Placing third in the 2018 Global Competitiveness Report, Germany occupies a leading position among the world’s most competitive nations. However, the report’s authors also identified some areas of weakness for Germany. Could these areas be putting the country’s competitive advantage at risk? At the very least, the need to catch up has been recognised, and politics and businesses are already introducing changes.

In the Global Competitiveness Report, experts from the World Economic Forum (WEF) annually analyse the competitiveness of 140 nations worldwide. Following the analysis for 2018, Germany occupies a very solid third place and even leads the field in some categories. Nevertheless, the report also reveals some weaknesses that present Germany with challenges, especially in the sphere of digitisation and digital infrastructure. These factors could limit Germany’s economic performance, however rethinking is already under way and action already taking place – including large-scale projects to digitise schools and expand the country’s fibre-optic network.

Although Germany lags behind the USA and Singapore, it does lead even these innovative countries in a number of categories. First place was achieved in the categories of “innovation capacity” and “macroeconomic stability”, with Germany also coming top in “economic dynamism” and “training of the workforce”. This is an excellent result and illustrates the outstanding performance of the national economy and the people in Germany. By contrast, the study identifies room for improvement above all in the area of digital infrastructure.

Germany ranks only 31st in the area of information and communication technologies

In the category of “ICT adoption”, in which the study assessed the penetration of information and communication technologies within the economy, Germany languishes in 31st place behind countries such as Bulgaria, Malta, Lithuania, Iceland and Uruguay. The report’s authors attribute this position to an inadequate nationwide high-speed internet network and slow development of digital infrastructure. The fact that information technologies reduce transaction costs, facilitate the rapid exchange of information, enable the exchange of ideas and improve the efficiency of companies and their ability to innovate has long since been established in countries that are well developed in these areas. Due to the importance of this area for the competitiveness of an economy, the WEF places information technology on the same level as energy supply and infrastructure.

In addition, WEF founder Klaus Schwab writes at the beginning of his foreword to the study: “Humanity has entered a new phase with the fourth industrial revolution. The individual countries are facing fundamental changes in terms of their competitiveness. The new reality creates new opportunities for businesses, governments and individuals, however it also threatens to create new divergences and polarisation within and between national economies and societies.”

Many people believe that Germany’s status in the field of digitisation does not correspond to its role as a leading industrialised nation. For example, the president of the Federation of German Industry (BDI), Dieter Kempf, warns: “Germany risks falling behind in the competition to be a leading location for businesses in terms of digitisation and innovation.” In fact, there are already measures in place in Germany to boost the development of digital infrastructure and educational institutions – even if there still remains a lot to be done.

Accelerating the expansion of technical infrastructure

The roll-out of fibre-optic technology and the availability of fast internet in rural areas both have a significant influence on the rankings in terms of digital infrastructure. For young companies in particular, digitisation and the expansion of digital infrastructure are an economic survival factor – this was the view expressed by 80 per cent of such businesses in a survey conducted by the start-up association. In 2017, 42 per cent of all companies in Germany with at least ten employees had a broadband connection with a data transmission rate of at least 30 megabits per second. However, compared to other European nations, Germany occupies a place in the midfield. The top positions last year were filled by Denmark, where 73% of all businesses have fast internet, followed by the Netherlands (65%) and Sweden (64%).

In order to remedy this situation, a EUR 12 billion funding program has been agreed in order to accelerate the expansion of fibre-optic lines and the proliferation of fast internet. At the same time, the regulations for the “last-mile market” are being rewritten. President of the German Federal Network Agency, Jochen Homann, was quoted on this topic in the German daily newspaper “Frankfurter Allgemeine Zeitung”: “If our competitors’ access to fibre is guaranteed, I can foresee a far-reaching absence of regulatory intervention. With this blueprint, we are laying the foundation for increased investment in fibre-optic communications.” There is therefore reason for optimism, as the results of a Bitkom study on Industry 4.0 confirm: In an international comparison, the respondents currently see Germany in third place behind Japan and the USA in terms of Industry 4.0.

Structural rethinking is often still too difficult

Technological requirements are only a part of the challenges to be overcome. The report’s authors identify structural and bureaucratic obstacles that could jeopardise the success of German companies. At the same time, they certify numerous strengths. Thus, Germany ranks fourth worldwide in terms of both the growth of innovative companies and the development of disruptive ideas. However, it is only 41st when it comes to the cost of starting a business – and a lowly 66th in terms of the time needed to set up a company. The authors conclude that politicians and businesses must find solutions to speed up these processes.

Digital education in Germany is also criticised – however, the wheels are already in motion here also. The German federal government alone will provide EUR 3.5 billion in this legislative period in addition to contributions from the German federal states, resulting in a total investment of around EUR 5.5 billion. This equates to EUR 137,000 for each of the approximately 40,000 schools in Germany. When „DigitalPakt Schule“ investing in digital educational infrastructure, pedagogical concepts and the targeted qualification of teachers go hand in hand. The aim of these measures is to make digital education the basis for the Germany’s economic future.

The courage to become a “platform economy”

The academic Ayad Al-Ani, who is conducting research on the digital transformation, has analysed the current state of digital development in the weekly newspaper “Die Zeit”. In the article „Deutschland muss lernen, völlig anders zu denken“, he describes the importance of European and German platforms. “Whoever owns the data has the influence, and the global platform economy must not be left to others. “nAt first glance, Europe appears to have only a few successful platforms. One of them is Mercateo, a leading B2B procurement platform. In addition, Unite, Mercateo’s B2B network, constitutes a novel approach to enabling business connectivity. It provides companies with an opportunity to digitally strengthen their business relationships via a flexible network of suppliers and customers. According to Al-Ani, it takes great vision and entrepreneurial courage to write your own success stories. Bernd Schönwalder, CEO of the Mercateo Group, also believes that courage often plays an even greater role than bureaucracy and infrastructure: “In Europe, we really have our work cut out because platform economies will not simply come about by chance. If you want to build a platform landscape in Europe that can stand up to non-European competition, then you need the courage to start a mini-revolution.”

Conclusion: Understanding digitisation as an opportunity

While Germany’s third place in the rankings of the most competitive nations may seem an excellent achievement at first glance, it cannot hide the fact that challenges must be overcome in this country in the most important and relevant area of future technologies. According to many experts, rethinking cannot be forced via political measures. Rather, it is important to ensure that new ways of thinking that produce ideas and generate the courage to innovate are incorporated into companies, institutions, politics and society. Companies that see digitisation as an opportunity – and are increasingly receptive to the associated topics and innovative technologies – can build on a superb foundation, especially in Germany. It is important to act courageously and not to shy away from high initial investment costs. Digital pioneers actually exist in Germany – companies such as the payment service provider Wirecard and the Mercateo Group offer digital solutions that have long since established themselves in business. Germany’s very good ranking in the areas of “growth of innovative companies” and “development of disruptive ideas” are the first important steps.