What will we sell tomorrow?

Author: Dipl.-Ing., Dipl.Wirt.-Ing.(FH) Kurt B. König, Frankfurt am Main, GERMANY

The present paper discusses the question: „What will we sell tomorrow? “.

What technological products will we be able to manufacture and sell on the global market tomorrow?

„We“ means Germany. “We” also includes Europe, where appropriate.

The line of argument set out in this article leads to an inevitable question: ‘Who will chart the way?’ For Germany. For Europe.

INTRODUCTION

It is beyond doubt that a country which wants to maintain its high standards of living, needs to be a frontrunner in at least some fields of high tech ([1]).

Germany used to be in that situation. Thanks to strong fundamental research, well-educated engineers and entrepreneurs willing to take risk.

First and foremost, the automotive industry but also the fields of pharma/medical technology, machinery, chemicals, and high precision industrial components, Germany was strong and had – and still has – a substantial number of hidden champions.

Three examples of hidden champions are:

Samson AG — Automated control valves, a world leader in industrial control valves for process automation (chemicals, pharma, energy). Currently building a “factory of the future” in Offenbach.
EBM‑Papst — Smart ventilation & motor systems, hidden champion in high‑efficiency fans and motors used in automated production and HVAC systems. Investing heavily in R&D and new automation-ready facilities located in Mulfingen.
VAC VACUUMSCHMELZE in Hanau, a leading manufacturer of magnetic alloys and value-added product solutions derived from them, sold to the US group Energy Fuels in the summer of 2026 for around 1.9 billion US dollars.

DEINDUSTRILISATION IN GEMRANY

Germany is experiencing a real, measurable industrial decline.

Several authoritative sources describe this not as a temporary decline, but as a structural trend towards deindustrialisation.

What is happening? Germany’s industrial output is shrinking

Germany’s industrial performance has fallen back to 2019 levels, with no economic progress since the late 2010s:

• Industrial value added is 7.5% below the last peak in 2017;

• Every month some 15.000 workplace in industry are lost;

• Industrial capacity utilisation has dropped to 78%, around 10 percentage points lower than eight years ago;

• The export engine is weakening: German exports have decoupled from global demand, which is increasingly driven by Asia.

One recent significant example of failure to maintain competitiveness in a high-tech field was the ending of the development partnership between Volkswagen and Bosch in the field of autonomous driving. In future, Volkswagen intends to source the hardware and software for autonomous systems externally. Companies from China and the US, such as NVIDIA, Momenta and Waymo, offer more advanced autonomous driving solutions.

Germany undergoes a deep and persistent structural shift. Germany lacks a high productivity service sector (like US tech or UK finance) to compensate for industrial decline. This threatens long term prosperity.

DRIVERS FOR THE DECLINE

What are the drivers for Germany ‘s decline?

Often high energy costs & regulatory pressure, geopolitical shocks & supply chain disruptions are mentioned as main factors for the decline in Germany’s competitiveness. All of them are important contributors.

Labour cost

One important factor are the high labour costs in Germany. Yes, we want to maintain high wages. However, this seems to be a pipe dream.

A production worker at a BYD plant in China earns around €8,800 a year, whilst a production worker at Volkswagen in Germany earns around €50,000–56,000 a year. This means that VW wages are five to six times higher than those at BYD.

Investment stagnation

According to a study of McKinsey[2] the net investment in Germany was 0,2% of Economic output. This puts Germany at the bottom of a ranking of leading industrialised nations.

In China, this figure stood at 23 per cent, in the US at 4 per cent and in the EU at 2 per cent.

Mercedes has just announced that it will be expanding its plant in Kecskemét (Hungary), as production costs there are around 70 per cent lower than in Germany. Investments totalling 1 billion euros are planned. This expansion will certainly be at the expense of the Mercedes plants in Germany.

The location factor

The location is a key factor here. In Germany, the total costs of new investments over the entire production cycle are 40 per cent higher than at the most cost-effective location. Contributing factors are high labour and high energy costs.

