Why Berlin may not be the best place to set up your business in Germany

When thinking about expanding your business internationally, Germany quickly becomes a relevant option. After all, our German neighbours are the economic leaders in Europe? So setting up in Berlin seems like a very good option?

However, if Germany is known worldwide for its economic power, Berlin has long had the slogan of being “arm, aber sexy” (poor, but sexy) as the former mayor of the city Klaus Wowereit would say in 2003. Since then, the city has changed a lot with its rapid gentrification, making it catch up with other major European capitals. In this article we will look at the particularities of the techno capital and why it might not be the right option for your business.

A few historical but also cultural reminders are essential when you want to set up your business in Germany:

Indeed, France and Germany have forged a deep economic and social cooperation in Europe since the signing of the Élysée Treaty in 1963. However, the two countries have a very different political functioning: a centralised unitary state versus a federal state.

Thus, even though France has specified in its constitution since 2003 that it has a decentralised organisation, it is difficult to compare it with the German organisation, which is based on a long history of decentralisation. Germany as we know it today is the result of a reunification process that took place in 1990. Before that, Bonn was the capital of West Germany (FRG) and not Berlin, making it impossible to compare Berlin to Paris. Indeed, if Paris is the epicentre of France, as it brings together many economic, industrial and artistic sectors, this is not the case across the Rhine where each metropolis has specialised in one or more fields.

It is therefore imperative to know in which sector of activity to position your business while knowing the specificities of the place where you wish to set up in order to succeed in your expansion and make influential contacts. Berlin is not necessarily the best choice for you!

Is Berlin the right choice for my business?

The question of where to locate a company is not to be taken lightly, especially in the B2B sector where it is even more important than in B2C.

This is why it is essential to find out more beforehand, either through a market study or by calling on a company specializing in this field, in order to make the right decision. 

Berlin, a city of both excess and possibilities from a professional point of view, has a different status compared to other German cities such as Munich, Hamburg or Frankfurt:

  • Wages are lower than average, placing the city in 9th place out of the 16 Länders, and the unemployment rate is higher than in the rest of the country. Berlin has an unemployment rate of 8% compared to the rest of Germany at 5%


However, the city remains the Eldorado for creatives and entrepreneurs from all over the world, making English a part of everyday life. For example, in Berlin, 12% of startup founders and 40% of their employees are foreigners.

Berlin is the place to be if you are a start-up, whether your business is in IT or sustainability. Indeed, the city is the 3rd largest tech hub in Europe and in 2017 had 620 startups, five times more than in 2012, although this number does not include companies that have been in existence for more than five years, such as Zalando, which employs more than 5,700 people in the German capital.

In these cases, the city remains an attractive option and allows you to do many things. This ranges from testing the launch of certain products in a trendy district such as Prenzlauer Berg or Friedrichshain, to being part of an incubator specialising in IOT and Fintech such as The Digital Hub Initiative, or simply evolving in an English-speaking environment for a smooth adaptation when you do not master German. 

This city has many advantages and remains one of the least expensive capitals in Western Europe, both in terms of rents and the cost of living, despite the gentrification that has taken place in recent years.

However, other German cities may be more suitable for your project:

  • For example, if you specialise in electronic, mechanical or automotive engineering, you may find it more beneficial to consider Munich, Stuttgart or the Ruhr region rather than Berlin. 

 

  • The same applies to companies specialising in logistics, which will have a more strategic location by setting up on the French-German border or in the port of Hamburg

Finally, the financial sector has more opportunities in Frankfurt, one of the most active financial centres in the world.

In conclusion ...

It is important to study the intercultural differences of each country before expanding your business internationally. In Germany, Berlin may not be the best choice for your type of business. 

This can be a complicated process when you are not familiar with the target country and its possibilities, so it may be worthwhile to call on professionals to advise you on this issue. But don’t worry, Germans are quite mobile and the choice of location will largely depend on where your first employee lives, which is why it might be interesting to consult our article: “10 Must-follow rules for international expansion” which will help you choose the best country manager for your projects.

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