Digital Summit

German economy needs more digital sovereignty

German companies are concerned about their heavy dependence on non-European providers of software, cloud services, and AI applications. At the Digital Summit in Frankfurt, the government was urged to support European providers via better regulation, and more business-friendly market conditions.

German economy needs more digital sovereignty

The dependence of German companies on digital products from non-European providers has recently intensified. This increasingly limits their digital sovereignty, ties them to specific ecosystems, and makes them vulnerable to developments beyond their control. According to a study by the Centre for European Economic Research (ZEW) in Mannheim – presented at the federal government's Digital Summit in Frankfurt – 80% of companies in both the the information sector and manufacturing industry report concerns about their dependence on non-European sources.

A high unilateral dependence on foreign providers in specific sectors like cloud computing and artificial intelligence (AI) is also detrimental to Germany as a business location. This is partly due to still insufficient investment in cloud infrastructure, and the oligopolistic position of large American digital companies in the AI sector. Both factors are interrelated, and drive digital development to new heights, as Béla Waldhauser from Telehouse Germany warned at the summit.

In light of this, companies are urging the government to prioritise European providers in its procurement practices. Given the high share of state involvement, which is unmatched worldwide, such a step is necessary to give the open-source movement more room to grow, emphasises Mirko Böhm from the Linux Foundation. The suggestion of a quota system for open-source solutions has even been raised.

According to the ZEW survey of 1,200 companies, concerns primarily involve the loss of data sovereignty. The study also highlights further dependencies in security technologies and digital platforms. Moreover, in the field of AI, 52% of companies in the information industry report not finding any usable European alternatives.

Debate on Digital Sovereignty (from left to right): Irene Bertschek, ZEW; Anna Christmann, Member of the Bundestag; Antje Leminsky, Bechtle AG; Linda Machwitz, DFA-Digital für alle GmbH.

Even when European alternatives exist, companies perceive non-European providers as more cost-effective and technologically attractive. Lock-in effects are particularly problematic, which 58% of companies in the information industry cite. Lock-in refers to a situation where a system choice makes it difficult to escape dependency, as subsequent decisions and investments are based on it, increasingly placing the system provider in a dominant role regarding content.

Experts at the Digital Summit argue that better framework conditions must be established for European companies and startups to grow and become recognisable brands in the market. European alternatives are indeed available, notes Antje Leminsky from Bechtle, but they currently operate below the perception threshold. Even a reduction in over-regulation could provide a boost for growth.

The business location also needs European digital companies that can compete globally as market leaders. According to Anna Christmann, a member of the Bundestag from the Green Party, and the government's Digital Coordinator, this would also help the region in negotiations with other global leaders, as Europe would be taken seriously, rather than just seen as a market.

Regulation as a barrier

ZEW economist Irene Bertschek says that the German government needs to take action: „If digital possibilities are greater in other EU countries like Finland, under otherwise identical EU framework conditions, it should give us pause for thought.“ Finland, for example, makes medical data widely available for research with a low access threshold.

Currently, dependencies primarily exist on providers and partners from the US, while dependencies on China are relatively low. However, 46% of companies in the information industry express significant concerns about future reliance on China, with the figure being 50% in manufacturing.

The government is also called upon to secure infrastructure. Green Party representative Christmann points out monopoly structures in satellite communication, noting uncertainty about what would happen in emergencies, if the satellite network fails or is selectively shut down. The fact that Brussels aims to establish its own network is a first step.