Companies are investing less in Germany and shifting production abroad.

• Almost 40% of industrial firms plan further domestic job cuts in 2026.

• Investment quotas are falling; foreign investment is rising.

• Open A.I. has just collected USD around 15-times the sum of the investment into German start-ups in 2025.

In combination with the missing finance for scaling up promising products this puts Germany into the current situation of a declining industrial production.

This, in turn, puts a strain on Germany’s export capacity.

INNOVATION

The single most important driver for Germany’s decline

However, often overlooked, rarely discussed in the media or addressed by politicians, the single most important driver is innovation weakness and insufficient innovation speed in Germany.

For a high-tech country, however, innovation is the key factor in its competitiveness ([3]).

Only a competitive industry can, in turn, hold its own in global markets. Restoring competitiveness is therefore essential.

Germany cannot compete on labour cost. Given that Germany wants to maintain a high level of wages, Germany, in effect, does not want to compete on wages.

GERMANY

Germany’s innovation system is high‑quality but structurally slow, with weaknesses in digital technologies, venture capital, scale‑up capability, and diffusion of innovation across the broader economy. Only 1 to 2 percent of the budget – far too little – go into innovation.

Germany’s problem is not lack of knowledge or engineering talent; it’s the conversion rate from knowledge into scalable companies. The system is optimized for precision and stability, not speed and disruption.

The Core Weaknesses of the German Innovation System

Patents, a key indicator of technological progress, have been declining for several years. This signals that Germany is losing access to future key technologies. Germany performs poorly in AI, digitalization, modern communication tech, and other emerging fields. In 13 of 14 major industrial sectors, Germany has lost innovation strength internationally. Germany struggles to open up new technology domains, especially digital ones, threatening future value creation and increasing technological dependency.

R&D is concentrated in automotive, machinery, and chemicals, viz, traditional industries. These sectors are strong, but digital “general purpose technologies” increasingly penetrate them, meaning digital weaknesses threaten Germany’s traditional strengths.

Germany and the EU lack the financial structures to scale innovations globally. This leads to the scale‑up gap: Ideas and prototypes exist, but companies fail to become global leaders. Germany excels in research but struggles to convert knowledge into fast‑growing global companies. Because Germany is not keeping pace with global R&D expansion, it is falling behind in productivity and competitiveness, especially in future technologies. Digital business models and platform economies favour rapid scaling, an area where Germany is too slow, cautious, and fragmented.

Innovation is increasingly concentrated in fewer firms. The share of companies introducing new products or processes has been falling for 15+ years. This slows diffusion of new technologies across the economy.

Germany has plenty of substance, but the ‘engine’ isn’t running at full speed.

EU: High Standards, slower cycles

Europe’s regulatory approach (e.g., AI Act[4]) aims for responsibility but slows innovation cycles. Regulation alone cannot create an innovation‑friendly environment without capital and speed. EU innovation cycles are slower due to regulatory constraints and fragmented markets. The EU focuses on ethical AI, sustainability, and sovereign compute rather than rapid commercialization.

China’s Innovation System

China’s leader is fixated on beating the West in new technologies

China’s innovation advantage is systemic: it optimizes the entire pipeline from research to manufacturing to deployment. The U.S. optimizes frontier breakthroughs. The EU optimizes responsible governance.

China’s innovation system succeeds because it combines massive scale, tight coordination, and strategic state direction in a way no other country currently matches. The core takeaway: China turns ideas into products faster and at larger scale than almost anyone else, thanks to dense industrial ecosystems, integrated supply chains, strong universities, and policy-driven alignment across government, industry and research.

China’s innovation chains often start with grants for researchers, who find a placement in state-backed labs. These, in turn, are fertile ground for government officials, who identify good ideas and help research teams set up companies, often within local development zones.

