GERMANY’S TOP500

GLOBAL GROWTH IN TIMES OF NATIONAL FOCUS

CONTENTSFOREWORD 3

INSIGHT 1 4IT’S UNLIKELY THAT FURTHER INCREASES OF CURRENT ACCOUNT SURPLUSES WILL CONTINUE TO CONTRIBUTE TO GROWTH OF THE TOP500

INSIGHT 2 5REGULATIONS WILL CHANGE COMPETITIVE POSITIONS OF NATIONAL ECONOMIES OVERNIGHT

INSIGHT 3 8IN ITS NO. 1 INDUSTRY – CAR MANUFACTURING – THE GERMAN NATIONAL ECONOMY IS VULNERABLE

INSIGHT 4 10IN WORLD TRADE, JOBS ARE THE NEW CURRENCY

INSIGHT 5 12MORE INTENSE COMPETITION PUSHES GERMAN COMPANIES’ PERFORMANCE TO NEW HEIGHTS

CONCLUSION 18

FOREWORD

As election successes of populists rise, businesses face the growing likelihood of disruption. German companies, in particular, would suffer considerably if national isolationism takes hold and global trade stagnates. For decades, a progressive international division of labor has ensured prosperity growth for countries that participated in the global economic exchange of products and services. This global perspective created important markets that drove new growth for the Top500 year after year. Are the success stories of the largest German companies now coming to an end, given the more intense national focus on economic policy?

For many years, Accenture has carefully examined the growth of Germany’s largest companies. We selected the companies for analysis on the basis of their ranking in “Germany’s Top500,” a list published every year in the German daily newspaper DIE WELT. This is what we have learned: The most successful Top500 companies (the Growth Champions) excel because of their flexibility in volatile markets. They succeed again and again in finding the best responses to changes in their competitive circumstances. When we examined their strategic reactions to current threats to global trade, we saw that Growth Champions once again anticipated obstacles to growth and took countermeasures.

In this study, we present five scenarios that could result from the current challenges presented by a climate of national focus on a global level (and the risks for global trade associated with that), as well as the actions companies might take to retain the revenue they generate in foreign markets. It turns out that particularly successful companies among the Top500 are already strengthening their resistance to global trade barriers by following three strategic courses aimed at unlocking new growth potential:

• Growth: generate additional revenue through platforms and ecosystems

• Sustainability: take advantage of the sustainability megatrend to boost their competitiveness

• Profitability: leverage cost-reduction programs to increase the room for maneuver

This report shows what other companies can learn from the best of the best among the 500 largest companies in Germany.

As far as the revenue generated by the 500 largest companies in Germany (the “Top500”) is concerned, exports have been the most important growth driver for years. However, the slowdown of the economy of important boom markets, mounting reservations about free trade, and a growing national focus among countries around the world might cause the engine driving the German economy to misfire. For this reason, Growth Champions are already developing new strategies that will enable them to expand further, even when facing new trade barriers.

3

INSIGHT 1IT IS UNLIKELY THAT FURTHER INCREASES IN CURRENT ACCOUNT SURPLUSES WILL CONTINUE TO CONTRIBUTE TO THE GROWTH OF THE TOP500

In the past, the Top500’s strong position in overseas markets and their ability to tap into new markets again and again were the most significant forces driving revenue growth. Will exports exert the same influence on corporate growth in the future as they have in the past? Accenture examined companies’ export dependence, as well as possible growth constraints presented by foreign markets.

The Top500 are the driving force behind the growth of the German economy. Year after year, the large corporations that generate billions in sales have grown significantly more than Germany’s Gross Domestic Product growth rate. Without export success, these large companies would not have been able to achieve such high growth rates. Total German exports rose by 4.3 percent per year1 between 2005 and 2015. In contrast, the country’s Gross Domestic Product went up by just 2.8 percent per year (not adjusted for price changes).2

The degree to which exports have contributed to the German economy’s success becomes clear when we look at key indicators of the national economy. Between 2005 and 2015, the current account surplus went up from 158.2 to 244.3 billion Euros.3

Over the same period, the proportion of exports increased from 38 to 47 percent.4 These figures highlight the degree to which the German economy dependent on companies selling abroad.

