An Insular Mindset is the Issue in the German Software Industry

Posted July 31, 2013

In Building Successful Partner Channels, Industry News

Strategy is the issue in the German software industry

An Insular Mindset is the Issue in the German Software Industry

A recent study in Germany concluded that there is a significant relationship between global growth in the German software industry and the focus on the German market at the outset. The German software industry simply lack a global mindset.

The study is a part of the research project called “German Software Champions,” which is a scientific cooperation between the German Federal Ministry of Education and Research (BMBF), the Institute for Information, Organization and Management (IOM), the Institute for Computer Science and New Media (WIM) and the Center for Digital Technology and Management (CDTM).

We wrote a summary of the conclusions from the ”German Software Champions” research project presented at the “Parlamentarischen Abend” in Berlin, June 5th this year.

Germany is the second largest software market in the world. $79,4B was spent on software and related services in Germany in 2012.

In spite of this huge domestic market, Germany doesn’t foster many global software brands.

Out of the 250 biggest ICT companies in the world, only 6 are from Germany. Out of the top 50 biggest Internet companies in the world, only 4 are from Germany.

Germany represents 5,67% of world demand for software and software related services. While this is a very lucrative domestic market for the local German software vendors, it is not enough for growing to a size that can withstand global competition. 94,33% of the global market for software and software related services remains OUTSIDE Germany!

Strategy is not the issue, and then it is.

One of the questions from the research project in the “Strategy Category” was:

“Where is you main focus when developing a product?”

The respondents had the following choices:

The size of the available market (ansprechende Vermarktung)
Product perfection (technische Perfektion)
Both (sowohl als auch)

Although I am not in academia, I would suggest that this is an unusual either/or situation. First of all, they are not trade offs. I don’t see that there should be issues associated with making a perfect product for a huge market. Secondly I think the question imposes a bias on your answer. It feels more correct to choose “technical perfection”. By choosing “size of available market” you sort of indicate that you are prepared to offer a lousy product if the market is big enough.

My “gut feeling” tells me that you will get the same distribution no matter where in the world you asked this question.

Focus on Germany only

The two next questions in the research concern “Scalability” and “Growth Strategy.” This part of the research clearly indicates that the German software industry has a major dilemma.

Scalability

The question was: “For which markets do you develop your products?”

The respondents had the following choices:

Development only for the German market
Development for international markets
Both

The fact that companies who do not develop their products for the international markets also suffer from international growth comes as no big surprise. The big surprise is that such a big share of the German software industry ONLY develops for Germany, which represents less than 6% of the world market.

The next question sheds a little more light on this phenomenon.

Growth Strategy

The question was: “Is the German market sufficiently big to disregard internationalization?”

Respondents had the following choices:

No (trift nicht zu)
Yes (trift zu)
Neither nor

The respondents were divided into two groups:

Companies with international activities
Companies without international activities

Again, the big surprise is the share of companies who are not engaged in international activities: 42%.

Of both groups together, 36,4% believe that the German market is big enough to disregard internationalization.

“Herzlich willkommen in der Zukunft” – Berlin, we have a problem!

The dilemma and its’ consequences

With 5,76% o the global market , Germany is the 2nd largest market for software related products and services in the world. However, 5,76% is not and will never be sufficient for a company to grow to a size where you can withstand competition from global players. If Germany perceives the situation as a problem today and nothing is done, it will only get worse in the future.

Germany suffers from the curse of a large, but not large enough, domestic market.

Germany does not develop the experience, skills and competencies that are required to take software businesses global. Finding staff in Germany with international experience and skills is very, very difficult.

The eco-system suffers from the same idiosyncrasies.

Our own experience

We run a management consulting company specializing in taking software companies to the global markets. Finding management consultants in Germany who have such experience and skills has proven to be impossible (so far). Consultants who are prepared to help foreign companies into the German market are in abundance. There are hordes of professional people who have been trained especially by the American software companies to do just that. The entire German management consulting eco-system is working against the national interest of the German software industry.

How do you break that habit and divert the traffic?