Germany is a consistent, close, and sustainable market. However, it represents a major challenge.
The high level of exports coupled with its import rate shows that the German economy is very open to the world, which results in fierce competition. With globalization and the ensuing wave of relocations, Germany, a high performing industrial nation, has also become a trading nation, combining both performance factors. Globalization along with the increasing openness of the German market makes it extremely competitive, which means it can be complicated to enter the market and maintain a market share.
In order to succeed, market entrants must develop an ambitious strategy instead of relying on a simple export approach, which is a fragile position nonetheless; they must establish themselves definitively with such a strong market share that it would be impossible to oust them.
A clear strategy defines 1) the objective, 2) the methods, and 3) the time frame.
- The objective: conducting sales in a foreign market implies selecting innovative and efficient products or services with sufficient level of differentiation. This requires a precise analysis of the company’s industrial capacity, its unique selling points, its “distinctions”
- The time frame: it takes time to gain a market share given the established competition, the need to learn the common logic applied by the economic actors and based on an extremely prudent approach to novelties, whether it be a new product, a new application, a new supplier.... Any spot action is doomed to failure. An action must be implemented slowly, that is, at the very least in the medium term. You should plan to reach your break even in 3 to 5 years and a ROI in an even longer period of time.
- The methods: entering a well-established market such as Germany cannot be done without business investments, which allow for both a real sales impact when entering the market and a guarantee to remain in the market in the long term. The methods to be implemented can be consistent. Any action plan must be properly budgeted and supported by real financial engineering instruments.
During the phase of internationalizing the company, it is imperative to refine its marketing approach.
Why would an international customer buy a trivial product from us which probably already exists on the market? It is necessary to focus on a “distinction”, a specificity, distinctive competence and not to bring a lot of undifferentiated products or know-how onto the market.
Distribution policy; advantages and disadvantages of each solution
On the international scale, you can hardly achieve tangible results without a proactive sales policy. The approach of relying on conventional commercial intermediaries is often too “light” to gain a real market share, which, in effect, can only be done by directly mastering distribution, i.e., making the right commercial investments.
Setting up a network of distributors can be advantageous as it requires very little investment. This is important in order to distribute a relatively standard product range that does require a high amount of product argumentation or adaption to the specific needs of customers. It is imperative to have a distributor when there is a convergence of a low product unit value and logistical constraints. Distributors provide the advantage of volume and a reduced logistical constraint. However, a disadvantage can be that they may be very difficult to convince insofar as, in general, they already have a very broad portfolio in terms of product range, and, moreover, are very loyal to their existing suppliers as they are the ones with whom they have already done a substantial volume of business. On the other hand, gaining their interest usually requires undercutting them in pricing, which only results in reduced margins.
The multi-faceted commercial agent
Establishing a network of commercial agents can be an advantageous formula. This does not require a large amount of investments nor a high level of product argumentation, and you do not have to adapt to the specific needs of customers. Too often, foreign companies expect German multi-faceted commercial agents to seal the deal, if not completely conceptualize their commercial policy. This is expected in an ordinary mandate. He will certainly provide consulting, yet he will only rarely commit to a strategic plan. His primary assignment is to implement a commercial policy that has been duly drawn up beforehand and not necessarily to define it. They rarely search for new markets randomly. They stay within their known surroundings, their classic markets. At some point, they may present an obstacle in client development. An agent can only bring “his existing client base”, while foreign contractors generally think that he will have prospects coming in from every direction and they will make strong efforts to generate clients at the risk of aggravating the agent.
Commercial intermediaries are essentially there to market standard products to small and medium accounts, but they will be shifted to approach large accounts and, in particular, if we want to address them with a technological offer.
In addition to this, commercial intermediaries are practically unaware of the economic realities of the major German accounts such as supermarkets, and actors in the industry may not want to be in direct contact with their suppliers and therefore may have reservations with respect to intermediaries.
Enlisting commercial intermediaries can therefore generally be dissatisfying in terms of how quickly the market entry is carried out and in terms of long-term strategic control. As soon as a competing offer comes in, these intermediaries may switch to a competitor, which can be particularly dangerous as they will not only be aware of our competitive advantages but also of our weaknesses.
These are products based on specific know-how, especially if they are destined for large industrial or commercial accounts.
1) Cross-border market exploration
This is practicable either as a market test or on a permanent basis provided the unit value of the orders allow for this. However, it requires commercial agents who speak the language of the target country and who have minimum experience in dealing with the commercial customs of the target country and in particular regarding the following plans:
- Market exploration
- Managing the customer relationship
2) Assuming a large market with a significant number of targets,
we will consider the recruitment of high-quality technical sales staff, i.e., those with experience in the specific combination of a given product and the relevant market. This usually implies directly approaching them, in which case it is necessary to plan for additional costs of 20% to 30% compared to the normal market price given the double risk this entails: a new supplier on the market and the fact that it is a foreign company.
This recruitment will be complemented by creating a subsidiary to manage communication and services and to make the image of the company more credible. Let us emphasize at this point that, as we will see later, creating a subsidiary is a good option.
3)Assuming a limited number of targets or uncertainty regarding the ability to gain a market share,
it will be advised to scale the investments and carry out a full commercial test by outsourcing the commercial approach. This can be done on the condition of having in-house German-speaking staff able to analyze specifications and requirements and then draw up a proposal.
We could consider purchasing a domestic company, shareholding, or a joint venture.
It is the best way to quickly gain access to the market and maintain a market presence. Finding a target company is not always self-evident nor is there any assurance that the takeover by the new parent company will take into consideration the differences in management from one country to another in terms of strategic approach, organization, and process, but also authority, decision-making, communication, conflict management, leadership, ...
Well-conducted research must be followed by an integration phase that is just as important.
We will see below that very few companies are available in the German market, which, in addition to the difficulty of finding ideal targets, results in high valuations.
Closing the sale:
Takeovers, equity investments, and strategic alliances have two advantages, positioning in the target market but also an induced diversification effect allowing for
- Motivation of your own salesmen through a complementary range of commissions,
- Customer loyalty through a wider range of offerings.
Cross-marketing also makes it possible to reach an agreement with the partner on the nature of the clients who will be approached, the nature of the commercial agents who will be made available, the nature of the training that can be assured for the potential commercial agents and commercial planning in good and due form. Of course, the business partner will expect the same services in return for the distribution of its own product ranges in France.