Hefei offers perhaps the best example of the drawing together of China’s scientific and business communities under state direction. The city’s government invests in private companies, builds supply chains around them and acts as an interface between labs, universities and the private sector. Hefei’s government has focused on working through technological bottlenecks that market dynamics alone may have little incentive to resolve.

China has built a full-stack innovation environment: elite universities, national research labs, science parks, incubators, and industrial clusters. This “bundling of seven key assets” includes leading research universities, powerful public research centres, dense tech parks (e.g., Shenzhen), abundant startups, strong financing channels, high R&D investment, and IP protection frameworks. These components work together rather than in isolation, accelerating the path from research to prototype to mass production.

Factor	Impact
Scale	Enables rapid testing, iteration, and mass deployment.
Integration velocity	Fast idea-to-product cycles; tight supply chain control.
Government alignment	Clear priorities, stable funding, coordinated national strategy.
Research strength	Largest volume of scientific publications; strong public research centers.
Industrial ecosystems	Dense supplier networks accelerate prototyping and scaling.
Financing mechanisms	State-backed venture funds + private capital support startups.
Demand-driven innovation	Real-world scenarios accelerate adoption and commercialization.

China’ innovation system

China’s manufacturing depth and enormous consumer market allow rapid testing, iteration, and scaling. The World Economic Forum notes that China’s next growth phase focuses on systems that convert scale into speed and capability, moving technologies quickly from lab to deployment and from pilots to commercial adoption.

In China, producer prices have fallen by a good 40 per cent over the last five years compared with Europe. According to a study by the Kiel Institute for the World Economy[5], only 31 per cent of the loss in competitiveness is attributable to Chinese competition. Most of the drawbacks are of our own making.

In several fields China is today the market from which Europe must learn: humanoid robots, industrial drones, broad introduction of AI in industry. This is driven by companies like Unitree, Deepseek, DJI or Minimax. AI-Investments in German Mittelstand sank from 0,41% (2024) of the turnover to 0,35% (2025).

EUROPE’S DEPENDENCE

Europe’s computing power is 15-times smaller, but the one’s of the U.S.A. and China.

Across this year and next, Amazon, Google, Meta and Microsoft are expected to spend a staggering $1.5 trillion building data centres and stuffing them with advanced chips, according to Wall Street estimates compiled by FactSet.

Europe’s dependence on the US and China has been highlighted on numerous occasions:

Cloud (U.S.A.)
Computer technology (U.S.A., China)
Computing power (U.S.A.);
LNG (U.S.A. and other);
LLM.s (U.S.A., China)
Export markets (U.S.A., China)
Chips (U.S.A., Taiwan, South Corea;
Rare earth and other rare materials (China).

Rare earth is a good example for Europe’s weakness:

no one in Europe wanted the environmentally damaging and noisy production of rare earths; China has been making strategic investments for 10 years and now accounts for 90 per cent of the global market;
the only company (VAC VACUUMSCHMELZE in Hanau/GERMANY) in Europe that processes rare earths on a significant scale was sold to the Americans.

In the WEF([6]) Global Lighthouse Network only one German company is identified and awarded in the list of 238 most advanced operational sites in the world: Siemens Amberg, Siemens Erlangen and Siemens Fürth.

Amazon benefits from German retailers, Airbnb relies on accommodation provided by German hosts, Uber uses German drivers: those companies make the profit (the quiet outflow of funds). Approx. 70% of European Cloud spendings go to Amazon, Microsoft and Google. A.I.-based production gains depend on US-A.I.-models and on US-cloud infrastructure. Which model, which infrastructure which safety standards apply tomorrow to European industry will be decided in San Francisco, Redmond or Mountain View. For European A.I. front runners, like Black Forest Labs, n8n, DeepL of Wayves Serious C only 26 % of the finance comes from European sources.

Moreover, there is an increasing number and volume of US acquisitions of German startups cluster.

EUROPEAN ASPECTS

Europe has a huge amount of catching up to do in the technology sector: as of 2025, we in Europe will be importing 80 per cent of our IT infrastructure and technologies from non-European suppliers.

