SAP CEO: German IT sector needs special treatment

1/19/2006 10:13:59 AM - InfoWorld: Top News

(InfoWorld) - Globalization is a good thing and it's here to stay, according to Henning Kagermann, chief executive officer of SAP. But that doesn't stop him from asking for special treatment for Germany's high-tech companies, to help them compete in world markets. High-tech companies need flexible working laws and lower non-wage labor costs, he said in a speech delivered at the German government-sponsored Informatikjahr IT conference earlier this week.

German high-tech companies shouldn't shy away from globalization but rather take full advantage of it, Kagermann said in a speech of which IDG News Service has obtained a copy. "We can only secure our competitiveness if we outsource individual production areas to low-cost labor countries and concentrate on 'innovation made in Germany,'" he said

But to foster innovation in Germany, "entry barriers" must be lowered, Kagermann said, welcoming the German government's plan to reform the country's corporate tax laws and, in particular, ease the tax load on small and medium-size businesses.

Germany has already lost most of its production of commodity products, such as computers, displays and storage chips to manufacturers in southern Asia, and is unlikely to ever catch up to the U.S. and India in the area of IT services, according to Kagermann.

Software development and services, on the other hand, offer huge opportunities not only for large German software vendors like SAP but also smaller IT companies designing products for a range of industry sectors. "Today, more than 80 percent of the innovations in the automobile industry are based on software and in the mobile phone industry, it is 70 percent," he said.

Nurturing talent and expertise in young people is essential, according to Kagermann. Germany's IT sector needs to invest more in education. SAP, for instance, has a University Alliances Program, under which the German vendor maintains relationships to more than 500 universities around the globe, helping them offer "relevant and practical" IT courses.

Germany's public sector should also play a role in driving IT innovation in the country. The problem in this sector is not so much a lack of money for IT investments, but rather a lack of consistent IT management, according to Kagermann. "More than any other investment, IT projects require well-established control and the full attention of management to be successful," he said.

But German public administrations suffer from a lack of common IT process, Kagermann noted, and few heads of these administrations have taken responsibility for implementing major IT projects. "The German government needs to define and execute a central IT strategy to unify the divergent, federal IT concepts," he said.

Kagermann cited a McKinsey & Co. study claiming annual savings of more than €2 billion ($2.4 billion) through a unified IT plan.

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