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"The World is Finding New Ways to Connect"

In their new study, Hamburg's private bank Berenberg and the Hamburg Institute of International Economics (HWWI) investigate the digital economy

Digitisation is changing business and society from the inside out – and the process is accelerating. People have already started talking about the next industrial revolution using the slogan “Industry 4.0”. “The world is finding new ways to connect,” says Dr Jörn Quitzau, an economist at Berenberg. “All areas of life and markets are affected by this, from mobility and education through to healthcare. Anyone missing out on the digital transformation will find themselves excluded from the new world.”

Digitisation – a Big Revolution

In their latest study, private bank Berenberg and the Hamburg Institute of International Economics (HWWI) investigated the digital economy. “Old competitive advantages and market shares are coming under pressure from disruptive innovations. A new wave of digital start-ups is rolling in: only those that can combine venture capital with new ideas will be competitive,” states Professor Henning Vöpel, Director of the HWWI. “Germany in particular needs to update its hugely successful economic model to take account of digitisation and demographic change.”

Changing Established Structures

Two key elements represent the next stage in the digital revolution of industrial production: machine-to-machine communication and the smart evaluation of large volumes of data (big data). New digital applications are increasingly enabling companies from other sectors to enter markets and change established structures. Old business models are coming under pressure.

“New business models are set to fundamentally alter the structure of existing markets. Crossovers between different industries will increase, while traditional market boundaries will become ever more blurred,” believes Berenberg expert Quitzau. It is even becoming impossible to clearly classify who is a consumer and who a producer. In the sharing economy, consumers are often simultaneously producers when they offer their consumer goods for use by others. What’s more, a cultural shift is becoming apparent: ownership is losing importance while opportunities to use are gaining the upper hand.

“The Winner Takes It All”

Fundamental structural change is nothing new. The term Industry 4.0 is used synonymously with what is now considered the fourth industrial revolution. The periods during which the revolutions take place are, however, becoming ever shorter. “Markets are being created in the digital economy that operate to the ‘winner takes all’ principle. Speed is a key success factor for entrepreneurs and enterprises alike, as the ultimate reward is global market dominance. This largely helps to explain the rapid pace of change we’re seeing right now,” states Quitzau.

Great Potential for Annual Value Creation

The experts put at 17-25 billion euro the additional potential for annual value creation in Germany from Industry 4.0 through 2030. Digital change is bringing new impetus to the automotive industry and the mobility market, among others. In this context, being able to direct connected traffic, offer sharing models and guarantee sophisticated digital infrastructure are key aspects underpinning the future of the mobility sector. Furthermore, 3D printing is a technology with huge growth potential as digitisation advances. Digital print plans mean that goods can be made locally, be it upstream products or capital and consumer goods. Neither is the financial sector being spared the impact of digitisation. Alongside payments and lending activities, portfolio management is another of the fields that are starting to feel the pressure from what are known as fintechs.

Enabling Digital Change

The digital revolution is challenging for economic policy in many regards. “It is perfectly conceivable that the digitisation of the economy will destroy far more jobs than it creates,” warns Berenberg economist Jörn Quitzau. “The ability of computers to learn and evaluate big data may also start putting jobs for skilled qualified workers at risk.” Moreover, digitisation throws up far-reaching social and structural questions regarding things like data ownership and usage, data protection and data autonomy. “This also gives rise to ethical and normative questions for which answers need to be found by business, society and politics,” says HWWI Director Vöpel.

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