Germany And The UK: Europe’s Tech Pioneers

Tech Pioneers

The European technology industry continues to evolve rapidly as we move into 2015. On a recent trip to Hanover, David Cameron suggested that the UK and Germany are leading the next digital revolution in Europe. Both countries are affected by similar technology sector trends, so what are the key themes?

One current ‘hot topic’ is the ‘Internet of Things’ (IoT) or, as it is known in Germany, Industry 4.0. The interconnection of computing devices via both mobile and internet infrastructure offers technology companies a whole new set of opportunities.

Over the next few years, interconnected technology will continue to find its way into every aspect of life, with examples such as mobile phones being used to control your central heating, cars reporting on the performance of their drivers to their insurance company, fridges telling their owners to pick up more milk and specialised sensors monitoring elderly people within their homes. There are many intriguing possibilities; the trick will be guessing which ones hold the potential to build valuable and sustainable business models.

The move to cloud computing is also accelerating, albeit at slightly different rates, with Germany, for once, being a bit behind the UK in this regard. Unsurprisingly, there are few differences between the UK and Germany when it comes to major tech trends. However, how do the two compare in terms of where these major tech developments are happening? Is the tech industry centred around the capitals of London and Berlin, or are we seeing other regions stepping into the limelight?

In the UK, it’s certainly true that London’s tech scene has skyrocketed since 2010. An estimated 200 tech-start ups were based in London in 2010. Now in 2014, there are over 3,000 fledgling tech groups, with nearly 20 London-based companies being listed on the London Stock Exchange, and in the past quarter, $1bn (£629m) has made its way into various tech-based venture funds.

This growth is being driven by increased government support, with the UK government investing £50m in ‘Tech City’ (aka Silicon Roundabout), which has also attracted large US companies including Amazon, Google and Twitter. London clearly is a tech hotspot; however, are there any other areas of the UK that are attracting tech-based entrepreneurs?

Manchester’s certainly up there. The city that invented the first stored-programme computer is home to over 6,000 technology-related companies, employing more than 100,000 staff. With the largest student population in Europe, Manchester benefits from a pool of labour and is fast becoming one of the hotspots for tech startups. Typical examples include App55, a digital payments solution, and online ticketing firm Fatsoma, both of whom have seen strong growth figures in their early stages.

Manchester benefits from cheaper rent, access to plentiful power and international links via the airport, all of which create a nurturing environment for tech startups. This trend has developed over recent years, with EON Reality co-founder, Dan Lejerskar, dubbing Manchester the perfect location for the UK’s digital city in 2012. With the recent establishment and growth of MediaCityUK, it’s clear that Manchester is also rapidly becoming a major media hub in the UK.

So the UK has a tech and media focus around its two biggest cities, London and Manchester; how does Germany compare?

Berlin, which has a thriving tech scene, has also joined the silicon family, nicknamed ‘Silicon Allee’. A recent study by consultancy firm McKinsey estimates that Berlin tech-start-ups could generate as many as 100,000 jobs by 2020, which is vital for a city with the highest unemployment rate in the country. With companies such as Google, Mozilla and Microsoft moving into Berlin, the city has proved its attraction to tech companies of varying sizes.

Another example is Rocket Internet, the incubator of fast growth companies, which has recently floated with much fanfare, and at a huge price. This shows that Germany aspires to bring world-dominating technology to market in the same way as Silicon Valley and the venture funds of the San Francisco Bay.

However, tech hubs in Germany are not limited to major cities. The famous Rhine-Main-Neckar (RMN) IT cluster, located in south-western Germany, is one of the most important ICT locations worldwide, often referenced as ‘the Silicon Valley of Europe’. Apart from universities, many software companies, including SAP, Software AG and T-Systems, are based in the region. In 2010, the RMN area was home to 50 per cent of the top 100 global software companies, demonstrating that the area is clearly a significant hub for tech in Germany.

While the RMN area is known for ICT, Dresden is renowned for being the country’s main technology research area. With around 300 hi-tech companies including Airbus A380 manufacturer EADS, the area provides excellent economic and scientific infrastructure. The Technical University of Dresden, which serves as a state-of-the-art training facility for young professionals, also provides new businesses with an abundance of highly-skilled and motivated workers, making Dresden a perfect tech hub.

Munich also represents an important centre for technology in Germany, being home to major companies such as Siemens AG. However, it was not always so. In the 1990s, the area lacked technological innovation. As a result, the Bavarian state government provided the High-Tech-Offensive Bayern, which sought to invest 2.9bn euros into R&D in the region. This has allowed Munich’s tech scene to thrive, with 30,000 IT companies such as Adobe, Fujitsu and IBM currently using Munich as a European base.

With active tech hubs located in Berlin, RMN, Dresden and Munich, Germany appears to have a less centralised tech scene when compared to the UK. But there are signs that the UK is beginning to change in this respect. As mentioned above, Manchester’s tech economy has demonstrated enormous growth in recent years and there is also evidence of a slow rise of a tech scene across the likes of Sheffield, Leeds, Newcastle, Scotland and Brighton.

With London’s property prices already reaching prohibitive levels, many technology companies are now considering other locations in the UK. Examples such as Sheffield-based dotforge, which attracts and nurtures tech start-ups around the world, and DYN, a Brighton-based email delivery and traffic management service provider, demonstrate that the tech sector may be beginning to disperse outside the capital.

Stephen Georgiadis

During Stephen Georgiadis's career, he has completed a wide range of UK and cross-border merger and acquisition assignments, as well as equity and debt financings, on behalf of both public and private companies. Stephen joined the corporate finance division of Hill Samuel & Co. in 1983 before moving to Apax Partners & Co. in 1985. He was appointed as Director in 1990 and as MD in 1999. He was one of the senior management team who effected an MBO of the firm in 1999 under the new name of Altium.