Ready or not: Is the German economy future-proof?

When it comes to the success of the German economy, there's no better place to start than Baden-Württemberg. It is the engine of Germany's powerful export industry and home to global household names like Bosch and Daimler-Mercedes Benz.

Stuttgart may be Germany's car capital, but the city itself isn't great at mobility. Traffic is thick and constant, with a sea of sleek, modern silver and black cars branded with that famous Mercedes-Benz star. Bicycle paths are few and far between, and many residents we spoke to complained of the concentration of fine dust particles in the city.

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Business is booming, but can it last?

Despite the chaotic traffic, there’s no doubt about it: the economy around here is booming.

Baden-Württemberg boasts a deep and diverse manufacturing sector and leads all other states in exports. The Mittelstand, a term for small and mid-sized privately owned companies, make up the backbone of the state's success. More than 50 percent of the labor force works in a company with 250 or fewer employees. Unemployment, at 3.4 percent, is of the lowest in Germany. But we wanted to find out just how prepared Germany's strongest region is for the future.

We started with Daimler, one of the biggest companies and employers here. For Daimler, the future is electric. The company is investing 10 billion euros ($11.4 billion) in e-mobility and another billion euros in battery factories to power electric cars by 2025, according to Jürgen Schenk from the EQ, or intelligent electric mobility, division.

But Daimler is highly protective of its research and development. We did not receive permission to film or visit the inside of the company headquarters. Instead, we paid a visit to the Mercedes-Benz Museum. From the outside, the undulating glass and steel structure is certainly futuristic; inside, however, most of the eight floors are dedicated to the company's history. We went looking for the e-mobility section but found only a few electric cars and engines on display.

Schenk told us that Daimler is indeed planning for the next generation of mobility, but electric cars haven't taken off in Germany.

For Daimler's workers, meanwhile, the shift toward e-mobility has brought some uncertainty. We spoke to some employees as they arrived for their morning shifts in Untertürkheim, at the company headquarters. One man who works in engine development told us he's been with the company since 1985 and has seen the technology around him change rapidly in recent years, and he has scrambled to keep up.

"It's tough and it's only getting tougher with the move toward electric - that's a big focus here. That's a technical shift that’s got a lot of people worried. It's a huge task that I won't be around for - maybe in the next three to four years, but it's really for the next generation," he said.

Daimler isn't the only company thinking about the future: Baden-Württemberg invests 4.8 percent of its gross domestic product in R&D - compared to just 3 percent on the European Union level. That drive toward innovation is on display at ARENA 2036 in Stuttgart, one of Germany's largest research centers for future mobility. ARENA stands for "Active Research Environment for the Next Generation of Automobiles."

The white, brightly lit industrial hall stretches as long as a football field, and companies like Bosch, KUKA, and Daimler have brought the best and the brightest here to design the future of the auto industry. A lone car skeleton is parked on a pedestal at the far end of the building amid containers and robotic arms. We were asked not to take any photos, however, to protect sensitive research.

A lab for the future

Germany's Mittelstand is also learning to plan for the future here. The Fraunhofer Institute has rented 1,000 square meters (10,763 square feet) of hall space for its Future Work Lab. It is focused on Industry 4.0, an initiative meant to make Germany a lead provider and market for advanced manufacturing solutions.

The lab works hand-in-hand with a government-led initiative to help small and mid-sized companies go digital, offering training, expertise and space to research. Jörg Castor heads up the initiative in Stuttgart. He said the biggest challenge is finding more skilled workers and retraining those already in the workforce.

"Technologies change so quickly. We have middle-aged workers who are fluent in conventional processes but are now facing digital technology," he said. "In my opinion, that means there has to be consistent advanced training on the job."

Castor said Germany's vaunted vocational training system - a bit of theory combined with a lot of practical training - will need an update too, to move away from manual tasks and skills and toward digital technology. Still, he is confident the country has the agility and strength to make the shift.

Not everyone is as confident, however. We spoke to Nikolai Ensslen, CEO of one of the region's most innovative startups, Synapticon. He told us that Germany needs a paradigm shift. Synapticon specializes in embedded robotic technology and has won clients across the world, especially in China, where the manufacturing industry sees the future in robots.

Ensslen said the future will depend on software rather than hardware. When it comes to innovation, he sees Silicon Valley and Tel Aviv as the leaders while Germany is a fast follower.

"The best explanation I've found for that lies in the things Germans like to do and do well: precision, reliability, efficiency. That's why we are so good in engineering and building cars. But those qualities play a much smaller role in virtual software," he said.

Politics and industry in Germany are starting to talk about innovation, said Ensslen, but he said that he believes they need to bring about a digital revolution to prepare for the future and that the country's economic success depends on it.