Germany Gears Up for Digital

When it comes to many aspects of digital transformation, Germany is in the middle of the European pack. But both government and business want that to change – and fast. That’s good news for innovative tech companies looking for a foothold in the heart of Europe.

December 2021

When the Swedish software startup Scrive opened its first German subsidiary in Munich last February, it recognized there would be challenges. Scrive provides e-signature solutions for businesses, enabling them to sign contracts and legal documents quickly and easily online. It’s a service that could benefit many German companies – not to mention the governmental regulatory system – but people still needed convincing. “There’s still a bit of reluctance and resistance to being the first one to move and change,” says Scrive’s country director Germany, Patrick Larm. “There’s anxiety and a desire to wait and see.”

While Germany is by no means at the forefront of digitalization, it remains the biggest economy in Europe. Its thousands of small and medium-sized enterprises (SMEs) are widely respected, but not all of them are on top of the latest software or digital business models. For foreign enterprises with solutions to help SMEs catch up, that spells opportunity. According to Germany Trade & Invest’s director of digital and ser­vice industries, Marc Rohr: “A lot of start-ups are coming to Germany because they know there’s a gap.”

Corona as a catalyst

Scrive is a case in point. Before opening its Munich office, the company had already won big German clients, including the Nordic subsidiaries of heavyweights like Volkswagen, BMW and electronics retailer MediaMarkt. Now Scrive has set its sights on leading the German e-signature market, then expanding into Austria and Switzerland. “The fact that Germany is lagging somewhat behind,” Larm explains, “is an advantage you don’t see in many other markets.”

Over the past 18 months, the pandemic has sped up the adoption of digital solutions by business owners. Retail stores, supermarkets and bakeries have shifted from cash to contactless payment, and more firms are allowing employees to work remotely and have adopted video conferencing for staff and clients. “Over the last 15 months, we’ve seen a great demand for more digitalization in general,” says Rohr.

Key drivers: flexibility, cost savings, customer experience

Motivation for going digital (companies in Germany)

57%

Strategic corporate development

57%

Reducing costs

53%

Customer connection

52%

Making workflow more flexible

Source: IHK

The biggest area of growth has been in online retail, an area which older Germans in particular have been wary of. The pandemic saw Amazon post record profits in Germany and all major grocery chains roll out online shopping and delivery services. “A whole generation realized it was possible, and even preferable,” adds Rohr.

Meanwhile, behind the scenes, companies were struggling to secure stock and source critical parts during the pandemic, bringing inventory control and supply chain management to the fore. “The pandemic really accelerated the need for digital supply chain management,” Rohr says. “I think that will stay, too.”

The shift is boosting demand for digital logistics, inventory tracking and customer-facing online shopping tools. A 2020 survey by industry association Bitkom showed that 97 percent of German firms saw digitalization as an opportunity, and 84 percent agreed that the pandemic had made it more important in-house. “The good news is companies want to push their digitalization forward,” Bitkom President Achim Berg says. “The bad news is that not all of them are in a position to do it.”

The Bottom Line

Germany needs help from international companies and entrepreneurs to get up to speed digitally. That’s creating lots of niches for digital solution providers with a presence in the country.

Need for international input

Germany is taking concrete steps to close the digital gap in terms of broadband speed, Internet connectivity and access. While most of its cities are connected to high-speed Internet, rural areas have too often been left behind. The Federation of German Industries characterizes Germany as only “slightly above the EU average” when it comes to digital transformation.

And it’s not just lobby groups who are pushing for change. There’s a growing awareness within German companies that they’ve got work to do. According to a 2021 study by Germany’s chambers of industry and commerce, only 39 percent of businesses considered their digitalization journey to be complete, while 71 percent of the companies surveyed by Bitkom admitted they were playing catch-up. Construction, transportation and manufacturing firms were most likely to consider themselves behind the curve. The hospitality and restaurant industries are also far behind: one in five said they were not at all digitalized.

Interview

GTAI’s Digital Accelerator

Marc Rohr is director of digital and service industries at Germany Trade & Invest (GTAI). Marc and his team help international companies find opportunities in the digital realm, from those offering digital payment solutions to those assisting SMEs to go online. He spoke with Markets Germany about the many opportunities now opening up.

What has been the impact of Covid-19 on German companies from a digitalization perspective?

There have been a lot of developments. It’s become increasingly evident that there are shortcomings in Germany’s digital infrastructure.

What sectors are leading the digital drive?

Companies that focus on services have really used the coronavirus pandemic to go digital and transform their business models.

What’s the biggest advantage for international tech companies setting up in Germany?

If you want to introduce a new business model, Germany is the biggest market in Europe to launch in. There’s still huge demand here.

Where does Germany lag behind digitally?

There are still really big gaps between rural and urban areas in terms of connectivity and digitalization. But I think the government understands that there needs to be more investment on this side. Germany also has very high standards when it comes to privacy, which can make it hard to implement some digital and online solutions.

Given the challenges, why would companies choose to come to Germany?

Ironically, Germany’s biggest disadvantage is also an advantage. Because we have the toughest rules and regulations, once you’ve completed your rollout here, you can do it anywhere.

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