Germany’s Digital Future: Key Challenges and Road Ahead

Germany’s Digital Future: Key Challenges and Road Ahead

posted in: Policy Analysis | 6

Germany is one of the greatest economic success stories in the post-war world which has been built on sound policy framework balancing its industrial development with strong social safety nets. This served Germany well to become one of the leading economic powers in the world. However, the advent of the digital revolution that has been disrupting the world during the past couple of decades was slow to catch on in the country. Adopting a comprehensive and pervasive digital policy will have a profound transformational impact on the future of the German economy. Germany’s slow digital adoption has raised concerns on many forums. Its government is as seen lacking in creating bold digital policies and businesses are perceived as lagging behind in embracing ‘industry 4.0’ that is driven by the digital revolution. In this article, I will assess how Germany’s digital future is being shaped in terms of adoption and policy environment and suggest how the country can drive into a digital future and lead the next digital wave.

 

To understand Germany’s current digital landscape, it is important to understand the economic and historical context in which it took root in the country. The digital revolution which is also called the ‘fourth industrial revolution’ follows on from the discovery of the steam machine (first revolution), the division of labor for assembly line production (second revolution) and automation (third revolution). Germany took advantage of the first three industrial revolutions and played a pioneering role in shaping these revolutions. However, the German model of economic development is set in the context of a welfare state, driven by old economy industries with less stomach for rapid, disruptive transformations and barring few, is marked by an inability to develop cut throat risky innovations that could pave the way for disruptive digital platforms.

 

Comparing with the US Digital Context

Often tech pundits compare European digitalization process with the US model which has taken root in a different context altogether. The first digital wave in the US was driven by high investments from the defense and public sectors. Nevertheless, it is also worth noting that the high risk-taking entrepreneurs who could convert ideas into rapid commercial projects, based on information technology platforms in a well-oiled ecosystem, enabled this phase of digital evolution. This new breed of entrepreneurs broke-away from the tradition of entering the old manufacturing and services economy, and rather found their passion in founding high-risk new ventures driven by high-tech product inventions, which their targeted consumers could not even imagine. In the 1970s, companies such as Microsoft, Oracle, and Apple were founded by such young entrepreneurs. Years later, in the age of the internet, companies like Yahoo, Amazon, Google, Facebook, Paypal, among others, were established by using cloud technology platforms, thereby revolutionizing the way we experience and interact with the world. These new ventures were often developed by young students and engineers in the university dorms or home garages through so-called ‘boot-strapping.’ The long-term investments focusing on technology education and research in the US universities had created a perfect setting for the development of an ecosystem that gave rise to high-quality tech talent who could take risks for their innovations in the campus incubation hubs.

 

To put this in a better perspective, US hosts 18 out of 25 top universities for computer science. These universities set up incubation hubs along with research and development centers in collaboration with large technology companies. The well-developed tech ecosystem that is supported by education institutes, investors and established tech companies attracted some of the best entrepreneurs and engineers to the US, creating a conducive environment for innovation and big technological breakthroughs. It needs to be noted that the US as a single largest market with the English language, business and link language of the planet, has enabled new internet tech giants to spread beyond the American borders on the back of a strong globally established culture industry. The disruptions that occurred in the digital space also has much to do with the favorable policy environment that offered greater freedom to digital entrepreneurs to innovate and commercialize creative ideas. The US digital paradigm has evolved in an open, innovative environment enabled by an organic ecosystem with hundred years of legacy supported by both public and private investments. On the other hand, Germany has not played a pioneering role in shaping the current digital wave; rather it is trying to adapt to the new digital paradigm. Therefore, Germany has to find ways to develop its own ecosystem suitable to its economic and social setting without merely emulating the US.

 

Key Challenges for Creating Disruptive Innovation

Germany’s strength lies in manufacturing, research and development, life sciences and engineering. Though Europe’s economic superpower is able to grow its economy on the back of these core strengths, many opine that it has missed to catch up with the digital wave. In this light, the big questions are – Is Germany ready to build next wave of innovative digital products and services? And, how rapidly can it develop such innovations without ceding the space to other major players, especially to the likes of US, South Korea, and China? The challenges to German digitalization process, as some suggest, were slow internet, low investments in technology and lack of enough government support compared to the US. These factors may be causing delays in digital adoption in varying degree, but many argue that the core challenge for Germany to drive disruptive innovations come more from cultural barriers than lack of capital or policy gaps. Undoubtedly, Germany boasts some of the world’s leading scientific institutions and has made strides in developing and offering excellent quality products. However, excellence alone can’t lead to innovation.

