In 2022, Germany was the third largest export market for Latvian companies. The main exports are food, timber, metal and machine building products. Other sectors are also gradually joining their ranks, e.g. the chemical industry and IT services.
“The German market has always been important for Latvian businesses, and its role is increasing. Figures speak for themselves. Last year, Latvian companies exported goods worth just under 900 million euros to Germany,” said Līva Melbārzde, Head of PR of the German-Baltic Chamber of Commerce (AHK) in Estonia, Lithuania and Latvia.
Gaining trust takes time
“Although Germany is a very desirable market and many businesses would like to be present there, it requires a great deal of patience.
Germans will take a long time before they put their trust in a new partner. However, once you have gained their trust, you can be confident that it will be a long-term partnership,” L. Melbārzde says.
She knowingly adds that sometimes Latvian companies which already successfully export to other countries realise that things are a bit different in Germany. “It is necessary to invest time in studying the German market and competition. You should think through your strategy down to the smallest details, including various regulations which apply to running a business in that country. It is a time-consuming process taking at least a year,” L. Melbārzde warns.
In Germany, doing the same thing as in the US is recommended: choose one city or at least one federal state and begin exporting there. “Germany is diverse, and there are big differences between federal states in terms of mentality, business and economy. That is why it is definitely not a good idea to aim for the entire German market at once. It may simply be too big,” L. Melbārzde suggests.
Discipline on all levels
“Germany is a conservative market. It has a clear hierarchy, and, for example, it is expected that a director will talk with a director. Although it does not mean that a sales representative cannot build a good rapport with a director,” L. Melbārzde adds.
For the garden furniture manufacturer SIA EKJU, Germany is their third largest export market accounting for 14% of sales. The company’s Chairman of the Board Māris Danieks believes that all customers are unique, and their requirements are different, but the overall business environment in Germany is strict.
“Thinking about exporting to Germany, you must have discipline on all levels. All decisions should be thought through. Everything should be calculated: every gram, every centimetre, every milligram,” she believes. Requirements are stringent: the company must have insurance, due diligence done by the customer and product certification, which can often come from one specific German body. Moreover, this certification might not be valid for any other market.
“The delivery system is very strict: the goods are to be delivered at the exact time and in the exact amount. If at 14:35 you must be at an unloading bay, it means that you must arrive exactly at that time. You won’t be served later because it will be someone else’s slot. Everything is orderly, everything is scheduled. Penalties for a short or late delivery are present in all markets, but in other countries these penalties may be waived. But not in Germany,” M. Danieks says adding that in any event you should expect payment after delivery and the payment term is long. For some SIA EKJU customers, the payment term is up to six months after delivery.
M. Danieks knows from experience that many customers will not place an order before they have seen your factory and done their due diligence: “They want to make sure that the company does manufacture the products and to see the site where it happens. This way, the customers try to mitigate their risks. For example, a Latvian company is supposed to have the capacity for a specific order. The partners will make sure that your operation is big enough for the required demand. Only then will negotiations begin.”
Draw up and read your contracts carefully
“Germans are people of principle. I have come to a conclusion that you should try to discuss all possible situations with them before signing a deal and include it all in your contract. Signing a contract, you have to have a backbone, to defend your interests,” Līga Brūniņa, CEO of the cosmetics manufacturer SIA Labrains, points out
M. Danieks agrees that in Germany, the wording of the contract is very important. SIA EKJU learned a hard lesson when they made a mistake and went too low with their price. On top of that, it was just before the Covid-19 pandemic which pushed the prices of raw materials up. Their partner did not agree that it was force majeure and they had to do what they had promised. “We got through it, but the lesson we learned was that if you have signed anything, there is no way back.
It is useful to speak German
“Aiming for the German market, it’s highly advisable to have knowledge of German. Of course, the majority of German entrepreneurs also speak English, but language plays a big role in gaining their trust. That is why you need to speak German for your first step. After that, you can discuss details in English, but to establish that contact and start a relationship, a German must know that their partner can communicate in German. It is also true for the website. It is good to have a German version of it,” L. Melbārzde recommends.