In addition, the current account surplus has turned into a risk factor. Countries that are important trade partners might push for a balanced trade with Germany. Current account surpluses are indicative of imbalances in global trade that cannot be increased at will. It is the respective governments that decide—with national and protectionist motives in mind—what framework conditions the German Top500 will encounter in the most important foreign markets in the future. Accenture examined where the greatest risks lie.

Germany: Export volume and current account surplus are at record highs(in billions of Euros)

1195.8

1123.81088.01092.6

1061.2

786.3

965.2

803.3

893.0

952.0984.1

Current account surplusExports

38 % 41 % 43 % 44 % 38 % 42 % 45 % 46 % 46 % 46 % 47 %

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CAGR 2005–2015: +4.3 %

244.3213.6

197.6193.2158.7158.2

195.3

138.7159.0 154.9

178.3

Source: German Federal Statistical Office; Accenture Research

Exports as share of GDP

(in %; national accounts concept)

4

INSIGHT 2REGULATIONS WILL CHANGE THE COMPETITIVE POSITIONS OF NATIONAL ECONOMIES OVERNIGHT

Recently, there have been numerous indicators showing a strengthening of national interests in global trade. Accenture analyzed the risks this development may pose for the export business of the Top500.

Most worrying to German companies are the political shifts in some large export markets, which will probably see economic policies within these countries become more inward focussed. There is uncertainty over the USA’s free trade agreements, and the effects of Great Britain’s exit from the European Union are unknown. The failure of the Italian constitutional referendum raises further questions. Many fear that France’s elections in April 2017 will have forces critical of the EU gaining even further ground. Right-wing populists are securing more votes in the Netherlands and Austria, as well. Together with China—where the growth of the national economy has always been strongly supported by the state—these seven countries represent Germany’s main export markets.

Collectively, they accounted for 48 percent of the exports and around 58 percent of the current account surplus5 in 2015. It is concerning that these critical markets are all now showing tendencies that suggest their economic policies may be more nationally focused in the future. As noted in the weekly German newspaper DIE ZEIT: ”In the G20 alone (i.e. the group comprising the most important national economies in the world), the number of measures aiming at protecting their own economies has risen from 155 to 463 since 2009, according to calculations by the Centre for Economic Policy Research.“6

Current account surplusExports

USA France UK Netherlands China Austria Italy

Source: German Federal Statistical Office; Accenture Research

71.379.2

50.6

89.0

35.9

53.5

113.7

102.8

-20.6

-8.7

58.2

21.0

58.0

8.9

German exports and current account surpluses compared with selected countries in 2015 – top 7(in billions of Euros)

5

The growth prospects of Germany’s Top500 are strongly dependent on countries whose political risk profile has been rising recently. Serious risks are:

USAIn the near future, following recent political changes, it would appear that value creation will increasingly remain in the United States. Existing and proposed free trade agreements could be renegotiated. Volkswagen’s pending penalty payments due to the emissions scandal, as well as the litigation settlement of Deutsche Bank due to mortgage dealings, prove just how costly blunders are in the United States today. Foreign competitors holding large market shares could face new legislation and regulation that may have a greater impact on growth.

GREAT BRITAINThe exit from the European Union is imminent. A so-called “hard Brexit” is likely, which would make trade between companies from EU countries and British firms significantly more difficult. In the course of leaving the EU, Great Britain has to implement considerable reforms. It is likely that protecting the economy in its own country presents an important motive to compensate disadvantages resulting from leaving the EU Single Market.

EUROZONEIn many countries of the Eurozone, political parties that are critical of the EU are gaining strength. If they are successful in elections, more countries might push for leaving the EU, delay necessary reforms, fail to meet budgetary requirements, or pass regulations at the expense of fair competition. Against this background, even the future of the Euro appears unclear. A failure of the common European currency would prove fatal: German companies would have to endure unfavorable European exchange rates (and their fluctuations) from then on.

