How mechanical engineering remains internationally competitive

Energy prices, bureaucracy, slow digitalization: the economic future of Germany is currently in focus. But what exactly needs to happen for Germany not to fall behind in global competition? How does AI help mechanical engineering? And how do companies assess the grand coalition? For our industry trends 2026, we asked VDMA, VDW, ZVEI as well as Grob, Horn, and Lapp.

In my opinion, Germany is currently not competitive as a state.

Markus Horn, CEO Paul Horn GmbH

The topic of competitiveness remains at the top this year. In the first part of the industry trends, we wanted to know what needs to happen for Germany to remain internationally competitive and what companies are specifically doing to keep up with foreign competition.

There is still a lot to do: "In my opinion, Germany is currently not competitive as a state," says Markus Horn, managing director of Paul Horn GmbH. Nevertheless, he believes that individual companies manage to stand up against this lack of support. "True to the motto: 'If the state can't do it, then we'll just do it ourselves.' For us, this means driving technology and automation forward," Horn continues.

Grob: Germany needs investments in education

To remain competitive, Germany needs, according to Christian Müller, Chief Sales Officer (CSO) of Grob Werke, above all reliable framework conditions, affordable energy, and less bureaucracy. "Equally important are investments in education, digitalization, and infrastructure," he explains. 

Grob relies, among other things, on innovation, international presence, its own production plants as well as on new, future-proof business fields. "This way, we open up additional markets and diversify our product areas in a targeted manner - so that we remain strong in the long term and can offer our customers innovative solutions worldwide," says the CSO.

Lapp: Digitalization must be consistently advanced

"Germany urgently needs more speed," says Matthias Lapp, CEO of Lapp. He also speaks of reducing bureaucracy. In addition, according to Lapp, approval processes should be simplified and digitalization consistently advanced. "If we want to keep up internationally, we must stop talking about rules and instead enable innovation," says the CEO. This also includes a clear strategy for energy and skilled workers.

The family business focuses on three key points: Lapp as a solution provider. "All needs around connection solutions from a single source - from product development to the finished product to the customized harnessing solution. Only we can do that," the CEO is convinced.

Another point is sustainability. "We have a clear strategic focus on solutions for sustainable industries, such as wind and solar parks, battery storage systems, or rail transport," says Lapp. The company also demonstrates innovative strength in the development of sustainable products, such as cables and connectors made from bio-based plastics.

The third point is a global network. "We are strengthening our presence in growth regions and expanding local supply chains to be resilient and close to the customer," says Lapp.

VDMA: Competitors have noticeably caught up

And what do the associations say? "Germany has a major location problem - costs are significantly too high in international comparison," says VDMA chief economist Dr. Johannes Gernandt. "Our competitors, especially China, have noticeably caught up technologically; we are no longer so much better than we are more expensive." Therefore, according to Gernandt, costs for companies must come down.

There are several levers for this: bringing forward the reduction of corporate tax to 25 percent, relieving companies of reporting obligations, and breaking up outdated regulations in the labor market.

In addition, new trade agreements of the EU are needed. “This will create foundations on which the mechanical engineering industry can do its homework.” For companies, this means above all accelerating digitalization and the use of AI in research and production, broadening their position in supply chains, and actively approaching new markets, according to the VDMA chief economist.

ZVEI: Labor market and social systems face major challenges

ZVEI chief economist Dr. Andreas Gontermann says: “Our international competitiveness is currently threatened from several sides: trade disputes and protectionism are affecting exports.” In the electrical industry, too, bureaucracy and energy costs are obstacles. In addition, the burden of taxes and levies is high.

The labor market and social systems face major demographic and structural challenges. "Government spending focuses too much on consumption and too little on investment purposes." To remove these and other obstacles, structural reforms are finally needed, says the ZVEI chief economist: "We need a massive reduction in bureaucracy, a corporate tax reform, an adjustment of working life to increased life expectancy, the abolition of all incentives for early retirement, more flexible working time regulations, and lower electricity prices."

In view of the erosion of the global liberal rules-based world economic order, the internal market, the real asset of the EU, must be strengthened. In addition, digitization must be advanced in all areas.

Gontermann explains, the German electrical and digital industry has always relied on innovations and technological progress to assert and strengthen its position in international competition. "However, to realize the potential, favorable economic policy framework conditions are also required, and we currently do not have them," he analyzes.

German innovation expenditures at an all-time high

The innovation expenditures of the German economy will reach a new high of 213 billion euros in 2024. Services and artificial intelligence are driving the development - despite economic slowdown and high uncertainties.

Claus Wilk

VDW: Companies are making supply chains more resilient

Dr. Markus Heering, managing director of VDW explains that the necessary steps like tax reform and a comprehensive reform of the social systems have been described many times. "What is missing is speed and flexibility. What is missing are the signs from politics that they have understood the seriousness of the situation and are tackling the problems."

Companies are caught between investment barriers domestically and changing markets and uncertainties in global trade. According to Heering, they are investing in research and development to maintain their position as high-tech providers and to adapt their product portfolio to demand. 

In addition, they are making their supply chains more resilient. "And in some cases, they are also investing abroad to avoid the trade policy disputes between the USA and China, but also to reduce their costs," reports the VDW managing director.