RECOMMENDATIONS FOR ACTION | SME POLICY | SCENARIOS
The Future of Industrial SMEs in Germany in 2030
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Introduction
16 October 2024
In autumn 2024, industrial SMEs and family businesses in Germany will be under pressure - in some cases existential pressure.
The location has been showing economic and structural weaknesses (for some time now) and the global and European environment is becoming increasingly confusing. Markets are volatile, supply chains and value creation networks are at risk of breaking. Companies are challenged by the double transformation. At the same time, social unrest and political polarisation are growing in Germany, Europe and worldwide.
With various scenarios for the future of industrial SMEs in Germany in 2030, the BDI wants to encourage both politicians and companies to navigate well-founded despite the current complex and confusing times.
It should be noted here:
▪ Scenarios make it possible to think through future developments, underpin planning and identify design options. The idea is not to predict a future as accurately as possible. Rather, the aim is to identify different "futures" using a methodical approach, to open up areas of possibility, to derive recommendations for action and thus to "get ahead of the wave" politically and entrepreneurially.
▪ A working definition of "industrial SME" applies here that deliberately goes beyond the "classic" view of micro, small and medium-sized enterprises (SMEs) in terms of qualitative characteristics and quantitative criteria.
▪ In view of foreseeable political developments and corporate planning and investment cycles, the 2030 time horizon is a suitable perspective.
With a view to 2030 and beyond, the industrial SME sector is first and foremost required to constantly review and adapt its own individual business model, to actively and decisively shape the necessary and desired transformation - both digital and ecological - to create a modern corporate culture and to organise a promising generational change - in the interests of the company and its workforceat an early stage and with foresight.
In the face of social unrest and political polarisation in the traditional location, industrial SMEs are also called upon to stand up for democracy, the rule of law and openness in their own interests. Social responsibility is demonstrated by those who develop a clear stance, take on a recognisable role as a public player and become tangibly involved locally.
However, entrepreneurial activity and social commitment in the industrial SME sector requires a determined policy at all levels that offers internationally competitive conditions for successful business in the traditional location.
Against the backdrop of five - deliberately different - scenarios, the aim here is to highlight non-shortterm growth impulses. A wide range of BDI recommendations for this have long been available. Rather, the aim is to derive selected future-proof recommendations for action from the scenarios as to how drivers can be utilised for the positive development of industrial SMEs in Germany, how existing forces can be strengthened politically and how the future can be made possible for companies and their workforces.
In terms of competitiveness and resilience, policymakers in Europe, the federal government and the federal states should bear in mind that sector and company structures that are differentiated by sector and size remain a guarantee for German industry's dynamic competitive advantages. Clusters and network structures that can withstand constant scrutiny and dynamic change are particularly important in order to develop bundles of expertise and synergies and thus competitive advantages. Modern policy should build on the power of fully functioning markets, fair competition, customer-driven innovation and entrepreneurial diversity and bring them to full fruition.
Political recommendations for action
Anyone who wants to secure a strong future for industrial SMEs in Germany in 2030 at European, national or federal state level must act today. Because the future is made today. In order to counter growing time pressure due to the pressure to reform and transform, it is essential to take action in two fundamental areas:
▪ Speed up state planning and authorisation procedures Planning and authorisation procedures, for example for plants (industry, wind power, etc.) or infrastructure projects (transport, energy, etc.), are currently very bureaucratic and extremely lengthy in Germany. Transformation and innovation need more planning security and more speed at all levels and at all stages. To achieve this, the procedures as a whole need to be scrutinised. In any case, the federal and state governments in Germany need to find a new and effective form of cooperation.
▪ Creating a digital state. Fully digitalised administrative processes, including AI and the timely modernisation of registers, save companies many resources that are better invested in transformation and innovation. Offering companies an uncomplicated framework for innovative technologies or business models, for example through legally compliant "real laboratories", will also give them more flexibility and speed, making Germany a more attractive location.
Faster procedures, a digital state and less bureaucracy overall are not only urgent with a view to the clock, but also with a view to society. Because in everyday business life, not only do some shareholders lose their intrinsic motivation for grandchild-orientated entrepreneurship at their location. What's more, trust in a fully functioning state is increasingly eroding in some companies and workforces.
