Is broadband the bottleneck to Germany’s digital transformation dreams?

German engineering used to be at the forefront of industrial innovation for decades, but the country is now struggling to adapt to the digital age. Who is to blame?
26 June 2018

The future of German engineering hangs in the balance as the country tries to fix its broadband network. Source: Shutterstock

German engineering had carved out a reputation for itself by delivering cutting-edge products, year after year, so much so that products exported from the country commanded a premium.

However, in the digital age, the country’s manufacturing businesses seem to be having several hiccups transforming into new-age engineering firms that leverage emerging technologies.

In fact, German companies are slowly finding it difficult to keep up with competition from manufacturers in other countries and sliding down the scale of preferred exports of precision tools and leading engineering products.

According to a study by Reuters, Germany’s strong economy is blocking efforts to modernize, with firms too busy meeting orders today to plan for a digital future.

Government data Reuters found shows the extent of the problem.

A government fund created to expand Germany’s broadband network, for example, has managed to only spend three percent of its budget last year.

The lack of a proper “internet” has set Germany up to 20 years behind the US, with many managers still stuck in the “fax age.”

In fact, the lack of a broadband network is something that seems to be an impediment for the digital transformation of several businesses in the country.

Broadband and Germany’s narrowing possibilities

The team behind the report spoke to Alexandra Horn’s team at the BVMW Mittelstand association of small and mid-size firms worked with Zemmler Siebanlagen in eastern Germany, to introduce the inventory application his company now uses.

It is part of a government-backed scheme called “Digital Together.”

Horn told Reuters that she has sometimes been met with laughter when taking this digitalization drive to firms outside the main cities like Berlin, where a healthy startup scene masks slow progress elsewhere.

Because of poor internet speeds, “digital business models cannot be implemented, plain and simple,” Horn said.

However, the future might hold more possibilities and the promise of better infrastructure.

Germany’s coalition government has pledged to provide high-speed gigabit internet access across Germany by 2025 and aims to develop a fibre-optic network to all corners of the country.

Japan has 76 percent of its broadband via fibre, Latvia 62 percent, and Sweden 58 percent, compared to just two percent in Germany, according to a study by the OECD.

Part of the reason that the country’s internet infrastructure is still not ready can be attributed to the telecom industry regulator’s decision to allow Deutsche Telekom to use an intermediate solution called “vectoring”.

As a result, the service provider increased the bandwidth of existing copper lines instead of laying fibre lines all around the country.

Don’t just blame the government

Local businesses must also shoulder part of the blame for the country’s progress with communications infrastructure.

Reuters, who studied Zemmler found that the company, like most of the businesses in the country, were so busy fulfilling orders that they didn’t consider shifting to digital technology.

“The transition to digital technology is being overlooked because of roaring growth now. Last year, the German economy grew by 2.5 percent, the strongest pace since 2011, outperforming France and Italy,” said the report.

Digitalization specialists seem to think that firms ought to think ahead.

“It’s pleasing that the order books are full now, but that will not automatically remain the case. The German Mittelstand (mid-sized companies) is characterized by the fact that it thinks long-term, in generations instead of in quarters. Without digitalization, no company can be future-proofed,” experts told Reuters.

At the end of the day, the fact remains that companies are masters of their own fate, and the choice to go digital is now a necessity. Those who fail to make the transition, will sadly, perish.

German manufacturers are now faced with a choice: transform (digitally) or perish.