CHINAGerman companies also have to expect some surprises in China, following the government’s recent regulatory interventions in the market. In December 2016, in an attempt to stop capital flight, the government announced that European companies will no longer be able to transfer the profits they generate in China as dividends to their parent companies. Only a few months earlier, a draft bill shocked the car industry: Beginning in 2018, China intends to introduce a quota for electric cars. German car manufacturers, which hold a strong market position in the field of luxury-class vehicles equipped with powerful engines, would be significantly affected. According to OECD indicators for product market regulation, the intensity of regulatory intervention in China is already clearly higher than in the European industrialised countries, the US or Japan.

Significant differences in regulation intensity between countries – China and Russia have the strictest regulations

Source: OECD (including most recent data from 2013)

0.92Netherlands

1.08UK

1.11USA

1.19Austria

1.26Italy

1.29Germany

1.39Belgium

1.41Japan

Ireland 1.45

1.47France

Russia 2.22

China 2.86

Lower indicator value stands for regulation promoting competition

OECD Index: Product Market Regulation

6

The Top500 face another problem with regards to their growth potential abroad. The risks they face in the most important export countries are much greater than the opportunities available to them in new markets. In the 21st century, the Top500 were initially able to generate massive growth rates due to the boom in the so-called BRIC countries. However, the promise of these ambitious emerging markets, which represent 40 percent of the world’s population, has been crumbling for a few years now. Brazil’s economy is having big problems. Russia has been considered politically unstable ever since the Ukraine crisis and is feeling the consequences of the resulting economic sanctions. China is still an important export market for Germany, although the volume of exports fell in 2015.

However, true alternatives to Brazil, Russia, India and China are in short supply. Among those countries that were praised as BRIC successors (dubbed the Next Eleven), some are also considered politically unstable today. Furthermore, almost all of those countries are clearly far off the growth rates shown by the BRIC countries in their boom phase. This is why German industrial companies are continuing to make their heaviest overseas investments in Eurozone countries, China and North America.

As a result, the Top500 have to ask themselves: Where is future growth going to come from? Accenture looked into how the companies react when faced with those challenges by identifying the particularly successful companies among the Top500 and analyzing how they prepare.

2005–2015 German export volume to BRIC countries(in billions of Euros)

RussiaChina

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: German Federal Statistical Office; Accenture Research India

5.5 6.8 8.7 10.4 11.2 11.7 11.3 10.4 9.9

17.323.4

28.232.3

20.626.4

34.5 38.1 35.829.2

21.84.2

6.47.3

8.2

8.1

9.3

10.910.4

9.18.9

9.721.2

27.529.9

34.1

37.3

53.8

64.966.8

66.974.4

71.4

7.35.9

112.8

123.1

83.2

122.9

63.1

48.2

121.3

73.272.2

127.0

99.8

Brazil

Foreign investments of German industrial firms, by target geographies(in percent, multiple answers possible)

Source: The Association of German Chambers of Commerce and Industry - DIHK (Survey from Spring 2016)

Rest of EU, Switzerland

Norway

NorthAmerica

ChinaEurozone South and Central America

37

18

33

25

55

19

16

8

Africa, South West

Asia and Middle East

Eastern/South-eastern Europe

(not incl. EU), Russia, Turkey

Asia Pacific(not incl. China)

7

For the year 2015, we identified 397 Growth Champions. These companies exceeded the Top500 average, as well as the average of their own industry, over the past five years in terms of revenue growth. They also generated higher profits than their respective industry average during the same period. Accenture considers those particularly profitable and fast-growing companies to be Growth Champions.

Nine companies have been included in this group for each of the past three years:• Dürr • ElringKlinger • Fuchs Petrolub • Hugo Boss • Knorr-Bremse • L. Possehl • TRUMPF• United Internet • Volkswagen

You can find the complete list of Growth Champions here:

accenture.com/growthchampions

The analysis of the Growth Champions, as well as of all the Top500 companies, reveals the most important, leading industries in Germany. Machinery and plant engineering (with eight companies) and the car industry (with six) are dominant.