In addition, at least the following present factors and future drivers must be addressed:
▪ Making sustainable energy supply competitive
▪ Establishing a circular economy
▪ Enabling innovations
▪ Strengthening rural areas
▪ Securing and realising the EU's potential
Making sustainable energy supply competitive
Rising energy costs, declining security of supply and inefficient energy infrastructures are putting small and medium-sized industrial companies in particular under pressure - in some cases existential pressure. Companies that are loyal to their location are suffering in particular from this very noticeable disadvantage in international competition. What's more, there is a lack of clear and consistent regulation that enables long-term entrepreneurial planning and investments that are suitable for the grandchildren. Where the framework is shaky, necessary investments are postponed or even abandoned altogether. It is clear that successful transformation paths at the location depend on a large number of influencing factors and that a combination of instruments is needed in which the individual parts fit together without contradiction.
Recommendations for action for a strong future for industrial SMEs in 2030 include
▪ Reduce electricity prices. For small and medium-sized industrial companies - not least in energyintensive sectors - the relief on electricity prices should be simplified, expanded and guaranteed over the long term, and electricity grid fees should be reduced effectively and without bureaucratic effort. Further savings potential lies in better utilising the European internal energy market and thus leveraging efficiency and cost reserves.
▪ Enabling access to hydrogen. Successful transformation paths, including in the industrial SME sector, will not succeed without the creation of cost-effective and secure access to renewable and low-carbon hydrogen or hydrogen derivatives. The concern is that the market ramp-up is not progressing quickly enough.
▪ Use all options for decarbonisation. Even if the direct avoidance of greenhouse gases remains the focus of industrial transformation, the European and national levels must also recognise and exploit the opportunities offered by carbon capture, removal, utilisation and storage (CCS/CCU).
▪ Creating effective carbon leakage protection. Anyone who wants to continue to secure innovation, investment, production and jobs for industrial SMEs in their traditional location with a view to climate transformation must address international competitive pressure, particularly in energy-intensive sectors. It would be helpful to implement the pricing of CO2 as a climate policy instrument that is as internationally comparable as possible. As long as this does not succeed, effective carbon leakage protection is necessary to enable fair trade and prevent cost-induced company relocations abroad.
Fully establishing the circular economy
In Germany, the energy transition, electromobility, digitalisation and infrastructure expansion alone are leading to a significant increase in demand for raw materials. Dwindling security of supply for globally sourced raw materials is making domestic raw material extraction and processing, the circular economy and circularity increasingly important for industrial SMEs. Competitiveness and resilience also include addressing the consequences of climate change and biodiversity loss as well as understanding the circular economy as an opportunity for new value creation networks and for value creation and employment at the traditional location.
Recommendations for action for a strong future for industrial SMEs in 2030 include
▪ Strengthening the resilience of raw material supply chains and reducing critical dependencies. It strengthens Germany as a business location if new strategic import partnerships for critical raw materials are concluded and European raw material production is strengthened along the entire value chain. More European raw material production and clear strategic import partnerships should also be reflected in the purchases of this localised production of critical primary products.
▪ Adopt a systemic perspective. The potential of raw materials must be considered, as must product design as the key to business models in the areas of reuse, repair, refurbishment and recycling. Climate protection policy instruments and circular value creation need to be more closely interlinked. At the interfaces to digitalisation, standardisation and standardisation, there is great potential to be leveraged for industrial SMEs and Germany as a country of technology, innovation and exports.
▪ Ensure solid impact assessment of regulations. In the case of political requirements for the use of raw materials on the market, it is important to carry out a transparent and solid assessment of the expected effects on supply and demand. This makes it easier to identify the appropriate measures ("push" or "pull") for the respective material flow and to achieve the desired steering effect.
▪ Ensure international connectivity. When it comes to establishing the understanding of circular value creation as an export model, small and medium-sized industrial enterprises in particular are dependent on the ability of German and European regulations to connect with international processes. The European standardisation strategy should therefore take the circular economy into account more systematically and promote the involvement of companies in international standardisation committees.
Enabling innovations
When it comes to the ability to innovate, Germany is only in the middle of the field in an international comparison and the gap to the top has (for some time) been significant. Yet it is not least innovation that determines the future viability of industrial SMEs. The location has hardly any raw materials of its own and labour costs are high. Innovation is therefore an existential differentiating factor in an increasingly international competitive environment. Countries, states and companies without a suitable environment for innovative research and new business models are losing importance. The German innovation system needs more dynamism, speed and flexibility as well as courage, openness and the will to implement on all sides.
