Investment Location Germany
Germany continues to enjoy a high reputation among foreign companies as a European investment location for production and research. The majority of foreign investment comes from the USA, the Netherlands, Luxembourg, and the United Kingdom. According to the ‘Foreign Direct Investment Report 2019’ of Germany Trade & Invest (GTAI), most foreign companies invest in information and communication technology and software (18%) directly followed by business and financial services (15%).
In its ‘Global Competitiveness Index of 2019‘, the World Economic Forum has ranked Germany as the most innovative country in the world. German research and development is also rated particularly highly, with more than 290 patent applications per million inhabitants. In recent years, the German capital Berlin has developed into a leading European center of technological innovation with a rapidly growing start-up culture.
The technology sector at a glance
New digital applications, technologies and services are provided by a high-revenue and rapidly growing component of the German economy: the information and communications technology (ICT) sector. This economic field consists of the sub-areas of hardware and services (including software).
According to the German Federal Ministry of Economics and Energy (BMWi), a total of around 102,000 companies are based in this sector in Germany. In 2019, 94 % of these companies are active in the service and software area and only 6 percent in the hardware business. In general, the technology industry provides more than 1 million jobs and accounts for almost 7% of the total German economic output. Furthermore, Germany exports goods and services in this sector worth 105 billion euros annually.
In the hardware and services segments, sales for business-to-business solutions exceed those for end users. The software and services area in particular will grow significantly in the coming years as a result of the growing impact of Artificial Intelligence and analytics. The industry is thus laying an important foundation stone for the future viability of Germany as a business location.
The international consultancy firm Deloitte forecasts that the turnover of the German technology sector will increase by 20 percent to 280 billion euros by 2022. This is due to trends such as artificial intelligence and analytics, upcoming “as a service” business models (XaaS), Big Data, Industry 4.0, the interaction of 5 G and the Internet of Things, as well as the ongoing digitalization and globalization of the German economy.
The German technology sector is closely linked to other industries, such as mechanical engineering and financial services. Overall, its technologies enable and initiate diverse product and process innovations in other sectors as well. The innovation rate that identifies the proportion of companies that have introduced at least one new product or process in the past three years is estimated to be around 85 percent in the information and communications technology sector. This positions the technology industry as the most innovative sector in Germany. With a start-up rate of around 6.2 percent in 2019, it surpasses all other German industries.
These location factors make Germany attractive to foreign investors
- From an investor’s point of view, Germany scores points not only because of its geographical location in the heart of Europe but profits immensely from its reliable transport infrastructure.
- Among the EU Member States, Germany has the largest population (83.2 million residents).
- Highly qualified employees with good English skills convince foreign employers.
- Investors appreciate the efficient and diversified industrial network.
- In addition, the stable, predictable legal and political framework, as well as intensive international relations form a good basis for foreign investment.
- Other decisive factors for investors from abroad are the competitive tax system, economic and political dynamics and openness to new technologies.
- In addition, investors appreciate the close cooperation between university and non-university research institutions and major global corporations based in Germany (The most important non-university research institutions in the technological field are the Helmholtz Centre, the Fraunhofer and Max Planck Institute and the Leibniz Association).
Main weaknesses of Germany as an investment location
- Some investors complain about high tax rates for individuals and companies which vary from state to state.
- The high dependence on exports, especially from China, is also seen as a point of criticism of the German economy.
- Additionally, the aging population could put a long-term strain on German economic growth.
Nevertheless, there is no doubt that the German technology sector is booming. Whether you are interested in investing or establishing your company in Germany, the advantages for your enterprise are many including a stable and growing economy, qualified workforce, excellent location in the heart of Europe and stable infrastructure as well as existing cooperation networks among the different industries.
Are you considering investing in the German technology sector or do you have legal questions regarding new innovative technologies? Do you work for an IT-company and need support for your legal department?
Contact Centurion Plus Germany today for an initial consultation to find out about our legal solutions for the technology industry.