CeBIT Opens Amid Mixture of Fear and Hope

The German Chancellor, Gerhard Schröder, formally opened the CeBIT trade fair in Hanover on Tuesday with a promise of social, economic and labor market reforms which he said would help restore confidence and stimulate growth in the country's struggling IT industry.

Schröder painted a rosy future for the industry in Germany, saying the CeBIT fair showed that "the IT sector would return to the path of growth after a necessary but difficult period of adjustment."

Gloomy outlook

Industry leaders, however, do not share the Chancellor's optimism, and the sense of doom and gloom that has gripped IT firms over the past two years was palpable in Hanover.

For the second year running, less companies have booked floor space, and organizers are expecting a decrease in visitors. Only 6,526 exhibitors are taking part this year, down 700 over 2002, and organizers are expecting the number of visitors to fall from about 674,000 to just 600,000.

Those figures are a reflection of the sector's troubles as a whole. The industry's umbrella organization in Germany, BITKOM, says some 2,000 firms disappeared from the market in 2002. Three-quarters of these, it says, were wound up as a result of bankruptcy or insolvency, and a quarter swallowed up through takeovers and mergers. BITKOM says 35,000 jobs were lost in 2002, and warns that a further 10,000 could be shed in 2003.

Call for less bureaucracy

Chancellor Schröder was joined at the opening ceremony by BITKOM president, Volker Jung, and Jorma Ollila, CEO of the Finnish mobile telephone manufacturer Nokia (photo).

While Schröder put some of the blame for poor growth figures in Germany on the global economic situation, coupled with the effects of the Iraq crisis, Jung countered by calling on the government to implement reforms and to break what he called "a cartel of trade unions and employees who force through their own interests at the expense of companies and the unemployed."

Jung urged the government to make its decision-making processes more transparent and predictable, so that firms could plan more reliably for the future. He also said rules and regulations were strangling German industry. "The motto is: less is more. Less bureaucracy, less taxes, less non-wage costs, less restrictive labor laws, less regulations -- in short -- less state interference," he said.

Call for more investment

At the same time, he called on the banking industry to invest more in hi-tech firms, noting that the challenges facing IT companies today are changing. "Two years ago, our main concern was a lack of qualified workers. Today, it’s a lack of financing. What we're experiencing is a reluctance on the part of banks to lend money, and a lack of venture capital. It's getting more and more difficult to raise funds for start-ups and early-stage investment," he said. Jung added that those IT firms who have survived despite difficult conditions deserved to be given a better chance.

3G phones provide a ray of hope

While industry leaders say they don't expect a major upturn until 2004, they're placing high hopes in the telecommunications market, led by W-LAN (Wireless Local Area Network) technology for the Internet and the third generation mobile telephone technology, 3G, known in Germany as UMTS (Universal Mobile Telecommunications System).

Despite repeated delays in the launch of 3G technology in Germany and the enormous price providers paid for their licenses (in the summer of 2000, the German government auctioned the licenses to the six highest bidders, bringing in the equivalent of almost €50 billion, or $50.3 bn.), the industry expects 3G to be a major success in the medium term. Jung said, "We expect these innovations to open up genuine mass markets from 2005 onwards."

Guest speaker Jorma Ollila of Nokia echoed those hopes, saying, "Mobility, in my view, is the next global megatrend. The coming years will show its impact in shaping all areas of information technology, media and consumer industries alike. Everyone is a potential mobile consumer, and we all are becoming part of a truly mobile world."

But first, IT companies have to make it through 2003. Jung said he would be happy if he could count on positive growth at all, even if it's less than one percent. All in all, it looks like Germany's IT industry could be in for another tough year.