Economic, Governmental, and Technological Characteristics of the Federal Republic of Germany, and the State of Qatar Prepared by Nick

Tarasiewicz The Federal Republic of Germany The German economys primary focus is automobiles. Germany also specializes in the machinery, chemical, computer and electronic production industries. They are more known for their technological advances in the production of iron, steel, food, beverages, and ship building. Germany is 4th in the world of imports ($1.276 trillion) and exports ($1.492 trillion) as of 2012. This made Germany the 5th largest economy in the world. As of 2012 the unemployment rate in Germany is at 6.5%. The national GDP is $3.367 trillion, with a 0.7% GDP growth rate and a per capita GDP of $39,100, making them 29th in the world. According to the Verband der Automobilindustrie (VDA) the vehicle sales resulted in revenues of EUR 2.8 Million, with EUR 2 Million in exports. The manufacture of vehicles employs over 400,000 people and is one of the largest employers of people in Germany. The Federal Ministry of Economics and Technology indicates that the automotive industry is the largest industry sector in Germany, with a total recorded turnover of EUR 3.5 billion (20 percent of total German industry revenue). Germany is a parliamentary Federal Republic, officially called Die Bundesrepublik Deutschland. Germanys capital is Berlin, which is located in the eastern part of the country. There are sixteen German states, called Bundeslnder. After the Second World War, the country was split into the Federal Republic of Germany (West Germany), and the German Democratic Republic (East Germany). The reunification of German took place in 1990, but culturally the country is still divided. The Chancellor of Germany is Angela Merkel, who leads the Christlich Demokratische Union Deutschlands (Christian Democratic Union, CDU). She has held the majority in the Bundestag (congress) until only recently when a coalition was forced with the CSU, and the FDP. The lower house of government in Germany is the Bundestag (German Federal Diet), and the upper house of government in Germany is the Bundesrat (Federal Council). The constitution of Germany is called the Grundgesetz (Basic Law), and upheld by the Bundesverfassungsgericht (German Federal Constitutional Court). Research and Development in Germany is very important, and makes up a large percentage of revenue. No other country invests as much in R&D, with around EUR 19.6 billion in 2011. Germanys world-class education system produces some of the most qualified engineers in the world, with 30 percent German university graduates having a natural sciences or engineering degree background. 84 percent of the German population has been trained to university entrance level, or possess vocational certification. With this strong academic background German automotive manufacturers and suppliers apply for the most patents, around 3,650 per annum.

Recently the German government has reformed the tax code, and made it more attractive for investment. In doing so corporations on average pay less than 30 percent in taxes. The lowest tax burden can be as low as 22.83 percent. This makes Germany one of most competitive industrialized countries in terms of taxation. Labor is costly for any industry however Germany has the lowest growth of labor cost per annum at 1.6 percent. Productivity in Germany is higher than the average of the European Unions 15 core national economies. Flexible working practices enhance foreign investment in Germany. Germany currently offers many financing and investment incentives to corporations desiring to relocate. The German Private Equity and Venture Capital Association and other public venture capital groups can offer partnerships for technologically innovative start-ups. The German government can also offer working capital loans, bridge loans, and investment loans through subsidized programs. Grants, recruitment assistance, and wage subsidies are only some of the few incentives for companies looking to relocate to Germany. In total the German Government provides a fruitful, growth friendly, and helpful environment for companies of any size. In spite of a European, and global economic downturn Germany has a strategy to try and isolate itself from financial turbulence. The State of Qatar The economy of Qatar has remained robust throughout the economic crisis. Qatar has protected local banks, and provided direct investments into larger domestic banks. Qatars 2012 GDP was USD 189 billion, and USD 87,717 GDP per capita. The growth rate was very strong at 6.3%. Qatars unemployment rate is 0.5% in 2012. Qatars primary exports were liquefied natural gas, petroleum products, fertilizers, and steel amounted to USD 117.7 billion. However imports of machinery, transportation equipment, food, and chemicals cost USD 23.49 billion. The Ministry of Business and Trade Investment Promotion Department has announced several incentives to attract foreign investment in Qatar. These include: low import tariffs (5%), no custom duties on capital goods, and no income tax for expatriate workers. Special tax-exempt zone offer overseas companies 100 percent foreign ownership, no corporate taxes, duty-free import of goods and services, and lastly unrestricted repatriation of capital and profits. Qatar is an Emirate, which is a political territory that is ruled by a dynastic Muslim monarch). Qatar is broken into 7 Municipalities, and the capital is Doha. The Chief of State is Emir Hamad bin Kalifa Al Thani, and the Head of Government is Hamad bin Jasim bin Jabir Al Thani. Members of the ruling Al Thani family hold most government positions. The legislative branch is the Advisory council; with only limited advisory power. The judiciary branch consists of Courts of First Instance,

