This document contains marketing plan for entering the German market using Greenfield Investment as a market entry strategy.

FITT- International Marketing Plan TradeMerit Inc.

FITT ID: 306549

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TABLE OF CONTENTS

Serial No. Contents Page No.

1 Executive Summary 3

2 Corporate Profile 5

3 Market Choice Rationale 8

4 Market Entry Rationale 12

5 Legal/Political/Cultural Impact Identified 16

6 Pricing/Promotional Mechanisms Rationale 20

7 Logistics Mechanisms Rationale 24

8 Conclusion 26

9 Bibliography 28

10 Appendices 32

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Executive Summary

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EXECUTIVE SUMMARY

TradeMerit is a company specialized in providing business process management and supply

chain management solutions. The company has engineered proprietary processes and software to

identify and mitigate risks in various business functions by integrating all the business functions

under a common platform. TradeMerit’s business solutions services enable its customers to

manage their business efficiently, by trending the cascading effect of any business decision taken

in any business vertical.

After analyzing the long term objectives of the company I recommend Germany as a potential

market to provide its proprietary business solutions. Germany is the second largest

manufacturing country in the world and is the pillar of the European economy. The current

market size of the German manufacturing sector is EUR 1.57 trillion. The small and medium

manufacturing enterprises in Germany have had a competitive advantage because of their

superior technological process. However this dominance is threatened by the emergence of new

manufacturing hubs like India and Brazil, the rising cost of labour in the Euro zone and the cost

of raw materials. The only way the SME sector will be able to maintain a competitive advantage

is by managing their supply chain effectively. TradeMerit’s products will enable the German

manufacturing sector to maintain its competitive advantage.

I recommend TradeMerit to enter the German market using Greenfield Investment as the market

entry strategy. This will enable TradeMerit to be closer to the customers in the market place,

rather than the strategy of e-commerce used by its competitors. Germany is a foreign investor

friendly market and the setting up process is relatively faster than most OECD countries. The

cost of setting up a limited liability company in Germany is minimum EUR 25000 plus the

registration charges of EUR 10000.

The pricing strategy recommended for TradeMerit is value added pricing. The suggested pricing

strategy will enable TradeMerit to recover its investment cost in a short period of time. It will

also distinguish itself from the competition as it will be positioned in the market as a product that

provides more value added services than its competitors and the customers have the choice of

paying for the services that they require.

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Corporate Profile

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COMPANY PROFILE

TradeMerit is a Canadian company specialized in providing international trade and logistics

service solutions. It is headquartered in Ottawa, Canada and has its representative offices in the

US and Saudi Arabia. TradeMerit was founded by Sami Al-hussieni, Wael Aggan and Tarek El-

gillani in 2006. The robust growth in the international trade fostered the thought of effective

management of supply chain as being the driver of success in the global market. The leadership

trio of TradeMerit engineered products to facilitate organizations manage their supply chain by

collaborating cross company processes.

MISSION

TradeMerit strongly believes that the time has come wherein best companies will not be

competing against each other in order to gain dominance in the market, but it will be a

competition amongst the supply chains of the companies. Keeping in view the future competing

ground the mission of TradeMerit is to facilitate the organizations and their supply chains to

function as inter-connected, highly intelligent and agile business networks.

VISION

TradeMerit’s vision is to empower the businesses to understand the problems faced by their

supply chains in real time and provide solutions without affecting their business objectives.

TradeMerit’s motto is “Know Where Your Business is Going”.

PRODUCTS OFFERED

Supply Chain Management (SCM)

This product assists in managing the current supply chain and also to develop new supply chains.

TradeMerit has created a unique method to address supply chain issues and provide solutions in

real time.

Business Process Management (BPM)

This product enables the business managers to develop new strategies to structure the business

process in use, so as to overcome operational loopholes. It provides an integrated approach

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towards problems faced by various verticals of business and applies solutions which avoid

cascading negative effects on the entire business process.

Cloud Computing Strategy (CCS)

As the globe has moved towards new technologies to manage business and the tons of data,

TradeMerit assists in setting up Cloud Computing function for the businesses, and helps integrate

it in the current business functions.

