Germany's digital lag

On Wednesday (16.11.2016) the western German city of Saarbrücken will host the country's 10th National IT Summit. The German government and the cabinet members tasked with digitalization, Transport Minister Alexander Dobrindt and Economics Minister Sigmar Gabriel evidently see the forum as an opportunity for self-congratulation.

"We have accomplished a lot," Gabriel said, describing Germany's electronic economy. "We are on an excellent path," Dobrindt added, touting the expansion of network infrastructure in the country.

And indeed, a study by TNS Infratest and the Mannheim Center for European Economic Research (ZEW) says: "Digitalization of the commercial economy is gaining steam." To paraphrase, the study says a quarter of the German economy is "good," just under half "average" and the final quarter "low" when it comes to digitalization. On average, almost half of all company-internal processes and work processes are now digital. In 2015, the figure was only a third.

In 2015, the German information and telecommunication industry was the world's fifth-largest, after the US, China, Japan and the UK, with 223 billion euros ($240.6 billion) in turnover. With a share of almost 5 percent of commercial value added, it ranks ahead of the country's mechanical engineering sector but behind transport and logistics. Around 111 billion euros are earned by the German internet market, which means that it also holds fifth place in terms of per capita revenue.

Billions to build up the net

The German government believes it is on the right track when it comes to network expansion. A "gigabit-capable convergent infrastructure" will be available by the end of 2025, Dobrindt said last week after a meeting of the "network alliance" of industry and government in Berlin. To this end, network operators will invest 8 billion euros this year and next, and the government will contribute 4 billion.

In economics and research, however, there are doubts as to whether this will be enough. A group of seven professors and bosses intends to use the summit to issue a wake-up call. In an eight-page paper, which they call the "Saarbrücken Manifesto," the authors describe mistakes in international competition and express their concern that Germany is not tapping into the opportunities of digitalization.

They say industrial policymaking on a grand scale is called for. "A European program is needed to make a real leap to becoming world-class, similar to the Airbus and Cern projects," the paper says.

The manifesto was written by August-Wilhelm Scheer, former president of the industry association Bitkom and founder of the IDS Scheer Group, and Wolfgang Wahlster, director of the German Research Center for Artificial Intelligence.

Danger for traditional business models

The fact that former SAP CEO Henning Kagermann has lent his support to the appeal should attract attention. It's rare for industry leaders to warn in such strong terms about the shortcomings and challenges they face - let alone one so prominent, who has advised the government on policy. Too often, they are willing to coast along on past successes.

At the same time, the authors concede that a Silicon Valley, with its combination of entrepreneurial spirit, world-beating research, venture capital, business angels and successful large companies, cannot easily be copied. They describe the wave of software startups in the south-west of Germany, along with Berlin and Munich as "gratifying." But, the authors and signatories warn, "we have not yet produced a single world-class company. We are still living on the 50-year-old successes of SAP and Software AG."

Digital push needed

The current digitalization wave in the industry is seen as key to the success of many of Germany's leading international companies. Above all, car manufacturers, and companies in medical and mechanical engineering and infrastructure, are increasingly recognizing that data and communication are becoming part of the business model.

Take autonomous driving, for example: Concern is growing in German industry that corporations such as Google or Apple could out-innovate German makers such as Volkswagen or Daimler.

Added to this are the dangers threatening German companies by completely new business models. "International digital platform companies are entering markets dominated by manufacturing and threatening the classic market leaders," the IT manifesto says.

"New business models that can cannibalize existing business must be supported by spin-offs. Better to cannibalize yourself than let others do it."

Government wanted

The German government put digitalization at the top of the political agenda with the first German IT summit in 2006. But a decade later, industry representatives consider the achievements to be too few - and say the government isn't doing its job. A "push toward digitalization through policy, the economy and society" needs to happen, the manifesto says.

Germany can't just get a little bit better, Scheer says. It has to get much better and orient itself toward advanced countries like South Korea: "Gigabit networks must become a standard."

The authors show their annoyance that German authorities have lagged behind those of other countries when it comes to electronic administration: "In e-government, Germany is in the international midfield and has even been overtaken by the small Baltic states."

At the same time, they said, the government must set a good example for digitalization: "Obstacles in the form of the separate areas of responsibility of national, state and municipal governments should be cleared away and uniform systems should be introduced nationwide," the manifesto says.