Appeal, and Cassation. The rule of law in Qatar is based on Islamic Sharia law, and civic law. Qatars rapid growth in oil and natural gas has provided large amounts of revenue to the government. However there has been movement to develop the private sector, and the knowledge economy to further diversify Qatars economy. The establishment of the Qatar Science and Technology Park promotes relocation to Qatar for science and technology companies. Qatar has also dedicated 2.5 percent of national GDP per annum to Research and Development activities. Texas A&M University will also build a branch campus at the Education City in Qatar to promote engineering. In addition Qatar has signed a USD 20 million contract for rail infrastructure construction over the next twenty years with Deutsche Bahn (German Rail). Barriers of Entry in The Federal Republic of Germany, and The State of Qatar Prepared by: Shane Garner When doing business globally, or when considering a relocation of business activities it is vital to consider the types of bureaucracy, and/or the other obstacles that will occur during daily operations. Currently, Qatar stands at 109th of 185 economies on the ease of starting a business, which hinders companies located in Qatar. Germany is a little lower than Qatar, at 98th of 183 economies on the ease of starting a business, which can also preventative in conducting business. These rankings can be useful in deciding where to do business; they are also helpful in shaping the expectation of the company in the foreign country. There are many factors that influence the ease of starting a business in another country. The regulatory standards vary in every country; it is vital that a company is fully compliant. In Qatar, registering for construction permits requires 16 different filings, takes 62 days and does not cost very much. Because of this Qatar is ranked 18th of 185 economies on the ease of filing for construction permits. According to Doing Business, Germany requires 9 filings, takes 97 days and costs significantly more money. However these statistics do not necessarily indicate a better country for construction permits, it is merely in indication of incentives for property use. For example in Germany there is an incentive and less paperwork to use existing facilities, instead of a new construction. Conversely Qatar does not have a lot of excess buildings for re-development so it is very easy to obtain a construction permit. In addition Qatar will sell the land to the builder for only USD 0.55 per square meter. Conducting foreign commerce is vital for long term viability, however countries have defined tariffs, and duties for the importation/exportation of goods and services. In Qatar exporting a standard container of goods requires 5 documents, takes 17 days and duty/tariff of USD 885 is imposed. Importing the same container of goods requires 7 documents, takes 17 days and a duty/tariff of $1033 is imposed. Qatar is ranked 58th of

185 economies on the ease of foreign trade. However in Germany, exporting a standard container of goods requires 4 documents, takes 7 days and a duty/tariff of $872 is imposed. Importing the same container of goods requires 5 documents, takes 7 days and a duty/tariff of $937 is imposed. Globally, Germany is ranked at 12th of 183 economies on the ease of foreign trade. Additionally these statistics do not take into account the trade unions that each country is a member of. Germany is a member of the European Union, which entitles free trade throughout the Eurozone, and many other non-EU members. The European Union also offers trade harmonization for exporting countries; so in other words trading with Germany is the same as trading with France. Qatar is a member of the Gulf Cooperation Council (GCC), which entitles its member to many similar benefits. These statistics mainly consider the commerce outside of custom/trade unions. To register property in Qatar it requires 7 filings, takes 13 days and costs 0.3% of the property value. In Germany registering property requires 5 filings, takes 40 days and costs 5.2% of the property value. Germany is ranked 77th of 183 economies on the ease of registering property. Tax compliance is costly, and time consuming for many businesses. In Qatar on average, firms make 4 tax payments (per annum), spend 48 hours per annum filing, preparing and paying taxes and pay total taxes amounting to 11.3% of profit, unless the business is located in a free trade zone. Qatar is ranked 2nd of 185 economies on the ease of paying taxes, which is a huge incentive in considering where to relocate a firm to Qatar. The administrative burden for tax compliance is significantly higher in Germany. On average, firms make 12 tax payments (per annum), spend 221 per annum in filing, preparing and paying taxes and pay an estimated total tax amounting to 19.0% of profit. Germany is ranked 89th of 183 economies on the ease of paying taxes. Though there is more time spent on preparing taxes in Germany, the corporate tax is significantly lower than many other industrialized nations. Lastly it is important to consider the efficiency of commercial conflict resolution through legal means. Doing Business indicates that enforcing a contract in Qatar takes 570 days, costs requires 43 filings and 21.6% of the value of the claim*. Qatar is ranked 95th of 185 economies on the ease of enforcing contracts. Enforcing a contract in Germany requires 30 procedures, takes 394 days and costs 14.4% of the value of the claim *. Germany is ranked 8th of 183 economies on the ease of enforcing contracts.