The car industry’s outsized role in the national economy becomes obvious when looking at the contribution made by individual industries to the absolute revenue growth of the Top500 in 2015. Car manufacturers and car part suppliers accounted for an impressive 59 percent. The health care sector contributed one-fifth. Meanwhile, machinery and plant engineering accounted for almost 7 percent.8 This shows that the German economy’s growth is strongly based on the success of export-dependent industries – the car industry, in particular.

In this respect, a weakening of the car industry would have a strong negative impact on the German national economy, as a whole. Apart from risks presented by export markets, the industry also has to deal with new technology trends. In the future, for example, fewer combustion engines and more electric drives will be in demand. Additionally, self-driving will change the vehicles and the car industry significantly one day. These upheavals – possibly in combination with an increase in regulations – might result in massive shifts in market shares. Younger manufacturers (e.g., from China or Tesla in the USA) will likely be able to make competitive inroads against well-established suppliers.

INSIGHT 3IN ITS NO. 1 INDUSTRY – CAR MANUFACTURING – THE GERMAN ECONOMY IS VULNERABLE

Our experience shows that the best of the best German companies anticipate future challenges at an early stage. In preparation, they develop strategies to capture potential growth. It is for this reason that Accenture identified the Growth Champions among the Top500 companies for the seventh time. The purpose is to uncover those industries in which particularly successful companies operate.

8

In Germany, car manufacturers and car-part suppliers employ 880,000 people. Some 250,000 of those work in the production of drive technology.9 These jobs are likely to be in danger if the demand for electric drives takes off, since those can be manufactured with only a fraction of employees that are currently required for combustion engines. If this scenario unfolds, Germany, as a great nation of car manufacturers, has a lot to lose.

The large companies in the car industry transformed into global companies a long time ago. They seize opportunities on an international level, and have spread their risks across the globe as well. It is possible that a retreat from free world trade might have a great negative impact on the German national economy and on the national job market, but not affect the balance sheets of the Growth Champions among the Top500.

This might be the case if these global players, who generate more than half of their revenues abroad already, are able to create more of their value abroad in the future, as well. Accenture examined the trends in revenue and employment outside Germany for the German car industry over the past 10 years.

Revenue growth (in absolute terms) of the Top500 in 2015 was largely dominated by the car industryRevenue growth in absolute terms of the Top500 compared with previous year, by industry (in billions of Euros)

Source: Companies; Accenture Research

20.5

86.230.0

146.8

10.1

OthersCar Industry Pharmaceuticals, hospitals and medical technology

Machinery and plant engineering

Revenue growthTop500 total

Share in overall growth

59 % 20 %

7 %14 %

9

The Top500 turned into global companies a long time ago. But to what extent have jobs moved abroad? Accenture examined which one of two key figures grew more quickly among large companies in the car industry in foreign countries: revenue or employment? And what effect does this have on their vulnerability to barriers in free world trade?

Analyses of individual companies show that many of the Top500 generate more than 80 percent of their revenues abroad. This applies to the three large car manufacturers, Volkswagen (80 percent), Daimler (85 percent) and BMW (85 percent), as well as to the biggest German car-part supplier, Robert Bosch (80 percent).10 Top companies from other industries generate an even larger portion of their revenues abroad. Examples for this are Linde (93 percent), Merck (88 percent) and SAP (87 percent).11

Accenture looked at changes in the proportion of revenues achieved abroad over the past 10 years. The three large car manufacturers increased this value from 76 to 83 percent.12

Next, we examined whether the expansion in foreign markets can be mainly attributed to exports or to foreign investments (e.g., setting up new production sites or taking over companies in other countries). Employment at home and abroad was selected as an indicator. It turned out that for the car manufacturers, the proportion of employment abroad grew slightly less than the proportion of revenues generated abroad. That means car manufacturers created proportionally more value at home.