Risk Management (RM)

TradeMerit assists in managing risks in various business functions. It helps in enabling the

managers realise the potential risk in the supply chain, and provides solutions to avoid the same.

UNIQUE SELLING PROPOSITION

TradeMerit combines the best business practices, industry intelligence and new technology to

enable business growth. It provides solutions that can be easily deployed in the current system

without disrupting the business process in use. TradeMerit guarantees that with the solutions

provided through its various products, an organization can earn ROI of more than 250%.

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Market Choice Rationale

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THE PROSPECTIVE MARKET: GERMANY

Germany has experienced roller-coaster ride like economic events since the fall of the Berlin

Wall in 1990. Germany struggled to implement economic reforms throughout the 90s. A popular

weekly magazine The Economist had written off Germany as a failed nation labelling it as “the

sick man of Europe” in 2000. The economic turmoil from the period 1990-2003, called for

political reforms and economic reconstruction of Germany. The reforms implemented brought

Germany back to its glory days from 2004 and a new nation emerged from its economic

sluggishness. The new Germany is economically and politically strong, which has set an

example for the other European countries to follow its model of success.

Currently the European region is undergoing an economic recession. Germany has been the

backbone of European economy during this recessionary phase as the largest economy in

Europe. Germany has become the second largest manufacturing exporter as per Deloitte’s 2013

Global Manufacturing Competitiveness Index. The manufacturing exports grew 2.7 times

between 2000 and 2011. The manufacturing sector contributes 29.1% to the GDP of Germany.

The service sector and agriculture sector contributes 70% and 0.2% respectively to its GDP.

Germany has experienced a boom in the manufacturing sector due to the following reason:-

It has built the highest quality of infrastructure. Swiss institute, International Institute for

Management Development (IMD), ranks Germany seventh among 59 countries on the

quality of infrastructure.

The government supports the SME sector by providing tax breaks and depreciation

allowances. The government driven incentive programs have enabled the SMEs to

manufacture sophisticated goods and services that cannot be easily replicated.

Germany has invested a very high percentage, by international standards in R&D

intensive industries. This has allowed German companies to invent sophisticated

technologies and gain competitive advantage.

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The formation of the Euro Zone in 1999 extended Germany’s market to the Far East of

Europe. The free labour movement across the Euro Zone enabled Germany to reduce the

labour cost by 6%.

The strict environmental regulations to conduct business compelled the industries to

adopt sustainable business practices.

RATIONALE TO SELECT THE MARKET: GERMANY

Germany was replaced by China in 2009 as the number one manufacturing destination. In 2010

Germany’s rankings for manufacturing competitiveness had slipped to number eight. Although it

regained its second spot in 2013, Deloitte’s survey states that Germany’s dominance in the

manufacturing sector is threatened by emerging economies like India, Brazil and South Korea

(see Appendix A). Over the next five years Germany will slip to the fourth position being

replaced by India and Brazil. The major concerns for Germany not being able to maintain its

dominance are:-

The labour cost is very high as compared internationally. As of 20th March 2013 the

gross pay per hour is USD 41.16 and the non-wage labour cost is USD 35.85. Even as

per European Union’s average Germany’s labour cost is 32% higher (Federal Statistic

Office, Germany).

There is a shortage of skilled labour. As per research carried out by the Association of

German Engineers and the Cologne Institute for Economic Research, Germany was

losing 3.4 billion euros over the next three years due to shortage of skilled engineers.

Germany is not rich in natural resources. Germany’s specialized sectors like chemical

industry, electrical industry, automotive sector and metal processing have to heavily

dependent on expensive imports of raw materials.

Global value chain is an integral part of the manufacturing industry. Integration of the

various business processes with the global value chain has posed problems for the

German industries.

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The rising cost of labour market and raw materials and lack of skilled workforce in Germany has

fragmented the production processes favouring outsourcing and offshoring. This has called for

the change in German industries tried and tested manufacturing process. TradeMerit will

facilitate the German companies to manage their business processes by integrating its value

chain in a flexible framework. Effective management and control on each component of the

value chain will assist the German companies to tide over the problem of rising cost and lack of

skilled labour, thus enabling them to achieve and maintain their competitive advantage. Germany

will be one of the largest markets for TradeMerit’s supply chain management services.

