ZEW Innovation Survey - German Economy Maintains High Level of Innovation Expenditures – Substantial Increase Planned for 2016

German enterprises spent EUR 145 billion on innovations in 2014. The German economy was thus able to match the high level achieved in the previous year (2013: EUR 145.2 billion) with respect to innovation expenditures. For 2015 and 2016, companies plan to increase their innovation budgets by up to six per cent. Small and medium-sized enterprises (SMEs), however, showed restraint in 2014, with their innovation expenditures decreasing by nine per cent.

These are the findings of a current survey carried out by the Centre for European Economic Research (ZEW) on the innovation behaviour of the German economy, conducted on behalf of the Federal Ministry of Education and Research (BMBF). Since 1993 the survey has been carried out annually in collaboration with the infas Institute for Applied Social Sciences and the Fraunhofer Institute for Systems and Innovation Research (ISI).

With EUR 145.0 billion, the 2014 innovation expenditures of the German economy largely remained at the previous year's high levels. Considering the main sectors included, however, the survey shows that in 2014 innovation expenditures have decreased in three out of four sectors. While the research-intensive manufacturing industry increased their innovation spending by 1.6 per cent, enterprises from other industrial sectors (minus 1.9 per cent), from the knowledge-intensive services sector (minus 2.5 per cent) and from other services sectors (minus 7.4 per cent) spent less on innovation.

"All in all, the German economy has held its course and maintained a high level of innovation, despite the challenging global economic climate. The increases in the research-intensive industry provide clear evidence for the great significance of innovation for international competitiveness. Export-oriented companies in particular cannot afford to halt investment in new products and processes," says Dr. Christian Rammer from ZEW, who is responsible for the innovation survey.

For 2015 and 2016, companies are planning to intensify their investment in innovation. At the date of the survey (spring and summer of 2015), they planned to increase their expenditures by 2.6 per cent to EUR 149.5 billion in 2015. In 2016, companies in the German economy plan to increase their total innovation expenditures even by 5.7 per cent to EUR 158.1 billion. The automotive industry is expected to account for the by far greatest contribution to the increase. The mechanical engineering industry, financial services, the transport sector and the electrical industry are further major contributors to the increase in expenditure until 2016.

In 2014, expenditure growth was exclusively driven by large enterprises. Small and medium-sized enterprises (SMEs) reduced their expenditures on innovation to EUR 32.2 billion (minus nine per cent). The current results confirm a long-term trend: Large enterprises increase their innovation budgets, whereas innovation spending of SMEs develops in a rather restrained way. For 2015 and 2016, however, SMEs are planning to increase their budgets as well. They expect their innovation expenditures to increase by four per cent in 2015 and by six per cent in 2016.

Share of innovators further decreasing

Innovators are companies which have introduced product or process innovations within the three-year survey period (2012 to 2014). Their share in the total number of companies decreased slightly by 0.3 per cent and currently stands at 36.8 per cent (2013: 37.1 per cent). The current share of innovators in Germany is at a comparatively low level, however, considering the pre-crisis figue of 47.0 per cent. All four main sectors were affected by the slight decrease in 2014.

The decline in the share of innovators is expected to continue in 2015 and 2016. In 2014, 39.7 per cent of companies spent money on innovation. For 2015, 33.6 per cent planned to spend money on innovation, while 10.0 per cent were unable to provide a definite answer as to their innovation activities. For 2016, the share of companies planning to spend money on innovation is 30.6 per cent, while 15.1 per cent are still undecided. Since experience has shown that no more than half of the companies which are yet undecided will actually invest in innovation, the share of innovators is expected to decline. This particularly applies to the services sector. The industrial sector, however, may see a more favourable development.

More product innovations, less process innovations

Innovation activities have shifted towards process innovations in 2014. Compared to 2013, the share of product innovators climbed from 28.0 to 28.6 per cent. By contrast, the share of process innovators fell from 22.6 to 20.5 per cent.

The German economy generated a turnover of about EUR 662 billion in 2014 by selling new products, which makes up 12.8 per cent of the total turnover. The share has thus exactly remained at the level of the previous year.

The German economy was able to reduce average unit costs by 2.8 per cent in 2014 by means of process innovations, which is the lowest value ever recorded in the innovation survey. Since the mid-2000s, this indicator has been showing a more or less constant decline for all four main sectors. With 3.9 per cent, the research-intensive industry achieved the greatest reduction in costs through process innovations in 2014. The knowledge-intensive services sector achieved cost savings of 3.3 per cent, while companies in other industries managed to reduce costs by 2.8 per cent. In the other services sector, process innovations contributed to lowering costs by 1.3 per cent.

Innovation intensity remains unchanged

In the period considered by the innovation survey, the share of innovation expenditures in the total turnover of the German economy – the “innovation intensity” – reached a level of 2.80 per cent. This share almost matches the previous year's all-time high of 2.84 per cent and constitutes the second-highest level ever recorded. Across sectors, however, this indicator varies considerably: the automotive industry achieved the highest innovation intensity with 10.0 per cent, followed by the electrical industry with 9.9 per cent. The chemical and pharmaceutical industry invested 7.7 per cent of the sector's total turnover in innovation projects, while innovation expenditure in the IT and telecommunications sector made up 6.6 per cent. The technical and R&D services sector as well as the mechanical engineering sector also reached a particularly strong innovation intensity with values of 5.8 (technical and R&D services) and 5.6 per cent (mechanical engineering). By contrast, the sectors of wholesale, financial services, energy supply and business support services spent less than one per cent of each sector's total turnover on innovation.

For more information please contact

Dr. Christian Rammer, Phone +49(0)621/1235-184, E-mail rammer@zew.de

The ZEW Innovation Survey

The annual ZEW Innovation Survey is based on the Mannheim Innovation Panel (MIP) and represents the industrial sector (mining, manufacturing industry, energy and water supply) as well as a range of services sectors (wholesale, transport, postal services, telecommunication, financial services, IT/software, technical services, public relations and business consultancy, other business services, media, and waste management). The survey includes German-based legally independent companies with five or more employees. About 7,500 companies participate in the annual written survey. In addition, a telephone survey of about 8,500 companies addresses specific parameters of innovation behaviour. On the basis of the company data, innovation activity figures are projected for individual sectors, business sizes and for East and West Germany.