OpinionUnlocking opportunities: Navigating the German market for Israeli companies
Unlocking opportunities: Navigating the German market for Israeli companies
Israel and Germany are strong economic partners. But this might surprise some Israelis: Germany is not just Berlin. It is advisable to look beyond the capital city. And despite a somewhat outdated image, Germany is one of the most innovative economies in the world
It was not long ago that Germany, as one of the strongest Western industrial nations, looked upon Israel as an agricultural country. Those were the days when Jaffa oranges spread the sweet smell of citrus fruits in German living rooms before Christmas. Today things are quite different. German corporations such as SAP, Telekom, Merck, VW, and Mercedes are eager to tap into Israel's innovative strength and have been actively involved in the country's innovation ecosystem for quite some time. Delegations of German managers are beating down the doors of startups in Tel Aviv. Sometimes you can't believe your eyes when German executive managers take off their jackets, roll up their shirtsleeves and mingle with the startup scene as if it were a matter of course. Many experience an "aha" effect. But how does it work when Israelis want to bring their products and services to the German market?
Good reasons: 83 million potential customers
Four hours by plane, one hour time difference – as the largest European market, Germany is within close reach for Israeli companies. Closer than the USA. Nevertheless, many hesitate. Germany has a reputation for complexity. Regulations, bureaucracy, data protection, long distances, strict hierarchies, the language barrier, and a penchant for formality can be off-putting. But for many, the potential outweighs the challenges: 240 Israeli companies have a branch in Germany, including Check Point, Netafim, Shahal, Teva, Wix, and younger companies like holidayheroes. This makes Germany the most popular location in Europe for Israeli companies, with access to 83 million people and 3.4 million registered companies.
Germany and innovation – do they go hand in hand?
Older generations might still remember that documents were sent by fax. In Germany, this is still part of everyday office life in many places in 2023. During the pandemic, for example, doctors' practices faxed information on corona cases to the health authorities. A digital health card has been under discussion for more than a decade and has so far failed due to data protection issues and other hurdles. Germans are not early adopters. But when it comes to innovation: Germany ranks as one of the most innovative economies globally and securing the 8th place in the United Nations’ Global Innovation Index. We all have benefited from this during the Corona pandemic: the world's first mRNA vaccine against Covid-19 was developed in 2020, by the Mainz-based company Biontech and marketed worldwide in collaboration with Pfizer. Further lighthouse projects include the first German quantum computer from the startup eleQtron. The spin-off of the University of Siegen, a 100,000 people city in North Rhine-Westphalia, was founded in 2020 and relies on the so-called "ion trap technology". The German government recently announced a three-billion-Euros investment in the promotion of quantum computers and their application by 2026.
Berlin! Or not Berlin after all?
Without question, Germany is a vast market. But when Israeli companies start planning to set up a subsidiary in most cases the capital is under discussion. Berlin holds a special appeal for Israelis. And without a doubt, Germany's capital offers a lot: proximity to politics, art, culture and the Berghain. But when it comes to selecting a business location, it is worth taking a closer look.
While France concentrates its largest industrial hub in and around Paris, Germany has a highly federal structure. The ten economically strongest cities are Munich, Erlangen, Stuttgart, Ingolstadt, Frankfurt, Wolfsburg, Mainz, Darmstadt, Ulm and Regensburg. Berlin is ranked 42nd. Munich has even surpassed Berlin as startup hub in 2022. Another important factor to consider is the trade tax rate, which varies from city to city. In Berlin, it is currently 410%. Instead of Berlin, for example, a fintech company could consider opening a subsidiary in Eschborn, where the business tax rate is only 330% and Frankfurt, the European Financial Center is reachable in just 15 minutes. Deutsche Börse AG moved from Frankfurt to Eschborn a few years ago for this reason.
Chutzpah in German work culture
Regardless of where Israelis do business in Germany, they will notice differences in work culture. Chutzpah can open doors as it often generates an element of surprise and attracts attention. However, it can also be perceived as rude. Following up two days after sending an email because you haven't received a reply may be met with a negative response. Things may take time, and patience can lead the way to success.
While in Israel the personal aspect plays a very important role in cooperation with partners, Germans tend to take a more neutral stance in business contexts. In an intercultural training, the executive manager of a hotel chain reported that an Israeli business contact had shown her photos of his children. She felt challenged and unsure of what he expected from her in this situation. For her, and many other Germans, it is not appropriate to share private topics with business partners. What was meant to be positive, negatively affected the contact.
More formal, equally direct, less emotional
Written communication holds great value in German offices. Already business newcomers learn: “Who writes, remains”. Simply picking up the phone might even lead to irritation. Instead, most people act according to the principle that important information, agreements on schedules, costs, etc. should be documented in writing. Furthermore, professional networks are crucial, but when it comes to finding an employee, for example, Germans prefer to rely on the HR department rather than the typical Israeli approach of recommending "friends of friends". They prefer to not get involved. The good news is that Israelis and Germans are very similar in one very important aspect of communication: both prefer to communicate directly to a similar extent, although Israelis tend to show more emotions and Germans are more reserved.
How to pay less hard money
Finally, the key to successful business in Germany, is taking the time to delve deeper into the German market and consider carefully where and how to create the best conditions for success. Although it may be more time-consuming initially, this approach will help companies avoid learning lessons the hard way.
Maike Diehl is the CEO of Diehl Relations GmbH, Frankfurt