Study German Machine Builders Anticipate Loss of Technology Leadership

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More than half of German machinery and plant manufacturers expect to lose their technological leadership to foreign countries. This is how they are preparing.

53% of German machinery and plant manufacturers assume that technology leadership will be taken over by foreign countries in the future or has already been taken over - primarily by competitors from China and the USA. This is the result of a recent survey of board members and managing directors of German industrial companies conducted by the German Allensbach Institute for Public Opinion Research on behalf of the management consultancy FTI-Andersch.

Seven out of ten companies believe that they would be strongly or very strongly affected by this (70%). Almost all machine manufacturers believe that Chinese manufacturers are likely to enter the European market (93%). At the same time, almost one in three companies report financial disadvantages because maintenance and service are increasingly being taken over by third-party providers (29%).

Mechanical engineering companies that see themselves affected by a potential loss of technology leadership have a mixed reaction pattern. 86% are investing more in building up their own software and IT expertise, while a further 3% are planning to do so in the short term. 73% are working on accelerating their innovation cycles. Around two thirds are intensifying cooperation with universities and research institutes or are planning to do so (66%).

The same number want to focus their own business more strongly on niches in the future, while a further 14% are already strongly focused on niches. 14% currently have technology partnerships with US or Asian companies, while a further 21% are planning to establish such partnerships.

"Just a few years ago, it would have been considered unthinkable that a majority of mechanical engineering companies would expect to lose their technology leadership. We are already seeing this in the market today in some cases, such as in tool and injection moulding machine construction," says Philipp Oemler, Senior Managing Director at FTI-Andersch, the consulting unit of FTI Consulting that specializes in restructuring, business transformation and transactions.

"The decisive factor now is how companies react to this. Traditional instruments such as focusing can be useful in individual cases, but fall short if they are not part of a holistic transformation. Simply 'continuing to grow with the market' will no longer be enough in many cases. What is needed are targeted adjustments of business models, portfolios and value creation to the new competitive realities."

China Offensive in Europe and Takeover of Services by Third-Party Providers

Almost all machine and plant manufacturers surveyed consider it likely that Chinese companies will increasingly enter the European market in the coming years (93%). More than half rate this as very likely (52%), with a further 10% stating that this market entry has already taken place in their segment. For 19% of companies, this would have a very strong impact on their own business, for a further 38% a strong impact - a total of 57% would be significantly affected.

29% of machine and plant manufacturers also report significant or limited financial disadvantages because maintenance and support services are increasingly being taken over by third-party providers - for example through the use of artificial intelligence, automation or digital platforms.

"Competitive pressure in mechanical and plant engineering is increasing on several levels at the same time: new regional competitors as well as players from the software and service sectors. In some cases, they are causing a considerable drop in turnover in the service business," says Philipp Oemler. "For every company, this raises the very specific question of where it can and cannot differentiate itself. This clarity is a prerequisite for managing investments in a targeted manner and avoiding misallocations."

Companies Are Responding to the Structural Disruptions With These Measures

In response to the increasing structural disruptions, many machine and plant manufacturers that feel affected are relying on a combination of technological, organizational and strategic adjustments. Four out of five companies are setting up their own digital service offerings or are planning to do so in the short term (80%). 72% are relocating production steps to regions with lower costs or are preparing to do so. A clear majority are also investing in additional software and AI expertise and focusing their business more strongly on specialized niche markets.

Only just over a third of machine manufacturers are planning new revenue models such as pay-per-use or monitoring-as-a-service (37%). Investments in specialized (AI) start-ups are being considered by 20 percent in order to secure additional impetus.

"The observations from our consulting practice are in line with the results of the Allensbach study: many companies have reacted actively in recent years, but rather conservatively and focused on specific areas," says Philipp Oemler. "Against the backdrop of the new market conditions, the future of mechanical engineering will be decided less by individual measures and more by whether technology, service and commercial logic are combined into a coherent business model. This is precisely where the decisive leverage lies for individual companies. Accordingly, we are observing a strong increase in the area of comprehensive transformations."