Much handwringing in the executive suites across Germany when the recent list of the most valuable publicly traded enterprises in the world was recently published. In Europe's strongest economy only TWO companies - SAP and Siemens - made it into the Top 100 list based on market capitalization: SAP worth $165 billion placed #50 and Siemens just made the cut at #99 with $112 billion market value. Once again, American technology companies were dominant, with several Chinese companies in the mix:
„Die Top-US-Konzerne sind derzeit in vielen Branchen das Maß der Dinge. Sie profitieren vom großen und prosperierenden Heimatmarkt und von der hervorragenden Entwicklung der US-Technologiekonzerne. Dem hat Europa zurzeit wenig entgegenzusetzen“, sagte Alexander Kron, Mitglied der Geschäftsführung bei EY, WELT bereits im Sommer. „Das Wirtschaftswachstum schwächelt, viele europäische Unternehmen leiden unter dem US-chinesischen Handelsstreit, zahlreiche Konzerne befinden sich in tief greifenden Umbruchphasen.“
And what about the cornerstone of German economic power - its much vaunted automotive industry? The US company Tesla beats out both BMW and Daimler by more than $20 billion in market value, and is quickly narrowing the gap with Volkswagen. Tesla recently announced its plans to build a "Giga Plant" outside Berlin, creating 8,000 new jobs initially just as Audi announced massive layoffs:
"Ironically, the industry ended up weaker for Germany’s protectionist politics within the union, experts say. Under the lax European Union carbon dioxide caps, German car builders had little incentive to modernize their fleets. So while they kept on building and selling tank-like vehicles, companies like Tesla developed rapidly, leaving Germany behind both technologically and in securing markets. Part of the big job cuts the industry is facing now can be attributed to this failure.
Instead of just building cleaner cars, German carmakers took to cheating, destroying the image of the honest German merchant and engineer. Over the past few years, Germans have had to learn that Volkswagen and other German carmakers were involved in developing and deploying software that activated controls on nitrogen oxide emissions during testing only, while real-world emissions were much higher"
Why has the Digital Revolution largely passed Germany by? Partly due to complacency - the belief that dominance in automotive and machine tools would persist. Much of the domestic engineering talent gravitated to these sectors. Then there is the lack of a strong start-up culture in Germany. Many (most?) start-ups fail, and failure traditionally has been frowned upon in German business culture. Most importantly, perhaps, is the dearth of venture capital. Backed by pension funds, university endowments, foundations, etc, US venture capital firms can deploy $billions to quickly scale software platforms across multiple geographies - quickly minting "unicorns", i.e. start-ups with at least $1 billion in valuation. Many of the new digital enterprises in Germany have been "me -too" knock-offs of US companies - Zolando and Xing come to mind. They have had some success in the German or wider EU market, but lack the global reach of an Amazon or LinkedIn. That's not so say a well-managed knock-off cannot compete: Germany's Hello Fresh has surpassed Blue Apron in market share for meal-kits in the US, although I have doubts that Hello Fresh can sustain this growth once Amazon enters the meal-kit market.
For too long, German industry relied on banks for capital. And Germany's economic weakness as we enter a new decade is in part due to the weakness of its banking sector. Just one depressing data point: in 2007 Deutsche Bank's market value (US$75 billion) was roughly half that of JP MorganChase. Today, at US$16 billion DB is worth 1/27th of its American rival JP MorganChase.
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