Clear discrepancy between proportion of revenue and employment in 2015 for the German car manufacturers of the Top500

INSIGHT 4IN WORLD TRADE, JOBS ARE THE NEW CURRENCY

Proportion of employment abroadProportion of revenue abroadSource: Companies

80.2 %85.3 %85.5 %

54.3 %

40.0 %

28.8 %

BMW VolkswagenDaimler

Selected car manufacturers

74.1 %79.0 %

82.9 %

63.7 %67.0 %

47.2 %

Comparison by industry (top companies)

Chemical/PharmaBASFBayer

• Fresenius SE• Merck

Car-part suppliers Bosch

• Continental• ZF Friedrichshafen

Car manufacturers BMW

• Daimler• Volkswagen

10

It is noteworthy that the three car manufacturers show very different proportions when it comes to employment abroad. Volkswagen has the highest proportion (54.3 percent) and BMW the lowest (28.8 percent). Daimler sits between the two, with 40 percent.

Even higher is the proportion for the three largest German car part suppliers: Robert Bosch, ZF Friedrichshafen and Continental. Together, these companies achieve a 67 percent share.13

The distribution of revenue of selected Growth Champions emphasizes the significant export dependence

Source: CapitalIQ; companies; Accenture Research

ElringKlingerDaimler Robert BoschLinde SAP VolkswagenBMW

Proportion of revenue of German companies, by selected regions (2015)

APACMiscellaneous GermanyUSANorth AmericaNAFTAChina

15 % 15 %

27 %20 %

13 %20 %

20 %

26 %

16 % 32 %

17 %

10 %

7 %

16 %

18 %15 %

17 %

48 % 47 %

35 %

60 %

48 %40 %

46 %

17 %28 %

20 %

7 %

To put it more simply, companies that increase the proportion of their revenues abroad more than their employment abroad contribute to an increase in current account surpluses. And it is precisely those companies that face more protectionist pressure in an environment of renewed national focus. As a consequence, this would concern the three largest German car manufacturers, among others.

There is another risk: In a global economy increasingly characterized by protectionism, jobs could potentially become a new currency in world trade. In the new political landscapes, large companies may have to adjust in order to successfully conduct their business and to expand in certain markets. They may also have to shift value creation or give access to innovative technologies.

What can the Top500 do to reduce their vulnerability to protectionist tendencies in important countries? And is it possible that the Growth Champions have already taken some steps because they anticipated these developments early on? Accenture has devised some options companies might consider taking to seize growth opportunities in a future characterized by a renewed national focus.

11

Against the apparent economic-political mood shift in important regions of the world, exports become less of a growth driver and more of a risk factor for the Top500. This is why leaders of large German companies should ask themselves the following question: What strategies could we deploy to counteract this development? Accenture believes there are three ways for companies to maintain their growth potential or even open up new opportunities.

INSIGHT 5MORE INTENSE COMPETITION PUSHES GERMAN COMPANIES’ PERFORMANCE TO NEW HEIGHTS

At present, the Top500 do not have a lot to complain about. Since 2014, an upward trend has been recorded. In 2015, the growth rate of the 500 largest companies in Germany was 4.8 percent.14 Two reasons, in particular, explain this development: 1) Exports grew significantly; and 2) there was a stronger trend to inorganic growth.

Quite a few Top500 companies were able to benefit from acquisitions. ZF Friedrichshafen, for example, acquired the car-part supplier TRW Automotive. And because TRW has a completely different product

portfolio than ZF, the takeover has an extremely high growth potential. Approximately 47 percent of the total revenue growth of 58 percent15 can be attributed to this acquisition.

Dürr AG bought HOMAG Group, a manufacturer of woodworking machines and facilities for the furniture industry. This takeover produced a revenue increase of 787 million Euros, which corresponds to around 66 percent of the company’s total revenue growth.16

12

Additionally, Robert Bosch benefitted greatly from the acquisitions of ZF Lenksysteme and BSH Hausgeräte. The same applies to United Internet, which acquired Versatel, and Gemalto, which acquired SafeNet.

