The German Market for Russian Exporters

Germany is the fourth largest importer of goods from Russia in the world.

The Federal Republic of Germany is one of the key foreign trade partners of the Russian Federation. In 2020, Germany's share in Russia's exports amounted to 5.5%, equivalent to 18.5 billion US dollars. Germany is traditionally viewed by Russian businesses as an important market for selling their products, and moreover – as a gateway to the pan-European market. This material will discuss the specifics of the German market.

The Federal Republic of Germany as a Market for Russian Exports

Economic ties between Russia and Germany have been stable for a long time. Despite various periods in the relationship between the two countries, they are generally characterized by mutually beneficial cooperation. After the reunification of Germany, its role as a foreign trade partner for the new Russia increased sharply. In 2020, Germany is the fourth most important buyer of domestic products for our country. However, two other important statistical points should be noted.

First – Russia ranks 15th in the ranking of exporters to Germany. Approximately 2% of all German imports come from our country (as of 2019). That is, for Germany, we are much less significant as a seller-partner than vice versa. Many Eastern European countries with less economic potential are ahead of us in terms of export volume to Germany, for example, the Czech Republic or Hungary.

Second – the structure of Russian exports to Germany is heavily skewed towards the commodity group of goods. Thus, out of 18.5 billion US dollars of the total import volume from Russia, only 4.1 billion US dollars (22%) belongs, according to the Russian Export Center, to non-commodity, non-energy Russian exports. If we look at the volumes of precisely this category of goods, then Germany ranks only 9th as a buyer of Russian products – lower than the Republic of Uzbekistan. Among the European Union countries (including the UK, which left the single EU economic space at the beginning of 2021), the Federal Republic of Germany ranks 3rd after, in fact, the UK and the Netherlands (in 2019 the situation was similar – the same 9th place with a slightly larger import volume in absolute terms – 4.45 billion US dollars).

So, what non-commodity goods does Germany import from Russia? In fact, the best-selling ones are often close to subsoil resources and natural resources. About 21% of non-commodity, non-energy exports are platinum group metals (0.85 billion US dollars), followed by refined copper – 9% (0.36 billion US dollars), and only in third place is mechanical equipment and machinery – 6% (0.23 billion US dollars).

If we exclude unclassified goods (0.2 billion US dollars), then fourth place is taken by sawn timber – 4% (0.16 billion US dollars), fifth place is occupied by titanium products – 3% (0.13 billion US dollars), sixth – pneumatic tires – 3% (0.12 billion US dollars), seventh – plywood – 3% (0.11 billion US dollars), eighth – optics, instruments, and medical equipment – 2% (0.09 billion US dollars). Other commodity groups each account for less than 2% of the supply structure.

In total, these eight positions (including unclassified goods) account for 56% of Russian exports to Germany, the remaining 44% are distributed among more than 500 other commodity groups. Thus, Russian exports to Germany are quite diversified – in the TOP-20, besides products directly related to natural resources, one can also see rubber products, engineering products, agricultural products, as well as furniture, paper, and chemical goods. All these supplies exceed 100 million US dollars per year, meaning they are quite substantial in volume and characterize trade relations in these segments as stable.

In small batches, Russian companies export a huge number of commodity items to Germany, describing all of them is not possible. This means that most domestic producers of quality products can consider options for entering the German market.

Marketing Research of German Markets

The generally good results of the Russian Federation's foreign trade activities in Germany are largely due to the large volume of the market and the high level of socio-economic development of Germany.

More than 83 million people live in Germany. In terms of population, Germany is the largest country entirely located in Europe. At the same time, there are more than 1 million Russian-speaking residents in Germany, who themselves represent a fairly capacious segment of potential consumers.

Besides the number of residents, their purchasing power level is important. Germany ranks 15th in the world in terms of GDP per capita, recalculated by purchasing power parity. Among EU countries, Germany ranks 6th in this indicator (and among "Europeans" in general, Switzerland, Norway, and Iceland are also above Germany), but Germany is the most populous country in the world's TOP-20. Thus, in Germany, one can note a combination of both a large population and its high purchasing power.