*This is the total amount of court costs, and cost of counsel on average per claim

Qatar has the highest ratio of migrants to citizens in the world, with only 225,000 citizens in a population of 1.7 million. However the country has some of the most restrictive immigration laws in the Persian Gulf region, this exposes migrant workers to the risk of exploitation and abuse. Forced labor and human trafficking are suspected by human rights organizations. Companies might disagree with unfair labor laws but the financial incentives are still very powerful. Human rights in Qatar are threatened by the amount of government censorship and control. The main aspects of human rights abuses consist of human trafficking/exploitation, freedom of expression, and womens rights. Amnesty International has indicated that flogging is still used as a penal action for alcohol consumption (without permit) and illicit sexual acts. Germany is currently in the midst of financing the European Union, during the debt crisis. The European sovereign debt crisis is an ongoing financial crisis that has made it difficult or impossible for some countries in the Eurozone pay debt incurred as a result of excess government programs. Germanys economy is robust to the current financial turbulence, however while Germany is subsidizing foreign debt, its not focusing on subsidizing German initiatives. As a result currency uncertainty, and instability exists within the Eurozone, so firms should plan contingencies, and/or diversify operations in other markets. Profile of Volkswagen Group AG, Porsche SE, and the Qatar Investment Authority Prepared by: Tony Alvarez Volkswagen AG (VOW) based in Wolfsburg, Germany is widely traded on several markets throughout the world. Its primary listing is on the Frankfurt Stock Exchange and secondary listings on the London Stock Exchange, Luxembourg Stock Exchange, New York Stock Exchange and Six Swiss Exchange. The stock is currently trading at EUR 150.53 per share as of 10. May 2013 and has demonstrated growth over the last year. During the last 12 months it saw a low of EUR 110.80 in June of last year with a high of EUR 175.65 in January of this year. The oneyear rate of return on Volkswagen stock has been 21.67 percent although being in a slump this year. According to recent article from Bloomberg shares of Volkswagen are down 13 percent with a market capitalization of EUR 68 billion. According to Martin Winterkorn (Chief Executive Officer of Volkswagen AG), Business in the first quarter was dominated by the difficult economic environment. The markets were sluggish, especially in Europe, and not least in Germany. But we remain confident overall that we can pick up speed over the rest of the year. Part of the decline in stock can be attributed to the decline in European sales, which is at a 20 year low. With record unemployment, that has 5

