Topic: “International Markets – Go West!”

Interview: Thomas Sauer
Director/Auditor: Deloitte GmbH Auditing Firm


» Brexit referendum, US elections and the coup attempt in Turkey: 2016 was a year characterized by political decisions that will also influence the world’s economic situation heavily. Deloitte captures the prevailing mood of Chief Financial Officers (CFOs) of German companies with regular surveys. How can this be evaluated currently?

The fact of the matter is that the last Deloitte survey of fall 2016/spring 2017 clearly reflects this. About half of the interviewed CFOs of German companies have perceived risks in the geopolitical developments. This is the highest level of this evaluation in five years and this risk factor has therefore become the most important risk factor. The second most important, the always dominating skills deficit in the past, was only seen as the greatest risk factor by 37 percent of CFOs. One can clearly see a shift here.

First and foremost, the CFOs worry about increasing protectionism and a stronger populist economic policy. They are reacting to this by adjusting their risk management systems. The first thing that companies are targeting is a review of their investment plans. 50 percent of the companies are reconsidering the regions of the world to invest in due to the changed framework conditions. The second focus is a review of supply chains and these are also being adjusted if necessary according to approximately 35 percent of the companies in our study.

Despite this increasingly dangerous world, almost 96 percent of the interviewed CFOs gauge the current economic situation as good or very good.


>> The “Made in Germany” label enjoys an excellent reputation. To name one example: German automobiles are known and loved in the entire world. But is this enough to remain successful in the world economy in the future?


The “Made in Germany” label has for many decades been synonymous with quality and high safety standards and in general is very robust – even in the case of short-term negative factors like the Diesel affair. However, it must be emphasized that safety and quality will hardly be enough in the future to remain successful in the world economy.

New factors will arise – in particular innovation and technical advances. When compared to the USA, where the culture of disruptive destruction rules, the quality of German companies is the emphasis on continued slow development of innovations and technologies – with this being realized differently by midsize businesses and the large corporations.. Tight collaboration between companies, various University facilities and research institutions also promotes an innovation landscape.

But we also have to admit that digitalization, broadband development, WLAN, Internet access and similar are not positioned that well anymore and that many countries have overtaken us. We also have to make significant improvements in order to inject new life into the “Made in Germany” label.

>> The digital transformation can only succeed if start-ups develop innovations with the help of clever financing models. This appears to be much easier in the USA and in Asia than it is in Europe. What are the reasons for this?


One factor is that the volume of risk capital in Germany is a lot smaller than in the USA or Japan. This has to do with taxation and legal regulations, since this type of investment is not encouraged in Germany.


Another factor in my opinion is a psychological component, since here in Continental Europe and especially in Germany since Bismarck, we don’t like to indulge in risks as much as concentrating on security. This fact will make it difficult to create a comparable venture capital situation to other regions in the world.

>> What solutions do you see to advance venture capital and with it innovative capacity here in the future?


The conditions for this here in Germany are not that bad in my opinion. We have very good human resources, education in most of our Universities is very good and the capital in principle is available. But this topic should be taken up by governmental bodies – this should possibly be established after the new coalition contract after the Federal election – and subsequently be actively promoted. Unfortunately this is not being done now.

It would be interesting to have some sort of Venture Capital Law that would make it easier for international funders to invest in German start-ups. The interconnection of the global economy is getting larger and larger. It would make sense for non-German funders to be able to invest in German start-ups and to have this supported by tax reductions, risk investments, protective legislation for small investors and the like. And the start-up years should of course be “debureaucratized” a little.

I believe that we don’t need so many rules overall. Only the framework conditions should be improved somewhat. This alone would ensure that more people would be willing to take higher risks.

>> The worry about a populist motivated economic policy in the important world markets is increasing. In your opinion, where do the greatest risks to the German companies originate?

The economic mood shows that we all fear the increasing protectionism, and what is even more dramatic, the unpredictability of the populist economic policy.  This unpredictability hurts the economy and the businesses the most.


A hostile attitude against the EU, which develops to varying degrees, leads at the end to more compromises between national selfishness and European notions. In my opinion, there is a theoretical possibility of a breakup of the EU, however I think this very unlikely.

The trend toward a foreseeable large economic zone that we saw during the past two decades is over. We now have to adjust to a more unstable situation.  

>> The risks are at least partially known by the CEOs and CFOs. Political risk management is becoming more and more important. What challenges does the German economy have to master in order to remain competitive in a world-wide comparison?

On one hand, we constantly have the topic of fluctuating, but higher-tending raw material prices. This is enormously important for our economy. In addition, I also see increased competition from developing and emerging countries, which will be offering an increased number of products in the future.

We also have a challenge on our hands due to the demographic changes with the declining labor force potential and also first and foremost with the problem of finding new enthusiastic and dedicated young people.

And on the other hand, there is an enormous requirement for investment. There will probably always be new business models that will offer more dynamic and faster products and services. This is what we will have to adjust to in the future.

>> Digitalization is the growth engine of the future. But there is currently a great disagreement about the economic future of the European Union. What promising perspectives do you see for Europe?

Looking at this from the perspective of the threat situation, I can say this: Since our internal and external security is threatened by terrorist attacks, many citizens in the member nations of the EU have recognized that a single country cannot react to this, so that one feels much safer in a larger institution, and with us, that can only be the EU.


I think that even Brexit and the numerous discussions about it, make it clear to a lot of people how important coexistence is for the EU and how simple it is to live with one currency, to not have so many tariffs and to be able to act together against threats.

Of course we have to remember that we have various rates of growth in the different regions of the EU and that now as before nationalism exists. But I believe that many people understand that this is our mutual habitat. For business, it means that it will be easier in the future to establish operating facilities in Italy, France or Ireland, to exchange ideas with each other, to send personnel and to be better interconnected in the EU.

The world is growing together and with the help of the newest technique, all of its members can work on projects together - no matter where in the world they happen to be at the time.

>> Despite the known “dangers”, we can say the following: Decision makers in the economy will take bolder, strategic risks in order to advance their enterprises. This suggests a paradigm shift on a managerial level in Germany. Do you dare look into the crystal ball: Where will Germany be in ten years?

Decisions have to made increasingly faster today. An insane amount of information bombards us both in private as well as business life and we have to process this. In my opinion, this leads to an extremely elevated dynamic. Whether finance, ecology or demographics, our future will be extremely characterized by change and upheaval.

Industry boundaries are being dismantled more and more and interdisciplinarity such as between technology and health for example is strengthened.  The physical and social world is also being interconnected more and more. Sustainability, which has been a topic for a few years, will certainly come to the fore even further.

Our whole life will become more interconnected. From a business point of view, there will also be customer-specific solutions and the role of the customer as innovator will increase significantly. The topic of disruptive innovations will play a larger role, meaning that newtechnologies will replace technologies that we had come to love. We will have to change on a constant basis; our children and grandchildren will do things that we did not know in our time.

I think that many things will not be predictable. When ideas about automatization of traffic, personalized medicine or self-diagnoses with the help of chips, artificial intelligence and the Internet of things prevail, this will influence our life dramatically. There is no way for us to know today if we are equipped for this and how we will handle it. This will be an intriguing question for the future.

>> And where will Germany find its place in the world economy?

I assume that Germany will be one the top five industrial nations in the future, as it is now. The starting point is good and emerging problems are always recognized. There will certainly be some countries that will join the leading industrial nations due to their demographic development and technical advances. But I doubt that Germany will fall noticeably behind in this ranking.