Germany’s digital transformation has lagged behind some of its European neighbors in recent years. The new coalition government has made it a priority to change this, offering innovative digital solutions providers a competitive edge.
Ahmad Sharaf chose a complicated time to set up a business in Germany. As the second wave of the coronavirus pandemic took hold in the fall of 2020, the 38-year-old Egyptian engineer spotted a unique opportunity to start a small software development company offering artificial-intelligence-based language solutions for two separate, geographically distant client bases. And so DeepSource was born – simultaneously serving companies in the Middle East as well as Europe.
“Germany has long been a hub for advanced tech, including artificial intelligence,” says Sharaf, who had previously worked for major companies in Ireland and Saudi Arabia. “On the other hand, the pandemic paved the way for European companies to take advantage of remote talents as never before. Plus, Germany is the biggest economy in Europe, and we wanted to be in Europe. So we decided: Let’s go for Germany.”
DIGITALIZING HEALTHCARE: At the University Hospital of Essen, eight-year-old Marko undergoes an MRI examination with the help of a VR headset to ease his fears about the procedure.
© Stefan Finger/laif
Germany is keen to bring about many more stories like Sharaf’s. The new government’s coalition agreement between Chancellor Olaf Scholz’s Social Democrats (SPD), the Greens, and the Free Democratic Party (FDP) includes a comprehensive digitalization drive that will create even better opportunities for entrepreneurs like Sharaf and their investors.
DeepSource is still operating on a small scale, but it has already worked on several successful projects with its international teams, made up of software developers mostly based in the Arab world. One of DeepSource’s key projects is an advanced Arabic conversational artificial intelligence (AI) solution with chat and voice bots. Known as Natural Language Processing (NLP), the technology enables computers to process, analyze and seamlessly interact with human languages.
Digital solutions to bureaucratic problems
Although the opportunities for Sharaf in Germany were very appealing, the founder did encounter a few hurdles along the way – the main one being the high level of bureaucracy needed to start a German limited company (GmbH).
“One of my friends founded a company in the UK, and he told me a company could be founded in only 30 minutes there, all completed online,” he says. “But for me it took two weeks – I had to go to a notary, sign in front of him and find a translator. They need everything on paper.”
Sharaf’s experience sounds all too familiar to another, much larger company in a similarly dynamic sector of the German digital economy. Qonto is a unicorn – a start-up worth more than a billion dollars. Now valued at EUR 4.4 billion, the French fintech provides business accounts for some 220,000 companies of all sizes in four countries: France, Italy, Spain and Germany.
Around a third of Qonto’s new clients are founders of new companies, and it’s often a struggle to complete the paperwork, especially when so much of it has to be filled out in person. “The political conditions need to be improved a little, especially for younger, more innovative companies,” says Qonto’s Germany manager Torben Rabe.
As well as the focus on digitalization, the new government’s plans include a liberalization of immigration laws specifically to make it easier for highly skilled entrepreneurs to thrive in Germany.
A dynamic market in a country of digital skeptics
Rabe is convinced that there’s room for growth in Germany’s fintech sector. “There’s still a lot of dynamism in the market, and of course a lot has happened in the last few years,” he says. “Many start-ups and companies are currently forming in areas offering solutions in the business sector, and there’s definitely potential to serve that area better.”
Such fast-moving developments to lower the barriers for founders belie the stereotype of Germany as a land of digital skeptics who distrust the Internet and where the digital infrastructure has failed to keep pace. Rabe believes the reality is a little more nuanced: “There are certain areas where Germany is actually a bit more advanced than other European countries,” he explains.
Fortunately, it’s a problem the new German government is focused on fixing. The coalition under Olaf Scholz has promised to streamline the process this year, making it possible to found a company within 24 hours. “We were certainly glad to see the new coalition agreement,” says Rabe. “It was a document that showed a constructive approach with some clear digitalization targets. Now it’s time to see them get to work, and we hope the plans will be implemented.”
Germany’s new coalition government wants to “close the digital gap” with neighboring economies. That will add dynamism to the German market and create lots of opportunities for international companies providing smart digital solutions.
While some Germans might still be resistant to the pace of digital change, Rabe has encountered plenty of businesses that are “very open” to choosing digital ways to streamline their practices. “German companies certainly aren’t lagging behind – if anything, their awareness is already sharpened to the fact that you can’t carry on with analogue processes,” he says.
Rabe also appreciates the digital community in Germany: “I have to say, generally, that the ecosystem of digital companies in Berlin and other German cities is very lively – it’s certainly worth getting active and networking.”
A new government with big plans
The government’s coalition agreement – signed in early December after a surprisingly short negotiation period – contains a panoply of digitalization pledges. “Germany needs an all-encompassing digital revolution,” the agreement states. “Capacities in the national government will be reordered and bundled, an additional central budget will be introduced, and laws will be subjected to a digitalization check … We will support digital innovations as well as business and social initiatives and will invest in open standards and diversity.”
