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German firms lag behind

May 12, 2015

A specter is haunting Germany's small- and mid-sized businesses - the specter of digitalization. Managers know they must modernize their firms' operations in the digital age, but they are still too reluctant to do so.

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Germany's renowned Mittelstand is practically synonymous with precision, patience and prudence. That renowned Teutonic reserve was what helped Germany go from being the sick man of Europe in the early 2000s to the Continent's economic motor.

But in the age of the Internet of Things and Big Data, an appreciation for such traditional values has been replaced by a need for innovation, risk-taking and creativity. And Germany is falling behind, a new study showed Tuesday.

Asked whether they appreciated the potential of digitalization for German companies, 86 percent of managers responded that, yes, they did. But with pressure to reduce costs and increase productivity so high, 63 percent of respondents admitted they had so far neglected to sufficiently innovate. The study was carried out by pollster TNS Infratest for Germany's Commerzbank.

Infografik digitale Innovatoren nach Bundesland Englisch

Complexity and cost outweigh opportunities

Bosses understand the opportunities - and the risks - associated with interconnected machines within the Internet of Things or the importance of data protection in the face of Big Data. But the complexity of computer programming and the cost of modernization have so far been deterrents.

Just over half of respondents said they viewed the complexity of new technology as one of the biggest hurdles to digitalization, while 50 percent said they were put off by the cost of necessary investments to make their operations state-of-the-art.

If it sounds like many German companies are behind the curve - it's because they are, the study found. Most of the managers surveyed said they felt overwhelmed by the pace of technological advancement.

"Individualized, automated production or the linking-up of the value chain have been implemented by only a few companies," said Markus Beumer, a member of Commerzbank's board of managing directors.

Those companies were largely concentrated in Hamburg and Berlin, which for years has attracted young entrepeneurs to its start-up scene, as well as Germany's industrially strong southern states of Bayern and Baden-Württemberg.

cjc/hg (Reuters, Commerzbank)