Introduction
Businesses around the world seek to sustain growth through various means. The need for growth is motivated by the desire to increase the market share of the business to sustain the going concern of the business. One such means is by conducting foreign direct investments whereby firms seek to exploit the production advantages presented by different locations around the globe. The businesses that engage in foreign direct investments invest in land, buildings, and facilities in the host country through the process of offshoring. Gentex, a textile manufacturing company in the US is planning to build a new manufacturing plan in Germany as an aggressive growth plan envisioned by its five-year strategic plan. It is therefore pertinent to evaluate the country before the process of investment begins in order to establish the viability of the decision in terms of the country’s suitability. An evaluation of Germany in relation to productivity, financial system and economy, risks and availability of labor will be conducted.
Productivity
The country’s economic and social policies greatly influence the outcome of an investment in terms of growth and sustainability. Additionally, the country has a GDP of 3.7 trillion dollars and a population of 81.1 million people. As such, it is important to analyze the specific factors that directly or indirectly affect the performance of the business. Such an analysis will give the relevant information that will assist in making appropriate business decisions. In this case, Germany proves to be the most suitable location of the manufacturing company given its economic and social policies that favor foreign investors. Ernst and Young’s European Attractiveness Survey 2015 confirmed that indeed Germany is the most attractive business locations in the world. Additionally, American Chamber of Commerce’s Business Barometer 2015 indicated that the American companies in Germany hold the country in positive regard. Germany has demonstrated its commitment to attract foreign investors in various ways.
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Germany supports foreign investments by providing subsidies in the form of cash grants, which serve to guarantee liquidity during the initial stages of the project. This support is a very crucial incentive as it provides the capital whose need at such a stage is very high. This demonstrates a high level of concern from the government regarding success of foreign investments. It also indicates that the government treats all businesses with impartiality hence increasing the confidence of foreign investors.
The markets in Germany are free and open to foreign investors due to the country’s welcoming attitude towards FDIs. All sectors of the economy are therefore open for foreign investors. The principle of freedom of foreign trade and payment is upheld in Germany due to the favorable legal frameworks in place. This facilitates seamless business operations for foreign businesses without the worry of potential interference from the authorities.
The government of Germany also provides generous research and development project assistance during the advanced stages of the investment. This ensures that the standard of goods that will be produced exceed the expectations of the market through progressive improvement. This is facilitated by Germany’s advanced level of technology, which is enhanced by the culture of engineering excellence exhibited by the workforce.
Furthermore, Germany has maintained stable labor costs in the economy making it the best location to invest. This makes the cost of production to be predictable hence facilitating proper planning. The level of uncertainty is significantly reduced hence laying a stable platform for growth.
Financial Systems and Economy
Favorable financial systems and economy are the vital ingredients that determine the ultimate success of a business. If the systems in place work against the business model, then it will be hard to sustain profitability and growth. Germany financial systems and economy are favorable for investment in every aspect.
For instance, the financial system does not restrict capital transactions regarding business operations. This influences success of businesses to a great magnitude given the nature of multinational companies. Existence of such a favorable financial framework is a huge impetus to foreign businesses, which do not have to worry about large volume transactions. Moreover, the financial legal frameworks have no restrictions in terms of currency transfers. Again, such a feature in the financial system of a country is very important in facilitating foreign direct investments.
The financial systems of Germany have no legal hurdles regarding real estate purchases like in many other countries. This makes it easy for multinational company to acquire land, buildings, and facilities without encountering problems. As such, growth and development of foreign direct investments is greatly enhanced. In Gentex case, it will be easy to acquire the capital requirements of the venture including land buildings and facilities required to run the manufacturing of textiles.
Law in Germany does not restrict repatriation of profits, which is a major concern for multinationals. This makes the foreign investors to repatriate part of the profits to their home country without encountering any hurdle. As such, Gentex will have an opportunity to send part of their profit to the parent company in USA. The policy therefore facilitates the model of multinational businesses where the business divisions are dependent to an extent.
Access to the much needed foreign exchange by multinationals is not restricted making the flow of international transactions seamless. This is particularly important because most of the transactions involve international currencies, which should be facilitated by the availability of foreign currency. This means that exports of textiles and imports of raw materials will not be interrupted due to issues with foreign exchange.
The economy of Germany is stable hence making it a favorable investment destination for Gentex. The condition enhances steady economic growth, which in turn facilitates growth of business due to minimum levels of uncertainty. Inflation is considerably low at 0.8% making the economy favorable for high-risk businesses. The economy is also characterized by highly developed infrastructure, which permits smooth flow of labor and materials. Developed infrastructure reduces the cost of transportation hence minimizing overall production costs. The economy is also characterized by highly developed logistics systems, which facilitate global movement of imports as well as exports. The country is home to the global logistics giant DHL. Such factors present in the economy serve to enhance the ease of business operations in a global scale.
Risks
It is important to recognize the fact the all businesses are associated with a certain degree of risks. As such, Gentex will be exposed to a couple of risks. One of the major risks is the availability of personnel who will spearhead the mandate of Gentex in the foreign country. The culture of the nationals of the foreign country will also influence the success of the business model and culture in place. It is therefore essential to have potential alternatives in place in case the intended approaches to the market backfire. Back up personnel should therefore be sourced from the home country as well as adopting a business culture and model consistent with the values and culture of the people in Germany.
Availability of Labor
Availability of labor is a critical factor determining the success of an investment especially a foreign one. Germany’s rate of unemployment stands at 5.0% meaning that indeed there is enough manpower to be harnessed. This can be confirmed by the nature of Germany’s economy that is characterized by stability. Additionally, Germany boasts of a pool of 42 million skilled personnel in the job market.
Conclusion
Given the prevalent economic climate in Germany, it is advisable to locate Gentex textile business in the country for many good reasons. The government’s commitment to support foreign investments is commendable and it boosts the confidence of foreign investors. It is clear that governments are responsible for maintaining the necessary conditions to accelerate economic growth.
References
Thomas, B. 2015. Economic Overview of Germany: Market, Productivity, Innovation. Germany Trade and Invest .
OECD .2011a. Bank Competition and Financial Stability . OECD Publishing. Paris.
OECD .2012a. Economic Surveys: Germany . OECD Publishing. Paris.
OECD .2012b. Environmental Performance Reviews: Germany 2012 . OECD Publishing. Paris.
