Top trends to watch in the German tech sector
Despite the times we are in, the German tech industry is poised for growth and investment in the months ahead. According to estimates, the market pre-crisis was slated to grow by 20% to Є280 billion in the next 2 years1 . In my opinion, COVID-19 and its effects will prove to be only a small hurdle for the sector as digital advancement and a robust tech agenda will be a top priority for companies large and small to remain competitive and win new market share.
More so, the German tech industry is likely to thrive longer-term due to the accelerated innovation and change of mindset brought about by the unprecedented conditions we are experiencing right now.
In this article, I outline some of the key trends that will shape the German tech sector and likely elevate our market to a global leader status in the years ahead.
TREND #1: INDUSTRY MERGERS AND ACQUISITIONS
COVID-19 will prove to be an unstoppable force of change for the industry. The unique economic conditions will test the mettle of organizations with weak operating models, leaving behind the stronger ones. In my view, many start-ups and younger firms will either aggregate or merge with bigger businesses, to strengthen one another. For the larger enterprises, the market will be ripe for spin-offs and divestitures, while I foresee a rich market for larger acquisitions – as companies with a strong balance sheet will be positioned to strengthen their portfolios at a favourable “buy” price.
I expect a lot of activity to be centred in the tech space, as companies will look to align their strengths and consolidate focus while the broader economy shakes itself out. Companies with unique sales technology, strong data assets, AI capabilities and cyber tools could be front and centre in this trend.
TREND #2: A BOOST TO TECH COMPANIES
While ‘survival of the fittest’ will ring true in the start-up scene, those with robust business models (and good equity backing) are likely to thrive. The government has announced a stimulus package worth billions for small and medium-sized companies, particularly to those offering digitalization2. This will funnel higher investment into tech, especially those with unique solutions in the artificial intelligence space – as the push for automation capabilities that can drive operational efficiencies at scale (think call centres) and cost take-out opportunities will be large.
TREND #3: A CATALYST FOR INNOVATION
In a 2020 DESI ranking3, Germany performed below average for ‘integration of digital technology’ and ‘digital public services’. In a country with an aging population, digitalization was viewed as a luxury rather than a necessity, both at a micro and macro level. However, the unprecedented hard-hitting impact of the pandemic is rapidly changing this point of view.
The government’s stimulus for digitalization2 is likely to give a push to innovative technologies – particularly those that support healthcare, reduce contact, augment the workforce, and create better connected consumer experiences. An average German has started expecting and even anticipating more technology in their everyday professional and personal lives. This means higher acceptance of digital initiatives in the boardroom and greater integration of tech into business strategy.
TREND #4: BOOST IN TECH-INVESTMENTS
Germany is being positioned as one of the quickest to recover from the financial effects of the pandemic, according to a Deutsche Bank research. This prediction is also supported by Germany’s low debt vis-à-vis tech-dominating nations such as the U.S. and China who are already struggling to retain investor confidence due to the crisis.
Resilience and sustainability are the most sought after qualities in an economy in the new normal, and Germany has demonstrated both. The lower layoff rate due to the Kurzarbeit and an R&D spend comparable to the U.S.4, make Germany a very attractive market for tech investments in the future. With a strong underlying manufacturing sector – one that will continue to advance rapidly with new technologies – I expect a lot of investment and activity across this space in the months ahead.
TREND #5: GAIA-X – A CLOUD GAME-CHANGER?
The pandemic has made better cooperation between European economic giants necessary. To reduce the EU’s dependency on Silicon-valley based companies, France and Germany plan to create Gaia-X. The service aims at establishing common standards for storing and processing data on servers that are housed locally and comply with the EU’s strict laws on data privacy. Labelled as the EU’s answer to AWS, it remains to be seen how the development of this Franco-German project will play out in the larger scheme of things, particularly when data-privacy, specifically healthcare data-privacy, have become larger world issues.
TREND #6: GREATER DEMAND FOR TECH TALENT
As companies continue to innovate and look for avenues to reduce costs, the need for acquiring and retaining top talent that can drive digital transformation agendas forward will be paramount. Skills in areas like data insights, change and program management, AI, and machine learning will remain hot, and continue to position Germany as a tech innovation market with great jobs.
We also have a thriving tech start-up culture with costs that are far more favourable than London and Silicon Valley – so job growth should bounce back and maintain strong demand in 2021.
For most of us what was inconceivable a few months ago has become the new reality. As Infosys co-founder and Chairman Nandan Nilekani put it, “This crisis has led to the revival of technology and expertise”. This couldn’t be more true!
I look forward to your thoughts here, and please stay tuned to my next article coming soon.