Introduction
In accordance with the company’s plan to expand globally, this report has been prepared to see the market feasibility and attractiveness of Germany as a potential market for our company. This report will provide a PEST (Political, economic, social, and technological) analysis of the country and then provide the basis of choosing Germany as a potential market for wholesale restaurant supply by taking a quick detour of the food industry in the country. Therefore, the report will essentially answer the question why we choose Germany to be our next potential market.
PEST Analysis
Political: Germany is one of the largest economies and second largest populous country in Europe (CIA, 2009). Germany is a key member of the European Union (EU). The two World Wars immersed the country into “European power struggle”, which led to the control of the country to the Allied powers in the first half of the 20th century. During the Cold War (1949), Germany was divided into two states – Federal Republic of Gerh many (FRG) on the west and German Democratic Republic (GDR) on the east (CIA, 2009). The right wing FRG entered into collaborations with key Western economies, EC (now EU), and NATO while the left wing GDR entered the former-USSR led Warsaw Pact. Germany unified in 1990 with decline of Cold war and the USSR. Presently Germany has a federal republic type of government. Recent elections have brought a right-center government headed by Angela Merkel as Chancellor (BMI, 2009). The political scene in Germany has been affected due to global financial crisis; however, the government being a “grand” coalition between CDU and SDU, there has been some differences regarding tax cutting and reformist administration.
Economic: The country has experienced an economic growth of 1.3% in 2008, and -5.3% in 2009. The expected growth rate of Real GDP in 2010 is 1.9%. These figures when compared to that of the US, the world and EU growth rates, shows almost equal growth rate for 2008, while the decrease in growth is much higher in 2009 (EIU, 2009). Thus, recession has decelerated the growth rate of the economy in 2009. Thus, the government has a deficit of 4.4% of GDP in 2009 that is expected to increase to 5.7% in 2010 (EIU, 2009). These imbalances will be smaller than that of the US, the UK, Spain, and France. In the monetary policy stunt, euro entered recessionary phase in 2008, the European Central Bank (ECB) cut interest rate from 4.25% to 1.25% in three phases in 2008. ECB has also indicated that it may move to reduce the interest rate to zero if need be so. In 2009, the interest rate had come down to 0.6%. Though there has been a rapid fall in inflation, there was no decline in wages, thus, increasing real wages. Private consumption in Germany declined by 0.1% in 2008 and 0.9% in 2009. The global recession will have a strong negative effect on demand for export and thus will affect the GDP as export forms a large portion of it. Recession will also hit business investments in the country. Germany’s economy faces risk from the emerging markets from the far eastern European countries.
Social: The population of the country is 82,329,758 as on July 2009 (CIA, 2009) and ranks 16 in world in terms of population. The growth rate in population is -0.05% with more than half of the population within the age group of 15 to 64 years. The average age is 43.8 years. 74% of the population lives in urban areas. The main ethnic groups in the country are Germans (91.5%), Turks (2.4%), and other minorities (6.1%). The language spoken in the country is German. The religions in the country are Protestants (34%), Roman Catholics (34%), Muslims (3.7%), and other religions or non affiliates (28.3%) (CIA, 2009).One problem that has emerged in Germany is that of illicit drug trafficking. Increasing number of Germans is poor and requires welfare (CIA, 2009). Political extremism has evolved through far right violence in form of Neo Nazis (Economist, 2008).
Technology: Germany dominates European technology scene, even after taking the economic burdens of East Germany. The technology developed in the country represents innovation and high quality. Significant investment is done on research and development in the country’s economy.
German Restaurant Industry
The market value of the German food industry was $46.8 billion in 2003, which grew by 3.1% (Datamonitor, 2004). According to the report, Germany generates 12.8% of the total revenue of the European food industry. The competitive industry landscape as expected in Germany is as follows. Here the buyers’ are restaurants. Therefore, the buyer power is low as the restaurant business is highly disintegrated. The supplier’s power is low as they are agricultural producers and have very little power to influence price. The industry has been heavily affected by the economic downturn.
Conclusion
The PEST analysis shows that the country has enough potential as a market for wholesale food products. German economy shows strong fundamentals even though temporarily affected by the economic recession. The restaurant industry shows promising growth thus making the market even more lucrative for our company.
Reference
BMI. (2009). Germany: A Move To The Right For Economic Policy. Web.
CIA. (2009). World Factbook – Germany. Web.
Datamonitor. (2004). Hotels, Restaurants & Cafes in Germany. New York: Datamonitor.
Economist. (2008). A stabbing pain. Economist , p. 78.
EIU. (2009). Germany -Country Report. London.Web.