Innovation in Germany - 100 Billion Euros for Innovation: Service Providers Dim, Manufacturing Sector Bright

The innovation expenditures of the German economy in the year 2004 have risen by two percent to 100 billion Euros. For 2005 and 2006 the firms plan further increases to their budgets of one (2005), respectively two percent (2006). In the year 2006 the innovation expenditures would accordingly reach 103 billion Euros.

This bright outlook is, however, dimmed by decreasing innovation shares of the knowledge-intensive service providers and barely increased innovation successes in the year 2004. This is the result of the presently published German Innovation Survey 2005 conducted jointly by the Centre for European Economic Research (ZEW) Mannheim and the Fraunhofer Institute for Systems and Innovation Research (ISI) as well as infas - Institute for Applied Social Sciences on behalf of the German Federal Ministry of Education and Research.

The rise in innovation expenditures of the German economy is to be attributed to the firms in manufacturing. They raised their innovation budgets in the year 2004 by near three billion to about 75 billion Euros, representing an increase by 3.6 percent. The larger firms signed mostly responsible for this increase. Yet also the small and medium sized enterprises (SME), with an increase of their innovation expenditures in the year 2004 by 7.2 percent to about 17.2 billion Euros, have for the first time after a continued drought provided again more funds for innovation projects. For the years 2005 and 2006 as well the manufacturing firms plan to increase their innovation expenditures by two (2005), respectively three percent (2006) to then almost 79 billion Euros.

While the firms in manufacturing improved markedly, the innovation expenditures among service providers in the year 2004 decreased by three percent to less than 24.7 billion Euros. Highger innovation expenditures in the computer services/telecommunications and the banks/insurances sectors contrast with declining innovation budgets among technical service providers, business consultancies, wholesale trade, and the transport services. In the years 2005 and 2006 as well falling innovation expenditures are to be expected among the service providers.

The rise in innovation expenditures in the manufacturing sector stems from higher investments in innovation projects. They increased 2004 by 3 billion Euros and constituted 33 percent of overall innovation expenditures. This was the first increase in four years. This indicates that the firms are again more disposed to invest in new capacities for products and new production facilities. In contrast, current expenditure - comprising mainly research and development expenditures - remain constant.

The share of firms with successful innovations (innovator share) remained constant in the year 2004. A slight increase in manufacturing (from 59 to 60 percent) and among other service providers (from 33 to 35 percent) was counterbalanced by a clear decrease of the share of innovators among the knowledge-intensive service providers (from 57 to 52 percent). However, the share of firms engaged in innovation activities has increased on the whole since a sizeable number of firms have revived their innovation activities. Innovation successes can, however, not yet be reported among these newly involved firms because their activities have thus far not led to the market introduction of new products or the implementation of new processes. For 2005 and 2006 stable innovation participation can be expected for Germany.

The turnover share generated by new products, that is, by products which have been newly introduced in the market in the past three years, remained constant in the year 2004 averaged over all sectors. In the manufacturing sector it slightly increased from 25.7 to 26.4 percent. Contrarily, among the knowledge-intensive service providers this share dropped significantly from 25 to 20 percent, whereas the other service providers achieved 10 percent of their turnover with newly introduced services. This amounts to two percentage points more over 2003.

In contrast to the smaller turnover with new products, the knowledge intensive service providers have achieved greater turnovers with market novelties. These are products which have not before been introduced by another firm. These original innovations - contrary to products imitations which are new to a firm, but not to the market - constituted 7.5 percent of the turnover of the knowledge-intensive service providers, after 6.6 percent in the previous year. In the year 2001, however, still 9.4 percent of turnover was achieved with new-to-the-market products. Among the manufacturing firms turnovers with original innovations dropped in 2004 already for the fifth year in a row. In 2004 merely 6.5 percent of the overall turnover of the manufacturing sector in Germany was contributed by such innovations, in the year 2000 this still amounted to 8.6 percent.

An important measure for the success of process innovations is the size of the decrease in unit costs achieved by new production or distribution methods. For the year 2004 it appeared that the manufacturing firms were able to increase their rationalisation successes, driving down their costs by 5.6 percent on average, after 4.5 percent in the year 2003. Among the other service pro-viders the cost savings impact increased from 2.7 to 3.2 percent, whereas among the knowledge-intensive service providers a decrease from 4.3 to 3.3 percent is noted.

Note to the Editor

The Centre for European Economic Research (ZEW) conducts its survey of the innovation activities of German firms on a yearly basis since 1993. The German Innovation Survey is conducted on behalf of the German Federal Ministry of Education and Research. The survey 2005 comprises more than 9,400 firms of the sectors manufacturing, mining, energy and water supply, knowledge-intensive service providers (computer services, telecommunications, technical services, R&D services, consulting, advertising, banking, insurance, media) and other services (whole sale and retail trade, transport services, post services, cleaning, security, provision of personnel, other firm-related services, waste management).

Contact

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