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Market Entry Rationale

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MARKET ENTRY STRATEGY

Based on the long term objectives of TradeMerit to become a dominant player in providing

business process management solutions the economic situation of Germany and the potential

market size was researched. The favourable business environment, state of the art of

infrastructure and the government policies towards foreign direct investment in Germany, I

recommend TradeMerit to enter the German market through Greenfield Investment.

MARKET ENTRY RATIONALE

The German government provides incentives to the foreign investment that creates jobs. The

monetary policies on capital inflows are liberal. The foreign companies entering the German

market through Greenfield investment are treated on par with the local German companies’ i.e.

foreign investors are subject to same regulations as their German counterparts in securing

licences, building permits and obtaining approval for investment incentives. The foreign

investors face no restrictions on exchange controls for ordinary commercial transactions and the

companies have unconditional access to both borrowing and lending abroad. International

Finance Corporation ranked Germany 20th in the Ease of Doing Business rankings out of 185

countries.

PROCEDURE FOR GREENFIELD INVESTMENT

I recommend TradeMerit to set up a limited liability company (Gessellschaft mit beschrankter

Haftung or GmbH), which is governed by the Limited Liability Act. The procedure for forming a

limited liability company is easier and faster than a Joint Stock Corporation. GmbH is the

preferred corporate form for foreign investors because it limits the risk of activities to the amount

of investment only.

Site of business office

The place from where the business will be conducted is very crucial for the success of the

organization. Since TradeMerit is in a service oriented business its office must be located near

the corporate offices of the manufacturing sector. The following steps must be undertaken to

select office space.

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• Set criteria about the area of office space required.

• Conduct research about the location of the target markets corporate offices.

• Conduct detailed research about the real estate prices.

• Take a decision to buy or lease the office space.

• Underline a budget to buy or lease the office space.

• Contact the real estate agents to find office space as per the company’s requirements.

If the decision is to lease the office space, a lease agreement must be signed with the owner of

the office building and duly notarized by a gazetted officer and filed with the Registrar of Land

Registry.

If the decision is to buy the office space, the space transfer agreement must be signed with the

owner. The same must be notarized and filed with the Land Registry. Simultaneously an

application with the Land of Registry must be submitted for the registration of the new owner of

the property.

Capital required for setting up a GmbH

The minimum capital required to set up GmbH is Eur 25000, but only EUR 12,500, including

deposits in kind, must be paid in. The registry court will value the deposits in kind paid in.

Registration of Documents

The company must file its registration application with the commercial, provincial or district

court in which it is based. Simultaneously it must file a deed recording the articles of association,

bye-laws of the company, a calculation of the costs to be borne by the company for formation

and all documents regarding the management team. All the documents must mention the place

where the office is situated in Germany.

GmbH comes in to existence when the application is recorded in the Commercial Registry and

the minimum capital of Eur 25000 is paid in.

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COMPETITIVE ADVANTAGE

TradeMerit will be able to gain competitive advantage by entering the German through

Greenfield Investment. Majority of its competitors are offering their services through the e-

commerce platform, which has not been successful so far. A physical presence in the market

place accompanied with the expertise of local human resource, will enable the company them to

become the dominant players in the market.

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Legal/Political/Cultural Impact Identified

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LEGAL FRAMEWORK

Germany has a stable and transparent legal system. The ultimate source of all German laws is the

constitution or Basic law (Grundgesetz). Any act presented at the state or federal is void if it

conflicts with the constitution. The business law is governed by the principle of freedom of

economic growth. There are no licenses or permit required to conduct business in Germany, a

simple process of signing with the Company Registry is all an entrepreneur requires to establish

his company.

The German judiciary system is decentralized. The courts are divided into different streams, each

specializing in its various fields of law. Therefore there are separate courts to try commercial and

labour law suits, tax, etc. Each separate court has its own federal supreme court. The judgement

of the courts is binding.

