Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Using an Agent or Distributor
Companies wishing to use distribution, franchising, and agency arrangements need to ensure that the agreements they put into place are in accordance with EU law and Member State national laws. Council Directive 86/653/EEC establishes certain minimum standards of protection for self-employed commercial agents who sell or purchase goods on behalf of their principals. The directive establishes the rights and obligations of the principal and its agents, the agent’s remuneration, and the conclusion and termination of an agency contract. It also establishes the notice to be given and indemnity or compensation to be paid to the agent. U.S. companies should be aware that according to the directive, parties may not derogate from certain requirements. Accordingly, the inclusion of a clause specifying an alternate body of law to be applied in the event of a dispute will likely be ruled invalid by European courts.
Key Link: Self Employed Commercial Agents
The European Commission’s Directorate General for Competition enforces legislation concerned with the effects on competition in the internal market of “vertical agreements.” SMEs in the United States are often exempt from these regulations because their agreements likely would qualify as “agreements of minor importance,” meaning they are considered incapable of impacting competition at the EU level but useful for cooperation between SMEs. Companies with fewer than 250 employees and an annual turnover of less than EUR 50 million are considered SMEs. According to Commission Notice 2014/C 291/01, agreements that affect less than 10 percent of a particular market are generally exempted.
Key Link: European Law
European Union authorities also look to combat payment delays. Directive 2011/7/EU covers all commercial transactions within the European Union, whether in the public or private sector, primarily dealing with the consequences of late payment (transactions with consumers, however, do not fall within the scope of this Directive). This Directive entitles a seller who does not receive payment for goods and/or services within thirty days of the payment deadline to collect interest (at a rate of 8 percent above the European Central Bank rate) as well as forty euro as compensation for recovery of costs. For business-to-business transactions, a sixty-day period may be negotiated subject to conditions. The seller may also retain the title to goods until payment is completed and may claim full compensation for all recovery costs.
Key Link: Late Payments
Companies’ agents and distributors can take advantage of the European Ombudsman when being victim of inefficient management by an EU institution or body. Complaints can be made to the European Ombudsman only by businesses and other bodies with registered offices in the European Union. The Ombudsman can act upon these complaints by investigating cases in which EU institutions fail to act in accordance with the law, fail to respect the principles of good administration, or violate fundamental rights. In addition, SOLVIT, a network of national centers within the European Union, offers online assistance to citizens and businesses who encounter problems with transactions within the borders of the single market.
Key Link: European Ombudsman
Key Link: EU Solvit
Establishing an Office
Anyone can open an office in Germany – irrespective of nationality or place of residence. There is no specific investment legislation in Germany, nor is there a minimum percentage of German shareholdings required for foreigners. Investors can choose the most suitable legal form; i.e., a corporation, a partnership or conduct business via a German branch office.
Foreign companies with a head office and registered business operations outside of Germany can establish a German branch office. This business form is suitable for a foreign company wishing to establish a presence in Germany for the purpose of initiating business and maintaining contacts with business partners.
For more details see information from Germany Trade and Invest: Establishing a Company.
U.S. businesses looking to franchise within the European Union will likely find that the market is quite robust and friendly to franchise systems in general. There are several laws that govern the operation of franchises within the European Union, but these laws are fairly broad and generally do not constrain the competitive position of U.S. businesses. The potential franchisor should take care to look not only at EU regulations, but also at local laws concerning franchising. More information on legislation relating to franchising can be found on the website of the European Franchise Federation.
German Franchising Market
Key to a successful market entry is finding the right partner to develop the market with. Multi-brand franchising is still relatively unknown in Germany, but according to the German Franchise Association it will become more important in the future. Individuals/companies already in the franchise market have the expertise and financial connections to pave the way. Reaching out to these active players can greatly ease the access into Germany and provide local knowledge of the market. This can be achieved through cooperation with the industry/trade associations, franchise consultants, brokers and media channels reaching out to the appropriate industry audience. Individuals/companies already in the franchise market can also help create brand awareness that minimizes the risk for the potential investor. German business partners prefer to talk directly to the owner, not the manager.
Germany’s population and industry are decentralized and there is no one single predominant business center. It is common in Germany for franchisors (and many other business sectors) to divide the country into regions and then appoint area developers to oversee a group of franchisees. Successful market strategies consider regional differences as part of a strong national market presence.
There are many options for advertising on the German market. A selection of franchise focused sites/media include:
- Deutsche Unternehmerboerse (in German) – print and online, site advertising investment possibilities
- Franchise Pool International (FPI) (in English and German) – consultant pool with listing of franchises
- FranchisePORTAL (in German) – virtual franchise fair with listing of available franchises
Franchise Trade Events in Germany:
- Franchise Expo Frankfurt – conference and exhibition for the franchise industry
- EXPO REAL in Munich – Europe’s largest real estate and investment trade fair
The European Union has yet to adopt legislation harmonizing the direct selling of consumer products. However, there is a wide range of EU legislation that impacts the direct marketing sector. Compliance requirements are elevated for marketing and sales to private consumers. Companies need to focus on the clarity and completeness of the information that they provide to consumers prior to purchase and on their approaches to collecting and using customer data. The following gives a brief overview of the most important provisions flowing from EU-wide rules on distance-selling and e-commerce. In addition, it is important for exporters relying on a direct-selling business model to ensure that they comply with Member State requirements.
