Germany's Political and Legal Climate for Clothing Business

Introduction

The purpose of this study is to determine the viability of establishing a clothing outlet in Germany based on the existing political and legal climate for business. At first glance, Germany represents an exciting opportunity for virtually any type of commercial enterprise. The German economy is the largest in Europe and the fifth largest in the world, and Germany has more people than any other nation in Europe (Germany 2005:1). The country remains a key member of the continent's economic, political, and defense organizations and has assumed a new leadership role in world affairs. For a clothing business, Germany would also seem a logical choice, since the German people have always expressed a keen desire to keep up with the latest fashions from London, elsewhere in Europe, and abroad — particularly New York (Griffiths & White 2000:137).

Despite these considerations, the country has experienced some fundamental shifts in demographic composition and profound economic problems since reunification in 1990. Germany has also invested an enormous amount of resources to bring the former Eastern Germany's productivity and wages up to Western standards, but not without serious consequences for multinational companies looking to extend their operations there. These considerations are discussed below as they concern the country in general and Germany's political and legal climates in particular.

The German economy is becoming more integrated with that of the European Union as a result of the introduction of a common European exchange currency — the euro — in January 1999 (Germany 2005:1). Nevertheless, the German economy has become one of the most sluggish in the entire euro zone, with no resolution to the country's problems in sight. Economic growth during 2001–2003 was less than one percent as a result of the enormous resources being devoted to the modernization and integration of the eastern German economy. Much like many other industrialized nations today, the German population is rapidly aging. These trends, combined with chronically high unemployment rates, have resulted in government expenditures surpassing private contributions (Germany 3).

Some key statistics for Germany are provided in Table 1 below. These data show that the German population is overwhelmingly comprised of persons aged 15–64 years, with about an equal mix of males and females in this group. Overall, the country is fairly mature, with a 41.7-year median age and a birth rate insufficient to maintain its current population levels. However, the data also show that Germans live long lives, with the average female reasonably expecting to live to at least 81 years old.

Table 1. Key Statistics for Germany (Source: Germany 2005:3–5).

Background and Economic Overview

Population: 82,424,609 (July 2004 est.)

Age structure: 0–14 years: 14.7% (male 6,197,490; female 5,879,052) | 15–64 years: 67% (male 28,119,536; female 27,132,713) | 65 years and over: 18.3% (male 6,096,106; female 8,999,712) (2004 est.)

Median age: total: 41.7 years | male: 40.4 years | female: 43.2 years (2004 est.)

Population growth rate: 0.02% (2004 est.)

Birth rate: 8.45 births/1,000 population (2004 est.)

Death rate: 10.44 deaths/1,000 population (2004 est.)

Legal Climate for Business in Germany

Net migration rate: 2.18 migrant(s)/1,000 population (2004 est.)

Sex ratio: at birth: 1.06 male(s)/female | under 15 years: 1.05 male(s)/female | 15–64 years: 1.04 male(s)/female | 65 years and over: 0.68 male(s)/female | total population: 0.96 male(s)/female (2004 est.)

Life expectancy at birth: total population: 78.54 years | male: 75.56 years | female: 81.68 years (2004 est.)

The current high unemployment rates being experienced in Germany have been further exacerbated by structural rigidities in the labor market that adversely affect new companies. German labor regulations are strict when it comes to laying off workers, and wages are established on a national basis (Germany 4). Long-term expectations for Germany remain sound, however; the investments being made today, combined with corporate restructuring initiatives, are expected to allow Germany to regain its leadership position in the strengthening European markets — particularly if the problems with the German labor market are resolved.

The German government has already taken some positive steps toward reforming the country's economy, although these are not expected to offset the nation's short-term economic needs. The decline in government revenues combined with increased expenditures has caused the national deficit to rise above the EU's 3 percent debt limit (Germany 4–5). These initiatives have also had unexpected consequences for the eastern German economy, which had been based in large part on the clothing and textile industry. The textile and clothing industry represented one of the largest industrial employers in eastern Germany, particularly for women, accounting for almost two-thirds of the 320,000 workers in the textile and clothing sector.

Since reunification, however, there has been a surplus of workers in these industries that continues to constrain the country's efforts to become economically viable. As Rachel Alsop observes, "As the textile and clothing industry was concentrated in specific regions of the GDR, in certain local economies the textile and clothing industries constituted one of the main employers of female labor. In 1989 nearly 4 percent of all East German workers and an eighth of industrial workers were employed in the textile and clothing sector" (2000:113). These former East German clothing concerns were highly export-oriented and remain so today (Smith 2003:17).

Based on the uneven regional distribution of textile and, to a lesser extent, clothing production, these industries were likely the main provider of jobs in some areas of the former East Germany (Alsop 120). According to Alsop's study of the clothing industry in Germany, younger women with family responsibilities have found it particularly hard to hold on to their jobs during the process of labor rationalization (2000:113). Therefore, while Germany today has a surplus of workers — which should be a positive factor for business — the country's strict employment laws place heavy burdens on companies once they make the decision to hire. This will undoubtedly affect a new company's ability to survive and prosper in an uncertain economic climate. Although Germany clearly has an abundance of domestic clothing available for marketing purposes, new companies must also consider the political climate, which is discussed below.

Conclusion

Blumentritt and Nigh also point out that the economic integration of a host country tends to affect the influence of affiliated organizations on the political activities of their subsidiaries. For instance, both Germany and France are members of the European Union and are highly integrated politically. If a clothing concern maintained two subsidiaries operating in those two countries, both would be more likely to benefit from communicating about the political imperatives taking place in their respective countries. "In effect," Blumentritt and Nigh argue, "governmental actions taken in other countries with significant ties to a subsidiary's host country may impact that subsidiary's performance, and thus drives coordination of political activities between subsidiaries in those countries" (58). Therefore, even if a company is locally owned and operated, the German political climate will still remain a driving force in shaping the business environment, particularly for start-ups.

The German government's ongoing efforts to revitalize its economy — while assuming an increasingly important leadership role in international affairs alongside France and Great Britain — suggest that there are more challenging times ahead for the German people in the short term. Nevertheless, the long-term prospects for this economic powerhouse remain sound, provided the labor reforms described above are enacted at the earliest opportunity, particularly as they apply to the clothing business in Germany today.

Germany presents a complex but ultimately promising environment for a clothing business. The country's position as Europe's largest economy, its fashion-conscious consumer base, and its large working-age population all represent meaningful advantages. At the same time, the structural rigidities in the labor market, the lingering economic consequences of reunification, and the short-term fiscal pressures facing the German government introduce real risks for new ventures — especially start-ups with limited capital to absorb regulatory compliance costs.

The surplus of workers in the textile and clothing sectors, particularly in the eastern regions, provides a potential labor pool, but strict hiring and dismissal laws mean that expanding or contracting a workforce carries significant legal and financial implications. The political environment, shaped by Germany's deep integration within the European Union, adds another layer of complexity that businesses must monitor and engage with strategically. On balance, a clothing outlet in Germany is viable over the long term, but success will depend heavily on how effectively a new business navigates the country's demanding legal framework and positions itself relative to the evolving political landscape.