Germany has framed strict laws to protect the intellectual property (IP) rights. The protection of

foreign investors is one of the reasons for Germany being the preferred destination in Europe for

foreign business. A registered trademark is valid for 10 years and cane be protected indefinitely

in 10 year increments. The usual processing time of IP is 10-12 months, however for an

additional fee the processing time can be reduced to 6 months. Many IP disputes are settled by

delimitation agreements.

POITICAL SCENARIO

The constitutional form is the Federal Republic of Germany (Bundesrepublik Deutschland),

comprised of sixteen federal states (Länder). Each level of government (federal, state, district

and local community) is directed by an elected body competent to take decisions on all matters

remitted to it by the constitution. Berlin is the capital. It is the home of both chambers of the

federal parliament and of most government ministries. Other ministries and government

authorities are located in various German cities, particularly in Bonn, the former West German

capital.

The federal parliament has two chambers. The lower chamber (Bundestag) is elected by the

population for a four-year term. Its seats are allocated on a system of proportional representation.

The government is formed by the party or coalition (in practice, invariably a coalition) with a

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majority of the seats. The remaining parties represented in the Bundestag form, collectively, the

opposition. The upper chamber (Bundesrat) is made up of members delegated by the parliaments

of the individual federal states with votes in rough proportion to the size of their populations.

The party allegiances of its members reflect the identity of the governing party or coalition in

each federal state.

Most acts of parliament are initially proposed and debated in the Bundestag. The Bundesrat does

have certain rights to propose, or to propose changes to, bills, although its primary function is to

safeguard the interests of the federal states against acts of expropriation by the federal

government. Since all acts affecting the interests of the federal states are subject to its approval,

very few acts of national importance can be passed by the Bundestag without the support of the

majority of the Bundesrat. This division of political functions and responsibilities forces

willingness to compromise on all major political parties.

Bills are enacted into law on signature by the federal president (Bundespräsident) to whom they

are submitted after acceptance by both chambers of parliament. The signed acts then take effect

on promulgation in the Federal Law Gazette (Bundesgesetzblatt).

The present government is a coalition of the Christian Democrats (CDU/CSU) and the Liberals

(FDP). Its term will expire with a general election in 2013.

TAX SYSTEM

The foreign companies in Germany are subject to the same tax system as the local companies.

The taxes applicable to companies in Germany are the corporate income tax, municipal trade tax,

value added tax (VAT) and social security contributions (see Appendix B). In order to finance

Germany’s reunification an additional surcharge of 5.5% is levied on corporate income tax.

Canada and Germany have signed a tax treaty agreement, according to which the problem of

double taxation is avoided. The companies can choose to follow the profit to be taxed in either of

the countries depending on their business practice. If 100% of the profits are repatriated by the

subsidiary operating in Germany, the profits are not taxed in Germany. The profits withheld in

Germany are taxed as per the withholding tax rates.

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CULTURAL ASPECTS

Culture plays a vital role in the way business is conduct. As per Professor Geert Hofstede, the

founder of comparative intercultural research stated that understanding cultural differences is the

quintessential component of success in a business negotiation. Exploring the German culture

through the lens of the five cultural dimensions (5D) model, we can get understand the drivers of

German culture as compared to Canadian culture (see Appendix C).

Comparative Analysis of culture based on Hofstede’s 5-D model

Power Distance (PDI)

Canada and Germany have the same PDI score. This shows that both the societies are highly de-

centralized and co-determination rights are extensively used in management of business.

Individualism (IDV)

Canada’s individual score is 80 which is higher than Germany. Both the societies are

individualistic; however the German society is more interdependent than Canadian society.

Masculinity/ Femininity (MAS)

Germany’s score is higher than Canada in this cultural dimension. This shows that Germans are

highly aggressive in their approach. The German society believes more in competitive approach,

as compared to Canadian society which is more accommodative.

Uncertainty Avoidance (UAI)

Germany is an uncertainty avoidant society. It believes more in deductive rather than inductive

approaches which is literally the opposite of the way the Canadian society operates.

Long Term Orientation (LTO)

Germany and Canada both are short term oriented societies. Both the societies work towards

immediate results.

I strongly recommend TradeMert to study the cultural aspects of German society, in order to

conduct business in the German environment.