These are encouraging words, says Marc Rohr, director Digital & Service Industries at Germany Trade & Invest (GTAI) : “I’m really glad that the issue of digitalization was treated so thoroughly in the coalition contract. The last couple of years, with the coronavirus, have shown how important it is to do better on that score. Anyone who has worked from home in Germany found out that the infrastructure, the hardware, needed to be improved.”
DIGITALIZING ADMINISTRATION: A map showing reported Covid-19 infections in Berlin’s Mitte district on January 22, 2021. It was automatically generated by a computer at the Berlin Mitte Health Department in the Moabit Health and Social Center (GSZM).
© Andreas Pein/laif
The Federation of German Industries (BDI) is also very enthusiastic. “It is very welcome news that all necessary steps to implement acceleration will be taken in the first year of government,” the federation commented in its analysis of the agreement. “The implementation of a pact for planning, approval and realization between the national and regional governments is an important step.”
From a practical standpoint, the new digital pact entails building up Germany’s glass fiber optic network, and the government has promised to deliver blanket “fiber-to-the-home” (FTTH) coverage across the country. “It’s good that the politicians have recognized that we need to improve in certain areas,” argues Rohr. “There’s also a new awareness that we have to be at the forefront of brand new technologies, and that this has to be accompanied by the appropriate subsidies or legal frameworks.”
The list of sectors the government intends to support covers a broad spectrum of major future technologies: artificial intelligence, quantum technology, cybersecurity and distributed ledger technology (DLT) aka blockchain. There’s also a promise to strengthen the so-called Important Projects of Common European Interest (IPCEIs), to finance more digital start-ups and to strengthen Germany generally as a destination and location for venture capital.
Weaknesses can be opportunities
These are signs that the new government knows where Germany’s strengths and weaknesses lie. One strength has been established for a long while: Germany has a solid reputation for research in the IT industry, boasting several world-class technology institutes such as the Fraunhofer and Max Planck, which have interlocking networks of locations and research areas across the country.
The new government wants to build on and expand that competitive advantage. “The coalition partners are clearly in favor of strengthening experimental spaces to test innovative technologies, services and business models under real conditions,” the BDI noted. “This is to be welcomed, as is the will to significantly facilitate and strengthen start-ups and spin-offs.”
“In research and development Germany has been top, but in the application – that means offering solutions that actually help citizens – we’re lagging behind,” says Rohr. “But that’s a gap that can also be seen as an opportunity,” he adds. As the biggest consumer market in the European Union, there is plenty of room for international solutions in Germany.
This is where the drive for expanding the 5G network kicks in. While 5G infrastructure won’t make a huge difference to the day-to-day lives of the average German citizen (aside from making certain apps easier and quicker to use), the technology will be invaluable for industry. The next generation of superfast wireless connectivity will enable factories to communicate more rapidly and seamlessly, smoothing the use of artificial intelligence and the Internet of Things in production.
“Without 5G, the interplay between intelligent production units, know-how and data capacity is impossible,” says Rohr. Given that the German economy is dependent on the power of industry, and that industrial production in the country is often spread over large areas, the current government drive toward building a blanket 5G network is not just important – it’s essential.
Healthcare – digitalization is ongoing
Almost every sector in the healthcare industry is being transformed by digitalization. Whether it’s the development of pharmaceuticals, biotechnology or medical devices, digital components have found their way into all of them. While X-rays and MRI scans have been digital for decades, diagnosis can now also be aided by AI, providing higher-quality results based on thousands of images.
However, the use and the exchange of health data between medical professionals and their patients still leaves much to be desired, and the new coalition government has pledged to accelerate the various programs that are already in place to drive progress in this sector.
»Germany needs an all-encompassing digital revolution … We will support digital innovations, business and social initiatives and will invest in open standards and diversity.«
From the new German government’s digital pledge, December 2021
Again, Germany’s tardiness in the drive to digitalize in-patient care compared to other leading European countries could turn out to be a boon for innovative healthtech providers. “There are so many companies that have developed excellent solutions in their own countries and have experience with them,” says Marcus Schmidt, director of Chemicals & Healthcare at GTAI. “Now that Germany is catching up, there is a great opportunity for them here – because they have already introduced and adapted their products and demonstrated their benefit.”Medical apps are the case in point: Apps approved as “medical devices” can be used for continuous treatment and allow doctors to monitor vital data between visits.
As more of these apps are integrated into the healthcare system, they are fundamentally changing the way people access health services. “Germany was a pioneer in this,” says Schmidt. “These aren’t consumer apps anyone can buy in an app store, but tested and approved software, prescribed by your doctor and paid by your insurance in Germany.”
