Make the first steps to becoming a leader in the German market.
Germany and the US are two advanced, yet different industrial markets, with special sales and investment cycles. They have, however, plenty of parallels as developed economies.
Both are under the top largest in the world; built on years of intensive research, development, and industrial innovation. Similarly, the US and the German market is decentralized and varied, with interests and preferences differing from region to region.
Germany sometimes lags the US in innovation. Many times, and in many different industries, popular American trends take a bit longer to gain traction in Germany.
One can observe this effect, for example, for the percentage of the population using the internet, where the European country lagged approximately two years behind.
Do we see this lagging effect in other cases? Let’s discuss it.
Why is Germany so innovative – yet maybe not so disruptive.
Germany is, according to some experts, the most innovative country in the world. The country is unique in the process of developing ideas into products. Furthermore, its economic strength is also exceptionally good with low inflation and low debt levels.
Germany places, however, in the 31st position for the worldwide rankings for information technology and telecommunication, according to the World Economic Forum’s Global Competitiveness Report.
This effect is reflected in the proportion of the population owning a smartphone. While the United States reached the 50 % threshold at the end of 2013, Germany only got there one year later.
I argue that we can extrapolate this effect to predict the future of distribution in Germany. Using growing sales trends in the US, I will discuss in this article how the future could look like on this side of the Atlantic.
B2B sales trends in the US and Germany.
While new trends in B2B move slower than in B2C, one can still find the same “catching-from-behind” dynamic. For instance, by 2022, international cloud adoption in Germany will have lagged the US by three to five years.
Three to five years might not sound like much, yet it gives a significant first-mover advantage and economies of scale. These gains feed in turn others, which creates a virtuous innovation-circle. Winners take all effects all over the place.
Allow me to use that last thought to predict, in general, that B2B sales in Germany will follow a similar path as in the US. In particular, I make a case for the future of B2B industrial distribution. Successful industrial distributors in Germany will look a bit like their peers in the US.
The German industrial wholesalers who will thrive in the years to come will be those who improve their scale. They will keep step with customers, manufacturers, and competitors while reducing operational costs.
Distributors in Germany will also face the same problems as those in the US. Their margins will continue to erode; their competitiveness and market structure will remain under heavy pressure. Indeed, many German industrial distributors will lose customer relationships and become logistics providers. Some will continue to add value beyond the supply-chain alone.
Although the prospect looks dark, there will be bright spots in the German Industrial Distribution. Some industry leaders will keep growing market share and margin. Innovative industrial distributors will deepen their customer relationships and create sustainable competitive advantages in the future.
Learn more about the future of B2B industrial distribution in Germany now.
The future of B2B industrial distribution in Germany.
Industrial distributors play a vast and vital role in the German and American economy. In Germany in 2019, the industrial wholesale trade generated an estimated total net turnover of around EUR 142 Billion (Economic Code: WZ08-466). In the US it was 15 times that number, in 2017.
Before I moved to Germany, almost a decade ago, I used to think that Germany was Bavaria: Beerfest and Pretzels. Bavaria undoubtedly produces only those two items, maybe some sausages and “Lederhosen”. Well, no. If you think like I did once, well, let me tell you that distribution in the region of Bavaria is the biggest revenue-generator (around 14 % of the total revenue of the region), not the beer.
Back to the US. A recent analysis, over the last 15 years, in nine industry sectors, and of more than 130 public global industrial distribution companies, found several interesting trends that could offer some insights about the future of industrial distribution in Germany.
The study mentioned above found a growing market fragmentation, with wide variations in the margin by segment. Industrial distributors with superior ROIC performance share some attributes: they invest heavily in digital capabilities, serve a right mix of customers with a broad range of product categories and a targeted assortment, and offer value-added services.
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How to become a market leader in B2B industrial distribution
Which specific pieces of advice can I give to German industrial distributors?
Three:
1. exploit market fragmentation,
2. differentiate using your product and services offering strengths,
3. and invest heavily and targeted in your digital capabilities.
Let’s start with the last one, digitalization.
Taking courageous strategic decisions in Germany’s fast-changing marketplace is very risky.
Mistakes can be expensive. However, doing nothing is deadly.
Customer behaviour is changing quickly, and wholesalers are bleeding margin. Wait two more years, and you are broke.
Successful market leaders in B2B industrial distribution are investing heavily in digital capabilities to improve the customer experience, including investment in e-commerce and artificial intelligence. Studies show that companies investing in digitalization already enjoy better margins than those earlier in their digital journeys.
B2B industrial distributors transform and improve their go-to-market approaches and sales processes, through digitization and advanced sales analytics. Critical digital resources such as e-commerce, mobile tools, real-time product availability, and delivery tracking and predictive analytics will separate the winners from the losers. Digital improvements help wholesalers outperform competitors who neglect them.
Distributors in B2B can take advantage of market fragmentation by leveraging the distinctive aspects of their product portfolio, regional market, and customer base. Therefore, and lastly, industrial wholesales in Germany should differentiate by selectively strengthening their product and services offering.
I want to take the first steps to become a leader in the German market.
Further Read:
Abdelnour, A. et. al. (2019): The coming shakeout in industrial distribution. Ed.: McKinsey
Orth, M. (2019): World champion in innovation – Germany.
Goasduff, L. (2019): Cloud Adoption: Where Does Your Country Rank? Ed.: Gartner.