Members of the Bundestag vote on a law to expand the legal framework in which Germany's Federal Intelligence Service can operate | Sean Gallup/Getty Images German privacy concerns trip up high-tech ventures Government struggles to protect users but promote innovation in the age of big data.

The online world can be a fickle place.

One day you’re riding the digital wave to global supremacy. The next, you’re buried under competition from global giants like Google and nimble startups sprouting up from Berlin to Beijing.

For Germany’s industrial players — still some of the world’s largest companies despite a relatively conservative approach to all things digital — that balance has been even more difficult to find because of the country’s strict privacy rules.

The country’s laws remain some of the toughest in the world and are based on Germans’ long-standing aversion to sharing their data, either with government agencies or companies. Local privacy standards also have often made it tough for the likes of Siemens, Daimler and others to create new business models based on analyzing information from their customers’ everyday habits.

These obstacles to tapping into the reams of digital data produced by people’s increasingly online lives, experts warn, are likely to create both winners and losers, as Germany continues its efforts to overhaul the country’s nationwide industries, a policy known locally as Industrie 4.0.

For companies looking to revamp their manufacturing plants and supply chains with digital upgrades like data analytics, internet-connected sensors and other technological gadgetry, analysts say the country’s tough data protection rules won’t stand in their way.

That should allow many of Germany’s corporate big beasts to keep pace with rivals in the United States, China and across Europe that also are doubling down on crunching industrial data to find ways to stay ahead in the digital world.

But for companies looking to directly tap into German internet users’ online data the country’s data protection standards are likely to cause ongoing headaches. They are prevented from deploying the tactics that have allowed Silicon Valley giants like Google and Facebook to seize great swaths of the Western world’s digital services.

“Germans still have a reluctance to hand over their personal data” — Klaus zu Hoene, data protection expert

“Germans still have a reluctance to hand over their personal data,” said Klaus zu Hoene, a data protection expert at Intersoft Consulting, an advisory firm in Hamburg. “But that won’t stop industry. They are already working on new business models.”

German lawmakers are quickly grasping these issues, and have taken steps to make it easier to share and use consumer data. While local citizens remain mostly against companies accessing their online information, policymakers realize that German companies may fall behind overseas competitors if they fail to adapt.

This effort to balance people’s long-standing skepticism about data collection and the need for German companies to tap into this rich seam of digital information has reached the top of German politics.

Late last year, Angela Merkel, who will retain her position as the country’s chancellor after Sunday's election, told an industry conference that German privacy protections should not get in the way of tapping into the data economy.

“We have the principle of data minimization, but we may have to give a little on that,” she said. “Such a principle doesn't seem as appropriate when you are looking at big data.”

To complicate matters, new EU-wide privacy rules come into force early next year, requiring both European and international companies operating on the Continent to allow people greater control over how their data is used.

That has raised concerns that German companies’ plans to sidestep the country’s more onerous protections may fall foul of these regionwide standards. The country’s regulators also have not been shy to flex their muscles, opening a series of investigations into the data collection tactics of both domestic companies and American tech companies operating locally.

Still, some firms — and not just local industrial players —are trying to bridge Germany’s historical reluctance to share data, trying to turn the country’s skepticism into a potential business opportunity.

Microsoft, for instance, has teamed up with Deutsche Telekom, the country’s former telecommunications monopoly, to offer local customers cloud computing services hosted only on servers located in Germany. This German-first approach allows companies to meet local customers’ expectations that their data will be protected under the country’s tough privacy rules, while also allowing businesses to tap into new ways of monetizing this digital information.

Others are taking a more conservative path, focusing on revamping existing industrial manufacturing by adding digital services and data analytics to eke out efficiencies and find new production methods.

At BMW’s manufacturing plant in Leipzig, where the German automaker produces its i3 electric car, among other models, sensors now crunch reams of data while tracking parts throughout the manufacturing process. Robots also assemble sections of the luxury cars at a faster rate compared to humans. The combined result: 50 percent less energy and 70 percent less water used versus traditional manufacturing methods, according to BMW.

“The future of Germany as an industrial nation depends on how companies succeed in bringing the manufacturing and digital worlds together” — Frank Ridder, managing vice president at Gartner

“The future of Germany as an industrial nation depends on how companies succeed in bringing the manufacturing and digital worlds together,” said Frank Ridder, managing vice president at Gartner, a technology research company, in Hamminkeln, Germany. “Companies still need to learn how to be innovative.”

Experts say these industrial uses of data will be easier to justify to wary consumers, at least initially. But as Silicon Valley’s best and brightest continue to vacuum up people’s online information, some German companies are also forging ahead into this arena — taking on U.S. tech giants at the own game.

HERE, the Berlin-based digital mapping company that is part-owned by BMW, Daimler and Audi, for instance, now aggregates data from the vehicles of several global automakers (the company has a roughly 80 percent market share in onboard mapping in the global car sector, according to industry statistics) to offer traffic updates, hazard warnings and even parking updates to drivers in real time.

Ralf Herrtwich, HERE’s senior vice president of automotive, said that all vehicle data remains anonymized and protected under the country’s tough privacy rules.

But as cars become more connected and people demand more digital services, the ability to offer consumers such immediate online insights mostly calmed individuals’ fears about their online privacy, offering them insights that depend on tapping into people’s digital habits.

“The more vehicles we have on the road, the more data we have to collect,” he said. “That’s what adds real value for our customers.”

For Dominik Wee, who runs the global digital automotive and industrial team at McKinsey, a consultancy, finding new ways to use technology — either in traditional manufacturing or, within German privacy standards, consumer products — can help the country maintain its place as one of the world’s largest exporters of goods and services.

“Industrie 4.0 is of huge importance for German industry,” he said. “We’re starting to see a convergence, companies are finally coming around to the idea.”

The POLITICO Global Policy Lab is a collaborative journalism project seeking solutions to challenges faced by modern economies in an age of political disruption and technological transformation. Join the community.