squeezed household budgets and has left consumers hesitant to upgrade their older models. Volkswagen has been forced to partially offset these loses through sales in China, Latin America, South America, and North America. Porsche Automobil Holding SE (PAH3.DE) is a publically traded company that was established in 2007 to manage the Porsche operating business (Dr. Ing. H.c.F. Porsche Aktiengesellschaft) and Volkswagen Aktiengesellschaft. The company consists of the Porsche Design Group, Porsche Consulting, Porsche Engineering, IT consultation firm Mieschke Hofmann und Partner (81.1%), and an engineering firm Bertrandt (25%). Porsche SE was the owner of the Porsche operating business until just recently in 2011 when it became the 12th brand of the Volkswagen Group AG. The ownership of Porsche SE consists mainly of the Porsche, and Pich Families. Ownership was exclusively by the families, however until recently when Porsche SE incurred a EUR 10 billion (in an attempted Volkswagen Group AG takeover) when the Qatar Investment Authority purchased ten percent. Dr. Wolfgang Porsche who is the great grandson of Ferdinand Porsche chairs the Porsche SE Supervisory Board. Sheikh Jassim bin Abdulaziz bin Jassim Al Thani from the Qatar Investment Authority holds a seat on the Porsche SE Supervisory Board. Interestingly Dr. Ferdinand Pich is the chairman of the VW Supervisory Boad, and also holds a seat on the Porsche SE Supervisory Board. Dr. Martin Winterkorn who is the CEO of Volkswagen Group AG chairs the Porsche SE Executive Board. German Law does not recognize the dual role conflicts like the United States SEC. The Pich and Porsche families have a history of bitterness towards each other, since the birth of Ferdinand Porsches children. Louise Porsche, and Ferdinand Anton Ernst Porsche. They never got along, and as a result their children continue their bitterness. Dr. Ferdinand Pich is the child of Lousie (maiden name Porsche) and Anton Pich. Dr. Wolgang Porsche is the child of Ferdinand Anton Ernst Porsche, and Dorothea (maiden name Reitz) Porsche.

The Qatar Investment Authority is owned by the State of Qatar and was established in 2005. It was established as a way for a portion of the countrys wealth to be invested in a diversified manner in new business areas around the world. The areas of investment range from securities listed on the world markets, property, alternative assets and private equity. As of September of last year the QIA was expected to have an asset size of USD 115 billion. As a result of the QIA being Qatars sovereign wealth fund there are no shareholders with investment in the fund and its not traded on the world markets. Although theres no shareholders to report to the QIAs long view in investment strategy offers the benefits of stability to all of those involved. In 2009 the Qatar Investment Authority (QIA) purchased a 10 percent stake in Porsche as part of a USD 10 billion deal. As a result of the deal the QIA also acquired most of Porsches share options in Volkswagen, which amounted to a 17 percent stake in the company. In addition to the Porsche transaction other notable investments by the QIA include being part of the investment group that purchased Miramax and Disney in 2010, a 6 percent stake in Credit Suisse and a 3 percent stake in Royal Dutch Shell Profile of key corporate leadership of Volkswagen AG, Porsche SE, and the Qatar Investment Authority Prepared by: Billy Duck IV

Prof. Dr. Dr. h.c. mult. Martin Winterkorn Chief Executive of Volkswagen AG Chairman of Executive Board of Porsche Automobil Holding SE

Martin Winterkorn is an engineer completing his degree at the University of Stuttgart, and also has a Ph.D in Metal Physics. He started working at Robert Bosch GmbH in process engineering, and later headed refrigerant compressor development group at the same company. In 1993 he joined Volkswagen AG as the head of Group Quality Assurance, and one year later he was made the General Manager of Volkswagen AG. As the head of VW product development he pushed VW CEO Ferdinand Pich heavily to approve the production of the new beetle. Winterkorn was made the chairman of the board of management of Audi AG in 2002. In 2007 Martin Winterkorn was made the CEO of Volkswagen Group AG.

Hon.-Prof. Dr. techn. h.c. Ferdinand K. Pich Chairman of Volkswagen Group AG Supervisory Board Member of the Porsche SE Supervisory Board

Ferdinand Pich is the grandson of Ferdinand Porsche, and is a mechanical engineer. He worked for Porsche on the development of the Porsche 906, and 917. Later Pich was the technological development manager at Audi, and was responsible for the Audi 80, and 100. He also developed a five (5)-cylinder diesel motor for Mercedes-Benz. In 1993, he has promoted to the Volkswagen AG board of management where he was the chairman. During the mid-nineties Volkswagen AG was very close to bankruptcy, so Pich orchestrated a massive turnaround to profitability. Throughout the rest of this control of Volkswagen Group AG, he acquired Lamborghini, Bentley, and brought back Bugatti. He retired from the Board of Management, and remained the Chairman of the Supervisory Board. Ferdinand Pich is an aggressive and demanding manager, and has 8

been quoted as saying he will fire any subordinate who makes the same mistake twice.