On Energy Efficiency: The Green Deal foresees that by 2030 the energy consumption is reduces by 32,5 %.

This goal is likely to be a true killer for economic growth. As a rule, growth means increasing energy consumption. Needless to mention here the energy hunger of data centres. Calculations of the ifo-Institut[7] show that the energy efficiency must rise by 45 per annum to yield a moderate growth of 1,2%.

However, energy efficiency sank only by 1,4%. At this level, the economy must shrink by 14%, otherwise the energy efficiency target cannot be met.

The FCAS[8] fiasco is the collapse of Europe’s most ambitious defence program — the Future Combat Air System — after nearly a decade of work. It failed not because of politics, but because Dassault and Airbus refused to cooperate, leading Germany and France to officially terminate the joint fighter‑jet project in June 2026.

This also represents a setback for the harmonisation efforts of technical standards at European level and thus reduces the interoperability of the arsenals.

The European Single Market is still not fully completed, even after more than 30 years. The core four freedoms (goods, services, capital, people) exist, but major structural gaps remain, especially in services, digital markets, energy, capital markets, and public procurement. The result: Europe has a single market on paper, but not a fully functioning one in practice.

In a recent publication of the Jacques Delors Institut[9] we read: “Completing the Single Market is […] the most effective way to strengthen Europe’s competitiveness, and thus its security and sovereignty”[10].

Services are 70% of EU GDP, but the market is fragmented. Fragmentation is caused by:

National licensing rules;
Professional qualification barriers;
Local protectionism (construction, legal, medical, engineering)
Bureaucratic obstacles for craftsmen in the neighbouring country in question.

This is the largest economic loss: the European Commission estimates €300–€500 billion in unrealized GDP.

GERMANY: HOW TO IMPROVE THE INNOVATION SYSTEM

We need to focus on the following principles:

• An education system geared towards technological excellence;

Policymakers should give clear priority to STEM subjects;

• A system of government that supports strategic decision-making and rewards performance;

• A reliable energy and infrastructure system;

• A society that is open to new technology;

Easier access for skilled workers;
Reverse the outflow of highly skilled workers;
A well defined strategic direction setting clear priorities rather than ‘a bit of everything’.

Germany needs a small number of clearly defined priority areas (Deutschland Agenda) with long-term funding and infrastructure – not 20 ‘fields of the future’ with resources spread too thinly.

Mission statements, rather than just programmes, setting specific objectives like for example:

Germany’s most productive industrial cloud by 2030;
Europe’s leading open-source AI for industry’;
Lowest-carbon production in the automotive industry’;
From an engineering nation to a growth nation.

Focus on key technologies:

AI,
semiconductors,
robotics,
biotechnology,
green technologies.

Increase the volume of venture capital and provide tax incentives for VC funds.

Focus on scale-up rather than just start-up support. Many programmes end once a business has been set up. The phase from 50 to 500 employees is crucial; what is needed here is:

Support for internationalisation;
- Growth financing;
- Support with regulation and standards;
- Experimentation clauses & sandboxes with protected testing environments;
- Real-world testing environments for AI in public administration, healthcare and transport;
- SMEs & Diffusion: Broad-based approach rather than just ‘lighthouse’ projects;
- Digital administration as a flagship project: the state as a pioneer;
- Expanding clusters and ecosystems: dense networks;
- Changing the culture around mistakes: De-stigmatising failure;
- Further modernising insolvency law;
- A new rationale behind public funding: not just ‘avoiding mistakes’, but ‘enabling learning’;
- Raising the profile of success stories from founders and innovators;
- Bridge between research and the market: radically simplify knowledge transfer; universities as start-up platforms: university → start-up;
- Standardised IP rules (clear, fair equity models);
- Start-up centres staffed by genuine business professionals, not just project administrators;
- PhD programmes and professorships that regard start-up experience as an asset;
- Public procurement as a driver of innovation: the state as the first customer;

Every new regulation should be assessed to determine whether it slows down innovation. If so, adjustments or compensatory measures should be put in place (e.g. faster approvals, sandbox models).

