Lead Markets and Innovative Products

Successful the world over: German car manufacturers are among the big players in the global mobility sector
Successful the world over: German car manufacturers are among the big players in the global mobility sector Alexander Koerner/Getty Images
The German economy centres around four strong industrial sectors. Small and medium-sized enterprises are its heart.

Germany’s economic prowess is decidedly based on its industrial performance and its capacity for innovation. With 775,000 jobs, the automotive industry in particular is regarded as a showcase discipline with regard to the Made in Germany seal of quality. With its six strong brands, namely Volkswagen, BMW, Daimler, and the VW-owned marques Audi and Porsche, as well as Opel (Groupe PSA), the automotive industry is one of the forces driving the global mobility sector.

dpa/Peter Steffen

The companies invest billions in research and development (R&D) to shore up their competitive edge. Electronic and digital networking, as well as assisted or self-driving cars, are the megatrends for automobiles. In global terms, in 2017 the German carmakers, which have a major share in the middle and luxury car segments, produced some 16.45 million cars, with two out of three cars by German manufacturers being made abroad.

Alongside the automotive industry, plant and mechanical engineering and the chemical industry are traditionally strong pillars of the German economy. Founded in 1865 and headquartered in Ludwigshafen, BASF, which has a payroll of 115,000 employees working at 353 production sites in more than 80 countries, is the world’s largest chemicals company. Key sectors also include the electrical and electronic engin­eering industry, with global player Siemens active in 190 countries. Its application solutions, from mobility to renewable energies, are regarded as highly innovative. The fact that the major sectors of industry achieve export ratios of 60 percent and more indicates just how important the global market is for them.

The most important economic centres in Germany are the Ruhr Area, Greater ­Munich and Greater Stuttgart (high-tech, automotive construction), Rhine-Neckar (chemicals, IT), Frankfurt am Main (finance), Cologne and Hamburg (port, aircraft construction, media). In east Germany, small but efficient high-tech centres have emerged, in particular in the “beacon regions” of Dresden, Jena, Leipzig, Leuna, and Berlin-Brandenburg.

Automotive groups head and dominate the list of the biggest German companies (by 2016 sales): Volkswagen comes first, with Daimler and BMW following in second and fourth place respectively. Allianz (insurance) is in third place and ­Siemens (electrotechnology) fifth, ahead of Deutsche Telekom and Uniper, spun-off from energy group Eon.

Industry in Germany specialises in the ­development and manufacture of complex goods, in particular capital goods and ­innovative production technologies. Industry carries far more weight in Germany than in many other economies. A total of 7.27 million people work in industry and manufacturing. Only in South Korea is the share of manufacturing in gross value ­added higher.

The economy’s capacity for innovation is ­regarded as the driving force behind Ger­many’s economic strength. The step-up in R&D activities since 2007 has spurred trends. Both business and the public sector played a role in this; the Federal Government’s High-Tech Strategy has been a key stimulus here. In 2016 a total of 92 billion euros was spent on R&D in Germany, which corresponds to a 2.93-percent share of gross domestic product (GDP). This puts Ger­many in fifth place among comparable OECD countries, ahead of the USA and well ahead of France and Great Britain. Of Germany’s main rivals, only South Korea and Japan invested more in R&D. Germany is considered to be Europe’s champion inventor. In 2016 German companies filed around 32,000 applications for patent protection to the European Patent Office in Munich. The same year, 67,898 inventions were registered with the German Patent and Trade Mark Office (DPMA) – a new record. The ­automotive supplier Bosch, with 3,693 registrations, and the Schaeffler Group (2,316), which likewise operates in the automotive components sector, were the most prolific. In total there were exactly 129,511 German patents in force in 2016. Including patents granted by the European Patent Office, a ­total of 615,404 patents were valid in Germany in 2016.

Today, it is hard to imagine Germany as an industrial centre without its services economy, which has long been on a constant growth curve. A good 80 percent of all companies operate in this sector, accounting for almost 70 percent of gross domestic product and three quarters of all jobs. Of around 30 million people in gainful employment, 12 million work for public or private service providers, almost 10 million in retailing, hospitality and transportation, and more than five million for corporate service providers.

Small and medium-sized enterprises – the heart of the economy

Despite the numerous global players and large flagship businesses, the German economy is characterised by 3.6 million small and medium-sized enterprises (SMEs), as well as countless self-employed persons and freelancers. The SME segment includes around 99.6 percent of companies. SMEs are defined as firms with annual sales 
of less than 50 million euros and fewer 
than 500 employees. Numerous companies founded by entrepreneurially minded migrants now also enjoy SME status. More than 700,000 people with a migrant background own a company. As such, migrants in Germany are an important economic factor.

According to studies by the KfW Banking Group, overall there is a decline in the number of innovative companies – only 22 percent of SMEs invest in innovative products and processes. It is above all a few larger medium-sized companies that are responsible for innovation efforts. In ­numerous niche market segments, German SMEs are frequently hidden champions, with leaders offering highly innovative products in Euro­pean and global markets. The creative industry has become firmly ­established in the fabric of the economy. Frequently in small, under-capitalised companies it plays a pion­eering role on the way to a digital, knowledge-based economy, and is regarded as a significant source of ideas for innovative products. With more than 30,000 such firms registered, the Berlin-Brandenburg area is considered to be an international seedbed for creative industries and start-ups.

The economy is on the threshold of the fourth industrial revolution. Driven by the Internet, the real and virtual worlds are growing together to create an Internet of Things. The Federal Government’s aim is for the economy and scientists alike to support the implementation of Industry 4.0 and in so doing position Germany as a leading provider of these technologies and as a future manufacturing hub.

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