Cafes and other small businesses in Germany begin to open as restrictions are lifted across the country. Image sourced from Financial Times, AFP via Getty Images.
As the European Union’s strongest economy and most populous country, Germany’s recovery from the current economic downturn affects not only its citizens, but the rest of the Eurozone and the world. Under the leadership of Angela Merkel, officials issued widespread testing and safety measures that intended to keep citizens safe. Such measures unfortunately had an adverse effect on businesses. As is the case in the US, shelter-in-place orders and forced closures caused declines in revenue, leaving small and midsize companies especially vulnerable. Germany is now on a path to reopening, and it serves to examine the policies and practices that aim to get the country’s economy back on track.
Contrary to its neighbors, Germany allowed factories to remain open during the height of the pandemic. This doesn’t come as a surprise, considering the country’s role as a manufacturing giant and top exporter of manufactured goods. Close ties to China allowed factory executives to quickly understand the scope of the pandemic and react accordingly. Protective gear for employees, safety training, and reorganization of production lines allowed employees to continue working without serious threat to health. There is some early indication that these measures paid off. Whereas Germany’s rates of infection were similar to its neighbors, the country has seen only a quarter as many deaths.
Most companies adopted these policies on their own, but the German government also contributed to keeping shops open. It set aside $610 billion dollars in loans to keep businesses afloat, with $54 million of that geared specifically towards small businesses, independent contractors, and freelancers in the cultural sectors. The government also brought back its Kurzarbeit program, wherein companies had the option to furlough employees while the state covered a portion of worker’s salaries. In contrast to the Paycheck Protection Program in the US, these payments went directly to employees, and do not have to be repaid. This program has allowed thousands of German employees to keep their jobs, but critics say that some of its benefits may have been overstated.
These precautions have set the country on a course for recovery. In early May, Chancellor Merkel announced that the number of new cases has declined enough to lift several restrictions. Retailers can begin accepting patrons on May 18th. Hotels may accept reservations in time for the upcoming end-of-May holidays. Daycares and schools have begun to welcome children back into classrooms. Germany’s reopening is a positive sign, but as much as it indicates that a return to normalcy post-lockdown is attainable, it also means learning to adapt to a new normal.
Masks are required in all public spaces, as is the case in several US states. Officials have allowed restaurants and bars to welcome guests, but strict distancing measures mean they will have to operate at half capacity. These spacing guidelines also affect the country’s manufacturing sector. As mentioned above, factories were encouraged to keep employees a safe distance apart. This means fewer workers, which corresponds to a decline in output. Despite some factories ongoing operations, it’s unclear when national production will return to pre-pandemic levels.
German automotive manufacturers on a BMW assembly line before enhanced safety measures were put in place. Image sourced from Automotive News, Europe, Guenter Schiffmann/Bloomberg.
Plant closures and restrictions on workplaces have not only had repercussions inside Germany, but for its business relationships abroad as well. Chicago-based attorney Sarah Ames explained how German-US business has been affected as a result of restrictions linked to the virus. Ames is a partner at Quarles & Brady LLP, a full service law firm serving companies from around the world. Ames has worked with German companies varying in size and industry, and says that there has been a noticeable decrease in the number of companies looking to expand to the US across the board. Limitations on travel and immigration will likely maintain this downward trend, she says. Even with apps like Zoom and Slack allowing teams to stay connected across borders, travel remains an essential part of international business.
Germany is set to open the borders it shares with its EU neighbors on June 15th. At the same time, the US travel ban on Schengen-area counties is still in effect, with no sign of being lifted in the coming weeks. This has direct repercussions for German-US business. German companies that expand to the US may begin with a sales representative, a sales office, or a distributor to establish contacts and conduct sales. Companies that are able to set up standalone entities in the US often rely on some of their German employees being able to travel to and from the US to aid the transfer of “know-how” and technology. As long as US policy prohibits this sort of travel, German-US business will be stunted.
The lack of a cohesive strategy for combatting the virus in the US may further complicate future German-US business relations. According to Ames, German companies that look to establish subsidiaries in the US tend to settle in areas most advantageous for their business. Companies related to the automotive sector, for example, typically establish themselves in midwestern or southern states. With Governors across the country following their own schedules and guidelines, potential for international business will vary from state to state.
It will certainly take months for Germany’s economy to make a recovery. Businesses will have to devise creative ways to keep their doors open and their employees paid, both at home and abroad. Companies may be inclined to prioritize domestic operations, but international business—a critical part of many countries’ economies—cannot be left to the wayside for long.
Stay tuned for further analysis of other countries’ responses to small businesses in need of assistance.
Is your company a small business affected by the current economic slowdown? Business owners and executives reviewing their current strategies may benefit from our self-assessment tool. Initially designed for international projects, this pdf makes sure all aspects of the business are covered. Download it for free at the bottom of our Services page.
Upon request, free online consultations will be available to executives who use the self-assessment and might still need some help. The economic impact of this pandemic is global. We contribute our expertise in international business to make a difference because we are all in this together.
Use this FREE self-assessment to check if your company has everything it needs to go global.