 

There are possibly two major areas where improvements can be done to Germany’s innovation climate. A tendency towards risk aversion is a key factor holding Germany back from developing its full potential in the field of disruptive innovation. The principle of “trial and error” is largely absent in German society. Thus, innovation is inhibited by a culture of over-cautiousness and perfectionism, all in an effort to avoid mistakes and failures. The second problem is Germany’s continuous skepticism about disruptive technologies. For example, Artificial Intelligence and Big Data are received with a lot of skepticism. This wariness in embracing new technology prevented Germany from potential large-scale innovation. Germany and Europe, in a way, still see digital technology as an enabler than as something essential for addressing some of the economic and societal imperatives locally and also beyond Europe. Jurgen Staudtner states, in his book “Germany’s Innovation Jam,” that the big vision for transformational solutions through disruptive innovations is missing in German academic and business culture, unlike in the cases of US and China where the entrepreneurial culture is to nurture and act upon big world-changing ideas.

 

The Possibilities for Germany Leading into the Digital Future

Given the constructive self-critical assessment that Germany has been indulging in, it shows that Europe’s economic power is willing to learn from its past experiences. Germany does not see these challenges as impossible to overcome even though it requires a fundamental cultural shift and creation of new learning paths. Germany needs to collaborate with other European players to develop European version of multiple Silicon Valley kind of clusters based on core competencies of each cluster. Creating the Europe Digital Single Market alone does not help in shaping the region’s digital future. The efforts should also be to develop a funding policy framework that is coherent and agile to fund ever shorter innovation cycles, and an effective ecosystem to encourage young entrepreneurs who would like to lead the next digital wave through “trial and error” methods, not just “tried and tested” methods. Inculcating the risk-taking culture has to begin at school so that at the university level students can bring the disruptive ideas to life and gain confidence to lead the market-oriented innovations.

 

An EU level policy framework needs to be devised to fund research, skill development, and development of effective startup venture funding mechanism. The framework also needs to include an actionable plan to develop collaborative spaces and projects between top universities and established large private enterprises with substantial capital to deploy across Europe. This could result in the development of a comprehensive ecosystem having the potential to enable young entrepreneurs to take big risks and provide fall back options if they fail. It is also prudent to develop German and Europe’s own version of digital corporations that could fundamentally understand and adapt to local regulatory frameworks organically. This European ecosystem could possibly throw up new ventures to serve German and European social sensibilities and are not in the race to chase unsustainable valuations. This indigenous ecosystem will be better equipped to tackle apprehensions about new digital technologies and deal with data privacy and protection concerns. In addition to the above measures, the government should also focus on relatively less prosperous regions with a potential to become next technology frontiers to develop new digital corridors. For instance, Former East Germany could offer new opportunities to develop a digital corridor as the availability of quality talent is relatively cheaper provided the investments in digital infrastructure are enhanced. Such initiatives could also help in bridging the digital gap while enabling the region to leapfrog into the new digital economy.

 

Disruptive digitalization should be treated as a continuous and open innovation project. Europe, with diverse languages, cultures, and identities is in a unique position to offer an open environment for new ideas, skills, capital to flow not only within its borders but also beyond to connect with other innovation hubs across the world. Germany should work with other leading European players to design policies to promote entrepreneurial freedom and culture of risk baring innovation. Efforts should also be to minimize concerns of overregulation to enable development of new technologies, processes and business models engaging with the local socio-political realities.

Follow Sreekanth Mukku:

Sreekanth Mukku is an MPP student at the Willy Brandt School of Public Policy, specializing in European Public Policy and International Political Economy. His previous experience includes advising some of the leading multinational corporations like IBM, Oracle and Deloitte Consulting on their emerging markets growth and expansion strategies. In his 6-year stint with IBM, his work primarily focused on the evolution of digital paradigm, and start-up led digital ecosystem in India. Besides working in the corporate sector, he has also carried out research projects for World Bank, Oxfam, IOM, and Government of India in the development sector. Sreekanth has an MBA and a Bachelor of Commerce degree from India.

6 Responses

  1. Kesari

    Excellent!!

  2. Venkata Ramana

    Still you’ve such desire to achieve any thing. Hats-Off to you,raa. My heartiest congratulations on your sweet success and my best wishes for your furthur achievements, Srikanth.

    • Sreekanth Mukku

      Thank you very much Venky!

  3. Tovian

    Interesting and informative. Thanks Sreekanth!!

  4. Sreekanth Mukku

    Thank you Estella!