Recommendations for action for a strong future for industrial SMEs in 2030 include
▪ Strengthen the ecosystem for innovation. It helps industrial SMEs if the public sector applies internationally competitive corporate taxes, offers targeted financial support and generally sets a smart framework for research and innovation. It is important to provide targeted support that is open to technology and based on clear criteria and, last but not least, to strengthen circular and resource-efficient business models.
Given the right scope, agile SMEs in particular are strong at developing promising topics and markets in line with customer requirements and with patient capital. At the same time, the education system should promote a culture of innovation, for example through more user-oriented research at universities and universities of applied sciences or through school reforms with a view to modern teaching and learning and a greater focus on STEM subjects.
▪ Facilitate start-ups and successions. Those who allow new business models and facilitate their rapid introduction and scaling will increase the momentum of start-ups. This should facilitate access to venture capital, reduce regulatory burdens and enable better market access – not least for cooperation with industrial SMEs.
▪ Anyone who promotes models of asset taxation, including excessive inheritance tax, in the political debate is sending out completely the wrong signal on the subject of company succession. It is much more important to make the value of entrepreneurial thinking and action understood everywhere and to strengthen it in society.
Strengthening rural areas
Industrial SMEs are often based in rural areas - usually for generations. Integrated into innovative value creation networks, they operate successfully and sustainably locally and are often also active internationally. Entrepreneurial success enables companies to offer attractive training and further education programmes as well as social benefits. In addition, many of the entrepreneurs are innovative shapers of their region. They promote art, culture and sport in the region and are committed to integration and inclusion. For Germany as a whole, this brings strength across the board and contributes to equal living conditions nationwide.
Recommendations for action for a strong future for industrial SMEs in 2030 include
▪ Create and develop a modern digital infrastructure. SMEs must be able to utilise comprehensive digital processes at every location in the country and interact digitally with customers, partners and suppliers from all over the world. In order to create an efficient, more resilient and sustainable digital infrastructure, regulatory hurdles for expansion must be lowered and planning and approval procedures - digitised end to end - must be accelerated.
▪ Modernise and expand transport infrastructure. In order to be able to operate competitively in the manufacturing industry, inputs must always reach production on time and finished products must be able to leave the plants quickly. When choosing an employer, employees and skilled workers also look for modern local mobility, including good connections to larger cities.
▪ Secure connection to energy grids. Electricity also remains a key energy source for mediumsized industrial companies. In addition to security of supply and competitive prices, companies also need connections to an efficient grid infrastructure.
▪ Offering educational opportunities across the board. Modern educational opportunities in the Whether in schools or vocational colleges, modern educational opportunities in rural areas help to prevent emigration and retain qualified skilled labour. Keeping (technical) universities in rural areas allows SMEs to set up future-oriented research projects with the scientific community and approach students as potential employers at an early stage.
▪ Securing the supply of skilled labour. Urbanisation, demographic change and academisation are making it particularly difficult for industrial SMEs in the region to find and retain workers and skilled workers. What is needed is a comprehensive and coherent overall concept to secure a supply of skilled labour. This includes tapping into all domestic potential and targeted labour migration with swift, transparent and digital administrative procedures.
▪ Securing municipal strategy for future investments. Modern and sustainable municipal financing that fulfils the requirements of corporate tax law and the financial needs of municipalities in equal measure remains a pioneering approach. It is helpful to make rural regions more attractive as an investment location for private and public venture capital. It strengthens the attractiveness of a region if there are offers for housing, local schools and healthcare as well as efficient local and regional transport services.
▪ Ensuring medical care across the board. Around half of all general practitioners will retire by 2030 alone. Innovative and digital healthcare solutions with proven additional benefits can strengthen the necessary healthcare provision across the board and close to where people live.
Securing and realising the EU's potential
Many industrial SMEs and family businesses are globally interlinked through the division of labour, knowledge exchange, investment and trade - including in cross-border supply chains and value creation networks. In Germany, one in four jobs depends on exports, in industry even more than one in two. The regional focus of international activities is mostly in Europe and the EU single market.
More than ever, Germany must orientate itself in an environment of intensified global location competition and increasing geopolitical upheaval. This can only be achieved successfully in and with a strong EU. Anyone wielding the political or populist axe against the EU is jeopardising the fragile ecosystem of a sustainable industrial SME sector in Germany. The costs of non-Europe are immense and go far beyond material damage.