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Pricing/Promotional Mechanisms Rationale

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TARGET MARKET

Germany has been able to become the second largest manufacturing exporter in the world not

only because of firms like Siemens, Volkswagen, Allianz, SAP and BASF, but also due to the

fact that it houses the most number of small and medium manufacturing enterprises in the world.

The small and medium manufacturing enterprises employs over 25 million people, making them

the largest employers in Germany. They are regarded as the backbone of German economy. The

SME sector has annually grown by 39.2% which is higher than the global average of 17.61%.

The growing SME sector is also at immense pressure to reduce costs, as it is threatened to

become uncompetitive by 2020 because of the manufacturing industries refining their business

process in Asian countries.

MARKETING STRATEGY

Product

The detailed description of the products offered by TradeMerit is provided in the Corporate

Profile section on page no 5. The product is targeted towards the small and medium

manufacturing enterprises. The target audience will benefit in the following ways through the use

of the services:-

Integration of all the business processes under common software.

Ability to monitor and control the business functions at the click of a button.

Identify the risk areas and provide remedial actions.

Report the occurrence of a potential delay in the supply chain in real time.

Store all the business information through cloud computing.

The only modification that the product will require is the option to use the product in German

language. Currently all the services are offered in English language only.

The products currently available in the market are only compatible with few business software.

The products offered by the competition can integrate only the production and finance function

of business, as compared to TradeMerit’s products which can integrate all the business functions

and provide a cause effect relationship between all the processes.

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Price

TradeMerit is offering a product in the market which is most required for the manufacturing

industry to stay competitive in the international market. The major benefit of the product is that

the manufacturing units will be able to significantly reduce their costs by deploying effective

management and control methods on their business processes.

TradeMerits strategic objectives are to maximize its profits and to become a market leader in its

segment of business. In order to achieve its strategic objectives it has implemented value added

pricing strategy. Currently the competition is offering products that are similar to TradeMerit,

however the one aspect that differentiates TradeMerit’s products form its competition is that it

warranties a fixed rate of decrease in cost of the business processes of the customer.

TradeMerit’s competition has not been able to come up with such an assurance which can be

quantified in real money terms.

TradeMerit uses full cost pricing method to arrive at the cost of the final product. The cost of the

product includes the direct and indirect labour and both the variable and fixed overheads. This

costing method ensures that all costs are recovered from conceptualizing to making to delivery

and after sales service of the product.

Promotion

TradeMerit will promote its business through SME trade shows and exhibitions organised by the

German government, German Federation of Industrial Research Association and Canada Europe

SME Forum. TradeMerit plans to rent a booth at the trade shows to market itself to the SME

sector of Germany. It will always promote its product through advertising in business magazines,

business directories and business journals. The cost of renting a booth at trade show will be

approximately EUR 4500 for one day. The cost of advertising through print media will be

approximately EUR 2500 per for a weekly magazine and EUR 8000 for a monthly business

journal.

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People

Majority of the small and medium manufacturing enterprises corporate offices are situated in

Western Germany. A dedicated team of 20 sales persons will be required to tap the target

audience. The sales staff will be provided a training of 14 days on the various products offered

by TradeMerit. A team of 10 people will be required to provide real time tech support to the

companies using TradeMerit’s products.

The software will be sold outright on cash basis to the customer and technology support service

will be provided as a package deal. This is also the normal practice of the service industry.

After-Sales Service

The customer will be provided technological support for one year on purchase of the services.

Annual maintenance fees will be collected from the customer from the second year. The

customer will be provided quarterly report regarding the cost reduction the software has affected

the customer’s business. The product offers a guaranteed reduction in cost of running the

business through its software.

The product will be positioned as a product that adds value to one’s business by facilitating cost

reduction to efficient management of its business processes and risks.

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Logistics Mechanisms Rationale

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SERVICES INDUSTRY LOGISTICS

The services industry does not transport large quantities of goods, however the service industry

have logistical needs of their own. The timely delivery of the services promised to the customer

is very critical in the service industry. The service industry engages in constantly updating their

business processes to make the services available to the customer in real time.

