Germany Risk Analysis
MGT/448
Smita Poddar
December 15, 2014

Germany Risk Analysis
Germany is the selected target country for DIRECTV’s latest expansion. The German economy, political structure, regulatory, financial, cultural, and competitive landscape requires an objective analysis to determine the appropriate strategy and plan for market introduction. Other parts of the assessment include taxation, marketing mix, distribution options, supply chain, and environmental factors.
Political, Legal, and Regulatory Exchange
Germany as part of the European Union (EU) is a relatively low risk target for political considerations with Forbes citing the region has the most positive regional outlook with 47% of member countries exhibiting a decline in risk ratings (Rapoza, 2013). A.M. Best (2014) rated Germany as one of the best in nine areas with the only exception attached to labor flexibility. See Figure 1 below.

Figure 1 from A.M.Best (2014)
Repatriation of Funds
Foreign direct investment is setting up a business or the purchasing of assets in a foreign location or across national borders. DIRECTV has decided to initiate business in Germany to allow customers access to entertainment choice and convenience at home. The risk of exchange and repatriation of funds are the penalties involved. Germany has been a country that is highly developed as well as having a high-cost economy. Companies face the risk of 35% taxation in the U.S. for bringing profits back home, which is primarily due to stringent tax laws and treaties between the two countries. As Dr. Endres (2012) noted “foreign corporations may freely repatriate their German branch profits, other forms of permanent establishment income, or profit shares from their partnership holdings without further taxation” (Introduction). Profit repatriation is the best decision to avoid paying a 35% tax rate on profits.
Competitive Assessment
Kabel Deutschland is one of the biggest competitors offering a full range of television, telecommunication, and pay-per-view programming. They operate in 15 million homes in Germany making the company the largest supplier of cable services in the EU (Kabel Deutschland Annual Report, 2013). Their marketing consists of direct to consumer advertising via direct mail, online marketing, and sales agents with over 3500 employees at end of annual reporting period.
Deutsche Telekom is another serious competitor already ingrained within Germany. The German government has a 15% stake in this company. Deutsche Telekom has launched a new corporate strategy to become the leading European telecommunications provider (“Deutsche Telecom Strategy”, 2014). Other small and regional players exist in the market today but are not considered power players in the market.
Taxation and Double Taxation
Double taxation occurs when corporations are separate legal entities from their shareholders. German business profits are subject to two taxes: trade tax and income or corporation tax. The income or corporation tax is subject to a surcharge, the so-called “solidarity surcharge”, of 5.5% of the amount due (Endres, 2012). Double Taxation Treaties are conventions between two countries that aim to eliminate the double taxation of income or gains arising in one territory and paid to residents of another territory. Corporations deal with the burden of taxes and rates when doing business in other countries. Accounting principles base taxable income upon trade tax, transfer pricing, tax groups, and third party finance as a few of the taxation burdens DIRECTV encounters when doing business with a country in the EU. To avoid a 19% value added tax (VAT) customers must purchase merchandise and export the merchandise to their residence, which has to be inside of the EU.
Market Risks
The four P’s of the marketing mix are product, place, promotion, and price. The product offered is satellite television and telecommunication services with 24 hour by seven days per week support (24/7), local installers to boost local economy jobs addition, packaging with German language manuals and regulatory compliant, best-in-class warranty, and DIRECTV branding. Place will include traditional retail outlets (kiosks, storefronts) as well as online ordering. A Deutsche DIRECTV website design prototype is underway. Promotion is to direct-consumers and businesses through direct mail, internet, social networks, and local television and radio advertising. Because of the local providers already in Germany, DIRECTV may have to pay agents (telecom providers as an example) finders fees or commission. Pricing will start at below cost rates for initial six months with average price escalation as customers sign on for longer periods.
Distribution and Supply Chain
Supply chain risks help improve the performance of the company. Any interruption of the supply chain negatively affects productivity and revenue. Possible chain disruptions are telecommunication, the weather, and outsourced products not arriving on time. Another risk for supply is bottleneck in the supply market (Husdal, 2010). Production delays caused by suppliers disrupt the entire delivery system through to the final customer resulting in brand dissatisfaction. External risks for the supply chain are terrorist attacks, importing and exporting restriction of the product, and labor conflicts.
Physical and Environmental Challenges
Competition is a significant encumbrance in a target market. In order to stay ahead of the competition, marketing innovations must appeal to the target audience (Root, 2014). The physical and environment challenges for DIRECTV are product placement into homes, and communities while exploring the target market. Germany consistently contributes to innovation in technology. Innovation in programming, devices, and delivery to the target objective requires consistent messaging and advertising for using the appropriate strategy. One obvious obstacle is the language barrier, and all material and offerings need translation to correct German. Customer billing is another entry factor for conducting business in Germany. Germany distributes debit cards, and the residents use this method to pay for products. If a company chooses to use newspapers for promotion, most German newspapers do not accept advertisement unless the enterprise is a Fortune 500 company (VentureVillage, 2013). The last challenge to entry and target market operate is a website audit. When the examination is complete, the company receives a seal to engender consumer confidence about website reliability.
