Why is the smart money opening subsidiaries in Germany, post-Brexit?

We might wish Britain had voted to remain in the EU, but we still need to react. For anyone with an interest in growth, Germany has always been the logical next step. Today, with uncertainty swirling, many companies are choosing to open a German subsidiary to prepare for the post-Brexit landscape and capitalise on the advantages of trading in Germany.

According to a recent Guardian survey of 14 of the billion-dollar technology firms currently headquartered in the UK showed that all of them were concerned about the impact of Britain’s exit on their business. Many, like currency exchange platform Transferwise, are considering relocation. Their CEO recently stated that, “Headquartering elsewhere is now a possibility”.

For many companies the uncertainty over possible trade regulations and new taxes, the departure of up to 2 million foreign workers, and a potential reduction in cross border transactions has led to a freeze on expansion plans, and serious consideration over whether a base in continental Europe would be advantageous.

Technology firms in particular are feeling the pressure. Many feel that recruitment of talent will be more difficult, and the loss of access to European consumers and the Digital Single Market could prove especially damaging. The potential gains from relocation to centres like Berlin and Stuttgart are attracting fintech, creative and innovative startups as well as established companies looking to reduce costs and risks.

“As Britain ponders life outside the European Union, one city is poised to capitalize in the event of a Brexit: Berlin.”
Chris Spillane @ Politico

Germany’s startup scene is exploding. According to startup advisor Grunden, a new tech firm is started in Berlin every 15 minutes. While tech deals are down in the UK by 25%, they are up in Germany by 59% over  the last  year. In terms of overall capital investment, Germany is also ahead, with $2.1 billion dollars flowing in, as opposed to $1.7 billion in the UK, according to big four accountant Ernest and Young.

Firms are attracted to Germany thanks to a combination of forward thinking regulations and a sophisticated lifestyle.  “We have more demand than we have office space at the moment,” says Travis Todd, CEO of Silicon Allee, a specialist campus for Berlin start-ups, currently building facilities for 2,000 workers. Unlike the UK’s crowded, expensive working environment, Germany offers cheaper, more relaxed, more flexible conditions.

Germany’s Advantages at a Glance

  • High levels of capital and investment from both corporate and private sources.
  • Berlin is already home to major players including Rocket Internet and Soundcloud.
  • Germany has fabulous tax breaks and grants for angel investors.
  • Public funding is available for firms without venture capital.
  • Simple, business friendly employment and immigration processes.
  • Accelerator programs run by luminaries like Microsoft and Coca-Cola.
  • Lower living costs and a very high standard of living.
  • Passporting of services and sales across the EU.
  • Minimise customs duties and taxes.
  • Euro denominated banking.
  • Easy to open subsidiaries.

The next entrepreneur who’s 22 years old, graduating from a technical university in Germany may, instead of moving to London to do their Fintechstartup, decide to go to Berlin instead. Alex Hern @ The Guardian