Germany is the largest and wealthiest economy in the European Union (France is the second largest, closely followed by the UK).
It is Europe’s most successful manufacturing and exporting economy and it has built up huge capital surpluses waiting to be invested in the right opportunities outside of Germany.
So far Scotland has managed to attract just a small amount of this cash pile in direct inward investment. Radio Clyde in Clydebank, Bioreliance in Aberdeen and James Fleming & Co in Livingston spring to mind, and increasing number of Scots are buying from Germany’s favourite retailers, Aldi and Lidl, but we are only scratching the surface. London and the south-east of England have attracted almost 20 times more German companies to invest there rather than here in Scotland.
In the week that the Scottish Parliamentary cross-party group on Germany met at Holyrood, what can the Scottish business community do to attract more German investment?
First, we must be logical and business-like in our analysis of the world in which we live, develop a compelling proposition for German companies and then communicate this proposition clearly and professionally.
To attract German investment, Scotland needs to sell itself as the gateway to the single UK market. In this it will be in competition with London and the south-east of England, which has won the lion’s share of investment to date. Then Scotland must sell itself as a gateway to the international English-speaking markets, drawing on its extensive links in North America and the Commonwealth through the wider Scottish diaspora.
For more than 10,000 German companies there is an immediate and obvious opportunity to invest into the UK through Scotland. These are the companies already doing business in the UK, selling directly from Germany or through UK-based distributors and agents.
For some of these companies it will make sense to set up a UK marketing and sales subsidiary through which they can service their existing UK customers. They can get closer to their end customers and benefit from the increasing attraction of the UK’s low corporate tax regime. In Germany the tax burden is close to 30 per cent whilst in the UK the corporation tax rate, currently 20 per cent, is set to fall to 18 per cent by 2020. The potential tax saving alone must surely be attractive to many of the classic German family-owned Mittelstand companies.
Scotland has a great story to tell. It is fully integrated into the UK market, it offers significant labour and operating space cost advantages over London and the south-east of England, it has world-class universities offering cutting-edge research and it has direct air transport links to Germany’s main commercial centres.
There is a clear and present opportunity for Scotland to attract new business from Germany and deepen links with Europe’s largest and richest economy. Is Scotland up to the challenge?
• Christopher McGinty is a founder director of Glasgow-based Kreis Consulting, which offers corporate and business administration services to international companies looking to access the UK market. He divides his time between offices in Erding, Bavaria and Glasgow.