The German SME sector in the face of digitalization

“The strength and endurance of the state rests on the numerous middle classes.” The legal scholar Friedrich Carl von Sauvigny already knew this around 200 years ago. The validity of his statement has not changed in 21st century Germany. Over 99 percent of all companies in this country are small or medium-sized enterprises (SMEs). They provide more than half of all jobs and generate more than every second euro. SMEs provide the largest proportion of vocational training in absolute terms. More than 90 percent of trainees learn in an SME. The German SME sector is regarded worldwide as the country’s innovation, technology and economic engine. There is probably no other country in the world where SMEs play such a key role.

The strength of these companies lies above all in their flexibility. A small company can react to new requirements and needs faster than a large industrial tanker. During the coronavirus crisis, numerous companies have demonstrated this ability and switched their production to spit protection screens, respiratory masks or disinfectants in order to continue manufacturing.

Despite all the justified praise, I must also act as a warning. After all, German SMEs have a lot of catching up to do when it comes to what are probably the most crucial developments of our time: digitalization and Industry 4.0. Gerrit Sames and Arthur Diener from the Technical University of Central Hesse, for example, have shown this in a study. According to their study conducted in 2018, they found at best the first signs of digitalization in almost all areas. Only human resources stood out a little. Considerations of equipping the entire company with a cross-departmental digital structure were as common as pink elephants.

Little has improved since then, as a recent study by WHU Otto Beisheim School of Management confirms. For many pioneering future technologies such as blockchain, artificial intelligence (AI), big data or Industry 4.0, but also for comparatively simple IT solutions such as cloud computing or web analytics, the deployment rate is only in the single-digit percentage range, the experts found.

Many large companies have already taken these steps. The innovation hotbed of SMEs is therefore in danger of falling behind, threatening their very existence. After all, no company will be able to survive in the near future without the technologies that enable companies to make business processes less labor-intensive and error-prone. Industry 4.0 and digitalization are particularly important for SMEs. These topics are becoming increasingly important against the backdrop of the demographically induced shortage of skilled workers.

It is therefore high time for SMEs in Germany to take a closer look at this topic – and write a new chapter in the history of the successful “German Mittelstand” model.