Why is Industry 4.0 so important for Germany?

Industry 4.0 refers to the entry into the fourth stage of the Industrial Revolution. This stage enables greater production flexibility by networking the entire value-added chain. Digitization, which has in the last decade crept into our everyday lives relatively swiftly, is to be comprehensively used in commerce in Germany and sharpen industry’s long-term competitive edge.

By international comparison, German industry is certainly competitive at present. The companies have for some time bid farewell to cheap mass production, where Germany is no longer competitive, and relocated manufacturing to more cost-effective emerging markets. Among other things, Agenda 2010 and the consensus on modest wage increases agreed by the parties at the collective bargaining table in the Noughties kept unit wage costs stable in Germany at least until the end of the financial market crisis, while they rose appreciably in other Western industrialized nations and in China. Most recently, unit wage costs have started to climb again in Germany, but only analogously to the rises seen in most other industrialized countries.

In Germany, last year almost 20 percent of employees worked in manufacturing, while in Great Britain or the USA the figure is less than 10 percent. A similar picture emerges as regards the importance of value added in manufacturing for the economy as a whole. Compared with other Western economies, the German economy has taken longer to transition from an industrial society into a service society. This makes a future strategy like Industry 4.0 all the more important in Germany with regard to the economy’s future growth potential.

A digitized and networked Industry 4.0 is necessary to ensure the economy continues to perform well going forward, and can contend with the challenge of aspiring high-tech rivals such as South Korea and China. Germany could remain competitive for a very long time if it introduces Industry 4.0 as quickly as possible. At the same time, such a step would force companies to invest in digitization both extensively and at as early a point as possible. From today’s point of view it is not, however, clear how quickly these investments will pay off, which is why many companies, especially the smaller ones, are still hesitant.

Given the great importance of Industry 4.0 for the German economy as a whole, the government must also set a good example and at long last do its homework as regards modern infrastructure: One example for many would be the need for high-speed Internet access nationwide. This is, after all, quite obviously one of the preconditions for the nationwide introduction of Industry 4.0.

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