium class.”
Any German market plan needs to factor in another important aspect for inward investors: Germany’s federal structure. There is no concentration of power in a single region or city as you would find in London and the South-east in the UK, or Paris in France. A great deal of power is devolved to the different Länder, or regions, of Germany, which means that there are several power bases.
The Rhein and Ruhrgebiet in the north-west is highly industrialised. There is finance and some IT in Frankfurt. Hamburg is the centre of trading, shipping and media and is the gateway to the world for German exports. Berlin is, of course, the centre of federal government, as well as a new and successful tech and start-up sector, with an increasingly international business community.
Critically, of course, Germany is also a route into Central and Eastern European markets. Both geographically and culturally, it straddles old and new Europe and offers corporates like Tata an opportunity to look East and West. The Central European region neighbouring Germany today works like an integrated manufacturing backyard for German companies and is sometimes referred to as the ‘golden football’.
But what are the differences in the way people do business in Germany? What characterises its Unternehmenskultur (business culture)? And what are the keys to succeeding in this critical market?
|Germany by the numbers|
|Ten critical facts about the country|
|Median age||46.1 years|
|GDP per capita||$45,900|
|Public debt (%of GDP)||74.7%|
|Electricity production||576 billion kWh|
|Largest company||Allianz Worldwide (financial services)|
|Sources: CIA World Factbook; Eurostat; CNN; Fortune|
Cultural factors count
Sapthagiri Chapalapalli, director for Central Europe at TCS, says, “Doing business in Germany requires a good appreciation of the culture and the focus of German firms on quality. Your business practices have to be adapted to these factors. For example, language and cultural aspects are important in dealing with people socially and professionally. And it is necessary to focus on specific customers and build trusting, long-term relationships. In Germany there are companies we have been working together with for 15 to 20 years.”
Amar Patnaik, global head and managing director of logistics and supply-chain service provider TKM Global, echoes this view. “Logistics has become very commoditised,” he says. “There is very little difference in the services companies provide: goods could be carried by the same ship, airliner, or trucking company. So in most markets it’s primarily price which drives the business. But in Germany it’s a bit different: here it is still done on relationships built over years.”
Mr Patnaik says it would be wrong to think German firms are not price sensitive. “As a nation they are extremely so,” he stresses. “But when it comes to business, they are really looking at the history of what relationship has been built over the years. This is a key difference from how business is done in the US, India and China. Customers are increasingly looking at logistics providers who could manage a long service chain encompassing several other related areas beyond physical movement of goods: supply chain, order management, shelf-space management in the retail industry, contract and reverse logistics, etc.” This long-term approach to business chimes well with Tata’s way of working and offers more potential for the future.
Germany’s highly skilled workforce and strict labour laws also have an important role to play, Mr Chapalapalli says. “In Germany, the structure of TCS is no different to what it is in the rest of the world. But it has been adapted based on the needs of the market. For example, the need for localisation calls for a focus on hiring and developing local talent, so we need to focus on talent acquisition and development practices that are aligned with market needs. We have also adapted our organisation in line with specific requirements in terms of employment and labour laws.”
Germany’s ageing population is increasingly leading to skills shortages, especially in high-skill areas, Mr Chapalapalli adds. “Germany is looking to immigration to address the widening skill gap, and India is a natural partner in this area.”
Mr Patnaik at TKM Global explains that a shortage of skilled workers in Germany after the Second World War led to many Indian engineers emigrating to the country to help with rebuilding work.“India did not have the strong links with Germany that it had with the UK,” he says, “but there are generations of Indians living here and working in German companies or managing their own businesses.”
TKM Global, working primarily with the metal and automotive industries, certainly benefits from that bilateral relationship. “A lot of our expertise is based on moving cargo in and out of India,” says Mr Patnaik. “Traditionally a lot of Indian engineering and auto companies have sourced capital goods as well as consumables and spares from German suppliers. At one end of the customer spectrum we have all the big Indian metal and auto manufacturers, including group companies such as Tata Motors, Tata Hitachi and Tata Steel. On the other side we have firms who are supplying to these companies, such as SMS, Outotec, Siemens, Zimmerman & Jansen, ZF Passau, RHI — the big names in the capital equipment industry and component suppliers.”
Mr Patnaik adds that Germany presents a tremendous opportunity for Tata companies. “I think we need to look hard at this country, especially given that its economic base is still very sound in spite of what is going on in Europe and it continues to enjoy a high per capita income. We should look at Germany as a potentially key point of customer contact, which is an opportunity for Tata to seize.
“The ‘Make in India’ campaign is great,” he concludes. “But Tata can take it further: why not a ‘Sell in Germany’ campaign as well for Tata products, whether steel or automobiles or watches? Germany is a big market — the biggest in Europe — and our businesses have massive potential here.”
Make in India comes to Germany
In April this year, Indian Prime Minister Narendra Modi met German Chancellor Angela Merkel at the Hannover Messe trade fair to discuss the opening up of trade between the two nations, as well to promote his ‘Make In India’ campaign, which aims to encourage foreign companies to invest in the country to boost its manufacturing sector.
Mr Modi told delegates in Hannover that investors could expect a more predictable regulatory regime in India. “We are creating an environment that is stable, where rules will not be changed frequently and there will be no surprise elements,” he said.
Tata group Chairman Cyrus Mistry met Mr Modi and Ms Merkel in Hannover as well as at this year’s global economic summit in Davos to discuss strengthening business ties between the two countries.
A lack of historic and cultural ties between the two nations is not necessarily a disadvantage when it comes to trade. Although Tata has long had close links with the UK and France, there is no reason today why Tata cannot aspire to an equally strong presence in Germany. And many Indian firms may now be thinking: “In terms of our economic development, we no longer need to rely so much on those historical links.” And that makes Germany a perfect target for initiatives such as Make in India.
Chris Torney, a former Daily Express personal finance editor, is a freelance writer and editor.