Industrie 4.0: revolutionising the hidden champions of Germany

Getting machines to talk to each other is one of the essential tasks in lowering production costs across a range of industries. Machinery has long been recognised as a key driver of Germany’s export-driven growth and that growth continues apace. According to Germany’s VDMA Mechanical Engineering Industry Association, orders for German machines climbed 8 per cent in real terms in the three months leading up to August 2018, supported by increases in both international and domestic demand.

According to Germany’s VDMA Mechanical Engineering Industry Association, orders for German machines climbed 8 per cent in real terms in the three months leading up to August 2018, supported by increases in both international and domestic demand.

Equity investment in established German companies offers one path to exposure. German machinery companies such as Dürr AG, GEA and Heidelberger Druckmaschinen are all readily investable through US-traded American Depositary Receipts (ADRs). Automotive machinery makes up for more than half of sales at Dürr, which also supplies the chemical, pharmaceutical and electrical engineering industries.

GEA is one of the largest suppliers of process technology for the food industry. The company also delivers technology that helps customers reduce harmful emissions, especially in glass manufacturing. In the third quarter of 2018, GEA set records for both order intake and revenue, while increasing its operating EBITDA margin.

Heidelberger Druckmaschinen offers customized production processes for industries including vehicle manufacturing, mechanical engineering and energy. Rather than as a traditional factory, the company envisages its future as an information processing hub for industrial operations. In printing, the company’s subscription model allows access to state-of-the-art technology without the need to invest in machines. Heidelberg provides the equipment and the expertise for an agreed monthly fee, with clients benefitting both financially and in terms of their sustainability goals. In 2018, the company generated its first revenue from the subscription model, which it predicts will account for a rapidly increasing proportion of sales.

An unrivalled local value chain is a decisive advantage for Germany’s machinery and equipment industry

An unrivalled local value chain is a decisive advantage for Germany’s machinery and equipment industry. Research institutions, innovation hubs, strong supplier industries such as electronics, robotics, materials and software promote excellence in innovation and research and development. It adds up to a powerful investment case. For those thinking of taking advantage by starting up in Germany, venture capital partners can be found through the BVK German Private Equity and Venture Capital Association, as well as the annual German Equity Forum, organized by Deutsche Börse since 1996. German law makes no distinction between Germans and foreign nationals regarding investments, available incentives or the establishment of companies.

Germany fosters such dialogue through Industrie 4.0, one of 10 ‘Future Projects’ identified by the government as part of its 2020 High-Tech Strategy Action Plan.

An essential precondition for success is close dialogue between the machinery and equipment, electrical engineering and IT sectors. Germany fosters such dialogue through Industrie 4.0, one of 10 ‘Future Projects’ identified by the government as part of its 2020 High-Tech Strategy Action Plan. Industrie 4.0 gives rise to completely new business models and opportunities to serve customers. Those opportunities are being seized by the backbone of German industry: regional ‘Mittelstand 4.0 centres of excellence’ receive funding from the government.

Edith Weymayr, Divisional Board Member in the Corporate Clients segment of Commerzbank, talks of “an unerring instinct” among Mittelstand companies to adapt to the need to incorporate data-driven processes into their business models. Industrie 4.0, Weymayr argues, supports the “desperately needed” process of modular system creation in machinery and equipment.

Christian Engel, Managing Director of BHS, a family-owned manufacturer of packaging equipment, puts it more simply: the goal of Industrie 4.0 is to “make data talk.” Engel argues that the Mittelstand range of companies in Germany contains a range of unnoticed future champions that international investors are starting to notice. Further, Claus Mai, Chief Financial Officer at production systems provider EMAG, points to debt rather than equity as a way to gain exposure to the Mittelstand and stresses the importance for such companies of building a long-term relationship with their lenders.

According to PwC, German industry will invest €40 billion in Industrie 4.0 every year until 2020. By then, 80 per cent of companies will have digitised their value chain.

According to PwC, German industry will invest €40 billion in Industrie 4.0 every year until 2020. By then, 80 per cent of companies will have digitised their value chain. To do nothing is to risk being left behind. German machinery companies are emerging as the digital champions of the coming decade. To invest in them is to embrace an unstoppable trend.


McKinsey, The Golden Twenties How Germany can master the challenge of the next decade, p12.