Lockdown Economy Germany

After the onset of the COVID-19 pandemic and the stringent measures imposed by the German government, adapting to an ever-shifting environment was the key to survival for most businesses.

Germany is known for being a hub of economic stability, but beyond any doubt, the recent pandemic was a huge challenge for many entrepreneurs in this country. Its automotive and mechanical engineering industry, along with the exceptional manufactured goods and the heavy focus on exports, kept it safe from the pandemic’s effects from an economic point of view, — at least at first sight.

According to a report by the International Monetary Fund, the German economy shrank by almost 5% in 2020 [1]. For reference, the HORECA sector was the most affected, with a decline of 31.3% after the pandemic started [2]. The main reason was that many small and medium enterprises did not have a flexible business model to adapt to the restrictions which sometimes changed on a daily basis.

In this fast-moving world, everyone embraces changes like never before. Whether they tested their creativity or inner agility, the owners of various small businesses decided to exploit opportunities that came. The Think Tank AlterContacts interviewed entrepreneurs in Germany to discover what challenges their small businesses faced during the pandemic. The below results point to the need for continuous adaptability, willingness to learn, and a digital-first mindset.

Digital inclusion for employees who are lacking skills in this area

One of the biggest lessons the pandemic taught us is that digitalization is essential nowadays. Among the interviewed companies, a lack of technical skills was noticed. A large number of their employees had to learn how to use tools such as Zoom or video editing software. In addition, many entrepreneurs were not trained to set up online workshops or to create content on social media, and this required knowledge of rules and algorithms to deliver a message that makes an impact on the audience.

Digitalization involves not only a computer but also an alternative way of working. As stated by the founder and chief executive of Leadership Campus GmbH from Kiel, there is a generational gap in terms of communication [3]. For younger entrepreneurs, it is nearly effortless as they are more focused on their online social media presence.

Switching from an offline to an online business model requires time and patience. For some of the interviewed entrepreneurs [4], it was very easy to do. They showed a willingness to learn and were able to invest in technology. Yet, there were some situations when their clients faced difficulties in adapting to the new situation. This was the case for a marketing agency whose customers found it difficult to adapt to remote working [5]. Based on this context, the owner of the agency had to invest more effort in communicating with the customers and ensuring they were in good mental health.

Call to Action: Digital readiness and bureaucracy reduction

Creating digital and adjustable processes can make a business less exposed to risk. Although they are not part of the digital-first industries, all entrepreneurs should review which area of their business can be digitalized. They can make great use of technology to decrease direct human interaction.

In line with a report by Bank aus Verantwortung, 34% of German SMEs lack at least one digital skill, and 14% face significant limitations, denoting that they are not able to even partially accommodate the need for at least one digital skill [6]. Enterprises can develop their digital skills by means of recruitment, additional training, or outsourcing.

One of the measures the German Government took to ease the economic effects of the pandemic was to invest 50 billion euros in innovation and digital technology, climate change, and sustainable mobility [7]. Even so, a reduction of the administrative burdens should have been considered because the process of receiving financial aid was too long, as was stated by the entrepreneurs included in our study [8].

Promote niche businesses

There is no question that to be successful you have to respond to the needs of the customers. But what if you try to do it in a niche market? As an example, we can take a multi-roast coffee shop in Munich [9] whose owners tried to advertise the specialty coffee culture in their struggle to stay afloat during this volatile situation. Word of mouth, gift cards, and a pass for 180 days of coffee were just a few of the instruments the entrepreneurs used to promote their business. However, between the lack of awareness of specialty coffee and the social distancing rules within a small place, it’s still a challenge for them.

Another example of a niche business that targeted the German market is an e-commerce platform [10] that sells products from Africa in Europe, such as chocolate from Ghana or running shoes from Kenya. Brand recognition, lack of open-minded attitude or trust in African products were a few of the obstacles they faced in their marketing strategy. On top of that, pandemic restrictions caused all the logistic plans to be changed in order to ship the products.

When it comes to flexibility, we can all agree that it is an advantage for everyone. One of the entrepreneurs we interviewed [11] laid the foundations of a business that offers sustainable coworking spaces in Germany and Austria. She shared the needs her company had during the pandemic. This business model gives people the freedom to choose the location they work from remotely with their laptops as a more affordable option to sharing a workspace. Nevertheless, the business still needs a lot of promotion, especially by word-of-mouth. Additionally, she would need advice from entrepreneurs in similar businesses on how to implement new growth strategies.

