Germany’s Grand Scheme of the Internet of Things: The Pursuit for Digitalization
China Fellow; Senior Research Program Coordinator
Yixiang Xu is the China Fellow, and Senior Research Program Coordinator at AICGS, leading the Institute’s work on U.S. and German relations with China. He has written extensively on Sino-EU and Sino-German relations, transatlantic cooperation on China policy, Sino-U.S. great power competition, China's Belt-and-Road Initiative and its implications for Germany and the U.S., Chinese engagement in Central and Eastern Europe, foreign investment screening, EU and U.S. strategies for global infrastructure investment, 5G supply chain and infrastructure security, and the future of Artificial Intelligence. His written contributions have been published by institutes including The Chinese Academy of Social Sciences, The United States Institute of Peace, and The Asia Society's Center for U.S.-China Relations. He has spoken on China's role in transatlantic relations at various seminars and international conferences in China, Germany, and the U.S.
Mr. Xu received his MA in International Political Economy from The Josef Korbel School of International Studies at The University of Denver and his BA in Linguistics and Classics from The University of Pittsburgh. He is an alumnus of the Bucerius Summer School on Global Governance, the Global Bridges European-American Young Leaders Conference, and the Brussels Forum's Young Professionals Summit. Mr. Xu also studied in China, Germany, Israel, Italy, and the UK and speaks Mandarin Chinese, German, and Russian.
“The very notion of a grand scheme of things is a nightmarish obscenity.” – Thomas Ligotti, author of Songs of a Dead Dreamer
In the years since the Great Recession began, political elites in Germany have pondered a critical question: how can Germany retain its economic growth in a world of increasing industrial competition and market volatility? The answer is obvious: digitalization.
In 2014, the German government passed the first-ever “Digital Agenda” (four years after the unveiling of the European Union’s “Digital Single Market” strategy), outlining its vision for accelerated digitalization in social-economic development in Germany through 2017. Its intent is to “strengthen Germany’s role as an innovative and highly productive economy within the European Union and across the globe.” The forty-page document encompasses a vast array of objectives, from digital infrastructure development to transition to renewable energy; it even includes support for family life, equal opportunity, and human rights protection. Without going into details about how various initiatives are going to be funded or their modus operandi, the German government painted a big target with a broad stroke.
So is this grand plan working, or is it, as Thomas Ligotti put it, “a nightmarish obscenity”? To start with, digitalization is not just another abstract idea; it is happening now. Individual business initiatives to digitalize their production, management, and advertisement have generated an enormous amount of added value. According to a recent study by Cisco, firms across a wide range of industries captured $1.3 trillion of the digital value in 2015, with an estimated $14.4 trillion at stake from 2013 to 2020. Companies that digitalize quickly can create new value and capture value from their competition.
Despite the top-down nature of the agenda, there is a fundamental need from all sectors of the German economy to pursue digitalization to retain a competitive edge. The large German manufacturing industry, for example, can employ digitalization as a source of innovation in R&D, management, and marketing. At the center of digitalization is the increased connection between people and machines and between machines themselves, a key component of Industrie 4.0, Germany’s vision for the future of manufacturing.
In fact, many companies in Germany have already started their own process of digitalization. Siemens recently presented its digitally integrated platform for the complete industrial production chain at the Hannover Messe, a big step toward upgrading to M2M (Machine to Machine) connections for more efficient large-scale production. Bosch has, through its “IoT Suite,” a cloud-enabled software package for developing applications in the Internet of Things, developed a platform that connects millions of machines and gadgets. Collectively, it is estimated that German industrial companies will spend €40 billion in digitalization by 2020.
Yet, many companies in Germany remain skeptical about digitalization. One-third of the middle and small-sized businesses (Mittelstand) do not see digitalization as an opportunity, particularly among the smaller firms. A 2015 assessment by the Friedrich Ebert Stiftung found that across industries, only about one-third of the companies have incorporated digitalized machinery, big data analysis, and digital platforms into their production. Use of Cloud Computing is also low among the German Mittelstand, compared with the European average.
A country with a big industrial manufacturing base and a majority of Mittelstand companies, Germany has a profound need to assist and promote the digitalization process in the private sector, providing the resources, information, and infrastructure for an industrial transformation, especially for small-sized companies. The Digital Agenda is the first step toward that goal.
