Benchmarking Digitalization in Germany

Tasks

The study will be conducted within a framework agreement with the Chamber of Commerce and Industry for Munich and Upper Bavaria. This is a major, ongoing project involving independent, scientifically based economic advisory work.

The aim of the present study is to take stock of where Germany stands in international comparison in terms of digitalization. It focuses thereby on various key areas of digitalization, such as digital infrastructure, digital skills, digital innovation, e-government and the acceptance of the digital transformation in society.

The analysis follows three central questions:

• In which key areas of digitalization does Germany perform well in an international comparison, where is Germany still lagging behind?
• What are key areas of digitalization on which policy should focus and for which policy strategies would need to be developed?
• Are there examples of national digitalization strategies that could be regarded as best practice?

Methods

International benchmarking and analysis of underlying factors resulting in general policy recommendations (priorities)

Data and other sources

Internationally comparable data and indicators on a disaggregated level (industries, regions, occupations, skills, age cohorts, policy areas, etc.), e.g. from Eurostat, OECD, World Bank, etc.

Results

Germany's companies are generally not in a bad position when it comes to digitalization. Germany is one of the leading innovation countries, especially within Europe, and can score points in individual key technologies that are important for digitalization. However, other countries, especially the USA and increasingly China and South Korea, often seem to be better at transforming new ideas into successful products and companies. Germany also seems to benefit from data as well as from digital technologies only indirectly in the context of its industrial strengths. This is also reflected in a relatively small information and communication technologies (ICT) sector. 

Most importantly, however, Germany does not seem to fully exploit the advantages that young enterprises offer for innovation, productivity, and competition; the start-up rate in Germany is very low and, what is more, has been declining for years. This is a key weakness for digital transformation and digital innovation in Germany, especially since it also slows down the diffusion of digital business models and technologies in the economy and society in the long term. Therefore, it is essential to build an entrepreneurship culture in Germany and, above all, to remove the hurdles to accessing financing, first and foremost the venture capital market.

Among the commercially most successful companies of the digital economy are companies whose business model is based on a digital platform. While the largest and most successful platform companies are located in the USA and the Asia-Pacific region, European and German platform companies play a comparatively minor role. With regard to digital business models, some success factors can be identified with which European digital companies can position themselves successfully in the market despite the great competition. These include local knowledge of regulation and markets, industry- and product-specific differentiation opportunities, and specialisation in a particular market niche. 

In terms of digital competencies, Germany is in the middle field in an international comparison. While Germany does quite well regarding basic competencies, it falls behind the frontrunners in the more than basic competencies. Regarding the use of ICT skills, Germany is even below the European average. The construction, retail, accommodation and services sectors repeatedly score below average on both the skills and training indicators. German pupils perform only mediocre in an international comparison. 

Generally, Germans do not have a negative attitude towards digitalization and new technologies but see many advantages. However, they are concerned about their personal data and would like to see it handled more restrictively than most Europeans. However, it is precisely the systematic use of data, e.g., for the optimization of production and administrative processes or for new business and work models, that creates great growth potential for digitalization. When deciding how restrictively data protection should be handled, the costs arising from lost opportunities for new business models, more efficient processes or improved public services should therefore also be taken into account. 

With digital infrastructure, there is not only a supply, but also a demand problem. Where fixed line and mobile internet connections are available, their potential is often not exploited and fast internet is not in demand. One reason for this seems to be the price structure. Another possible explanation for the low use of fast and/or mobile internet is the lack of digital services (e.g., digital public services) as well as the current level of digitalization of companies. The expansion of the digital infrastructure in Germany should nevertheless continue and ambitious goals should be set to connect previously not tethered regions with fast internet. Government funding should be demand-oriented, e.g., via voucher systems. If the expansion of infrastructure is to take place primarily in the private sector, as has been the case to date, the willingness to pay for high-speed connections must also increase. To achieve this, users must be offered clear added value in comparison to their current connections, for example by expanding the range of services that can only be accessed via a faster internet connection.

Germany's performance in e-government activities is below average in international comparison. There is a particular need to catch up in regard to user-friendliness of digital public services, in the exchange of data between authorities and in digital public services for businesses. The main reasons for this are the lack of decision-making powers in the federal structures, procurement in the public sector and the lack of digital skills in public administration. Although the legal foundations for a modern administration have been created in recent years and some projects have been initiated at federal and state level to improve the provision of digital public services, the implementation of the projects is proving difficult and is mostly slow and inefficient.

In order for Germany to remain a leading innovation country, the new federal government must set the necessary framework conditions for a successful digital transformation. This is not about an active industrial policy, but rather about the framework conditions and prerequisites for digital business models. The public sector should itself become active in terms of offering digital government services, providing data and demand for digital innovations through public procurement.