X-HUB TOKYO, which supports overseas expansion of startups in Tokyo, held the #1 Overseas Expansion Seminar ” From Tokyo to Germany-Tips for startups to expand Germany-” on July 16th.
Focusing on Germany, the seminar featured a lecture on the ecosystem and tips on how to expand, as well as a lecture on how to draw up business strategies that startups aiming to go overseas should know, in order to build momentum for overseas expansion.
The latest useful information was shared not only with startups aiming to expand overseas, but also with Venture capitals (VCs) and corporations that are support organizations for startups.
Introduction to the German Ecosystem
Mr.Ryo Koba JETRO Duesseldorf Deputy Director General
- Mr. Ryo Koba, Deputy Director of the Dusseldorf Office of the Japan External Trade Organization (JETRO), talks about the German ecosystem.
Germany is one of the largest countries in the EU both population and GDP, and shares borders with nine countries. The country is home to many global players in the automobile, auto parts, industrial equipment, and chemical industries, and the small and medium-sized companies scattered throughout the country play an important role in the economy. Among these small and medium-sized companies, there are many “hidden champions” that are active globally, not only in the EU but also in markets outside the EU.
Each state is characterized by the fact that North Rhine-Westphalia accounts for 20.9% of the national GDP, followed by Bavaria with 18.3% and Baden-Württemberg with 15.0%.
- What are your predictions for economic trends?
- According to Germany’s leading economic research institute (April 15, 2021), GDP, which fell to 4.9 percent in 2020, is projected to grow by 3.7 percent in 2021 and 3.9 percent in 2022. The forecast for 2021 has been revised downward by 0.1 percentage point from the previous forecast made in October 2020 due to the delay in the economic recovery process caused by the lockdown since last fall, but it is expected to pick up in 2022 despite the small impact of the COVID-19.
- Please tell us about the current state of the German startup market.
By industry, the largest number of startups are in IT and service-related industries, with high percentages in IT technology (31.8%), dietary, food, and intermediate consumer goods (10.7%), medical and health (9.2%), and automotive, mobility, and logistics (6.0%). In addition, 66.5% are digital, especially SaaS and online platforms, and many are related to technology development and manufacturing, combining digital and analog.
However, it is estimated that 74% of the startups lost business creation opportunities due to the spread of the COVID-19. In particular, tourism (91.7%), media and creative industries (85.7%), and human resources (85%) are the most affected, while education (62.2%), finance and insurance (62.7%), medical and health (65.7%), and chemical and pharmaceutical (65.7%) are relatively less affected.
VC investment is steadily increasing, with a higher percentage of VC-funded startups in Berlin, Munich, Hamburg, and the Rhine-Ruhr region (Dusseldorf, etc.), as well as a higher percentage of public funds.
One of the unique characteristics of Germany is that many startups are engaged in collaborations with other startups, existing industries, and research institutions. In addition, there are many startups originating from technical universities.
- Lastly, what are some tips for Japanese startups to enter the German market based on the characteristics of the ecosystem?
Germany is a decentralized economy and the concentration of startups is scattered throughout the country, so it is necessary to pay attention to regions that are suitable for your company.
Since industry-academia collaboration is very active and there are many startups from engineering graduate schools, collaboration with German research institutions can be taken as a means of market development. In addition, since many large companies are running acceleration programs, it is also a good idea to develop the market by challenging these programs.
JETRO provides information on the latest local ecosystems and exhibitions, so it is recommended that you use it as a means of gathering information.
How to collaborate with local companies in Germany and hints on how to expand services overseas
Dr. Ichiro Amimori Xenoma Inc. co-founder and CEO
- Next, we asked Dr. Ichiro Amimori, Xenoma Inc. co-founder and CEO, about the company’s expansion into Germany.
At the time of our founding, we had hypothesized that we would expand into the US, China, and the EU, but the current results differ greatly from our founding hypothesis. Currently, although China accounts for a large percentage of our sales, German companies are the most common collaborators.
Regarding the hypothesis testing for market entry, for example, we thought that the U.S. market would be large and barriers to entry would be low, but when we actually did marketing, we found that there were many new products in all fields and many competitors, as well as bureaucratic and high barriers to entry, so we withdrew.