TradeMerit provides technological and software expertise to the manufacturing sector to

efficiently manage their business processes and supply chain. The support services provided by

TradeMerit are through internet and telecommunication. The office space in Germany that

TradeMerit will conduct its business must have access to high speed internet and

telecommunication facilities. It has engineered a safe platform of communicating sensitive

information with the customer. In order to provide utmost customer satisfaction TradeMerit

deploys dual platform for exchange of information, which in case one platform fails due to server

problems, the other platform supports and runs without hindering the business process.

The products offered by TradeMerit can be easily integrated with the current software used by its

customers. TradeMerit’s proprietary software creates a link on the systems of the customer, and

can be easily used on the intranet of the customer.

A consolidated report of the performance of its products used by the customer is provided to

them every quarter through local courier services. This report is delivered on the first Monday of

each quarter.

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Conclusion

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CONCLUSION

Germany is the largest economy in Europe. In spite of the entire Euro zone reeling under

recession, Germany has been able to grow at a decent rate as compared to rest of Europe. The

government policies are foreign investor friendly, hence Germany ranks among the world’s

leading countries for foreign direct investment. In 2011 it received more than EUR 513 billion as

FDI stocks. The tax structure in Germany is another driving factor for foreign companies to

invest in Germany. It allows the firms the flexibility to choose German tax or their domestic tax

system for taxation purpose. The transparency in the judiciary process has instilled confidence in

the foreign investors. The booming manufacturing sector which contributes 30% to the GDP of

Germany is an attractive destination for companies offering third party support services to the

manufacturing industries. Canada is in process of signing the Comprehensive and Economic

Trade Agreement (CETA) with Europe, which would further relax the terms of trade between the

Euro zone and Canada.

ACTION PLAN

As per Easy of Doing Business survey by International Financial Corporation, the maximum no.

of days required to set the Greenfield Investment to start functioning is 45 days at a total of

expenditure of EUR 35000. The expenses included the minimum paid up capital and registration

charges. The expenditure did not include buying of fixed assets like land and building.

A management team must be formed for the German subsidiary which would report to the CEO

of TradeMerit. A trained sales team of 20 local people will be required and a team of 10 people

for technology support.

Step By Step Process

• Lease/buy office space in Germany.

• Appointment of management team for German subsidiary

• Complete registration process and file for patents and trademarks.

• Start promotion campaign

• Recruit and train the staff

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Appendices

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APPENDIX A

Comparative Analysis Manufacturing Competitiveness over Five Year Period

Current Competitiveness (2013) Competitiveness in five years (2018)

Rank Country Index score

(10=High

1=Low)

Rank Country Index score

(10=High

1=Low)

1 China 10.00 1 China 10.00

2 Germany 7.98 2 India 8.49

3 USA 7.84 3 Brazil 7.89

4 India 7.65 4 Germany 7.82

5 South Korea 7.59 5 USA 7.69

6 Taiwan 7.57 6 South Korea 7.63

7 Canada 7.24 7 Taiwan 7.18

8 Brazil 7.13 8 Canada 6.99

9 Singapore 6.64 9 Singapore 6.64

10 Japan 6.60 10 Vietnam 6.50

Data Source: Deloitte Global Manufacturing Competitiveness Report 2013

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APPENDIX B

Germany Tax Facts

GERMANY QUICK TAX FACTS FOR COMPANIES

Corporate Income Tax 15%

Branch tax rate 15%

Capital gains tax rate 15%

Solidarity Surcharge 5.5%

Trade Tax 12%-18%

Basis Worldwide basis

Participation Exemption Yes

Loss Relief Carryforward Indefinite

Loss Relief Carryback 1year

Double Taxation Relief Yes

Tax Consolidation Yes

Transfer Pricing rules Yes

Thin Capitalization rules No, but there are interest deduction limits

Controlled foreign company rules Yes

Tax Year Calendar Year

Data Source: Deloitte Taxation and Investment in Germany 2013 Report

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APPENDIX C

Cultural Comparative Analysis

Data Source: The Hofstede Centre

39

80

52 48

23

0

10

20

30

40

50

60

70

80

90

PDI IDV MAS UAI LTO

Canada

Germany