Call to Action: Better communication and continuous updates about the restrictions

The main struggle of a business—especially a niche one— is to get in touch with potential clients. The recent pandemic stimulated the fast development of digitalization within companies all over the world. The online marketplaces and various platforms that grant entrepreneurs the possibility to explore new markets are one strategy to get the best out of this circumstance. Nevertheless, it is very important to strengthen the customers’ confidence and reassure them that all the rules are respected. Therefore, it is necessary to communicate clearly to the customers and help them trust the business model.

Another important aspect is finding the right balance between regulations and the safety of the clients within the business location. In order to better promote themselves and to build their marketing strategy, companies must have a clear idea of the legislative framework. The city's administration should provide support to entrepreneurs to better understand the fast-changing restrictions. For many small business owners, it was hard to stay updated with the fast changes, understand if they were allowed to operate in certain situations and know which hygiene concept they are required to apply.

CONCLUSION

Many challenges still persist. Plenty of businesses in Germany perfected themselves in the area of digitalization and made use of technology like never before. Customers became more educated, and companies will have to keep up with their demands in the not-so-distant future. In addition, when it comes to the decision-making process, most SMEs went with the flow, and their behavior was based more on reaction to the restrictions than on action.

Nationwide, there is a need to support companies in their communications with authorities and ease the bureaucratic system. As many companies or self-employed persons had to face outstanding headwinds, the confusion created by the ever-changing rules was an additional burden for them.  

The pandemic tested everyone’s limits and left a lot of "economic victims", but at the same time, it was a boost for digitalization and sustainability, and it allowed a lot of small businesses to thrive on change.

Written by Albert Scirtoaje, a technical analyst in the banking area with a strong background in data analysis, passionate about sustainability, climate change, and humanitarian causes.

Edited by Christine McKenzie

Editor-in-Chief - Julia Skupchenko

REFERENCES

[1] – International Monetary Fund, Beyond the Pandemic: Five Charts on Germany’s Economic Recovery Plan. Available at: https://www.imf.org/en/News/Articles/2021/07/13/na071521-beyond-the-pandemic-five-charts-on-germanys-economic-recovery-plan

[2] – European Commission, Germany - SME Fact Sheet 2021. Available at https://ec.europa.eu/docsroom/documents/46076

[3] - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in a Business Consulting Agency with Ellen Johannsen. Available at https://youtu.be/q6SayBnsWOA

[4] - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in a Healthy Movement Center with Raphael Kiemann. Available at https://youtu.be/lZHZ8NesBqA

[5] - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in Digital Marketing with Adriana Stein.Follow-up. Available at https://youtu.be/BCxZdre3Z8c

[6] – Bank aus Verantwortung, Lack of digital skills is hampering German SMEs’ digitalization efforts. Available at: https://www.kfw.de/About-KfW/Newsroom/Latest-News/Pressemitteilungen-Details_564864.html

[7] - The Organisation for Economic Co-operation and Development, OECD SME and Entrepreneurship Outlook 2021. Available at: https://read.oecd-ilibrary.org/industry-and-services/oecd-sme-and-entrepreneurship-outlook-2021_97a5bbfe-en#page197

[8] - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in Outdoor Education and Retreats with Amie Mignatti. Available at https://youtu.be/j-8ohk4ByOo

[9] - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in a Specialty Coffee Business with Yuliya Badalava. Available at https://youtu.be/_-vm9Qk2Dh8

[10] - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in a Social E-Commerce Shop with Jan Marc Lischka. Available at https://youtu.be/fCF1LatAkSM

[11] - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in a Coworking Company with Cecilia Chiolerio. Available at https://youtu.be/a3TitO7oN80

Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in an Advertising Agency with Christiane Ladwig. Available at https://youtu.be/uBqHUecXEPs

Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in Digital Marketing with Adriana Stein. Available at https://youtu.be/8Hsygi3zqSM

Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in a Business Consulting Agency with Ellen Johannsen. Available at https://youtu.be/RXzjHssdIak

Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in Outdoor Education and Retreats with Amie Mignatti.Follow-up. Available at https://youtu.be/YnYEaDVUQ1I

Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in an Innovation Consultancy with Alexander Bock. Available at https://youtu.be/0nT9GfUfysA

Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in a Female Mentoring Platform with Anastasia Barner. Available at https://youtu.be/Ug2wAJan5wc

Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany with a Systemic Consultant and Coach Christine Yildirim. Available at https://youtu.be/XuKdSDxcl4M

Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in an Expat Consultancy with Birgit Heidenreich. Available at https://youtu.be/t_mSxmR6QVI

Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Germany in a Language and Integration school with Vadzim Kavalchuk. Available at https://youtu.be/nInk9pN8O9I