Bavaria boosts digitalisation across industries

Bavaria, the region with the second largest contribution to Germany’s GDP behind North-Rhine Westphalia, has long been successful at attracting FDI due to its strong industrial base and appealing value proposition.

It has historically received more inbound greenfield investment than any other German federal state at almost $30bn since 2003, and has sustained this success by attracting the second highest number of greenfield FDI projects in Germany behind North-Rhine Westphalia in 2018, according to data service fDi Markets.

The Bavarian capital, Munich, has attracted more than 60% of all inbound greenfield investment into the state since 2003, followed by Nuremburg, which attracted just over 5%, according to fDi Markets. This history of strong FDI attraction into the Bavarian capital has resulted in a large presence of foreign multinational corporations, such as pharma group Merck and tech giants Microsoft, Google and Huawei. 

Shift of focus

As industries across the world continue to evolve with the rise of technology, Munich has used its strong base of large multinationals – including domestic giants headquartered there such as carmaker BMW, insurance group Allianz and tech conglomerate Siemens – by shifting its focus from promoting individual sectors to digitalisation across industries.

“[Our previous] focus on [individual sectors or industries] shifted towards areas where we will have the most impact from ICT, but also where businesses will have most opportunities,” says Dr Wolfgang Hübschle, head of promotion agency Invest Bavaria. 

This strategy of focusing on digitalisation and ICT is paying off, as shown by the record 52 greenfield FDI projects that Bavaria attracted in the software and IT services sector in 2018 – a 33.3% rise on 2017, according to fDi Markets. 

The largest investment within the sector of recent years was made by IBM, which invested $200m in October 2016 to build its global Watson Internet of Things headquarters in Munich, a project that a number of other major international cities, such as London, competed for, according to Mr Hübschle. IBM’s investment indicates the success of Bavaria’s digitalisation strategy, as the US technology conglomerate taps into the strong base of multinationals in Germany’s largest federal state by area.

Start-ups strengths

Bavaria has realised it must play to its strengths as a high-cost environment by focusing on tech start-ups that can provide services to its extensive corporate landscape.

“Talent for the low-tech area will be available in many locations. We have no definite advantage, rather a cost disadvantage. This is why we are concentrating on tech start-ups, because they might develop a business relationship with a lot of companies and co-operate with universities,” says Mr Hübschle.

In smaller Bavarian cities where there are relatively fewer multinationals, a bespoke smaller scale approach is being employed. This is seen in Ansbach, a city of about 50,000 people located 90 kilometres north of Munich, where academic institutions strongly support local businesses. 

“The local university educates people specifically for the needs of companies such as Siemens, with students not usually graduating without having a contract ready. Small ecosystems are able to react quickly to quite a lot of different circumstances,” says Mr Hübschle.

Bavaria’s digitalisation approach is appropriate, given recent criticism about Germany’s lack of digital infrastructure and development – including from the BDI, Germany’s main industrial group –  especially in rural areas. The focus on digitalisation in Munich, as well as smaller cities ensuring students have the right skills to match local company needs, has successfully landed FDI for the region – something that looks set to continue into the future.