Regional innovation managers who actively reach out to businesses rather than simply posting offers online. Successful regions (e.g. Munich, Stuttgart) demonstrate that proximity to universities, businesses, capital and talent accelerates innovation. This must be specifically strengthened.

If public authorities consistently procure and implement digital solutions, this will create a domestic market for German digital service providers.

A less obvious lever: speed as a policy objective in its own right. Germany has traditionally focused on optimising quality, safety and stability – all of which are important. But in the context of global competition, time has now become a factor of production in its own right.

Set as a specific target: Reduce time-to-market:

– Halve approval times

– Funding decisions within weeks rather than months

– Take pilot projects from concept to implementation within a year

On A.I. : Germany’s biggest prospects in the development of specialized A.I-models[11] for sectors in which we have an industrial advantage:

• Specialty chemicals instead of base chemicals;

• High tech manufacturing;

• Green technologies;

• Knowledge intensive production;

Vehicle motion management: Control of steering, suspension and chassis;

• Hydrogen & electrolysers;

• Grid digitalization;

• Energy storage;

• Carbon capture;

• Circular economy systems Germany must invest heavily to remain competitive.

The future will consist of a more specialized industrial base, not the mass production powerhouse of the past.

Germany has a wealth of industrial data: These should be utilised for process optimisation.

Germany’s best new export opportunities cluster around three forces reshaping global demand: decarbonisation, digitalisation, and demographic change.

• AI and automation are the top strategic technologies for German industry (52% and 56%).

• Critical process automation will triple (18% → 50%).

• 44% of industrial revenue will come from digital services, not physical products. This is the biggest productivity lever for German industry.

WHO WILL CHART THE WAY IN GERMANY

The real big question for Germany!

A seen above, in China, the agenda is set by the strong political will of ist political leaders. In the US, the direction of technological innovation is largely determined by the ‘Magnificent Seven’ [12].

In Germany the coalition agreement[13] between the governing parties makes much of competition and competitiveness.

It outlines several sound approaches; for example:

Digital policy is economic policy. We will put Germany in the digital fast lane;
We are launching a high-tech agenda for Germany in collaboration with the federal states.
An interoperable, sovereign Germany Stack that can be integrated with European systems integrates AI, cloud services and core components.
We are making significant progress with our digital infrastructure through the nationwide roll-out of FTTH (fibre to the home, reaching every flat).
We will continue to improve the framework conditions for start-ups. To this end, we will, in particular, increase the availability of venture capital by improving investment opportunities for institutional investors.

The high-tech agenda[14] for Germany has been established. Again, we see little progress.

Regarding AI, the following is envisaged: We will be a key player in the next generation of AI. No comment on this one.

Regarding quantum computing, we aim to have at least two error-corrected quantum computers that are among the best in European by 2030 in global competition. Indeed, there are promising projects ongoing. Yet again, the finance which goes into the projects is in the order of one tenth compared to China and the U.S..

In sum, these well-intentioned proposals seem to get lost in the day-to-day politics. Further obstacles arise from local rivalries at level of the states[15].

There are a whole host of organisations and high-tech initiatives in Germany. As one example we mention here ACATECH[16], the National Academy of Science and Engineering.

Also the German Bundesbank is interested has published a paper on the topic: Impetus to strengthen digital sovereignty in Germany and Europe [17].

There is excellent research in Germany. Alongside the universities, four major non-university research organisations in particular form the backbone of the research landscape.

• Max Planck Society • Helmholtz Association • Fraunhofer Society; • Leibniz Association.

SPRIND[1], the Federal Agency for breakthrough innovation finances many promising start-ups – may be too many? But the annual budget is only of the order of 200 million Euro.

