PESTEL analysis of Germany

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PESTEL analysis of Germany

This PESTEL analysis of Germany aims to address some of the political, economic, social, technological, environmental, and legal factors that affect Germany today. Germany is a country in Central and Western Europe. It is the most powerful country in the European Union and plays a considerable role in global economy and politics.

Political environment in Germany

Germany is a federal, parliamentary, and representative democratic republic. While the President is the head of state of Germany, the Chancellor is the head of government and exercises executive authority through the Cabinet. The Chancellor plays almost the identical role of a Prime Minister in other parliamentary democracies in the world. Germany borders the United Kingdom and Sweden by sea, and Denmark, France, Luxembourg, the Netherlands, Poland, Austria, Belgium, Switzerland, the Czech Republic by land.

Germany has been maintaining a very good alliance with France and some other countries since 1990. This alliance has perhaps immensely contributed to the making Germany as the most powerful country in the European Union. In addition to being a member of the European Union, it is also a member of NATO, the OECD, the G8, the G20, the World Bank and the IMF. It is worth mentioning that Germany is the largest contributor to the budget of the European Union and the third largest contributor to the United Nations.

While it is widely recognised that Germany is one of the closest and strongest allies of the United States in Europe, some recent researches suggest that this bilateral relationship is going through certain challenges. For instance, according to a new Pew Research Centre and Körber-Stiftung public opinion survey, 73% of Germans said that their country’s relationship with the USA is bad while 70% of the Americans said the relationship is good. The survey was conducted by telephone in September 2018 which was participated by 1,006 adults in the US and 1,002 respondents in Germany (Britton, 2018).

Economic environment in Germany

The next element to address in the PESTEL analysis of Germany is the economic environment. Germany is the 4th largest economy in the world with a nominal GDP of $4.2 trillion according to the forecasts for 2019 (Focus Economics, 2019). However, the gross domestic product (GDP) declined by 0.2% in the third quarter of 2018 and failed to grow in the following three months (Palumbo & Walker, 2019). Serious concerns have also been raised due to falls in industrial production and manufacturing orders in February 2019.

While concerns have been raised about the health of a number of industries, the German job market is in very good health with an unemployment rate of 3.2% (as of January 2019) which is one of the lowest in the world. Germany is well-known for its amazing working conditions for both of its citizens and expatriates. It is worth mentioning that German employees enjoy generous benefits e.g. some of the longest holidays in the EU, job protection and some of the highest salaries in the world.

The national German corporate tax rate is set at 15%. However, businesses also need to pay a solidarity surcharge of 5.5% on their corporate tax, and 14–17% of trade tax rates by local municipalities. When all of these are combined, the corporate tax rate amounts to around 30–33% (Fraai, 2019). For employees, the income tax rate starts at 14%. However, 42% tax is applicable if someone’s annual income is above €55,961, while 45% if the income goes above €265,327. In addition to the income tax, employees must also pay solidarity tax, which is capped at 5.5% of their income tax. It is worth mentioning that the first €9,169 earned each year is tax free.

Germany imports a broad spectrum of goods and some of its top imports are cars, vehicle parts, agricultural products, chemicals, oil and gas, pharmaceuticals, and human or animal blood. Most of the German’s imports come from the USA, France, China, Italy and the Netherlands. The top export destinations of Germany are the USA, France, China, the UK and the Netherlands. Some of the top exports of Germany are cars, vehicle parts, planes, helicopters, and spacecrafts.

Social environment in Germany

Germany is one of the best countries to live in the world in terms of wealth, education, health and quality of life. With a total population over 82 million, it is the second most populous country in Europe (BBC, 2018). The life expectancy for men is 78 years while 83 years for women. However, many experts have raised concerns about the growing number of retirees and shrinking of population in general in the country. It is worth noting that Germany has one of the lowest birth-rates in the world.

Germany is a cosmopolitan country and its society has been shaped a pluralism of lifestyles. While 60-70 percent people identify themselves as Christians, 4.4 percent of the population identify themselves as Muslims. Approximately 35% people have no religious affiliation or have affiliation other than Christianity or Islam (Zimmermann, 2018). Approximately 19 million people in Germany have a migratory background.

It is not surprising that most of the people in Germany have a high standard of living.  Germany is a welfare state and people have freedom to shape their own lives. However, there are some social challenges that need to be taken into account. For instance, ageing population, low birth-rates, diminishing purchasing power, falling wages, and expensive lifestyle are to name but a few.

