Mittelstand: The key to German economic recovery
Technology is the foundation for business resilience, as demonstrated by the Mittelstand in Germany this year.
By Adel Al-Saleh* and Sanjay Brahmawar
The global economy is in recession: Economic output is predicted to decline by $8.5 trillion over the next two years. All major countries in the OECD saw negative GDP growth in the second quarter of 2020. Yet, Germany saw much less contraction that other European countries, shrinking by a smaller 9.7%.
Germany must now aim for a sustainable and strong recovery, which means resilience to the vulnerabilities exposed by the pandemic. This means staying proactive with new ways of doing business, injecting better efficiency into daily activities and expanding internationally with new trading partners.
Mittelstand will drive growth
More than half of the German SMEs (54%) who make up the Mittelstand see new technology as necessary to remain competitive. The majority (76%) of Mittelstand companies consider digitalization a strategic priority. They, like most businesses around the world, understand that investment in digital transformation can get them through difficult circumstances.
Getting the insights needed to make quick decisions and the agility to make rapid changes might look simple – but don’t be fooled. It is only possible because of continued digital investment throughout the business.
A good example is ADAMOS, a joint venture between German machine builders and software and service companies. Manufacturers like Dürr & DMG Mori have invested in technology to connect their robots/ machines, develop solutions for digital manufacturing, drive new business models and set a standard for the industry. This has allowed them to be digital-ready and more resilient overall to deal with the physical restrictions due to this pandemic.
The current situation is particularly hard on businesses to balance the safety of their workers while focusing on getting to a point of normality in their production. At the Göbecke bakery in Leipzig, Germany, the workers are wearing smart badges to automate social distancing and alert them when they are too close to a colleague for too long. This is an example of how technology is enabling people to get back to work safely.
The digital iron curtain
Mittelstand growth will also rely on trade beyond Germany’s borders, therefore they must find new partners around the world. Digital maturity will be critical for quick setup and easy integration in these new relationships. However, there are other forces at work that make this a continuing challenge.
We have discussed the “digital iron curtain” that is descending across the world. Competing geo-political objectives and tensions are creating two systems that are increasingly incompatible. On one side you have US sanctions that will restrict Chinese companies reliant on US microchips and software. On the other, you have China developing its own systems and software. Slowly but surely, you have two parts of the world unable to work together.
Recovery is at risk when you can’t trade with half the world. Companies must either find a way to work with these different systems or choose between them. Digital companies are the best positioned to reach through the digital iron curtain, because they are more flexible when it comes to new technology. For this reason, they are also more resilient to the effects of the pandemic and recession.
Government has an ongoing role
The German government acted swiftly and decisively during the crisis and the country has avoided much of the turmoil seen elsewhere. Soft lockdowns and stimulus packages helped support people and business. The recent decision to extend the Kurzarbeit (the furlough scheme) into 2021 demonstrates an ongoing commitment to averting further economic hardship.
The support is there, but governments need to follow through and help guide enterprise – either through directives or financial incentives – towards the right investments. For their part, companies must also consciously commit to more digital practices. That will make sure that the support available translates into the best possible outcomes.
When technology is the foundation for change, companies can evolve quickly. Technology can negotiate digital barriers and contracting economies. Digital businesses can see and seize opportunities as they arise.
A strong and sustainable recovery relies on more companies doing this, from the Mittelstand in Germany to all businesses around the world. Next year will be a continued test of their resilience.
* Adel Al-Saleh is Board Member of Deutsche Telekom and CEO of T-Systems International GmbH.