The first half of 2016 saw a further uptick in the mergers & acquisition (M&A) market. In the first six months of 2016, more M&A deals involving German companies were completed than in any comparable time period since 2007. The volume of M&A activity was more than three times higher than M&As recorded in the first half of 2015.

The growth in M&A activities has to be seen as part of the Top500’s strategy to secure growth opportunities. Mergers and acquisitions—not building up their own structures and skills abroad—have increasingly contributed to the Top500’s success in other countries. With this strategy, the German Top500 can become part of the ecosystem in the respective region.

Number and volume of M&A deals involving German companies in the first half of 2007–2016

Volume M&A deals with German involvement (in billions of Euros)Source: Angermann M&A International AG Number of M&A deals

129

2007

526

2008

562

49

2009

653

34

2010

597

43

2011

655

103

2012

654

67

2013

664

63

2014

749

92

2015

852

52

867

2016

180

Furthermore, Accenture believes there are three ways for companies to maintain their growth potential or even seize new opportunities.

These are:• Growth: generate additional revenue through

platforms and ecosystems

• Sustainability: take advantage of the sustainability megatrend to increase competitiveness

• Profitability: leverage cost-reduction programs to increase the room for maneuver

Once they apply these measures, the Top500 will be able to face a tougher competitive climate. Successful companies will push themselves to achieve new levels of performance.

13

GROWTH: GENERATE ADDITIONAL REVENUE THROUGH PLATFORMS AND ECOSYSTEMS

Digitization has a major effect on all German industries, but is particularly relevant to the car manufacturing industry, as well as machinery and plant engineering. No business sector should resist digitization, since digital transformation presents great opportunities. The “Platform Economy” and “Smart Services” present particularly significant prospects.

Automation and advances in manufacturing technologies has ushered in Industry 4.0, a generation of solutions that provides companies with the opportunity to not only make their processes more efficient, but also offer innovative new products and services. Companies that are able to aggregate and analyze the large amounts of data accrued within their business models and transform their data insights into new services hold the key to success in the new, digital world.

However, business models of the future will also be based on other technology generations – namely, Industry 5.0, 6.0 or 7.0. Accenture developed the “Industry X.0 Framework” to provide an outlook on the future developments. It is already apparent that smart products and smart services will be increasingly developed and sold through digital platforms and then refined with the use of sophisticated analytic tools and artificial intelligence (primarily through self-learning). Ecosystems will then form, through which companies can distribute and monetize their smart services more aggressively.

The platform economy allows a new form of scaling and globalization. Companies can use platforms to offer customers in different markets locally adapted and hyper-personalized services. These digital services extend the scope of traditional visible exports and regulations. Digital platforms facilitate the creation of global associations, which take the form of customized ecosystems of local partners.

INDUSTRY X.0 FRAMEWORK

ENGINEERING & MANUFACTURING

SMART PRODUCTS

ECOSYSTEMS & SMART SERVICES

HYPER-PERSONALIZATION & NEW EXPERIENCES

PLATFORMS, ANALYTICS & ARTIFICIAL INTELLIGENCE

14

Significant platform investments High value creation through platformsNo significant platform investments

Source: Accenture

Global average Germany

28 %

72 %

40 %

60 %

16 % 3 %

Less focus on platforms and their monetization in Germany

Thus far, German companies are lagging behind their global peers when it comes to pursuing opportunities in the platform economy. Whereas a global average indicates that 72 percent of companies are investing significantly in platforms, only 60 percent of companies in Germany are doing so. Among those 60 percent, only 3 percent have achieved an advanced stage of monetizing their services. By comparison, the global average shows that 16 percent 17 of companies have advanced monetization capabilities. While that figure is still low, it is five times higher than in Germany.

Top500 companies like Siemens and Bosch have already entered the market with B2B platforms. Siemens offers an operating system for the Internet of Things (IoT) through its MindSphere platform.

