Nearly every large, well-known corporation transacts business in multiple countries and states. The relationship between corporations and the countries and states they transact business in has traditionally resembled a double-edged sword. On the one hand, countries and states need businesses in order to generate tax revenues and stimulate economic growth by creating new jobs. However, countries and states often have varying cultural, legal, political, and social norms and desire that businesses conform to such norms. In order for corporations to succeed and maintain a balanced relationship with the various countries and states business is conducted in, there must be respect, understanding, and willingness to adapt.
This paper analyzes and examines the multitude of issues related to Sony Corporation conducting business in Germany. Part II gives an overview of Sony Corporation, including the cultural, legal, and political environment both in the United States and Germany. In Part III, issues related to Sony Corporation conducting business in Germany are outlined. Lastly, this paper concludes with recommendations concerning how Sony Corporation and other multinational businesses may improve their likelihood of success (both over the long run and short-term) in Germany and other foreign countries.
II. OVERVIEW OF SONY CORPORATION, INCLUDING THE CULTURAL, LEGAL, AND POLITICAL ENVIRONMENT
There are several cultural, legal, and political issues related to Sony Corporation. In order to fully understand the nature and extent of such issues, it is crucial to provide an overview of Sony Corporation. Sony Corporation, headquartered in Tokyo, is a leading manufacturer of audio, communications, information technology, and video products for the consumer and professional markets. (http://www.sony.com/SCA/corporate.shtml).There are five main business divisions of Sony Corporation: computer entertainment, motion picture, music, online, and television. (http://www.sony.com/SCA/corporate.shtml).
Sony's principal United States businesses include Sony Computer Entertainment America Inc., Sony Electronics Inc., Sony Music Entertainment Inc., and Sony Pictures Entertainment. (http://www.sony.com/SCA/corporate.shtml).For the fiscal year ended March 31, 2002, Sony recorded consolidated annual sales of over $56.9 billion, and employed 168,000 people worldwide. (http://www.sony.com/SCA/corporate.shtml).In addition, Sony recorded over $18.5 billion in sales in the United States for the fiscal year ended March 31, 2002. (http://www.sony.com/SCA/corporate.shtml).
One of the most important hallmarks of Sony is its reputation as a leading edge company. For example, Sony co-developed the CD, DVD, and SACD, and was the developer, manufacturer, and marketer of PlayStation® and PlayStation®2 game consoles. (http://www.sony.com/SCA/corporate.shtml).In addition, Sony invented a wide range of consumer audio-visual products including the FD Trinitron® WEGA® television, Mavica® digital camera, Digital8® Handycam® camcorder, Walkman® personal stereo, MiniDisc player/recorder, and the Memory Stick®IC flash media. (http://www.sony.com/SCA/corporate.shtml). Sony also invented numerous IT and professional products such as VAIO® personal computers; FD Trinitron® computer display; the 3.5-inch floppy disk; CLIe ™ handheld; HDCAM® 24-P formats; Digital Betacam®; and DVCAM®. (http://www.sony.com/SCA/corporate.shtml). Lastly, Sony is a publicly held company, with shares listed on 16 stock exchanges worldwide, including London, New York, and Tokyo, and has 1,068 consolidated subsidiaries worldwide. (http://www.sony.com/SCA/corporate.shtml).
III. ISSUES RELATED TO SONY CORPORATION CONDUCTING Business IN GERMANY
There are numerous issues related to Sony Corporation conducting business in Germany, whether it is entering the market for DVD players or other electronic devices. First, German has vastly different laws and tax structures than Japan and the United States. Commercial enterprises, limited or not, and any individuals operating a business, except for negligible activities, must be entered in the Commercial Register maintained by the local court. (Marx). Notice of registration providing certain limited information is published in two journals determined by the court. (Marx). Most of the information contained in the Commercial Register is available to the public on request. (Marx). Individuals who wish to establish a company do not have to reside in Germany, but must appoint a representative who is domiciled there and is responsible to the authorities. (Marx).