Our entry into Germany was triggered when we exhibited at IFA Berlin, where we met the German subsidiary of a Japanese company, and through them we started working with HUGO BOSS.
In addition, we acquired a distributor for the first time in the German SME mission and started collaboration with Essen University Hospital in cooperation with NRW. At CeBIT, we had an opportunity to meet developers from DFKI (German Institute for Demographic Intelligence), and we started collaboration with TUK (Technical University of Kaiserslautern).
We have collaborated with HUGO BOSS, DFKI (German Institute for Artificial Intelligence), KAISERSLAUTERN (Kaiserslautern) in motion capture, and Universitätsklinikum Essen (University of Essen), Deutsche Sporthochschule Köln (German Physical Education University Cologne). We also thank RYOSHO EUROPE GmbH and NRW.INVEST for their support in establishing a network in Germany.
- What are the key points to keep in mind when entering the German market?
- Since they will be responsible for the agreed-upon tasks, it is important to communicate carefully in advance to give specific and clear task instructions. It is also important to hold detailed discussions and clearly express your intentions regarding the contents of the contract, as they will not make unreasonable demands at the time of signing. Since there are relatively many Germans who are not good at English, especially in the middle and upper age groups, they can communicate without hesitation regardless of their level of English proficiency, and the psychological barrier to communication is relatively low. However, the culture is not so flexible, trains are often late, and work does not get done in December because of the Christmas vacations, so it is necessary to control the situation to prevent the business direction from going against you.
How to draw up a business strategy for startups aiming to enter Germany
Ms. Chika Yamamoto CROSSBIE UG CEO and Managing Director
- We would like to ask Ms. Chika Yamamoto CROSSBIE UG CEO and Managing Director, about strategy for overseas expansion. First of all, could you tell us about the characteristics of the German startup ecosystem?
The startup ecosystem in Germany is distributed in various cities such as Berlin, Bavaria, and Dusseldorf. I have the impression that Berlin has a more established ecosystem as a whole compared to other cities. For example, although there are many companies such as Audi and Bosch that do not have their headquarters in Berlin, the city functions as a hub for innovation. Berlin also has the characteristic of being able to connect with various industries.
In the investment market, the mobility sector is the top investment in the country, with software, analytics, SaaS, etc. dominating as the next largest sector. Startups in Germany are not only competitive within Germany. Berlin, for example, is a cosmopolitan city where about half of the people moving in are foreigners and people from 180 countries around the world live, and there are also a great many startups that are internationally active.
When Techstars, an accelerator from the U.S., held a program in Berlin, more than half of the 10 companies selected were startups not from Germany. Contrary to the excitement of the German ecosystem, the Japanese market is said to be shrinking on a global scale. However, Japanese startups are trusted for their technology and quality, and this is their strength.
- Please give us example of the startup ecosystem.
It is important to find an ecosystem that fits your industry and growth stage. As an example of a German ecosystem, I would like to introduce The Drivery (Ulsteinhaus).
It is one of the largest innovation communities in Europe specializing in the field of mobility. 140 startups and large companies from all over the world, not only from Germany but also from the U.S. and China, gather to create new products and businesses in collaboration with each other. The companies that have moved in include a wide variety of startups with business domains ranging from hardware to data analytics, sharing services, and EV applications.
It is not just a shared office, but a place that focuses on creating business and accelerating innovation, and provides extensive support for the business development of the startup companies that move in.
In addition to collaborations between companies within the community, the cluster actively encourages collaborations with large domestic and international companies, as well as government agencies in Germany. In the two years since its opening, the cluster has raised over 650 billion yen in funding and has produced unicorns.
Belonging to such a cluster makes it easier to meet companies, VCs, etc. that can directly lead to business and funding. It is also important to build a network of mentors to accelerate the growth speed of your startup, and creating an environment for such growth is an important factor for success.
- This event provided information on strategies for Japanese startups to achieve overseas expansion. X-HUB TOKYO will continue to provide useful information for startups aiming to expand overseas as well as the latest trends in open innovation through various events.