The DFG[2] (Deutsche Forschungsgemeinschaft – German Research Foundation) primarily funds knowledge-driven research projects developed by the researchers themselves focuses on funding basic research and provides space for the pursuit of high-risk and unconventional research questions. It is jointly funded by the federal and the state governments. The DFG will has a budget of around €3.3 billion in 2026. However, only around €720 million is allocated to project funding.

[1] https://www.sprind.org/en

[2] https://www.dfg.de/ene

The DFG[19] (Deutsche Forschungsgemeinschaft – German Research Foundation) primarily funds knowledge-driven research projects developed by the researchers themselves focuses on funding basic research and provides space for the pursuit of high-risk and unconventional research questions. It is jointly funded by the federal and the state governments. The DFG will has a budget of around €3.3 billion in 2026. However, only around €720 million is allocated to project funding.

Businesses are the main driving force behind innovation: Around 66 % of R&D expenditure comes from the private sector. Sectors that are particularly strong in this regard include mechanical engineering, the automotive industry, energy, pharmaceuticals and IT. Examples of particularly innovative companies include BioNTech, Zeiss, Porsche, Bosch, BMW and VW.

Particular mention should be made here of BioNTech (global immunotherapy), Zeiss (world-class precision optics) and Trumpf (world market leader in industrial laser technology) as examples of successful developments in promising sectors.

Many excellent actors; but the question, who will chart the way, remains open!

CONCLUSION

Competitiveness is a characteristic of individuals. It arises through practice in competition with rivals, not through regulations imposed from above. An important factor here is the company’s agility. This characteristic is more commonly found in smaller firms.

We need a strategy for the fostering of innovation in Germany and Europe. Germany is not powerless when it comes to trade policy in the face of Chinese competition.

The question here is: Is genuine autonomy possible, or should we not rather be striving for sovereignty, by having products that others need, and in return receiving things that only others have?

A new fundamental social consensus which promotes the ‘Deutschland Agenda’ is required:

Identify promising niche markets turning innovation into products suitable for the mass market;
Competition works: Harden the industry in global competition;
Means for innovation must be stepped up;
A more radical and assertive approach to trade policy;
Reversal of the burden of proof for subsidised imported goods

The Lord Mayor of Bologna – Matteo Lapore – is right: The only way to maintain competitiveness and manage the ecological transition is through a common European industrial strategy.

[1] Why Europe will not succeed in being/becoming competitive in major new/high tech fields; https://www.linkedin.com/pulse/why-europe-succeed-beingbecoming-competitive-major-newhigh-koenig-okl5e/

[2] https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Europe/Secular%20stagnation%20and%20low%20investment%20Breaking%20the%20vicious%20cycle/Secular-stagnation-and-low-investment-Breaking-the-vicious-cycle-Working-paper.pdf

[3] (26) The role of the state in promoting competitiveness | LinkedIn

[4] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202401689

[5] https://www.kielinstitut.de/

[6] World Economic Forum: https://www.weforum.org/publications/global-lighthouse-network-the-mindset-shifts-driving-impact-and-scale-in-digital-transformation/?gad_source=1&gad_campaignid=22228224717&gbraid=0AAAAAoVy5F5Q7z8FIcYxivLUnuRL0Eghl&gclid=CjwKCAjwsrbTBhAvEiwA0Bpp4S_JBlS6qdgG_7FRyK5SNelMlcaCJfhYdn3fcgbMCZJZ6bDeZC_0TxoCsg4QAvD_BwE

[7] https://www.ifo.de/en/ifo-homepage

[8] https://en.wikipedia.org/wiki/Future_Combat_Air_System

[9] https://institutdelors.eu/en/

[10] https://institutdelors.eu/en/publications/now-more-than-ever-europe-must-complete-the-single-market/

[11] https://www.ims.fraunhofer.de/en/Business-Unit/Industry/Industrial-AI.html

[12] https://www.mellon.com/insights/insights-articles/a-closer-look-at-magnificent-seven-stocks.html