Companies with more than five employees are subject to The Labor-Management Relations Act, that grants employees certain rights of participation with respect to business and personnel matters affecting employee benefits. (Marx). These rights range from the right to actually take part in decisions to the mere right to be informed and heard on certain matters, and are exercised by the works council, a special body elected by the employees of the enterprise. (Marx). In businesses with more than 500 employees, there is co-determination with respect to employee representatives in the enterprise's executive bodies, whose number depends on the size and purpose of the enterprise. (Marx). Particular employment contracts are subject to many requirements under Germany's complex labor laws.
Under German labor and social security laws, employers must bear a fixed proportion of contributions made to statutory social insurance and statutory accident insurance. (Marx). For statutory social insurance, the employer is responsible for 50% of pension insurance contributions (old-age insurance), 50% of unemployment insurance contributions, and 50% of health and long-term care insurance contributions. (Marx). The share to be rendered by the employer presently equals approximately 20% of an employee's gross pay. (Marx). For statutory accident insurance via a workmen's compensation organization, an employer contributes 100%. (Marx).
If employees fall ill, employers must continue paying 80% of an employee's wages or salary (100% is prescribed by many labor agreements) for six weeks. (Marx). After six weeks, additional payments are made from either the statutory health insurance fund or an equivalent health insurance fund. (Marx). Under federal law, all employees are entitled to at least 18 paid vacation days annually. (Marx). However, many wage agreements provide for additional paid days off. (Marx).
Other laws grant certain groups of employees special rights, including laws regarding working conditions for minors and maternity benefits. (Marx).
Like Canada, Germany has a rather high taxation rate, particularly in comparison to the United States. Corporations (AGs or GmbHs) are liable for tax on their profits. (Marx). However, partnerships (OHGs or KGs) are not liable for income tax. (Marx). Partners are liable for income tax if they are individuals or for corporation tax if they are corporations. (Marx). Corporations whose management or registered offices are located in Germany have full tax liability, while corporations whose management and registered offices are located abroad (foreign companies) have tax liability limited to certain sources of income within Germany, i.e. business profit attributable to a permanent establishment. (Marx). Generally, the normal tax rate for corporations with full tax liability is 45% of profit. (Marx). The tax rate on distributed profits (gross dividends) is 30%. (Marx). Moreover, a capital yield tax of 25% on other cash dividends is regularly withheld at the source. (Marx).
In addition to income tax or corporation tax, all business activities in Germany must pay trade tax. (Marx). Local authorities or municipalities levy trade tax and the percentage varies depending by community. (Marx). Trade tax is levied on trade income and trade capital (Marx). Principles regarding computing income for the purpose of trade income tax differ from those applied in the cases of income tax. (Marx). Certain deductions and additions to profits must be made under special trade tax regulations. (Marx). After adjustments have been made, the basic tax rates are regularly 5% of the adjusted profits of a corporation for trade income tax and 0.2% annually of the adjusted capital for trade capital tax. (Marx).
These basic amounts are then multiplied by the trade tax factor valid in the respective community (e.g., 470% in Hamburg). (Marx). However, adjusted profit up to DM 48,000 annually is exempt from tax, except in the case of corporations. (Marx). Moreover, DM 120,000 of the adjusted capital is exempt from tax, corporations included. (Marx). When computing trade income, the trade tax is deductible. (Marx).
Sales of goods and services in Germany are subject to a value-added tax that complies with the harmonized European Union system of tax on sales. (Marx). Value-added tax is levied generally at a rate of 16% of the net price. (Marx). Certain goods, like foods and agricultural products, and certain services, are taxed at only 7%. (Marx). Other transactions are entirely exempt from the tax. (Marx).
In addition to the legal and taxation issues in Germany, corporations seeking to enter the German market must deal with the fact that there are cultural, political, and social differences in Germany. For instance, although Germans take off 18 paid days per year (and often more), higher than the United States or Japan, Germans are notorious for their dedication, hard work, and loyalty. Other cultural differences include potential language barriers and German is the primary language spoken (though a significant percentage of Germans are somewhat fluent in English and other languages). In addition, some stigma still remains over how the Germans treated the Jews and the concentration camps. Likewise, there are still some social and political differences in Germany over the fact that until 1989, the Berlin Wall was firmly in place.
Running a competitive, profitable, and successful business is no small feat. In order to succeed both in the short-term and long run, corporations must quickly adapt to changes in consumer tastes, be financially prudent, hire and retain the most qualified employees, and remain innovative. The difficulties associated with…