Digitalisation Boosts Innovation Budgets Until 2017

German IT and telecommunication service providers are planning to increase their innovation budgets considerably until 2017. In 2015, innovation spending in the ICT service sector, which includes telecommunications, software, data processing and information services, reached a total of 11.9 billion euros. Compared to the previous year, innovation expenditure has increased by 1.2 billion euros. Innovation expenditure in the ICT service sector is set to increase further to 13.1 billion euros in 2016, and shall reach 14.4 billion euros in 2017. As a result, ICT service providers could experience a 35 per cent increase in their innovation budgets in the space of only three years. These are the findings of the latest Sector Report on Innovation in the IT Services and Telecommunications Sector by the Centre for European Economic Research (ZEW) in Mannheim. The report is based on the German Innovation Survey conducted annually by ZEW on behalf of the Federal Ministry of Education and Research.

The high degree of innovation dynamism in ICT services reflects the rapidly changing technological environment as well as the various new innovation opportunities that have arisen as a result of digitalisation. In this context, ICT service providers can be considered a driving force for innovation in a number of different ways. Firstly, they help spur innovation by providing both material (telecommunication networks) and immaterial resources (software solutions, data bases), which serve as a basis for the digitalisation process in other sectors. Secondly, they contribute to innovation directly by developing key innovations, such as digital platforms and apps, themselves. And thirdly, they provide important innovation services for other sectors, such as big data analyses.

IT service providers heavily invest in software activities

According to the survey, approximately 33 per cent of investments in innovation were made in the telecommunication sector (4.7 billion euros in 2017). A large share (around 75 per cent) of those 4.7 billion euros was invested in new telecommunication infrastructure. Software activities accounted for around 60 per cent of the innovation budget in ICT services, with more than half of these investments being made on research and development (R&D). Data processing and information services, on the other hand, accounted for a mere 7 per cent of investment spending in this sector.

The innovation budget accounts for approximately 7.1 per cent of all turnover generated in the IT sector, which now ranks among the top-performing industries in Germany in terms of innovation strength. The electrical and automotive industries invested 10.4 per cent and 9.9 per cent of their turnover respectively in innovations. The German ICT services sector altogether encompasses approximately 15,000 businesses with five or more employees. In 2015, the sector generated a total turnover of around 169 billion euros and employed over 800,000 people.

The ZEW Sector Report on Innovation in the IT Services and Telecommunications Sector will be available for download on 26 January 2017 at www.zew.de/WS108.

For further information please contact:

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