Processing Customer Data
The European Union has strict laws governing the protection of personal data, including the use of such data in the context of direct marketing activities. For more information on these rules, please see the Data Privacy section below.
Distance Selling Rules
In 2011, the European Union overhauled its consumer protection legislation and merged several existing rules into a single rulebook, the Consumer Rights Directive, the provisions of which have been in force since 2014. The directive contains provisions on core information to be provided by traders prior to the conclusion of consumer contracts. It also regulates the right of withdrawal, includes rules on the costs for the use of means of payment and bans pre-ticked boxes. There are updates to these rules that will apply from May 2022. For more information, consult the EU Commission’s useful tool to learn about consumer rules.
In March 2019, the European Union adopted a set of two directives which govern EU-wide contract rules for the online sales of goods and the supply of digital content and services, but these rules do not apply until January 2022.
More information: Digital Contract Rules
Alternative Dispute Resolution
In 2013, the European Union adopted rules on alternative dispute resolution mechanism, which provide consumers the right to turn to quality alternative dispute resolution entities for all types of contractual disputes, including purchases made online or offline, domestically or across borders. An Online Dispute Resolution Regulation has set up an EU-wide platform to handle consumer disputes that arise from online transactions.
Distance Selling of Financial Services
Financial services are regulated by a 2002 Directive (2002/65/EC), which was designed to ensure that consumers are appropriately protected with respect to financial transactions taking place where the consumer and the provider are not face-to-face. In addition to prohibiting certain abusive marketing practices, the directive establishes criteria for the presentation of contract information. Given the special nature of financial markets, specifics are also laid out for contractual withdrawal.
Key Link: Distance Marketing
Direct Marketing over the Internet
The e-Commerce Directive (2000/31/EC) imposes certain specific requirements connected to the direct marketing business. Promotional offers must not mislead customers and the terms that must be met to qualify for them must be clear and easily accessible. The e-Commerce Directive stipulates that marketing emails must be identified as such to the recipient and requires that companies targeting customers on-line must regularly consult national opt-out registers where they exist. When an order is placed, the service provider must acknowledge receipt quickly and by electronic means, although the directive does not attribute any legal effect to the placing of an order or its acknowledgment; instead, this is a matter for national law. Vendors of electronically supplied services (such as software, which European Union authorities consider a service and not a good) must also collect value added tax.
Most German companies use direct marketing to sell their products and services. The most frequently used formats are email and online marketing, telephone marketing, and direct mail. It is important to know the pitfalls of using direct marketing as a selling tool in Germany. Data protection and privacy laws are stringent, and consumer protection guidelines and competitive advertising are also highly regulated. Companies should consult with a lawyer before raising, storing, or processing any sort of data in Germany. Other potential challenges regard the laws pertaining to unfair competition and rebates.
Dealing with joint ventures is challenging under German competition law. In Germany, joint venture legislation falls under the purview of the Federal Cartel Office (Bundeskartellamt). The law requires that a joint venture must exercise “genuine entrepreneurial” activities. Under German law, this means:
- Organizations which merely carry out auxiliary functions such as purchasing or distribution on behalf of the parents are not considered joint ventures; and
- JVs must have at their disposal sufficient assets and personnel to carry out their activities.
The Bundeskartellamt is required to prohibit a merger if it is “expected to create or strengthen a dominant position.” Market dominance is defined as an undertaking which either has no competitors or is not exposed to any substantial competition or has a paramount market position in relation to its competitors.
German antitrust law does not, in the absence of a dominant market position, restrict the owner’s freedom to use her/his industrial property rights, including the exploitation of a patented innovation.
Most international express delivery companies are active in Germany. Large players include DHL and Hermes (both headquartered in Germany), FedEx and UPS. These companies ship domestically and internationally, provide a wide range of delivery options and prices and have grown significantly because of e-commerce. The German express delivery industry shipped more 4.05 billion packages in 2020. An increasing number of companies incl. Amazon, Gorillas, Flink and Decathlon (sporting goods retailer) offer same day deliveries in large metropolitan areas.
Product safety testing and certification is mandatory for the EU market. U.S. manufacturers and sellers of goods have to perform due diligence in accordance with mandatory EU legislation prior to exporting.
Companies interested in taking over German firms should always conduct their own due diligence before entering business ventures. One of the U.S. Commercial Service’s programs, the International Company Profile, has been designed to support due diligence processes. All major consulting companies offer due diligence services, and most large U.S. accounting or consulting firms have subsidiaries in Germany.