If we talk about industrial consumers, the German market is no less attractive. The country's aggregate GDP by purchasing power parity gives it 5th place in the world, with such high indicators achieved by the manufacturing industry and the service sector. In terms of industrial production volume, Germany ranks 7th in the world.

At the same time, the high attractiveness of the German market causes interest in it from leading world producers of goods and services. As a result, most German commodity markets are highly competitive, and working in them requires deep production and commercial competencies. Entering such a country market requires high-quality and comprehensive preparation of the company, which is difficult under conditions of insufficient information. Conducting marketing research is intended to compensate for its lack.

What should be paid attention to when conducting marketing research on German markets?

First, it is the large size and significant regionalization of the country. Of course, they are not comparable to Russia or the USA, but for the scale of Europe, Germany is a very large country. Therefore, when conducting marketing research on German commodity markets, it is important to include a territorial aspect to determine optimal entry points. In total, modern Germany has 16 states (Länder), and they are very different, including in terms of socio-economic development level. After reunification in 1990, 5 states of the former GDR were added to the 11 states of the FRG - Brandenburg, Mecklenburg-Vorpommern, Saxony, Saxony-Anhalt, and Thuringia. The states of Eastern Germany are less developed, although over the past 30 years the differentiation has significantly decreased thanks to the policy pursued by the country's central government, including attracting investments for regional development.

At the same time, Germany is not as centralized economically as Russia. When analyzing the market, attention should be paid to the fact that Berlin, although it is the capital (and simultaneously a state) and the largest city in the country, does not have even close to such a dominant position as Moscow in the Russian Federation. Characteristically, in 2019, both in terms of gross product and GDP per capita, Berlin ranked only 6th among the 16 states of Germany (i.e., closer to the middle). From a logistics point of view, Berlin also cannot be considered the best option for Russian exports of goods.

In other words, in Germany, there are regions that are both "richer" than the capital and more convenient for building logistics routes. First of all, Hamburg – the largest port city of the country (like Berlin, it is a state) – can be mentioned. The main volume of foreign trade transportation by sea is carried out through Hamburg. In terms of GDP per capita, it ranks first among all German states.

The next major trade and logistics center is Frankfurt am Main, located in the state of Hesse. The largest airport in Germany is located there. The region is characterized by developed mechanical engineering and the chemical industry. Also, the states with the highest level of socio-economic development include Baden-Württemberg, Bavaria, and North Rhine-Westphalia. Each of them, considering the product specialization of the Russian exporter, can be considered and studied in more depth for developing a business plan for expansion into Germany.

The second important point is related to information sources for conducting marketing research. On the one hand, for Germany, as a member of the European Union, a fairly large volume of information can be found on the website of the EU statistical service (Eurostat). It is presented in English (as well as other official languages of EU countries), and therefore accessible to most Russian marketing analysts. Furthermore, the website of the Federal Statistical Office of Germany, GENESIS, can be used; the main volume of information on it is translated into English. In Germany, industry and other non-profit associations and unions, scientific organizations are quite developed, which post reports on various topics in the public domain. All this significantly simplifies the conduct of desk marketing research.

On the other hand, information of a commercial nature, which is related to the activities of individual enterprises and organizations, is often quite difficult to collect. For Germany, as for any other EU country, it is impossible to purchase a database of import customs declarations. It is possible to study in detail the supplies of certain goods to Germany only by purchasing customs declaration databases from countries that allow this, for example, Russia, China, and so on. But this significantly increases the cost of conducting import analysis and also makes it incomplete.