Prof. Dr. Wendelin Wiedeking Former President, CEO of Porsche SE

Wendelin Wiedeking is an engineer, and started his career with Porsche AG in 1983. He was the head of production at Porsche in 1991, and was later made CEO in 1993. The Porsche company like Volkswagen was also close to bankruptcy in the early nineties. Wiedeking orchestrated a turnaround at Porsche with new product insisting, that every product must earn money. He planned the attempted Volkswagen Group AG takeover, which led to his demise in 2009. He has been charged with market manipulation during the Volkswagen Group acquisition, the case is still pending.

Prof. Dr. Wolfgang Porsche Chairman of the Porsche SE Supervisory Board

Wolfgang Porsche is the grandson of Ferdinand Porsche the creater of the original K.d.FWagon during the Third Reich. He is also Ferdinand Pichs cousin. He studied economics, and earned his Ph.D in commercial science. He was also a manager at Mercedes-Benz.

His Excellency Sheikh Jassim bin Adulaziz bin Jassim Al-Thani Member of the Porsche SE Supervisory Board Minister of Business and Trade (Qatar)

Mr. Al-Thani was educated in the United States, with his BS from Suffolk University, and a masters from Columbia University. He has been the Minister of Business of Trade for the State of Qatar since 2010. He is also the deputy chairman of the Qatar Financial Center.

Investment Activities of Porsche SE, and Volkswagen (2005-October 2008) Prepared by: Billy Duck IV The automotive divisions of Porsche, and Volkswagen have had a history of sharing vehicle platforms, engine, or other technology, however Porsche has always remained technically independent. Ferdinand Porsche had originally developed the KdF (Kraft durch Freude) Wagen for the Third Reich in the thirties to be the original Volkswagen or peoples car. After the Second World War the KdF-Wagen would become the Volkswagen Kfer (Bug), and Porsches original founder would be charged with war crimes. Porsches son Ferry Porsche restarted the Porsche Company and developed its first design the Porsche 356, which utilized many Volkswagen Bug parts. The company was moved from Gmnd, Austria to Zuffenhausen, Baden-Wurttemburg in Germany. Porsche became very popular in the US, and Europe with the introduction of the Porsche 911 in 1964. The Porsche Company was incorporated in 1972 to be Porsche AG, to prevent family drama. This change created an Executive Board with members from outside the Porsche family; the Supervisory board still contains members from the family. Porsche enjoyed successful sales, and produced amazing performance automobiles throughout the seventies, and eighties. In 1993 Wendelin Wiedeking

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became CEO of Porsche, and transformed the company into a very efficient and profitable company. With the introduction of several new models in the nineties, and the Cayenne SUV in 2002, Wiedeking wanted more. In 2005 Wiedeking announced that Porsche was purchasing 18.53 percent of Volkswagen AG. This shocked both the automotive, and financial industries. In 2006 Porsche announced a further purchase of Volkswagen AG, increasing ownership to 25 percent. In March 2007 the shares of Volkswagen were increased to 30 percent. Wiedeking assured the markets that a complete takeover is not our *Porsches+ intention, instead we want to protect one of the worlds biggest carmakers from corporate-raiding locusts. Porsches ownership of over 30 percent of Volkswagen AG triggered a takeover bid under German law. However a special German law called the Volkswagen Law prevented further ownership by Porsche. It only applied to Volkswagen, and stipulated that no other shareholder could hold more than a 20 percent voting stake in Volkswagen Group AG. The state of Niedersachsen (home to VWs headquarters in Wolfsburg) at the time had a share of 20.2 percent, which gave it veto power, and the power to appoint two members to VWs board. In October 2007 the European Court of Justice ruled the VW law was illegal because it was protectionist. It also prevented the government from appointing VW board members. In response to this the German government rewrote the VW law to sidestep the ECJ judgment. In doing so they removed the share ownership clause, but still required an 80 percent majority for important decisions, so that the Federal State of Niedersachsen could still block the takeover. The ECJ ruled that the law was still illegal, and that a EUR 31,114 per day fine which was to backdate to the original ECJ ruling in 2007. Germany is currently still defending the Volkswagen Law. By October 2008 Porsche acquired 42.6 percent of Volkswagen Group AG with options to purchase another 31.5 percent. At this point Wiedeking admitted his intention to take over 75 percent of VW AG by 2009. The purchasing activity of VW AG by Porsche SE pushed up VW AGs price, and for a moment VW AG is the most valuable company in the world. The profit from the stock manipulations exceeded Porsches profit from car making.