Much remains to be done to achieve that vision of an industrial transformation. Some are convinced that Germany already lost the first half of the battle in digitalization. The United States has been leading innovation in cloud solutions, M2P (Machine to People) platforms, and big data. There is skepticism about German companies’ ability to catch up and play by the new rules, such as the collection and analysis of big data. Germany is challenged to liberate the use of big data in the face of the ongoing debate on privacy and security. Moreover, the challenges are greatly amplified by Germany’s position in the EU.
The urgency to put digitalization on the government agenda is shared by countries across Europe. From Sweden’s “ICT for Everyone” to Italy’s “Crescita Digitale,” European governments are united under the conviction that digitalization is the future for sustained economic vitality. The realization of a digital single market could not only bring new economic growth across Europe, but also significantly enhance Europe’s own digital policy and influence on digital policy practices around the world. However, despite the initial enthusiasm brought by the EU’s digital strategy for the ensuing decade, the progress for a Europe-wide digital integration is in a stalemate, plagued by differences over issues such as copyright reforms and the question of geo-blocking. The strategy also needs large investment in digital infrastructure and research at the European level. Once again, Germany, the economic and political giant in Europe, finds itself in a tentative leadership position to bring Europe together for the better.
 “Digital Agenda 2014-2017,” German Federal Ministry for Economic Affairs and Energy, German Federal Ministry of Interior, German Federal Ministry of Transport and Digital Infrastructure, August 2014, p. 2, http://bmwi.de/BMWi/Redaktion/PDF/Publikationen/digitale-agenda-2014-2017,property=pdf,bereich=bmwi2012,sprache=de,rwb=true.pdf (10 April 2016).
 Thomas Ligotti (born July 9, 1953) is a contemporary American horror author and reclusive literary cult figure. His writings have been noted as rooted in several literary genres – most prominently weird fiction – and have overall been described by critics such as S.T. Joshi as works of “philosophical horror”, often written as short stories and novellas and with similarities to gothic fiction. The worldview espoused by Ligotti in both his fiction and non-fiction has been described as profoundly pessimistic and nihilistic. The Washington Post called him “the best kept secret in contemporary horror fiction.”
“Thomas Ligotti,” Wikipedia, https://en.wikipedia.org/wiki/Thomas_Ligotti (26 April 2016).
 Joel Barbier, Amitabh Dixit, Robert Moriarty, Chet Namboodri, Kathy O’Connell, Michael Riegel, “Where to Begin Your Journey to Digital Value in the Private Sector,” Economic Analysis 2016-2024, Cisco, January 2016, http://www.connectedfuturesmag.com/Research_Analysis/docs/Private-Sector-Digital-Value-at-Stake.pdf (8 April 2016).
 Martin Wocher, Axel Höpner, “Digitalisierung vor dem Durchbruch,” Handelsblatt on the Web, 21 April 2016, http://www.handelsblatt.com/technik/hannovermesse/vorreiter-siemens-digitalisierung-vor-dem-durchbruch/13480532.html (25 April 2016).
 Martin Wocher, “Wie GE dem Rivalen Siemens Marktanteile abjagen will,” Handelsblatt on the Web, 26 April 2016, http://www.handelsblatt.com/technik/hannovermesse/wettlauf-um-die-digitale-fuehrung-siemens-will-massstaebe-setzen-ge-haelt-dagegen/13498694-2.html (26 April 2016).
 “Industrie 4.0: Chancen und Herausforderungen der vierten industriellen Revolution,” pwc, 2014, http://www.strategyand.pwc.com/media/file/Industrie-4-0.pdf (26 April 2016).
 Max Haerder, “Mehr als jeder dritte deutsche Mittelständler sieht Digitalisierung skeptisch,” Wirtschafts Woche Online, 21 April 2016, http://www.wiwo.de/unternehmen/industrie/industrie40/digitalisierung-mehr-als-jeder-dritte-deutsche-mittelstaendler-sieht-digitalisierung-skeptisch/13479894.html (25 April 2016).
 “Does Deutschland do digital?” The Economist on the Web, 21 November 2015, http://www.economist.com/news/business/21678774-europes-biggest-economy-rightly-worried-digitisation-threat-its-industrial (20 April 2016)
 On 27 October 2016, Angela Merkel and François Hollande rallied for support for their version of the digital single market at a conference at Paris’ Élysée Palace. Franco-German cooperation will be critical to advancing the agenda among member states. See Aline Robert, “France and Germany push their own digital agenda,” EurActiv.com, 27 October 2016, http://www.euractiv.com/section/digital/news/france-and-germany-push-their-own-digital-agenda/ (25 April 2016).