After the mechanization, the electrification and the digitalization of production, the latest industrial trend is made in Germany: Industry 4.0 – a keyword when it comes to the question how industries will look like tomorrow. But what does Industry 4.0 actually mean? What is the status quo? And what are the opportunities for foreign investors?
The Two Components of Industry 4.0
Industry 4.0 basically describes the fusion of IT and industrial production. In particular, it means that production machines are able to communicate with each other and also with the people who operate them. This makes the employees only supervisors in the factory of the future, or – how it is often called – the ‘Smart Factory’. The ‘Smart Factory’, which is described by connected production components and therefore an efficient and flexible production, is the final goal of Industry 4.0.
Industry 4.0 consists of two components –Information Technology and Engineering. While German engineering has a good reputation worldwide, the German IT industry still leads a shadow existence. Only a few large IT companies such as SAP and Telekom seem to be the leading forces in Industry 4.0. However, there is a large number of highly specialized “hidden champions” which contribute important innovations in fields like cybersecurity or cloud computing. The fact that most of the German software companies do not focus on end users but rather on corporate customers makes the German software market the largest in Europe with stable growth rates of 5-6%. Nevertheless, the implementation of smart IT solutions requires the engineering side of Industry 4.0.
The Current Status of Industry 4.0
Even though IT is the main driver in Industry 4.0, the highest efficiency gains are expected in other industries. Especially the traditionally strong German industries such as engineering and automotive are expected to achieve the highest economic gains from the transition towards a digitalized and smart production. Considering the investment requirements estimated at 18 bn. EUR annually, it would still be a profitable step for the German industry.
The willingness of German companies to invest does currently not meet the high expectations of many politicians. Despite the recent growth of Investments in Industry 4.0, it is still at a level as low as one billion euro annually. The reason for this underinvestment is not the absence of the technology required. In fact, most essential technologies for Industry 4.0 are already available. The most fundamental obstacle to the transition is the low capitalization and the risk aversion of many German companies. Especially the German “Mittelstand” (SMEs), which mainly consists of specialized family enterprises, avoids investments in the IT solutions. However, the German government actively encourages their vision of an entirely digitalized production until 2020 and a largely automated production as the next evolutionary step. Besides the education of skilled labor and the financial support of R&D in the relevant fields, the Platform Industrie 4.0 was founded. It is the largest platform of its kind and connects research institutes with companies of the engineering, the IT, and the production industry.
Opportunities for Foreign Investors
Like mentioned above, the investments of German SMEs in Industry 4.0 are far too low. In many cases, they lack the required financial capital and therefore foreign investors can compensate this issue by investing. One option for foreign investors is to invest in or to acquire a German company and to participate in the gains from the innovation. Another option is the collaboration between German and foreign companies. This can be implemented through outsourcing or through a joint venture with a foreign company. Joint ventures are a popular way to gain know-how about Industry 4.0 but many German companies avoid outbound outsourcing and joint ventures with foreign companies. This is due to their limited information and concerns about legal and data security matters.
Ecovis is an experienced partner in order to overcome these concerns. The provision of legal and tax information and the mediation between German companies and foreign investors is one of our key competencies.
Ecovis Beijing provides a comprehensive portfolio of legal, tax and audit services for your investment in Germany. If you need further information or advice on investing in Germany, please feel free to contact us: email@example.com
Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: firstname.lastname@example.org
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