M. Danieks believes that it will be much more difficult to work in the German market without speaking German. “Of course, Germans speak English, but knowledge of German is a key to that market. Without it, there’s no point wasting time in Germany,” he notes.
L. Brūniņa does not speak German. “But I know that it is necessary. Maybe in Berlin you can get away without it, but elsewhere, knowledge of German is very important” she concludes.
Talks over dinner are long
“If you are invited to a dinner, expect it to be a long affair. Germans like to have long and substantive conversations. You have to make time for such events,” L. Melbārzde notes. She says that Germans are open to socialising. So if you want to establish contacts, you should be ready to tell a story about your business, your country and yourself. “Often, when establishing contacts, it is important to them to know, for example, their partner’s marital status. They are not prejudiced in this respect, but usually conversations turn to life outside work,” L. Melbārzde explains.
Germany is a big country, and you should not assume that all German businesspeople are ethnic Germans. That is why she recommends not to bring any strong political or religious views to the table.
“Sometimes Germans’ view of Latvia is based on wrong ideas, so you shouldn’t be too critical of yourself and your country. It would be better to tell a positive story that we are interesting, modern and progressive. Normally they like stories of our digitalisation achievements, for example, in a state administration context. Unlike us, they have significantly more paperwork. In this respect, we are a step ahead of them, and Germans see us as an exciting example,” L. Melbārzde notes.
If your conversation partner has a doctor’s degree, then you should address them as doctor. The only exception is when the person offers to switch to a more informal mode. “Normally these titles are important to them. Formal address is also important to Germans until both parties feel like switching to a more informal way,” L. Melbārzde points out knowingly.
Visit your customers regularly
The cosmetics company SIA Labrains makes 16 products and exports them all to Germany. Currently, the German market accounts for about 5% of sales. “We only started exporting in September 2022. It takes some time for the consumers to get to know our products, but we are already seeing repeat orders, and everything is moving forward. I will be happy if this year, our exports to Germany reach 15% of our sales. The volumes go up about 3% every month,” L. Brūniņa says.
The company has an agent which works with retailers and ensures communication with partners. If SIA Labrains decides to start working with beauticians and dermatologists, it will most likely also need a distributor. Although the company has an agent in the German market, L. Brūniņa still goes there regularly. “The export of our products to Germany is developing rapidly so I go there at least once every two months. Only being there can I meet people, network and build contacts. When I am there for the second, third or fourth time, personal conversation start to emerge, and these people introduce me to other people. Exports require time,” she says.
Show and prove yourself at exhibitions
For many companies, exhibitions are the first step in conquering the German market. SIA Labrains has already participated in Vivaness Biofach (the largest natural cosmetics exhibition in Europe) in Germany twice. L. Brūniņas believes that this is the way to build contacts and establish partnerships. After many years in business, M. Danieks has noticed that the company has been being observed for a long time. “In the first year, only some foreigners came up to our stand to talk. Next year, Germans came to have a look, and a year after that, they sat down to talk,” he says.
The canned fish manufacturer SIA Karavela found its way to the German market by going to exhibitions. “We started exporting to Germany in 2009 when we went to the international exhibition Anuga. We simply went up to the stands of different companies which had similar canned goods and said: “Hello, We are from Latvia, and we would like to make some products for you.” However weird this may sound, some of them said – OK, we are interested,” Jānis Endele, SIA Karavela Director for Development, remembers their export beginnings. However, there is no one ultimate exhibition which will suit all businesses. That is why he recommends carefully selecting exhibitions to participate in.
Latvian companies regularly participate in the Frankfurt Book Fair, which this year will take place from 18 to 22 October. This year, the Investment and Development Agency of Latvia will also run the Latvian national stand there, and businesses can apply for state support to be a part of it. Then there is another favourite, the children's furniture exhibition Kind + Jugend 2023, which will take place from 7 to 9 September. It will also have the Latvian national stand. Businesses can also choose to have their own stands or take a trip to explore the competition and industries. State support administered by the Investment and Development Agency of Latvia within the Programme for Promotion of International Competitiveness will be available for these activities until June.