Companies in the manufacturing sector can use this platform to rigorously analyze the data supplied by sensors for monitoring their machines and plants. Additionally, developers receive tools that allow them to further develop their production systems via the MindSphere platform. As a result, companies can more reliably predict necessary maintenance operations, thereby lowering energy consumption and materials usage. Bosch provides a suite of platform services through which developers can build, implement and operate IoT applications faster and more efficiently.

SUSTAINABILITY: TAKE ADVANTAGE OF THE SUSTAINABILITY MEGATREND TO INCREASE COMPETITIVENESS

The sustainability megatrend still offers big opportunities for the Top500. The circular economy and resource efficiency enable cost reductions and profitability increases. Furthermore, a transparent and ecological alignment of the corporate strategy ensures customer trust in brands. This involves aligning business models with social requirements and, finally, communicating success in that area.

The opportunities for worldwide growth are there. In China and India, alone, more than one billion people might climb the social ladder to enter the middle class as consumers with buying power. However, this development calls for the careful handling of the earth’s resources. All over the world, countries struggle with big environmental issues for which the market provides few good solutions.

All doors continue to be open for providers of such solutions. Technologies, products and services that work to curb environmental pollution in congested urban areas or counteract shortages of resources will find their markets in the future–despite any tendencies among governments to set up trade barriers. Companies from among the Top500 have the necessary know-how and can maintain their growth potential by further developing the necessary technologies, products and services.

Pioneers in the circular economy, for example, can aspire to reach top market positions. In the leading German industries such as mobility, chemicals, mechanical engineering or logistics, there is a high demand for sustainable solutions worldwide. This is why leaders of the Top500 companies have to position their brands accordingly.

15

Project phase

Revenue growth Develop intangible assets

Cost reduction

Circular economy,

compacting, re-design:

Risk reduction

Business value

Inc

rea

se

of

po

sit

ive

eff

ec

ts

Re

du

cti

on

of

ne

ga

tiv

e e

ffe

cts

Future valueCurrent valueSource: Accenture

Strengthening the business

portfolio through segments

like nutrition and health:

2.2 billion Euros

5.0 billion Euros 4.8 billion Euros

1.6 billion Euros

Growth effect due to more

positive brand image:

Growth potentialIncremental revenue

in year 10

Value potential NPV

Avoiding shortage of raw

material and possible

boycotts: protection of

revenue potentials:

7.4billionEuros

7.2billionEuros

Company-wide potential of the sustainability business

Quantification of

the potential from

sustainability

business (focus on

17 initiatives)

Case study: We identified 17 sustainability initiatives for a global consumer goods company that promise an additional value potential of over 7 billion Euros

They should make their labels synonymous with products and services that are aligned to big ecological challenges. If they do, they can tap growth potential, achieve higher margins and increase their corporate value. Additionally, they can lower their risks.

By way of example, Accenture calculated the financial impact a company from the consumer goods sector might experience from a rigorous focus on a sustainability strategy.

PROFITABILITY: LEVERAGE COST-REDUCTION PROGRAMS TO INCREASE THE ROOM FOR MANEUVERGiven investments in digital transformation, reduced growth rates in the boom countries, and saturated domestic markets in Europe, Germany’s Top500 are in danger of entering a slump due to the combination of weak growth and investment constraints. Financial stamina might become the decisive factor for competitive advantage. “Ambidexterity” has become the buzzword in the executive suite. Traditional products must be developed with the same intensity that is applied to investments in new, digital services. Without tried and tested products, it is impossible for companies to master the present. But without new inroads in the digital world, they have no future prospects.

The Top500 adapt their structures to align to the changed strategy and optimize their bottom lines. In effect, they reduce the complexity of their existing business models to expand their capacities for new business in the digital world.

Companies like BASF, Lufthansa Cargo, ThyssenKrupp, Siemens and others decided to implement far-reaching cost-reduction programs.

