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Report On Economy of Germany The product to be produced: Furniture (inexpensive) Germany is Europe's largest economy and most populous nation; it is leading member of the continent's political and economic organizations. It is located in Central Europe and is bordering with the Baltic Sea and the North Sea, south of Denmark, between Poland and Netherlands. Its total area is 357, 021 sq km that is about 27 times smaller than that of the United States. In fact it is slightly smaller than Montana. The land area is 349, 223 sq km, water - 7, 798 sq km.
Its population is 83, 251, 851 (July 2002 est. ). Due to the product the target market is people aged 18 to 64 (regardless sex). In Germany it is about 60 % or 501100. German climate is temperate and marine. If compare that to the climate of the United States, New Jersey in particular, it is somewhat similar. The average temperature in Germany is a little bit lower and more extreme (hot summer, cold winter), but the amount of precipitation during a year is considerably less due to the Ocean proximity.
The type of the governments is federal republic. Capital of Germany is Berlin. Chief of state is President. Since 1 July Johannes RAU occupies this post.
German economy is primarily market-based. During the 90 s it turned from abundant and technologically mighty to relatively feeble in its execution, though it refers mostly to the eastern Germany. The integration and updating of its economy proceeds is a long-term problem at a high price to the country. Every year about $ 100 billion are spent to assist it.
The process of east catching up with west is expected to take up to 15 years. In the same time Western Germany has a highly urbanized and skilled population that enjoys excellent living standards, abundant leisure time, and comprehensive social welfare benefits. Corporate restructuring and growing capital markets establish strong basis to conform the far-sighted missions and challenges of European economic integration and globalization. CIA World Fact book states that Germany purchasing power equivalent is $ 2. 174 trillion (2001 est. ) that is not little for the country of such size and population. With GDP real growth rate of 0. 6 % its purchasing power parity appears to be $ 26, 200. Considering the comparison with the US, an interesting thing comes to light.
With the GDP real growth rate of only 0. 3 %, the purchasing power parity is $ 36. 300. To find out more about the market the firm is coming to it is important to compare its structure to that of the US market. The composition of GDP in Germany is much alike in the States. The slight difference that matters is that the rate of cervices is about 10 % lower in Germany, and industry is 10 % higher (71 % and 28 % respectively). Though population below the poverty line is not an issue to talk about in Germany, the unemployment is still a great problem. In 2001 it amounted to 9. 4 % (5 % in the US).
The aging population of the country and its continuously growing unemployment led to the social security expenditures exceed greatly workers dues. New taxes introduced in the year 2001 rendered little assistance in escaping the recession in international trade. Due to this slump and inflexibility in the structure of the labor market, including rigorous adjustments on lay-offs and the setting of wages on a national basis, domestic demand swayed as unemployment started to ascend chronically. Germany is not poor in natural resources. The most important of them are: arable land, timber, natural gas, iron ore, copper, coal, uranium, nickel, potash, lignite, and salt. In addition to that it has very few natural hazards.
One that is worthy mentioning is flooding. Those natural resources are the basis for the industries developed in Germany. The country is one of the most prominent producers of cement, chemicals, vehicles, machinery, machine tools, electronics, food and beverages; shipbuilding; textiles as well as coal, steel and iron. Agriculture makes only one percent of gross domestic product. Arable land constitutes 34 %; irrigated land is 4, 580 sq km. Crops mostly consist of potatoes, wheat, barley, sugar beets, fruit, and cabbages alongside with cattle, pigs, and poultry.
Since 1 January 2002 the Euro has become the sole currency for business and non-business transactions. Its code is EUR, and it exchange rate is 1. 1324 (euros per Us dollar) When deciding the opening of some operation facility in a country its communications and transportation infrastructure should be considered. Speaking about Germany it is not a matter one should worry about. It has highly developed and updated systems of communication. Its telecommunication system is considered to be the most modern and technologically advanced in the world. The usage of cellular phones is widely spread in the country (every second German has a cellular phone).
All other sorts of communications such as satellite systems, radio, television and Internet are highly developed as well. Transportation infrastructure is also developed well in Germany. It has rather broad and ramified system of railroads. It totals 44, 000 km, 20, 300 of which it electrified. Most of its routs are double- or multiple-track.
There are from 3 to 4 thousands kilometers of privately owned tracks. Highways are more than satisfactory in the country. They total up to 656, 140 km, 650, 891 km of which are paved and 5, 249 are all-weather highways. The waterways are about 7, 500 km. Rhine and Elbe are the most important rivers in Germany. The Kiel Canal, which connects the north and Baltic Sea, is of great economical importance as well.
There is also a large number of ports (Berlin, Bonn, Brake, Bremen, Bremerhaven, Cologne, Dresden, Duisburg, Emden, Hamburg, Karlsruhe, Kiel, Luebeck, Magdeburg, Mannheim, Rostock, Stuttgart), airports (about 625 with paved and unpaved runways), and heliports (about 59). The last, but the most important point is the current economic trends and reforms in the country, its today fiscal policy and taxation. One of the reasons why reforms are so vital to Germany is that it faces outside challenges like that of EU enlargement. Germany is affected be it greatly because of its close economical ties with its east neighbors that are in the process of integrating into EU right now.
It will involve some monetary policy threat, that is not useful, but inevitable. Due to the integration process, Germany policies should be considered from the point of view of European Union Polices. The last tendency was directed toward making stresses on the relative strengths of the particular policy. This means that Central Bank tends toward currency stability in its monetary policy.
But this may lead to some confusion, as according to this tendency monetary, fiscal, and wage policies are chasing their own goals, instead of working together and coordinating their activities. The waging policy that is called the new division of labor is directed towards keeping down the inflation processes. Having its chronicle unemployment, Germany will also experience EU labor market fluctuations, and the restriction on wage rising. Furthermore the accurate preservation of cyclical stability must be maintained, which is rather hard to do in the conditions of integration. Making a stress on stability and growth, means that the fiscal policy is one that occupies leading position in the policy mix.
Talking about Germany, there is a risk of its fiscal policy being not table to cope with the deficit, which has already came to 3 % this year. All of those problems are the symptoms of inadequate principal dynamics in the economy. The cure is more reforms leading the country towards lower unemployment rate and stable economical growth within the European Union. Taking into consideration all the gathered information about the geography and economy of Germany, a conclusion can be made. From my point of view it is not the best time to invest into its economy, as far as it conducts many reforms now. They include the fiscal and tax polices which for sure will impact the business.
The main point is that those reforms, caused by the integration processes and unemployment and internal debt, may cause some level of instability. Though an investment into German economy is of low risk, the period of changing its polices and avoiding their biases is not the best time to enter a market. Though natural resources, communication and transportation infrastructure is more than satisfactory in Germany, the labor market situation is too dangerous. The labor force is rather expensive in the country. Moreover the labor market is very inflexible and the social security is not grounded on the workers dues. Considering the market segmentation, it is obvious that the market may be over saturated with the substitute products.
The reason is that it is quite difficult to find a free space in a market with high average income in such rich country as Germany. In the case the situation in the economy is more stable, such kind of investment could be justified. But the European Integration processes place the future revenues in danger. It is due to Germany's rather tight economical and business ties with its eastern neighbors.
The point one should worry about, is that after those countries enter the European Union, their ties with Germany will become even stronger. They still have cheaper labor force that is why inexpensive furniture produced in Germany will not be that inexpensive, as furniture produced in east. So its eastern competitors can easily push it out from the market. Taking all those risks into account, this project should not be accepted.
Instead, the top management may turn their faces to east, especially countries that are now in the process of integration. References web web web web web web
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