Setting up your structure in German retail

Photo: pexels/ fancycrave

Being based outside of Germany and starting business in German retail requires some initial thoughts and planning. Here some pros and cons on different options. The list is not meant to be complete, but should cover already most practiced routes to market.

The strategy of establishment is impacting both, influence AND control over sales. Illustration: 2018

Sales from abroad
Starting from abroad is simple and no initial investments are needed. You keep full control over sales and customers. On the other hand, companies often find out that they are lacking local contacts or knowledge about business culture and mentality. Depending on the business the market might also require local presence. It is also difficult to approach potential purchasing managers from a distance.

Sales via agent
Hiring an agent could be an option. It enables to cost effictively gain knowledge of the market as well as to be present. An agent is paid on commission and only in case of a sales success. He/she would represent your organization and invoicing could go through the headquarter abroad. A bit of advise would be helpful for legislation, accounting and taxation, which could be hired. The downside is, it is difficult to evaluate professionalism, your product might only be one of many in the portfolio of your agent and might be filtered out. Which means an agent might present other products in sales meetings as well to your target customer and not necessarily introduce your product or service solely or at all. In worst case your agent only presents those products he or she is having a special interest in. A distributor or a proper logistical infrastructure will anyway be needed.

Working via a distributor
A distributor or wholesaler will not ask for a success fee, is familiar with the local language and should have all necessary contacts that your organization might be looking for. Starting sales is possible right away. The downside is, there will never be any sales guarantee, your brand might also be one brand amongst other brands in your distributors` portfolio, and you are lacking control of your sales. In worst case, a distributor/wholesaler could shield you from establishing direct contact to customers.

Locally employed/subsidiary
The preferred solution would probably be to have locally employed people or better: a subsidiary, a legal German entity. This would get you closest tot he market. You would have full control over sales and business contacts remain in your company. Moreover, you would have a dedicated sales staff according to your demands and qualifications. Of course, it will require a high initial investment to found a legal German entity, find the right staff and create the local infrastructure. Local assistance is probably necessary.

It is important to evaluate the market in ordert o choose a suitable establishment strategy. To get close tot he market an establishment in German retail requires initial investments and active sales in German language.

Whatever strategy is selected, there is a rapid change also in the way German trade is working. The options mentioned above are of course based on experiences from the past. New business models like Amazon, Alibaba, Wish, e.a. are showing that B2C/B2B sales to Germany are possible even from abroad. One of the challenges will of course be how to gain customer confidence (but even this occurs feasible in nowadays` social media driven society, where customer access seems to be more precious than a traditional sales margin).

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