„In today's world companies are constantly in crisis“
Mr. Sinn, is the business community badmouthing the German business location?
It's not about talking it down at all. The German business location has enormous substance, and tremendous potential for the future. But the conditions are undeniably alarming. Companies are currently trying to make themselves heard in politics, but feel they are not being properly acknowledged. I also felt this during my recent visit to the Hannover Messe industrial fair.
What conditions are you referring to?
They range from high energy prices to geopolitical risks. In terms of growth prospects, the German economy is at the bottom among industrialised nations. That's quite alarming. In addition, there is dwindling competitiveness. In the latest ranking by the renowned Swiss institute IMD, Germany slid to 22nd place in the world in 2023 – from 15th the year before. We used to be in the top ten.
In sports, that would mean relegation.
Yet many German companies are extremely strong. They continue to invest heavily in research and development, driving innovation forward. German SMEs are at the forefront, especially when it comes to applications in Industry 4.0 or artificial intelligence. The task of politics is to set the framework conditions in such a way that the German location remains highly attractive. There is an urgent need for action.
What needs to be done?
I'll sum it up in three points. At the beginning of any necessary change is a clear, unflinching analysis.
Case for change, as consultants say.
Exactly, that's what you would say in the case of a company transformation too. To start, we need a wake-up call in Germany. It's really time for politicians to tell the population: We all need to move.
What do you mean by that?
We need higher productivity and, if necessary, more work and more performance. It's about, for example, presenting an attractive alternative to a four-day or 35-hour working week, having a higher and more flexible retirement age, and also limiting social benefits.
Could such changes really be implemented?
It's not easy. Such a transformation takes years and is exhausting. And without first creating awareness, to take people along, it won't work.
So what should politicians do?
Politics needs steadfastness and courage to work out this case for change. And it would need a blood, sweat, and tears speech a la Churchill. Chancellor Scholz had actually set the right tone with his „turning point“ statement two years ago. The last major structural change in Germany was the „Agenda 2010“ under Gerhard Schröder. Something similar is necessary again now.
Given the constant skirmishes in the government coalition, the question arises whether this would be possible.
In response to Russia's attack on Ukraine, Germany made decisions quickly — as it did during the Covid pandemic. I'll just mention LNG terminals as an alternative to gas from Russia. Everyone was proud of the new German speed. Rightly so. Unfortunately, however, we have stagnated in terms of decision making speed.
And how can an awareness of the need for better performance be awakened in Germany?
Important starting points are in education — especially the school system and vocational training. For example, for digitalization. But sport could also be used to promote willingness to perform and teamwork. Some of this has been lost. It's essential for the younger generation to grasp that the focus isn't solely on optimising their personal lives with remote work and potentially part-time jobs. Instead, there needs to be a revival of enthusiasm for fully engaging, devising solutions, and showcasing performance.
Is the younger generation crucial for advancing Germany's location?
We need to start at various points. But a crucial point is not just rote learning for children and young people, but rather awakening their curiousity and willingness to learn. Modern technologies, digital applications, and artificial intelligence should be introduced into the curriculum in a smart way.
Back to your agenda. Case for change is your first point.
The second is a plan for Germany with a more active, stringent, and genuinely convincing industrial policy. The third is speed and the reduction of bureaucracy.
What kind of industrial policy do you recommend?
We need an industrial policy with very clear incentives, with clear framework conditions, and also state investments. It should also be embedded in a vision for Europe. We need to answer the questions: What are our key industries, and how do we avoid the currently much-discussed deindustrialisation?
How could that work?
The whole thing would have to be managed like a major project, with a concrete roadmap and milestones, as well as integration into budget policy. This quickly leads us to the debt brake. From my point of view, we need off-budget funds that go beyond a one-year horizon, to enable investments in future topics.
What incentives do you propose?
The incentives would have to be practical so that they are put in place and take effect quickly. And they would have to be coherent. For example, promoting electromobility while also subsidising vehicles with combustion engines is not possible. A very important element is mobilising private capital providers, without which we will not be able to finance transformation expenditure. And we need to get universities and research institutes, but also top scientists from abroad, to focus on the decisive innovation topics.
For example, on artificial intelligence.
For example. But it's also about digitalisation in general. The hydrogen economy is an exciting field as well, or the storage capacity of batteries. However, I especially see a need for action for companies in artificial intelligence.
What's the need there?
According to the latest Bitkom study on AI, 15% of companies in Germany are using artificial intelligence. In the previous survey, it was only 9%. But 15% also means that 85% are not yet active in this area.
To your third point: Companies have been criticizing bureaucracy for decades. But little is changing.
Yes, and there's a great danger in that. Excessive bureaucracy in Germany as well as in the EU damages trust in democracy. This boosts the popularity of right-wing and left-wing populist parties. I could mention countless examples. One area is housing construction, where more needs to be done. It takes more than ten years to turn fallow land into building land, and then complete the construction with all the applications and plans. It leaves you speechless.
There is a deregulation law, though.
Yes, but I fail to see decisive progress. For instance, the digitalisation of administrative services. By the end of 2023, only just under 30% of the 575 individual points had been implemented —and that a year after the planned date.
How serious, in your opinion, is the danger of deindustrialisation?
German companies continue to invest here at home. But it is clear that in the last two to three years, interest in foreign investments has increased more.
Is this due to shortcomings in the German location or is it more about proximity to markets?
It's both. For a huge market like China, possibly also India in the future, German industries like automotive and chemicals can hardly avoid it. But also the increasing sluggishness and cost burdens in Germany are prompting companies to make the next investment, for example, in the US. That is a rational weighing up, in which subsidy policy also plays a role.
Do many of your clients do this?
Decisions on foreign investments that in the past might have been made in favour of Germany are made on a case-by-case basis. I don't want to start a requiem for our location. But the fact that companies are making such considerations more frequently alone is alarming.
But the German location still has great advantages.
Yes, there are good reasons to invest in Germany. It starts with democracy and legal certainty, our dual education system, and the universities. We have always been a leader in innovation and technology, now also in sustainability. But I have the feeling that these reasons need to be polished and sharpened. We need a Made in Germany 2.0.
What can companies do better themselves? Many are currently in restructuring again.
Strategically, it's about the business portfolio for many, and the question of which products and activities to focus on. Where is my competitive advantage? This is particularly evident in industries such as automotive suppliers and mechanical engineering.
So divestments and acquisitions.
Another major issue is optimisation when there are headwinds blowing in your face, as is the case now. Keywords are cost efficiency, resilience, and weatherproofing. There are currently many considerations and projects going in the direction of costs. This involves structural changes, but also continuous improvement. Nowadays, a company is constantly in crisis, constantly in transformation.
Regarding your industry: Does the cost-cutting of companies also affect consultants?
Partially, companies are cutting budgets or postponing decisions on projects. On the other hand, the topics I mentioned give us tailwinds and mean high demand. We are planning for double-digit growth for this year, as we did for the past one.
Bain & Company in Germany or globally?
In 2023, we grew by double digits in the DACH region. Global business was somewhat weaker, as it was for the entire consulting industry.
And this year?
We are clearly on a double-digit growth trajectory overall.
What does that mean in absolute numbers, what was the revenue in 2023?
We do not disclose those figures. We are cautious for competitive reasons.
