By Christian Ollig, Lucian Schönefelder Nov 15, 2018
The combustion engine and car, the printing press and the periodic system all share one rather hidden commonality: they all originated from one country – Germany. The list of scientific discoveries and innovations made and advanced in Germany is impressively long and goes far beyond these products. Innovation has always been part of Germany’s DNA. Fast-forwarding more than half a millennium since the invention of the printing press, we are at another historical point in time. Digital technology is rapidly changing our lives as we know it and defining the world that we will live in tomorrow. During these times of technological disruption, a key question emerges: will Germany remain a frontrunner in innovations in the digital age?
Let’s take a moment and look at the stats. According to the World Economic Forum, Germany ranks first globally when it comes to innovation capability1. This is due to its strong performance in the area of patent registrations and volume of first-class research publications. Germany has an attractive innovation ecosystem that is fed by a stable macroeconomic environment with many successful “Mittelstand” companies as well as a well-educated and skilled talent pool.
However, Germany’s standing as a leader in innovation today does not mean that it will remain at the top tomorrow. The increasingly critical role of digitization presents a real threat that Germany may fall behind. The pillars of Germany’s past economic success, where innovation has played a defining role, are rooted in traditional industries like mechanical engineering, cars, and chemicals. Traditionally, Germany thrived with manufacturing, but will it continue to do so in light of automation, digitization and a growing service sector that results from this technological change?
For Germany to remain an innovation leader, the country needs to gear up in key areas:
- The policy and regulatory framework for digitization. Germany’s venture capital makes up .03 percent of the country’s GDP – ten times less than in the U.S. or Israel2. Tech-pioneers like Chris Boos, founder of the AI company Arago, have called for a stronger shared vision between politics and industry to drive innovation in Germany, which will require joint efforts from public and private actors.
- Digital infrastructure. Only two percent of German households are directly connected to the fiber optic network, which lags behind many of its neighbors; for example in Spain, fiber makes up 40 percent of broadband connections3. By providing capital and know-how, investment firms like KKR can make an important contribution to improving digital infrastructure, as we have shown with our portfolio company Deutsche Glasfaser.
- Global competitiveness of innovation leaders from Germany. Digitization brought the world closer together and it is no longer enough to deliver excellent products and services in the home market. Companies need to scale globally in order to remain on top of the innovation cycle. With our international network, we help companies – from younger firms like GetYourGuide to long-established names like GfK – to seize global market opportunities with tangible success: GetYourGuide, for example, has grown to become the world's leading independent online booking platform for travel activities.
For Germany to keep its frontrunner position as a highly innovative nation it must not rest on its laurels but actively seize the opportunities ahead. Last week, the Founders Forum hosted by Henkel X in Düsseldorf, which KKR sponsored, brought together a group of bright and inspirational technology entrepreneurs, corporate CEOs and investors to discuss the opportunities of industrial technology and automation. Connecting large German Corporates and their world-class research and manufacturing know how with the disruptive drive of entrepreneurs and the global outlook of investment firms like KKR can create truly unique opportunities for Germany’s future as an innovation hub.