ZEW Innovation Survey 2019 – German Firms Increase Innovation Expenditure
Research
04.02.2020
But Companies Lack Skilled Workers and Financial Resources
The German enterprise sector continues to invest in innovations. In 2018, for example, the German companies increased their innovation expenditures by 4.1 per cent to 172.6 billion euros compared to the previous year. However, the innovation efforts of companies are currently held back by two major obstacles: First, there is a lack of qualified staff. In 2018, more than one in three companies had to forgo innovation activities, discontinue them prematurely or postpone them due to a shortage of skilled workers. The second major obstacle are missing internal and external sources of financing. One in four companies reported a lack of internal funding for innovation and one in five are unable to find suitable external funding sources.
These are the main findings of a recent survey on the innovation behaviour of German businesses carried out by ZEW Mannheim on behalf of the Federal Ministry of Education and Research (BMBF). The survey has been conducted annually in collaboration with the infas Institute for Applied Social Sciences and the Fraunhofer Institute for Systems and Innovation Research (ISI) since 1993.
German Research Minister Anja Karliczek commented on the publication of the innovation survey: “Germany is a country of innovation. The ZEW report confirms this yet again. The innovative strength of the German economy remains undiminished. Corporate spending on innovation continued to rise in 2018, and fortunately this trend showed particularly strong in small and medium-sized enterprises, which are the centrepiece of our economy. We will continue to boost this innovative strength of German companies. The newly introduced tax incentives for research and development will significantly increase financing opportunities, especially for SMEs. With the Agentur für Sprunginnovationen recently established by the BMBF to support disruptive innovations, we want to ensure that in the future ground-breaking science findings are turned into successful products for our companies on the world markets.”
“However, the results of the innovation survey also show that the shortage of skilled workers poses a major challenge for companies. In order to maintain Germany’s competitiveness as a location for business, we must ensure that a sufficient number of qualified workers is available. By providing funding under the Upgrading Training Assistance Act (AFBG), we make an important contribution to securing skilled workers by supporting people interested in further training who aim to develop their careers. And with this new funding programme, which will come into force on 1 August 2020, we are supporting career development as never before by providing higher grants, higher allowances and step-by-step support up the career ladder, even all the way to master’s degree. In addition, the BMBF is further expanding the range of advisory services for recruiting international skilled workers by funding a Central Service Agency for the recognition of professional qualifications. Recruiting skilled workers from abroad is an important element of the federal government’s strategy to remedy this shortage,” Karliczek added.
Skills shortage inhibits innovation activities
In the years between 2016 and 2018, around 34 per cent of all companies in Germany experienced difficulties in carrying out innovation activities due to the lack of skilled workers, marking a negative record for Germany. In the period from 2012 to 2014, only 22 per cent of the companies had reported difficulties in implementing innovation projects due to the shortage of skilled workers, and in the years 2004 to 2006, this share was only ten per cent. The electrical industry, mechanical engineering and IT services are particularly affected by this development, but less innovation-oriented sectors such as the consumer goods or metal industries are also facing difficulties. “With regard to investment in innovation, companies are currently hampered more by the lack of skilled labour than by the costs or risks involved,” explains Dr. Christian Rammer, deputy head of the ZEW Research Department “Economics of Innovation and Industrial Dynamics” and project leader of the ZEW Innovation Survey.
Another major obstacle to innovation is the lack of internal and external financing sources for companies. It is remarkable that the current situation – after a short recovery phase between 2012 and 2014 – is almost identical to that during the crisis years 2008 to 2010: Currently 24.5 per cent of the companies cite the lack of adequate internal financing sources as an obstacle to their innovation activities, and 19 per cent state that they are missing external financing for their innovations.
Services spur increase in innovation expenditure
Despite these obstacles, spending on innovation in the German economy in 2018 experienced a further increase compared to the previous year (2017: 166.9 billion euros), rising to 172.6 billion euros. “This growth corresponds almost exactly to the target figure of 172.5 billion euros set in the previous year,” says Rammer. For 2019, companies in Germany have estimated a slightly weaker increase in innovation expenditure, namely by 3.6 per cent to a total of 178.8 billion euros. For 2020, companies are planning to moderately increase their innovation spending to 182.3 billion euros. Among the individual industries, the services sector has emerged as a driver of innovation. In this sector, innovation expenditure increased unusually strongly by 11.8 per cent to 40.5 billion euros – a development that is expected to continue with a further increase of seven per cent to 43.4 billion euros in 2019. This growth is mainly driven by the areas of consulting and advertising, technical services and information and communication services.
In contrast, innovation expenditure in the manufacturing industry in 2018 rose only slightly by 1.9 per cent to 132 billion euros, with energy and water supply, and waste management (plus 41 percent) showing the highest increase. “This is probably due to the additional efforts made by companies with regard to the energy transition,” explains Rammer. Growth was also recorded in the processing of other materials (nine per cent), mechanical engineering (eight per cent), the electrical industry (five per cent) and the automotive industry (four per cent).
As in the previous year, SMEs increased their innovation expenditure relatively strongly by 5.2 per cent, while large companies recorded a lower increase of 3.9 per cent. However, a reversal of these trends is expected in 2019 and 2020.
Innovation intensity continues to increase
The share of total turnover of the German economy spent on innovation – the so-called “innovation intensity” – increased for the fourth time in a row, reaching a new record high of 3.3 per cent in 2018. At 4.9 per cent, the innovation intensity in the manufacturing industry is significantly higher than in the services sector (1.6 per cent), but the latter recorded stronger growth. In 2018, the electrical industry continues to top the list with an innovation intensity of 11.1 per cent, followed by the automotive industry (10.1 per cent), technical services (8.3 per cent), the chemical and pharmaceutical industry (8.2 per cent), information and communication services (7.4 per cent) and mechanical engineering (5.9 per cent).
Turnover generated through product innovations, i.e. total market novelties including imitations, amounted to 759 billion euros in 2018, about five per cent less than in the previous year. However, German companies were able to increase the turnover generated through market novelties, i.e. product innovations that had not been introduced by another company before, to a total of 177 billion euros. This corresponds to a 4.4 per cent increase compared to 2017. In 2018, turnover generated through product innovations accounted for 14.4 per cent of the total turnover of all economic sectors and company sizes covered by the innovation survey.
As of the reporting year 2018, the definition of innovations was adapted to the new internationalstandard. In particular, process innovations were defined more broadly than before and the recording of innovations in connection with digitalisation was improved. “As a result, significantly more companies are now counting as innovators, namely almost 181,000,” says Rammer. Based on this new definition, the so-called innovator rate, i.e. the share of companies that have introduced new or improved products or processes, is 60.5 per cent.