Conducting field marketing research in a country like Germany is also not easy. The main problem is related to the cost of such services in Germany. Local marketing agencies, as well as international ones with representations in the country, are expensive. An alternative is to attract outsourcers, for example, from Russian-speaking residents of Germany (which is convenient for the Russian client), but in this case, it is extremely difficult to pay for services from one's bank account. Moreover, it is easy to make a mistake in choosing a responsible counterparty, and risks are difficult to insure. Often such performers are suitable for solving simpler tasks, for example, within the framework of territory sensing. All this leads to a simple conclusion: before going into the German "field," one needs to prepare very well within the framework of desk research of the commodity market of interest.

The third focus of attention is market barriers – both state and commercial. Often, companies entering the markets of EU countries make the mistake of being overly focused on the market potential to the detriment of assessing entry barriers. In some cases, especially for small exporters, this can lead to a waste of time and financial resources.

The markets of the European Union countries are characterized by a high degree of regulation. Most exported goods fall under EU regulations, often several. Compliance with the requirements laid down in them for the product itself, its labeling, packaging, and so on may require certain financial resources, which should be, at least, not greater than the potential commercial effect, thereby increasing the break-even point of the export project in value terms, determining the minimum allowable sales volumes.

If a Russian company, for example, wants to participate in tenders in EU countries, it will face a barrier related to the absence of Russia in the list of countries that have joined the WTO Agreement on Government Procurement (GPA). Therefore, it is impossible to directly act as a supplier for such tenders in Germany from a Russian legal entity. For EU countries, as well as a number of others, for example, the USA, Japan, Israel, etc., this problem does not exist.

The above example of the tender market is just one of the barriers of state regulation. And besides them, there are also barriers related to building business communications, consumer perception, and so on. All of them should be comprehensively studied within the framework of each specific task of mastering the German market.

Features of Searching for Partners to Organize Sales in the Federal Republic of Germany

Working directly with Germany from Russia is quite difficult, and more often, generally impossible. According to European legislation, for supplies of a wide range of goods, only a manufacturer registered in the European Union has the right to independently issue a declaration of conformity. If the manufacturer is not registered in the EU and is in third countries, then it is obliged to appoint an authorized representative in the European Union. Hence, the extremely high importance of correctly selecting a partner for selling products in Germany arises.

Search for a partner begins with the correct formation of their profile. For this, one needs to have information about the market's operating system, which can be obtained through marketing research.

Then, within such a profile, a list of cold contacts is formed for subsequent processing. Companies from Germany can be contacted through electronic channels, for example, by email, but it is advisable to correspond in German. Regardless of the chosen language of communication, it is recommended to prepare a brief, informative commercial proposal, in which the emphasis will be placed not only on the product but also on the proposed terms of cooperation. Pricing is also advisable to specify, at least within the framework of forming the supply price for key commodity items, including the cost of logistics to the port/warehouse in Germany. Otherwise, it will be difficult for a potential partner to assess the benefit of cooperation.

Many companies in Germany, having become interested in the proposal, wish to familiarize themselves with the Russian exporter's website. Therefore, both up-to-date website content and its adaptation for export activities are necessary, at a minimum, translation into German, including key materials. This will show the serious intentions of the Russian company and its level of competence, which is very important for German businessmen.

In general, it should be noted that Germans can choose suppliers for quite a long time, so to speak, "look them over," especially if the partnership terms are not particularly interesting for the market. Often, preference is given to those Russian entrepreneurs who come to Germany and have acquaintances in the business environment there. In such a case, a reciprocal initiative is possible. For example, one company, represented by its management, visited Germany several times in order to find a technological partner, and as a result, received an order for the production of a related product under the private label of a German company, as there was an urgent need to compensate for a lost production site, and our compatriots were able to make a favorable impression of themselves during communication and negotiations.

Therefore, for Germany, which, however, is not an exception but a rule for working in Europe, personal presence in the territory, trips on business missions and exhibitions are important. It should be noted that the German exhibition industry is highly developed; companies organizing such events work both in Germany and abroad. German companies especially organize many industrial exhibitions in the Middle East and Southeast Asian countries. As coronavirus restrictions ease, Germany will again become an attractive country for participation in international exhibitions, the level of which is very high.