Service With A What?

Foreigners are raising the standards of efficiency

Last August, U.S. mail-order merchant Lands' End Inc. did the unthinkable in Germany. Launching its subsidiary, the company announced that dissatisfied customers could return merchandise with no time limit and no questions asked. Americans take such privileges for granted, but in Germany, most retailers forbid returns after 10 days. German shoppers responded enthusiastically, and sporty catalog items quickly sold out. To keep up with demand, Lands' End has doubled its German workforce, to 110 people, in a year.

Lands' End isn't alone. U.S. and British companies are giving Germans their first taste of fine service--and finding a lucrative market. From telecom to investment banking, the customer-is-king approach gets a warm welcome in a country where services have always played second fiddle to manufacturing.

UNLIKELY NICHES. Anton Meyer, who teaches service management at the University of Munich, compiles an annual survey of consumer satisfaction that has declined for the past three years (chart). Many German companies show "a total lack of focus on the customer," he says. That creates an opening for foreigners looking to expand internationally and take advantage of German deregulation.

Some German service providers are catching on. Supermarket chain Globus has introduced customer-friendly policies that earned it top marks among supermarkets in Meyer's 1996 survey (box). But services remain the economy's stepchild. They account for 61% of German employment, vs. 75% in the U.S. In international trade in services, Germany ran up a $30.3 billion deficit in 1996, compared with an $80.1 billion surplus in the U.S. One reason German unemployment stands at a postwar record 11.4% is that the service sector has failed to pick up the slack as manufacturers bleed jobs to lower-wage countries.

Foreigners sometimes find openings in unlikely places. For instance, Houston's Service Corp. International, the world's largest undertaker with $2.3 billion in revenues, spotted a big opportunity in the funeral industry. About 95% of Germany's 4,500 undertakers are small, family-run businesses that don't help relatives make arrangements for flowers, cemetery plots, or gravestones. Many also use independent transport companies untrained in tact. SCI offers one-stop shopping, flexible hours, and such amenities as an optional photographer. And its prices are competitive with the average $5,000 cost of a German funeral. Since the end of 1995, when it entered the market, SCI has bought all or part of 10 funeral homes in major German cities, and it plans to acquire five more by the end of 1997. Sales have reached $8 million.

Everyday services in Germany, while less nightmarish for clients, are no picnic either. Surly salesclerks are the norm. So last October, British retailer Marks & Spencer opened a store in downtown Cologne staffed with people trained for four weeks in the art of gracious selling. Portable phones let them answer calls within three rings--a promptness unknown in Germany. And electronic scanners keep 85% of goods in stock, vs. a German average of about 60%. Sales are running 10% ahead of expectations. "I spend more money when I'm in a pleasant atmosphere than when I'm annoyed," says Franz Bergmann, a 48-year-old advertising executive who was shopping for clothes on a recent Monday evening. The positive response has convinced Marks & Spencer to push ahead with plans to open five more German stores by 1999 and 20 stores in the next 10 years.

Sometimes foreign companies' superior knowhow has won them big chunks of market share. That's true in investment banking, an industry that hardly existed in Germany a few years ago. As the pace of mergers has picked up in the past two years, seasoned global players such as Morgan Stanley, Goldman Sachs, and CS First Boston have snapped up virtually all the business. In 1996, Anglo-Saxon investment banks handled 77% of the $75 billion in M&A volume involving German companies, according to a survey by the Borsen Zeitung. Deutsche Morgan Grenfell and Dresdner Kleinwort Benson together accounted for just 23%.

"A KILLER." Indeed, corporate customers are even hungrier for greater efficiency than consumers. After WorldCom Inc., a $4.5 billion telecommunications company based in Jackson, Miss., installed a fiber-optic network in Frankfurt two years ago, it grabbed 150 customers away from inefficient Deutsche Telekom. Targeting businesses that use large amounts of data, WorldCom reroutes calls in five seconds if there's a problem. Since banks can lose millions on an interruption in stock or currency information, they gladly pay a premium for the service.

Breaking into the German market is scarcely a cakewalk. Hidebound consumer habits and restrictive regulations often make it difficult to gain a foothold. High wages are also a barrier. Marks & Spencer pays its Cologne staff 50% more than British counterparts earn. As a result, it can't afford as many salesclerks. Unfamiliar cultural traditions can flummox newcomers, too. When Carnival rolled around in Cologne, the store expected a rush of customers. But unlike the British, Germans don't celebrate by shopping. "Carnival was a killer," says Marc Bauwens, Marks & Spencer's general manager for Germany.

As Germans get used to Anglo-Saxon-style service, foreigners will compete with one another as well as with home-grown businesses. Atlanta-based United Parcel Service, which first came to Germany in 1976, has nabbed 10% of the delivery market by offering faster, more reliable service than competitors. Its lock is so strong that two years ago, rival Federal Express gave up its intra-German business. Unless German companies learn how to please their customers, they may find themselves out of the running entirely.

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