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Berenberg/HWWI Digital Economy study: “The world is finding new ways to connect”

Hamburg. Digitisation is changing business and society from the inside out – and the process is accelerating. People have already started talking about the next industrial revolution using the slogan “Industry 4.0”. “The world is finding new ways to connect,” says Dr Jörn Quitzau, an economist at Berenberg. “All areas of life and markets are affected by this, from mobility and education through to healthcare. Anyone missing out on the digital transformation will find themselves excluded from the new world.” In their latest study, private bank Berenberg and the Hamburg Institute of International Economics (HWWI) have investigated the topic of the digital economy. “Old competitive advantages and market shares are coming under pressure from disruptive innovations. A new wave of digital start-ups is rolling in: only those that can combine venture capital with new ideas will be competitive,” states Professor Henning Vöpel, Director of the HWWI. “Germany in particular needs to update its hugely successful economic model to take account of digitisation and demographic change.”
    • Additional potential for annual value creation in Germany through 2030 put at around €17-25 billion

    Two key elements represent the next stage in the digital revolution of industrial production: machine-to-machine communication and the smart evaluation of large volumes of data (big data). New digital applications are increasingly enabling companies from other sectors to enter markets and change established structures. Old business models are coming under pressure.  

    “New business models are set to fundamentally alter the structure of existing markets. Crossovers between different industries will increase, while traditional market boundaries will become ever more blurred,” believes Berenberg expert Quitzau. It is even becoming impossible to clearly classify who is a consumer and who a producer. In the sharing economy, consumers are often simultaneously producers when they offer their consumer goods for use by others. What’s more, a cultural shift is becoming apparent: ownership is losing importance while opportunities to use are gaining the upper hand.

    Fundamental structural change is nothing new. The term Industry 4.0 is used synonymously with what is now considered the fourth industrial revolution. The periods during which the revolutions take place are, however, becoming ever shorter. “Markets are being created in the digital economy that operate to the ‘winner takes all’ principle. Speed is a key success factor for entrepreneurs and enterprises alike, as the ultimate reward is global market dominance. This largely helps to explain the rapid pace of change we’re seeing right now,” states Quitzau. 

    The experts put at €17-25 billion the additional potential for annual value creation in Germany from Industry 4.0 through 2030. Digital change is bringing new impetus to the automotive industry and the mobility market, among others. In this context, being able to direct connected traffic, offer sharing models and guarantee sophisticated digital infrastructure are key aspects underpinning the future of the mobility sector. Furthermore, 3D printing is a technology with huge growth potential as digitisation advances. Digital print plans mean that goods can be made locally, be it upstream products or capital and consumer goods. Neither is the financial sector being spared the impact of digitisation. Alongside payments and lending activities, portfolio management is another of the fields that are starting to feel the pressure from what are known as fintechs. 

    The German economy is fundamentally in good shape to deal with the digital revolution. A key element of German industry is its ability to adapt quickly and comprehensively to global structural change. Digitisation represents a new megatrend in this context. Nonetheless, there are weaknesses in areas like digital infrastructure and software development. “Germany needs to create the infrastructure, legal and regulatory framework to allow a digital revolution,” believes Henning Vöpel. The ability to quickly take up and implement new ideas and concepts is not to be found across the board in the German economy either. “Start-up activity in Germany is well below par by international standards. You can’t really talk about a venture capital market at all. The mental blockage surrounding innovation in Germany urgently needs to be overcome, otherwise good technical ideas from Germany will find their finance and their home elsewhere.” 

    The digital revolution is challenging for economic policy in many regards. “It is perfectly conceivable that the digitisation of the economy will destroy far more jobs than it creates,” warns Berenberg economist Jörn Quitzau. “The ability of computers to learn and evaluate big data may also start putting jobs for skilled qualified workers at risk.” Moreover, digitisation throws up far-reaching social and structural questions regarding things like data ownership and usage, data protection and data autonomy. “This also gives rise to ethical and normative questions for which answers need to be found by business, society and politics,” says HWWI Director Vöpel. 

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