At the same time, it is true that a BDI situation survey of industrial SMEs from late summer 2023 revealed that 51 per cent of companies see the EU as part of the solution for their own company's competitiveness. However, 26 per cent rated the EU as part of the problem. Achieving a different perception of the EU and more positive perceptions in practice is in the common interest of politicians at all levels as well as SMEs and family businesses of all sizes, regions and sectors.
Recommendations for action for a strong future for industrial SMEs in 2030 include
▪ Turning the EU single market into a growth engine. The EU internal market will only realise its full potential if it is fully functional. Barriers for products, services, capital and employees must be reliably removed. Free transfer and optimal allocation of resources across EU borders must be organised securely, uniformly and reliably. Gaps must be closed and further deepening - especially in the areas of energy, services, digitalisation and capital - must be promoted.
▪ Clearly align EU economic and SME policy. The EU Commission, EU Parliament and Council of Ministers are called upon to orientate all aspects of European economic policy towards competitiveness in the digital and ecological transformation in the interests of industrial SMEs in Germany and to focus on better legislation and the most economical regulation possible in the service of market creation.
SME policy should be firmly anchored on the EU political agenda, both structurally and operationally - in terms of bureaucratic relief and targeted support. A reform of the SME definition is necessary, and a "mid-cap" company category is overdue in view of the special quality of industrial SMEs.
Particularly in the context of the dual transformation and growing protectionism worldwide, "Mittelstand" companies - SMEs plus mid-caps - should be given access to EU funding programmes with minimal bureaucracy. This is where the relevant programmes need to be targeted and the multiyear financial framework from 2027 needs to be used strategically.
▪ Setting better law. Industrial SMEs are more than busy enough implementing the various requirements of the highly complex EU laws of recent years. One example is sustainability reporting or documentation on CBAM in foreign trade.
In future, EU legislative initiatives must include more precise cost-benefit analyses and take greater account of the results of public consultations. In any case, the quality of impact assessments must be improved, independent regulatory control strengthened and the one in, one out principle implemented at European level. In addition to administrative burdens, the considerable compliance costs for companies of different sizes must also be recognised and swiftly reduced.
▪ Stimulating foreign trade growth. For promising international business outside the EU, industrial SMEs rely on open markets and fair competition worldwide. Complicated EU customs procedures must neither be a barrier to market access for companies from third countries nor an obstacle to exports. More access requires additional trade agreements with strategic partners.
An efficient WTO remains important for rules-based global trade. At the same time, new trade policy approaches are needed, such as plurilateral initiatives within the WTO (e.g. on mechanisms or treaties), more diversification and de-risking as well as more European determination to implement "open strategic autonomy".
▪ Create national conditions for a helpful EU. An EU internal market will help small and mediumsized industrial companies noticeably if the "four freedoms" and a standardised cross-border legal framework are guaranteed and the principle of subsidiarity is fully implemented.
The national level should always implement EU law 1:1 and refrain from "gold plating". At the same time, the principle of mutual recognition must be systematically applied and cross-border cooperation with authorities in other EU countries must be improved
The Federal Government remains called upon to coordinate a position on European policy dossiers at an early stage and across departments in order to be able to represent German interests more effectively in the Council. In doing so, it helps to constantly seek new alliances with like-minded partners and to drive them forward in a targeted manner.
Imprint
Federation of German Industries (BDI)
Breite Straße 29, 10178 Berlin www.bdi.eu
T: +49 30 2028-0
Lobby registration number: R000534
EU Transparency Register: 1771817758-48
The "Future Scenarios for Industrial SMEs 2030" were developed by the BDI with methodological advice and content support from Daniel Bonin, Holger Glockner and Christian Grünwald from the consultancy firm Z_punkt GmbH.
We would like to thank the BDI/BDA SME Committee and the BDI SME Working Group for their ideas, inspiration, advice and support in the "Future Scenarios for Industrial SMEs 2030" project. We would also like to explicitly mention Johannes Bräun, Sebastian Brunkow, Alexander Felsch, René Hagemann, Walter Hallstein, Wolfgang Hartung, Hendrik Hartenstein, Jonas Löher, Holger Lösch, Jens Loschwitz, Jens Matschenz, Katharina Mayer, Oliver Perschau, Judith Pichler, Klaus-Heiner Röhl, Eberhard von Rottenburg, Tillman van de Sand, Volker M. Schilling, Carsten Wehmeyer and Alexander Winkler.
Editorial team
Fabian Wehnert
Head of Department SMEs and Family Businesses
T: +49 30 2028-1470 f.wehnert@bdi.eu
BDI document number: D2027