With its efficiency program, dubbed “Vision 2020,” Siemens wants to reduce its workforce worldwide by 7,800 jobs, thereby saving one billion Euros. 18

ThyssenKrupp intends to improve its business results by 850 million Euros 19 with “Impact.” With its “DrivE – Drive Efficiency” program, BASF plans to achieve savings of one billion Euros beginning in 2019. 20 Similarly, Lufthansa Cargo wants to reduce its costs by at least 40 million Euros 21 per year by implementing a cost-reduction program.

16

Second driver Third driverMain driverSource: Accenture

Improve financial performance

Eliminate cost duplications

Invest cost reductions in growth initiatives

Improve margins

Germany

Total average

Germany

Total average

Germany

Total average

Germany

Total average

55 %

52 %

45 %

49 %

44 %

40 %

42 %

36 %

Germany

Reduce complexity and react with

more flexibility to market changes

Total average

12 % 22 % 28 % 62 %

58 %20 % 17 % 21 %

20 % 19 % 16 %

17 % 20 % 15 %

13 % 19 % 13 %

14 % 14 % 16 %

10 % 12 % 18 %

18 % 8 % 10 %

14 % 13 % 15 %

14 % 17 % 18 %

Increase competitiveness

Germany

Total average

62 %

55 %

27 % 19 % 16 %

20 % 19 % 16 %

For German companies, improving competitiveness is the main driver when it comes to cost reductions

17

CONCLUSIONThe Western world is experiencing an economic-political climate change that could lead to a pause in globalization. It is also unclear how big of an impact protectionism in China is going to have. The Top500 have to be vigilant because their success story is starting to fade. There is a danger that their traditional export business will no longer be the growth engine it was.

It is difficult to assess the effect of recent and potential political changes in some of Germany’s most important trading partner countries, such as the USA, the UK, and the Eurozone (including France and Italy). One thing is certain: The Top500 will have to keep a close eye on any developments. Whatever outcomes might unfold, it is clear that the Top500 have entered a new era that will require them to take new paths to achieve growth. Two facts support this statement: First, current account surpluses are already high and cannot be increased indefinitely. Second, the years of the BRIC euphoria are over. There is no “second China” presenting a double-digit growth rate of their Gross Domestic Product with a population of more than one billion.

On the other hand, there are new opportunities ahead, particularly in the globalization of digital markets. It is this future for which the Top500 must prepare. The Growth Champions among the Top500 have already improved their competitiveness by growing in the platform economy, pursuing opportunities in sustainability, and reducing complexity and costs in order to improve their profitability.

Historically, the Top500 have always emerged stronger than before when faced with situations of change. By aligning themselves to the strategies presented in this study, large German companies will be able to pursue lucrative new growth opportunities, even in times of renewed national focus.

Sources

1 German Federal Statistical Office / Accenture Research 2 German Federal Statistical Office/ Accenture Research3 German Federal Statistical Office / Accenture Research 4 German Federal Statistical Office / Accenture Research 5 German Federal Statistical Office /own calculations6 http://www.zeit.de/2016/52/protektionismus-welthandel- schutz-freihandel-handelspolitik-europa?wt_zmc=sm.ext.

zonau- dev.mail.ref.zeitde.share_small.link.x7 Accenture Research8 Accenture Research9 http://www.sueddeutsche.de/wirtschaft/

autobranche-arbeitsplaetze-in-gefahr-1.326866410 Calculations from Top500 data from DIE WELT11 Accenture Research12 Calculations from Top500 data from DIE WELT13 Calculations from Top500 data from DIE WELT14 Accenture Research15 ZF Friedrichshafen, Annual report 201516 Dürr, Annual report 201517 ”Thriving on disruption“ 2016, Accenture (see graphics)18 Siemens, DIE WELT (https://www.welt.de/wirtschaft/ article137178265/Kaeser-streicht-7800-Stellen-bei-Siemens.html)19 ThyssenKrupp (https://www.thyssenkrupp.com/de/newsroom/ pressemeldungen/press-release-62784.html)20 BASF (https://www.basf.com/de/company/news-and-media/ news-releases/2015/09/p-15-348.html)21 Lufthansa Cargo (https://lufthansa-cargo.com/de/specials/ business-reports-2015/main/home)

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