Technology Clusters have no Relevance in the German Software Industry

A recent study in Germany concluded that belonging to a so-called Technology Cluster has no significant impact on global growth in the German software industry.

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!

“Technology Clusters” sounds good, but have no impact on global growth

One of the issues included in the “German Software Champions” research project was the impact of a location in a so-called Technology Cluster.

Two questions were asked to a large group of software companies:

1. Our location has a reputation for IT related activities
2. It is an advantage for German software companies to be located in an IT-Cluster

Response options were “No” (trifft nich zu), “Yes” (trifft zu) or “Neither nor” (weder noch)

The research concludes that there is no significant relationship between belonging to a Technology Cluster and the ability to achieve global growth.

Breaking News – the importance of clusters may be a myth

National and local governments all over the world invest tax payer money in economic development based on the assumption that business and technology clusters are fundamental for the stimulation of growth. The Germany research indicates that this assumption may be a myth.

What is a cluster? You can find a rather pompous definition here: http://www.ecgroup.com/methodology/cluster.htm

The explanation given is academically impressive and sounds logical. However, the German research indicates that reality is different.

My own experience

I have been operationally engaged in numerous (>10) startups (as intrapreneur and entrepreneur). My responsibility has been as CSO and CEO. Belonging to a “cluster” has never played a role in any of the projects I have been involved in. We did all the things mentioned in the cluster definition of the Economic Competitiveness Group. However, having our cooperative partners and other stakeholders living next door was never the cause nor was it an issue.

The software industry is different from other industries. Location of your operation becomes more and more irrelevant.

For inspiration you may want to watch this video: “How to make Estonia the richest nation in the world”

Software is Eating the World from Hans Peter Bech on Vimeo.

 Other posts in this series

Why are German software companies failing to get global markets shares?
The German Software Industry Dilemma
Money is Not the Problem in the German Software Industry
Getting Qualified People is not the Issue in the German Software Industry
An Insular Mindset is the Issue in the German Software Industry
Lack of International Network is a Problem in the German Software Industry