Large number of new regulations is increasingly becoming an obstacle to innovation

Small and medium-sized enterprises (SMEs) in particular are reaching the limits of their resilience due to the continuous introduction of new regulations. Politicians should place more trust in the domestic digital economy and adapt the framework conditions so that European IT companies can survive in global competition.

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IMAGE: Canva | Bundesverband IT-Mittelstand

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Which regulations, laws and requirements affect the software industry in particular?

Patrick Häuser: SMEs in general, and the digital economy in particular, are currently confronted with a large number of new regulations that are increasingly becoming an obstacle to innovation. These include the AI Act, which is likely to result in high compliance costs, and the Cyber Resilience Act (CRA), which prescribes documentation requirements for practically every “product with digital elements” and therefore confronts almost every digital company with new rules.

We are also currently examining the extent to which the European Supply Chain Directive (CSDDD) will affect our member companies. We very much hope that the new European legislative period from the summer will bring fewer requirements for the digital economy. Many small and medium-sized companies have now reached the limits of their resilience due to ever new requirements.

Which new regulations are already “in the pipeline”?

Patrick Häuser: We are currently also looking at federal legislation in this regard. The failure of the Online Access Amendment Act (OZG2.0) in the Bundesrat is a sobering setback for citizens, but of course also for companies. Small and medium-sized IT companies are doubly affected by the lack of administrative digitization. Analog interactions with the state mean more bureaucracy. At the same time, there is great business potential in the long overdue digitization of administration, as many of our members can provide digital solutions for public authorities. We finally need to set the right course for this.

We are also eagerly awaiting the draft for a reform of public procurement law, which the coalition parties have agreed on in the coalition agreement. The state is the largest IT purchaser in Germany. This means that public procurement is an important lever for our digital sovereignty. That is why we are lobbying the federal government for a “sovereignty clause” in procurement that gives preference to the solution that enables digital sovereignty and guarantees compliance with European regulations, such as data protection, for the same scope of services.

“This is fatal for our digital sovereignty”

How does all this affect the business models, costs, corporate structures and competitiveness of German software companies?

Patrick Häuser: Regulations that entail high compliance costs and bureaucratic effort represent serious hurdles for IT SMEs and therefore for the entire German and European digital economy. This is because it consists largely of precisely these companies. Large tech companies from the USA and China have enough resources to counter regulation. The IT industry in Europe, which tends to be dominated by SMEs, is in danger of falling further behind them. This is fatal for our digital sovereignty. In order to reduce our dependency on international tech giants and actively shape digitalization, we need innovative alternatives ‘made in Germany’ or ‘made in Europe’.

What would you like to see from Brussels and Berlin in terms of regulation?

Patrick Häuser: We are in a good position in Europe because we have a technology industry that is loyal to its location and strong in innovation and can develop digital solutions in line with European values and ideas. In order to raise this treasure, we need more self-confidence and trust in our own digital economy among political decision-makers and a clear commitment that we can and want to provide digitalization ourselves, not just buy it in. Many people do not realize that we still have the opportunity to open up large market shares in the important B2B sector with the help of our own IT companies and avoid one-sided dependencies on big tech. This is demonstrated by hopefuls such as the AI company Aleph Alpha and others.

However, it is not enough for us to keep trying to contain the big players on the market with new rules. In the end, we usually end up hitting our own innovation drivers. Instead, policymakers in Berlin and Brussels should create framework conditions in this country that boost our European technology sector so that we remain competitive. That would already be a big win.

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Our interview partner

Patrick Häuser
Head of Capital Office, Bundesverband IT-Mittelstand

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The interview was conducted by author Heiko Weckbrodt exclusively for NEXT “In the spotlight: Software”.

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