Regional Insights: Re-engineering “Made in Germany”

Christoph Meyer-Roscher

As a longtime industrial and automotive hub, Germany has made “German Engineering” world famous and set the benchmarks for top quality products being shipped around the world. However, as the rising wave of digital innovation transforms almost every sector, the nation inherits the significant challenge of adopting new Breakthrough principles in order to grow along with the on-demand, global market.

A high-quality heritage

In 1887, the United Kingdom parliament passed the Merchandise Marks Act to protect locally produced, high-quality products. This act forced German manufacturers to mark their products as “Made in Germany.” What was initially thought of as a stigma, marking inferior copy-cat products from a protectionist economy, became a seal of quality from one of the world’s leading export nations.

Thanks to our national character traits of efficiency, precision, and specialization, Germany has produced the highest density of global market leaders, with a diverse array of hidden champions tightly focused on niche B2B markets. These character traits, however, also became barriers to adopting digital-first mindsets, which has caused Germany to miss out on the first wave of digitization. This has lowered the barrier of entry for tech innovators within the industrialized market, while raising the possibility of traditional companies losing market leadership to digital Davids that are beating out big industrialized Goliaths.

Structure vs. speed

Germany is envied worldwide for its benchmark-setting physical infrastructure, but lags behind in the speed and reach of its digital infrastructure. We have strong laws that protect intellectual property and ideas, but also hinder the access to data, as Germans are very sensitive about their digital footprints. We are specialized and precise, but we lack an entrepreneurial spirit and culture. The fear of failure is high. Being risk averse slows us down when we have to act fast.

Stepping beyond smarter systems

Recognizing the impact of automation and data exchange on the industrial process, the German government introduced the “Industry 4.0” initiative, which focuses on increasing efficiencies and optimizing processes through cyber-physical systems that communicate with each other and with humans. With a continuously growing robot density of 301 units per 10,000 employees, Germany is now among the top five robotics nations. However, this technology-forward approach has been limited to manufacturing—and has yet to be fully integrated by businesses across the board. Germany’s characteristic focus on efficiency and processes can come at the cost of actual product innovation and business model transformation, where technology can be fully leveraged. While Germany is still the leader in the automotive category, for example, it is now competing with the likes of Google and Tesla, which have technology at the very heart of their brands.

Jumping from product to platform

Transforming processes is only one piece of the puzzle—in a fast-changing world, business model innovation will be the key to growth. As Marc Andreessen, Co-founder of Silicon Valley venture capital firm Andreessen Horowitz, famously said, “software is steadily eating the world”—and it doesn’t stop at the doors of industrial kingdoms. Products are beaten more and more by platforms. And in the platform business, the winner takes it all. So far, Germany hasn’t produced a global platform leader. The country may have missed a chance on its most famous digital product: the .mp3, which was “Made in Germany” by visionary scientists at the Fraunhofer Institute. However, this breakthrough invention was never monetized beyond its patent, which expired this year in April, and the owners missed out on the big opportunities to break into larger consumer markets and digital platforms.

Embedding breakthrough thinking early on

Germany needs to think bigger—and braver. As the nation of poets and thinkers, we must continue to nourish our characteristic creativity, curiosity, and intellect. This begins with education—we need to increase the integration of digital competencies early on. This means encouraging the training of digital skillsets through programming in schools and offering broader possibilities in the university sector. And as digital capabilities grow, brands have to create engagement and ensure we don’t lose our brilliant minds to global competitors from other parts of the world. The inventor of the Google car, Sebastian Thrun, is a German-born scientist and innovator who took his talents abroad, appreciating Silicon’s Valley’s entrepreneurial spirit compared to Germany’s “reluctance to risk failure.” But if contemporary brands continue to embrace new ways of working and nurture a culture in which risk-taking is an important part of the learning curve, they will automatically begin to infuse “Made in Germany” with new and relevant meaning. The seal will take on an aura of mutual benefit, as new and existing businesses attract and retain top talent. while building Germany’s reputation beyond manufacturing.

Something ventured, something gained

And to turn big ideas into reality, we need to infuse them with capital. Fortunately, more and more German companies recognize the importance of incubators and seed funding, and the benefits of collaborations with startups. In this respect, Berlin crystalizes as the hotbed for some of Germany’s major breakthroughs and startups, including Zalando, Soundcloud, Delivery Hero, and this year’s Breakthrough Brand, Unu. While often referred to as “poor but sexy,” the city benefits from its cultural diversity and vibrancy, and is emerging as Germany’s venture capital hotspot. In terms of volume, Germany is Europe’s second largest venture hub with EUR ‎€2.2 billion in venture capital, of which EUR ‎€1.07 billion have flowed into Berlin’s startup scene.

Engineering a digital future

Germany’s young and rising brands provide a positive outlook for the country’s future growth. When we focus on our strengths in combination with a digital mindset, fostered through early education, we can conquer untapped platform territories. When we encourage thought-through, smart data usage instead of data protectionism we can enhance our top-quality products with new service models. And most importantly, we need to engineer from the outside in, with a relentless focus on customer needs. To stay relevant with our “Made in …” mark, German brands need to be crystal clear about who it’s “Made for …”