As has always been the case in Germany, the surest path to profitable growth is through export growth. But Germany’s big export partners are now looking somewhat less secure than before. China’s slowing economic growth has disrupted trade, particularly for German manufacturers of heavy machinery. Economic uncertainty in the rest of Europe is slowing investment. And – right around the world – German export goods are starting to see stiff competition from (often lower-cost) Chinese and Asian products.
As a result, German manufacturers have been somewhat more cautious than in the past, favoring growth through organic investment rather than mergers and focusing on cost containment and competitiveness rather than new market entry.
Where German manufacturers should be focusing is on digitization. German manufacturers were among the first to coin the term ‘Industry 4.0’ and most manufacturers seem to recognize that digitization holds the key to future growth and competitive advantage. Yet progress on the digital agenda in Germany has been slow; most large manufacturers seem content to simply tinker around the edges until either competition or customer pressure forces them to fully commit.
However, German manufacturers are also keen adopters of automation (in large part due to the high wages commanded by German workers and in part due to efficiency gains) which, in turn, will require greater digitization as workers on the plant floor start being replaced by robots and decisions are increasingly made by algorithms. Simply put, if German manufacturers hope to harness the full value (both financially and competitively) of their automation and robotics investments, they will need to also invest in digitization.
The coming year – assuming no catastrophic global event – should see German manufacturers start to refocus on growing their export markets and foreign footprints. If they can combine these investments with a focus on digitization, they should be well positioned to win in new markets.
Q: What is the greatest threat to growth for manufacturers in Germany today?
Harald: Disruption in export markets.
Q: What are German companies doing differently do drive growth?
Harald: Manufacturing floor automation.