Entrepreneurship in Germany
Germany was united in 1990, after being divided for more than four decades. West Germany, a Democracy, was totally different from East Germany led by the Socialists. West Germany’s economy was fueled by the United States and after unification, East Germany’s economy rose. East German Entrepreneurship, because of industrial production and the unification, has climbed at double-digit rates. With the start up of many new high technology ventures, the old East German areas’ high unemployment rate is decreasing. Nevertheless, eastern Germany still has a long way to go. Entrepreneurship in Germany is low because of the lack of ambition of Germany students. 25% to 30% of young scientists have good chances for creating a business, but only 5% will take this step.
According to a 2005 report from the Global Entrepreneurship Monitor, Germany has a total entrepreneurship activity of 5.1%, ranking the country 24th in the world. The report also ranks Germany 10th in factors for location, while 1st in public spending on entrepreneurs. However, the study found that tertiary education provides insufficient preparation for German entrepreneurs.
Almost one in twelve entrepreneurs in Germany is foreign born. Furthermore, one in ten foreigners starts a company. Within the last decade, German companies have grown by 14.5% while foreign companies increased 75%. Foreigners from outside of the European Union must take their business ideas to the Aliens’ Office, where the nationality of the applicant plays a role. Foreign citizens are generally not as well educated as their German born counterparts, have less equity, and thus have to provide additional licenses. The figures for foreign startups are significant given the deterrent posed by the German bureaucracy.
The entrepreneurial mindset in Germany is hindered by cultural disapproval of individual enterprise and economic deterrents of exorbitant corporate taxes and high social security standards. Corporations, on average, reach a net profit margin of only 2% of revenue, while an unemployed man may receive up to 60% of his salary for as long as three years. Germany ranks first in corporate bankruptcies though it is a leader in social security benefits.
Germany may be noted for its government programs targeted specifically at women entrepreneurs. The Federal Ministry for Family Affairs, Senior Citizens, Women and Youth has established the Female Entrepreneurs Network pilot Project, creating a learning center for women entrepreneurs. Another goal of the project is the formation of a European Union network for the advancement of entrepreneurship among women. In addition, the funding bank of the German Federal Government, the Deutsche Ausgleichbank, established a loan for women entrepreneurs in May of 1999. Women are allowed to loan a maximum of DM 98,000 for a maximum of 10 years. The loan is ideal for small business startups since 80% of the risk be may be shouldered by the Deutsche Ausgleichbank and the European Investment Fund.
Some say entrepreneurship in Germany is discouraged. Germany has the ninth highest corporate bankruptcy rate. Germans can make more money being on the welfare system than owing a company because of the corporate taxes and social security.
On the other hand, old East Germany is receiving subsidies from the government so that corporations will and can start up. The entrepreneurs that start a business in Germany are many times “necessity entrepreneurs.” This is because by definition they see no other way to make a living.
Germany 2004 GEM National Report
Entrepreneurship in Germany
Entrepreneurship in West & East Germany
Franchising in Germany
Stimulating Entrepreneurship in Germany
What Germany Can Learn From Silicon Valley