Exports doubled in four years
In 2022, SIA Karavela sales in Germany were almost 14 million euros. They accounted for almost 20% of total sales. Every year, the German market consumes about 300 million cans of herring fillets in various sauces. This year, SIA Karavela will make about 10 million, or 3%, of those. The company aims to reach 10% of the market, i.e. 30 million cans.
In 2019, SIA Karavela acquired the third largest German fish product manufacturer Larsen Danish Seafood. Today, under the Larsen brand, the company is a market leader in three product groups: canned sprats, salmon and mussels. “Since 2019, we have doubled our exports to Germany. It allows us to forecast pragmatically that our task for the next four years will be to double our sales in that market yet again,” J. Endele said.
J. Endele believes that the SIA Karavela example of entering the German market shows that the same can be done by other food companies, such as meat or dairy manufacturers.
There are several ways to the shop shelves
J. Endele explains that Latvian food companies have four possible areas for business in Germany:
- expat market;
- own brands of the large retail chains;
- working with distributors;
- and working with specialised bio product buyers.
“Expats who buy products that they already know the taste of occupy a small share of the market, and this share shrinks every year. However, it is a first step to launch exports,” he notes.
Via agents, SIA Karavela products are sold at Aldi and Lidl. “We are experts in making our products and the agent is an expert in sales. These are two different things. When our partner told us to do things differently, we learnt how to make a rational decision. Agents know better; if they have not dropped you yet, they know a thing or two about this business. Of course, it is not easy to accept the rules of the game when you think you know best yourself. We must trust our partner who knows the other side of the business,” J. Endele explains.
At the same time, an excellent buyer, in their own words, is someone who understands what consumers will want: “That is why a manufacturer should be able to tell a unique story. You won’t see your product on the shelves unless your story convinces the buyer.”
Product development is complicated
“It is a myth that a company in Latvia can create a product which will be liked by Germans. In 2019, when we bought the German fish processing company Larsen Danish Seafood, we thought we would make this product and that product! To tell you the truth, none of them did well,” J. Endele admits. He explains that developing products for that market is complicated, it requires time and analysis. There are things that Germans have been eating all their lives. It includes various aspects, let alone the packaging. With the onset of the crisis and surging prices, SIA Karavela thought that they could keep the price of the canned herring the same, but reduce the size. “We invested a lot of time and resources, but in the end Germans still didn’t accept it. They would compare prices of a 200 gram can and a 125 gram can, and if the price of the small can was the same as the big one, they would be prepared to try it. Normally small size has a higher price and Germans do not want a more expensive product,” J. Endele says. However, he is not quitting: “Even if it didn’t work, you have to look for innovations and products with added value all the time.”
M. Danieks adds that the quality and design requirements of customers in Germany are much higher than, for example, in France or the UK. “Germans are more demanding; they want to have top quality. German customers want a classic, but high-quality product,” he explains.
Explore store shelves
J. Endele recommends that other entrepreneurs go to Germany and explore the stores first. It would only take a day to see the stores of the main players in the market. He encourages entrepreneurs to do some shelf reading, i.e. to take pictures of the store shelves with a specific product category and buy all the competitors’ products in their segment. If there are no similar products, there is no point in wasting time and trying to offer something new. Back home, taste all the products and analyse the offer: packaging, price, taste, marketing.
The next step is approaching potential partners. However in Germany, same as in other markets, the existing suppliers have an advantage. “In Germany, buyers are conservative. If they are satisfied, they will not be willing to change their existing suppliers. And, unless the manufacturer has caused some problems, and if the price is the same, the existing supplier will stay where it is. If a retailer is not thinking about changing a supplier, it is difficult to get on their shelves,” J. Endele says knowingly.
A step closer to exports: joining an industry association
L. Melbārzde adds that Germans like all kinds of associations, societies, clusters and interest groups. So she recommends Latvian companies planning to export to Germany to join their trade association. “It is rather typical for the German business environment to join such organisations, including chambers of commerce and industry. It is a certain advantage for members of our German-Baltic Chamber of Commerce which works in more than 90 countries worldwide. When Germans see that a company is a member there, they accept it as their own,” L. Melbārzde says.
M. Danieks is confident that Latvian companies have a huge business potential in Germany: “We just have to work to conquer that market.”