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Porsche SE at this point was very close to acquiring 75 percent of VW AG, which would trigger the domination and profit transfer contract. Which would give Porsche SE the ability to completely liquefy VW AGs financial assets, and receive cash back on its previous purchases amounting to EUR 8 billion. In the fall of 2008 the global financial crisis erupted which changed everything. Effectively the music stopped, and Porsche SE was left without a chair. Banks called in their loans on Porsche SE, which triggered a liquidity crisis at Porsche SE. Porsche SE incurred a massive EUR 9 billion debt to acquire VW AG, and faced a total collapse if an outside investor wasnt found. Investment Activities of Volkswagen AG, and the Qatar Investment Authority in regard to Porsche SE The Qatar Investment Authority (QIA) is brought in to loan (bail-out) Porsche SE EUR 265 million through and a ten percent stock purchase, with options to purchase up to 25 percent. Porsche SEs benefactors wanting to diversify their local economy also want a Research and Development Center in Doha, Qatar. The QIA also purchased 17 percent in VW AG, and was given options to purchase more. In addition to the aid from QIA, Porsche applied for a loan for EUR 1.75 billion from the German Government. These loans alone will not help Porsche SE another deal is needed. However, the deal comes with strings attached according the VWs Chairman Ferdinand Pich. A reverse takeover occurs, with Porsche SE selling 42 percent back to VW AG. Ferdinand Pich demands a more integrated approach from Porsche SE. The CEO of VW AG: Martin Winterkorn announces in 2009 that VW AG would purchase 49.9 percent of Porsche Zwischenholding Gmbh which is the holding company that holds 100 percent of Dr. h.c.F. Ing Ferdinand Porsche AG (Porsche AG for short) the car making operation. In 2011 VW AG acquired the last part of Porsche AG making it VW AGs twelfth brand. At the end of this feud of different family clans Wendelin Wiedeking was fired from Porsche SE for his reckless attempted acquisition of VW AG. He was later charged with Market Manipulation the case is currently pending. Currently the Porsche Family (who owns Porsche SE) still owns 50.7 percent of Volkswagen AG.

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Works Cited
Volkswagen Group Strategy [Fact sheet]. (2011). Retrieved May 16, 2013, from Volkswagen Group AG website: http://www.volkswagenag.com/content/vwcorp/content/en/the_group/strategy.html Di Bitonto, S., Kolbe, M., & MacDougall, W. (2013). The Automotive Industry in Germany. Gesellschaft fr Auenwirtschaft und Standortmarketing mbH , (2012), 1-17. Porsche and VW: What the Hell Happened? (2013, February). Automobile Magazine, 17. Rise with Qatar [Pamphlet]. (2013). Doha, Qatar: Investment Promotion Department. Annual Figures [Fact sheet]. (2012). Retrieved May 16, 2013, from VDA-Verband der Automobilindustrie website: http://www.vda.de/en/zahlen/jahreszahlen/ CIA World Factbook-Qatar [Fact sheet]. (2013, May 7). Retrieved May 9, 2013, from CIA World Factbook website: https://www.cia.gov/library/publications/the-world-factbook/geos/qa.html CIA World Factbook-Germany [Fact sheet]. (2013, May 7). Retrieved May 8, 2013, from CIA World Factbook website: https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html Doing Business 2013-Qatar. (2013). Doing Business, (10), 1-115. http://dx.doi.org/10.1596/ 978-0-8213-9615-5

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Doing Business 2013- Germany. (2013). Doing Business, (10), 1-114. http://dx.doi.org/10.1596/ 978-0-8213-9615-5 About us. (2013). Retrieved May 2, 2013, from The Qatar Investment Authority website: http://www.qia.qa/ Rauwald, C. (2013, April 24). VW Sticks to 2013 Forecast After Earnings Meet Estimates. Retrieved May 4, 2013, from Bloomberg website: http://www.bloomberg.com/news/2013-04-24/ vw-first-quarter-profit-drops-on-slide-in-european-sales.html Jolly, C. (2013, March 19). No End to Falling European Car Sales. Retrieved May 9, 2013, from The New York Times website: http://www.nytimes.com/2013/03/20/business/global/ european-new-car-sales-down-10-2-percent-in-february.html?_r=2&

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