Study: Digital Companies More Productive; Investments Decline

Frankfurt – German companies that are more digitally advanced are also more productive, according to a joint study by ZEW Mannheim and KfW Research. The research indicates that the more digitized a company is, the more it benefits from further digitalization investments. A ten percent increase in a company's digital capital stock can correlate with a productivity increase of up to 0.8 percent for already highly digitized firms.

The study also highlights a significant disparity in digital capital within Germany's corporate sector. Small and medium-sized enterprises (SMEs), in particular, have reduced their spending on digitalization in recent years, leading to a highly uneven distribution of digital assets. Some companies possess substantial digital capital, while others have minimal holdings, often below 50 euros.

The analysis is based on KfW's SME Panel data from 2017 to 2022, surveying German mid-sized companies with revenues up to 500 million euros. Digital capital was calculated based on companies' expenditures on digitalization initiatives, including IT infrastructure renewal and digitization of products and customer relations.

Furthermore, a recent KfW Research report indicates a significant downturn in digitalization activities among German SMEs. Between 2022 and 2024, the proportion of companies completing digitalization projects decreased by five percentage points to 30 percent. Total investment in digitalization fell by 8.1 billion euros. While long-term digitalization engagement has increased, the recent decline is attributed to the challenging economic climate and reduced investment appetite.

Researchers emphasize that digitalization often forms the technological basis for innovation. Continuous and sufficient investment is crucial for maintaining competitiveness. For SMEs with limited financial resources, targeted financial incentives and support could effectively promote digitalization and its associated benefits.