No match found
It is commonly believed that the industrial sector is the ‘prime cut’ of the German economy. However, looking at the performance of German companies across sectors since 2000 with more than EUR 500m revenue in 2020, results show that the turnaround ability of the industrial sector is trailing behind the industry average, and the situation has worsened in recent years.
In this report, we analyze the cross-industry patterns in long-term performance, the industry and sector specifics, as well as the corresponding challenges and imperatives.
On average, in around 50% of the last 22 years, companies across all industries faced a decrease in margin. Industrial companies underperformed during these crises across all financials – the sector was hit harder and recovered worse than the average German company. Especially post-2000, the industrial sector exhibits below-average turnaround capacity after a downturn year.
The obvious explanations – of high asset intensity and long product innovation cycles making it a slow-moving sector – are not telling the full story as comparable industries such as automotive, energy and utilities as well as chemicals outperform the industrial manufacturing sector. The perception of a past ‘golden decade’ is quoted as strengthening the backbone of German industry. However, the discrepancy between the German average and the industrial sector is increasing and highlights the sector’s lack of agility, innovation, and transformation.
While global economies showed a fast rebound from the recent crisis, the industrial sector is not equipped for the multi-crisis decade (inflation, skilled worker shortage, geopolitical uncertainties, unclear regulatory framework) we are facing. With long recovery periods between crises, the performance was sufficient in recent decades. However, a continuation of current “average crises” would bring down revenue to 70% within 10 years, even without considering major disruptions within the sector. The foundation for survival in this era of multi-crises and challenges was not built up during the ‘golden decade’. Now, crises have depleted the funds needed for innovation and change to take the sector forward.
To deal with transformation in times of ongoing crisis, German business leaders should change their mindset and habits according to these six aspects:
Sebastian Stahl has also contributed to this report.