Social and Cultural
Germany has the fifth largest economy in the world with a significant degree of openness to international trade and business. Germany business culture places high value on hierarchy and Germany companies, therefore, follow a strict hierarchical structure with decisions and communication flowing from top down vertically. In Germany, status is acquired and assigned on the basis of merit, and the highest positions in a German company is held by the most technically qualified and experienced employees. For an international organization company like DIRECTV doing business in German, this hierarchical structure can affect negotiations and meetings by extending the expected period to complete. German business people tend to communicate in a very direct manner. They give their opinion openly in a straightforward manner and expect the same from other business people and colleagues. In Germany, humor is not a valued trait or appropriate for business, DIRECTV will have to be aware that using humor may be deemed as inappropriate and unprofessional (“Challenges of Doing Business in Germany” (2010). DIRECTV’s recent ads with Rob Lowe reprising multiple silly roles is not a candidate for promotion in this country.
Cyber or Technology
In Germany, cyber has become a new buzzword for what the German government describes as IT Security. One important aspect in this regard is the collaboration between the government and the private sector regarding Critical Infrastructure Protection (CIP). Germany developed its National Plan for the Protection of Information Infrastructure (NPSI) in 2005, followed by a more detailed Implementation Plan-KRITIS in 2007 developed in collaboration with relevant private sector stakeholders. Information and Telecommunication Technology (ICT) is identified as one of the nine distinctive critical infrastructure sectors (Neutze, 2011). All of these initiatives ensure better information sharing and coordination of incident response to cyber-attacks. The Germany government actively encourages the private sector to work closely with the recently established German National Cyber Response Center in order to disclose all cyber -attacks as well as all security vulnerabilities to foster a better preparedness and response to attacks.
Strategic Planning Process
The planning process for strategy of entry into Germany as a new market considers multiple facets of risk management. Mission, objectives, strengths, and weaknesses contribute to developing the best planning and strategy development. Once a best approach is selected, the process also provides exit strategies and contingency plans in the event the proposed plan uncovers unexpected turbulence.
Mission and Objectives
“Make DIRECTV the best video entertainment experience in the world” (“DIRECTV – Investor Relations”, 2013). DIRECTV’s current mission statement and objectives will translate to Germany without issue. DIRECTV believes that excellence is more than a goal; it is a promise (“DIRECTV – Investor Relations”, 2013). The promise to consumers has three main objectives. First, DIRECTV strives to deliver a television experience that cannot be obtained elsewhere with the best programming, more shows and sports broadcasts, and cutting-edge technology. Second, DIRECTV is always there to help through the 24/7 Help Center that provides prompt, courteous service in local languages. Lastly, DIRECTV listens to what the customer wants and loves and what they would like to see improved (“DIRECTV – Investor Relations”, 2013).
SWOTT Analysis
A SWOTT (strengths, weaknesses, opportunities, threats, and trends) analysis enables companies to identify the positive and negative factors influencing the internal and external environments of an organization. The SWOTT analysis develops awareness of internal and external threats affecting the strategic plan and resultant decisions. The following table illustrates the SWOTT analysis for the DIRECTV planned expansion into Germany. Strengths | * Nearly 38 million subscribers in the U.S. and Latin America (DIRECTV, 2014) * DIRECTV leads the satellite industry in the U.S. and Latin America * #1 in customer satisfaction over all cable subscribers (DIRECTV, 2014) * Mobility includes TVs, amartphones, tablets, and computers * Financial and human resources already in place for expansion | Weaknesses | * DIRECTV is new to Germany and EU * Lack physical resources in Germany | Opportunities | * Expansion of services into Germany with moves into more of Europe in the future * Rapid and open growth potential in Europe * Bring additional employment to Germany * American expats and military living in Germany | Threats | * Laws and regulations regarding satellite television * Competitors: 19.8 million cable subscribers, 15.7 million satellite TV subscribers * Brand is unknown in the market | Trends | * Satellite TV subscriptions growing * New HD technologies provide a richer TV experience * Mobility of service with smartphones, tablets, and laptops * Broadcast EU and world sports events similar to NFL Live subscription in United States |

Strategy Selection
Establishing a strategic plan will allow DIRECTV to communicate to employees and investors the goals of the expansion into Germany, the actions needed to achieve those goals, and express the critical elements of planning. The strategic plan will include four parts: analysis of current internal and external environments, strategy formulation, strategy execution, and evaluation of the implemented strategy for sustainment. DIRECTV should implement a differentiation strategy with regards to the expansion into Germany. DIRECTV has an established reputation for quality and innovation that will help them gain a comparative advantage over the existing German competitors. DIRECTV already has a strong sales team and customer service team in place to smoothly transition into Europe. DIRECTV is a leader in developing and incorporating new technology into its entertainment service that will ensure its product is better than that of the competitors.