The German society focuses on structure, privacy, punctuality, hard work, diligence and perfectionism in all aspects of lives. No wonder why it is one of the largest economies in the world. It is also one of the world’s best in many sports e.g. football, hockey, ice-hockey, golf, tennis, and skiing.

Technological environment in Germany

Technological environment is another important issue to discuss in the PESTEL analysis of Germany. It is not surprising that many people identify Germany as a World Cup Football champion and a leading car manufacturing nation. While there is no problem in such positions, many people are perhaps not aware that Germany is the 5th best technologically advanced country in the world. Germany has a proud history of research and innovation. It is a leader in a number of markets e.g. medicine, scientific research, infrastructure, military technology, engineering, and design.

ITC sector employs over one million people in Germany and is ahead of many other big industries such as mechanical engineering, chemicals and pharmaceuticals. With a global market share of around 14%, Germany is also a leading nation in developing green products, processes and services. It was reported that the German government has set aside around 3 billion Euros for research and development of artificial intelligence to be spent up to 2025. The aim of this is to close a gap in software-led innovation between Germany and other American and Asian giants (Hansen, 2018).

Environmental factors in Germany

Tourism is one of the major industries in Germany and contributes around 4.5% to the national GDP.  In fact, Germany is one of the top tourist destinations in the world. It received around 37.5 visitors in 2017. German history, culture, scenic beauty, historic cities and towns, small villages, grand palaces, cathedrals, forests, mountains, festivals, fairs, and many other attractions make it a unique place to visit.

While Germany is a great place to visit, it faces some enormous environmental challenges. It faces the consequences of global warming like the rest of the world. Water pollution, air pollution, acid rain, emissions from coal-burning utilities and industries, damaging forests, and automobile exhausts are some of the biggest environmental challenges facing Germany today. However, the German government has taken a number of initiatives to tackle these issues. For instance, the government has decided to use fewer resources while ensuring that the same amount of prosperity is maintained. Likewise, a German government-appointed panel has recommended that the country must stop burning coal to generate electricity by 2038 (Grieshaber, 2019).

Legal environment in Germany

The last element to address in the PESTEL analysis of Germany is the legal landscape of the country. In the eyes of German law, there are usually no differences between German nationals and foreign nationals concerning investments or the establishment of companies. In fact, the German government promotes establishment of all types of business. In this case, the approach of the government is very open regardless of whether or not the businesses involve German nationals or foreigners.

Written contract of employment outlining the key aspects of employment must be issued to German employees. The minimum wage in Germany in 2019 is €9.19 per hour, and it is expected to increase a bit from 1 January 2020. It is not uncommon for employees in Germany to enjoy 25 and 30 days of holiday per year.

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Last update: 24 April 2019

Reference: 

BBC (2018) Germany country profile, available at: https://www.bbc.co.uk/news/world-europe-17299607 (accessed 20 April 2019)

Britton, B. (2018) Americans and Germans are sharply divided over their countries’ decades-long relationship, according to a new Pew Research Center and Körber-Stiftung public opinion survey, available at: https://edition.cnn.com/2018/11/26/world/us-germany-relations-intl-grm/index.html (accessed 23 April 2019)

Focus Economics (2019) The World’s Top 10 Largest Economies, available at: https://www.focus-economics.com/blog/the-largest-economies-in-the-world (accessed 20 April 2019)

Fraai, D. (2019) Corporate Tax in Germany, available at: https://www.expatica.com/de/finance/taxes/corporate-tax-in-germany-108106/ (accessed 15 April 2019)

Grieshaber, K. (2019) Germany sets ‘historic’ deadline to end coal use by 2038 in bid to curb climate change, available at: https://www.independent.co.uk/news/world/europe/germany-coal-deadline-2038-climate-change-global-warming-a8749321.html (accessed 22 April 2019)

Hansen, H. (2018) Germany plans 3 billion in AI investment: government paper, available at: https://www.reuters.com/article/us-germany-intelligence/germany-plans-3-billion-in-ai-investment-government-paper-idUSKCN1NI1AP (accessed 23 April 2019)

Walker, A. & Palumbo, D. (2019) Germany’s economy: Should we be worried? Available at: https://www.bbc.co.uk/news/business-47802235 (accessed 20 April 2019)

Zimmermann, K. (2018) German Culture: Facts, Customs and Traditions, available at: https://www.livescience.com/44007-german-culture.html (accessed 21 April 2019)

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Author: M Rahman

M Rahman writes extensively online with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He is a graduate of Leeds Metropolitan University and London South Bank University.