The previous German government introduced the DiGA (digital health applications) fast-track program to accelerate these apps. “Companies can develop their solution, introduce it and demonstrate its medical benefit. Then there’s a twelve-month evaluation period – if they pass it, they will be reimbursed permanently,” says Schmidt, noting that there are 28 such applications being used right now, eight of which have been fully approved.
“There has already been a lot of interest in DiGA from app developers around the world. And some European countries have announced that they intend to replicate Germany’s system now,” he adds.
Saving the planet with future tech
One of the main features of the coalition contract is the linkage of future technologies and climate protection. It’s no secret that the new government was carried to power on a groundswell of young voters who see the climate crisis as the defining issue of their lives. The confluence of environmental protection and digitalization is evident throughout government policy.
Thomas Grigoleit, director of Energy, Building & Environmental Technologies at GTAI, believes the energy sector is the best model for how these two issues can interlace. “Digitalization is a key technology also for the development of the energy sector,” he says. That’s because renewable power stations must be networked in real time so that they can redistribute energy when necessary. “This heightens the flexibility of the grid.”
DIGITALIZING EDUCATION: Prof. Andrés Kecskeméthy from the Department of Mechanics and Robotics at the University of Duisburg-Essen streams a first-year lecture on technical mechanics in the summer semester of 2020. Remote learning proved crucial in Germany at the height of the coronavirus pandemic.
© Dominik Asbach/laif
The interdependence of renewables and digitalization is becoming more and more relevant at a local level. For example, the end-consumers of energy (car and home owners) are now becoming active producers or “prosumers” of energy, able to supply power back to the grid. “If a house has solar panels on the roof, or a heat pump, or a battery, or even an electric car that is charged at home, it can play a completely different role in the energy supply,” says Grigoleit. “That makes a huge difference, and it is only possible through digitalization.” In theory, there’s nothing to stop consumers from selling electricity to their neighbors in future.
Another sector that is opening right up in Germany is the area of greentech or environmental protection technologies (see Growth Spurt for Greentech, page 18). “This is of course a vast field,” explains Grigoleit. “It covers everything from circular economies to water management and adapting to the impacts of climate change in several ecosystems as well as in urban areas.”
The BDI also acknowledges the importance of this field. “The coalition agreement rightly emphasizes the potential of digitalization for greater sustainability,” the federation has said. “The task now must be to use innovations ‘Made in Germany’ for this transformation and to closely involve German industry as a solutions provider and user.”
GROWTH SECTORS OF GERMANY’S DIGITALIZED ECONOMY
Quality digital infrastructure is central to the new government’s economic strategy:
The new coalition is determined to build up Germany’s digital infrastructure – that means everything from fiber optic networks to IT security – to facilitate digital-based business models in the economy.
Healthcare is already undergoing a digital revolution:
Virtually every aspect of the healthcare industry, from diagnosis to prescription and patient monitoring, already has digital components. That process will be accelerated under the new government.
Energy and environmental industries are forming the new green economy:
With an environmentalist party in government, there will be new incentives for industries that help protect the climate, as well as technology to make the energy grid more efficient.
Mechanical and electronic industries will also benefit:
Germany’s traditional industries stand to be boosted by new investments in digital infrastructure – particularly 5G networks – which will make factories significantly more efficient and able to compete in the brave new world of digitally networked industry.
Smart technology will play a pivotal role in climate protection. One example is the Future Forest project (funded by the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection), which involves the simulation of different scenarios of forest regeneration with the support of AI. The project aggregates environmental and weather data as well as data on damage development and air pollution, then evaluates and correlates it. As a response to climate change, the aim is to develop decision-making tools for forest regeneration in order to preserve natural ecosystems for future generations.
At the forefront of industrial progress
Another big challenge is how to maintain Germany’s leading position as an industrial nation while meeting the climate action targets – squaring the circle, so to speak. The coalition government has promised to tackle the issue by digitalizing across the industrial landscape today as well as investing in future technology.
“The new German government has certainly shown it is committed to strengthening high-tech production in the country,” says Oliver Seiler, director of Mechanical & Electronic Technologies at GTAI. “And there are of course going to be opportunities for foreign companies in areas like robotics, automation, microelectronics, semiconductor production and sustainable, electric and connected mobility.”
And again, there are key areas where Germany is already ahead of the game. “Germany is very strong in the field of production technology like 3D printing, especially metallic 3D printing,” Seiler adds. Additive printing has an abundance of applications from aerospace and automotive production to the production of nanoscale energy and medical technology.
Seiler also picks up on Torben Rabe’s point that Germany’s reputation as something of a digital dawdler is largely based on standards in wider society rather than a reflection of the reality inside industry. “On the production side, Germany is in a pretty good position, especially when it comes to digitalized automation,” says Seiler. “You don’t hear complaints from companies in the industrial space that Germany’s digital infrastructure is drastically not up to speed.”