Mode of Entry
DIRECTTV has chosen a mode of entry of wholly owned subsidiary as a Greenfield venture due to its proprietary technology. Developing a presence in Germany should also allow future growth in the European Union (EU). This method will also enable DIRECTTV the ability to work with technology which will inable them to distribute a signal that will work within Germany and much of the EU (The German Way & More, 2014). This strategy will be significant as it will allow customers to gain access to more stations than are readily accessible in the EU and also play them on their existing TV. While it will be a more costly mode of entry, the ability to work within the EU and build brand loyalty will prove to help DIRECTTV to become an industry leader in two major markets.
Control and Evaluation
With a wholly owned subsidiary located in Germany, DIRECTV has already made a decision to keep control of the development of both their satellites and their proprietary satellite delivery. A new system that can deliver both PAL and ATSC/NTSC should increase market share for DIRECTV. The fact that DIRECTV has developed a Greenfield venture also helps to keep the control in the organizations grasp and prevents the risk of losing control that could occur in a joint venture or acquisition. Constant evaluation of both the development of the new technology and how the local markets perception of the company in the local market will be necessary to prevent the business from losing its position in this new market.
Contingency Plan
Any venture into a new market requires a healthy look at what potential risks may influence the decision to change from one mode of entry to another. While there are very few reasons for a Greenfield venture to fail, the risk is still viable if the government or other satellite vendors decide to challenge entry into this market. DIRECTTV has chosen a contingency plan that will use exports of their satellite dishes and converter boxes and a Greenfield venture that only sells the services to the German population. While not ideal, it may prove to be beneficial when once DIRECTV has a presence and subsidiary in the EU that can foster future growth for the company.
Conclusion
DIRECTV understands the many risks and assessment needs for entering new markets. Competition is heated in the U.S. and expanding to Germany to fuel growth is a natural offshoot with limited risk. The satellites are already in place, sourcing equipment for German broadcast standards are readily available, and participating in the EU economy by repatriating any profits exhibit a firm belief and commitment to the plan. Competition is expected from current German providers, but none have the satellite capability and technical expertise of DIRECTV.

References
5 obstacles to entering the German market- Venture Village Retrieved from: venturevillage.ue/5-obstacles-to-entering-the-german-market-and-what-you
A.M. Best. (2014). Retrieved from http://www3.ambest.com/ratings/cr/reports/Germany.pdf
Challenges of doing business in Germany. (2010, August 31). Retrieved from http://www.communicaid.com/cross-cultural-training/blog/challenges-of-doing-business
Deutsche Telecom strategy. (2014). Retrieved from http://www.telekom.com/strategy
DIRECTV. (2014). Retrieved from http://www.DIRECTV.com/
DIRECTV - Investor relations. (2013). Retrieved from http://investor.DIRECTV.com/
Doing Business in Germany. Retrieved December 13, 2014, from http://treasury-management.com/article/4/121/1060/doing-business-in-germany.html
Endres, D. (2012). Doing business in Germany. Retrieved from http://treasury-management.com/article/4/121/1060/doing-business-in-germany.html
Husdal, J., (2010). Supply chain Logistics Risks in Germany-Husdal Retrieved from: www.husdal.com/2010/10/20/supply-chain-logistic-risk-in-germany
Kabel Deutschland AG. (201). Retrieved from http://www.kabeldeutschland.com/static-com/com/media/documents/reports/kdg_holding/130627_KDH_Q4_E.pdf
Neutze, J. (2011, January 1). Cybersecurity in Germany-toward a risk-based approach. Retrieved from http://www.aicgs.org/publication/cybersecurity-in-germany-toward-a-risk-a-risk-based-approach/
Rapoza, K. (2013). Forbes. Retrieved from http://www.forbes.com/sites/kenrapoza/2013/05/15/on-political-risk-terrorism-u-s-riskier-than-botswana/
Root, G. N., (2014). Challenges in a Target Market Retrieved from: www.ehow.com/list_6309922_challenges_target_ market.html
Satellite television. (n.d.). Retrieved from http://www.toytowngermany.com/
The German way & more. (2014). German Television: Watching TV in Germany: Solutions for Expats. Retrieved from http://www.german-way.com/for-expats/living-in-germany/german-television/
Bottom of Form
Welcome to Germany info. (n.d.). Retrieved from http://www.germany.info/Vertretung/usa/en/05__Legal/02__Directory__Services/07__Taxes/__Taxes.html