Innovation Survey 2009 for Germany: Innovation Expenditures Drop After Record High in 2008 – Investments in R&D Mostly Unaffected

Firms in Germany curb expenses for innovation due to the economic crisis. After the innovation expenditures increased to a high level of 128.1 billion euro in 2008, a decline by ten percent in 2009 and stagnation on this considerably lower level are to be expected in 2010. Good news is, however, that firms have largely spared the investments for Research and Development as they are especially important for the long-term competitiveness. These are the findings from the recently published Innovation Survey 2009 for Germany. The survey is conducted by the Centre for European Economic Research (ZEW) in Mannheim in collaboration with Fraunhofer Institute for Systems and Innovation Research and infas (Institute for Applied Social Sciences) by a mandate of the Federal Ministry for Education and Research.

In 2009, firms plan to spend only 114.5 billion for innovation projects. This is a decrease of eleven percent compared to 2008. The innovation expenditures therefore drop below the level of 2006. Reason for this is the severe economic crisis which affects firms in form of decreasing demand and profits. At the time the survey was conducted in summer 2009, a declining willingness for innovations could be seen, especially in the export industry – particularly in mechanical engineering, wood and paper industry, rubber and polymer processing. A change in 2010 is not likely. It is possible that the innovation budget will stay at the same reduced level as in 2009.

The cutback of the innovation budget was smaller than the decline in profits. Compared to 2008, the profits in the industry decreased by 18 percent, the innovation expenditures only decreased by ten percent. Especially the expenditures in Research and Development probably will stay the same in 2009 because they are important for the long-term competitiveness. Huge declines can be expected for investments in new or improved manufacturing plants. Due to the largely declined capacity utilisation, most firms considerably cut back their investment expenditures in this sector. Innovation expenditures for the marketing of new products are also to decline. In total, the decline of innovation expenditures is due to the economic development. A general weakness of the German economy to invest in the future cannot be seen.

Especially Small and Medium-Sized Firms Affected by Cutback of Innovation Budget

The decline of the innovation budget has been considerably large for small and medium-sized firms with less than 500 employees. Small and medium-sized firms plan to lower their innovation expenditures by 21 percent from 33.4 billion euro in 2008 to only 26.5 billion euro in 2010. This is a decline to a level that was undercut at last in 1997. Large firms also plan to spend less on their innovation expenditures in 2009 (86.8 billion euro compared to 94.7 billion euro in 2008). However, they plan to invest more again in 2010 (88.2 billion euro). The large cutbacks in small and medium-sized firms are due to the fact that innovation activities largely depend on firms’ internal financial resources. The collapse of profits leads to a withdrawal of available means for innovation projects in many firms. Replacing equity by bank loans is hardly possible on short notice, mainly because banks are reluctant to grant new loans for risky projects. For now many small and medium-sized firms also stopped investments in new manufacturing technologies, which are an important item in the innovation budget, due to the largely declined capacity utilisation.

Innovation Expenditures on Record High in 2008

In 2008, the firms’ innovation activities benefited from the good economic conditions until the middle of the year. The strong demand for improved products and the severe competitive pressure lead to a large expansion of the innovation budget. However, only the research-intensive industry was responsible for the growth, especially vehicle construction, mechanical engineering, and the electric industry. The innovation expenditures in the research-intensive industry rose by 6.5 billion euro. This is an increase of nine percent. Other industrial firms could only increase their innovation expenditures slightly by 0.4 percent. In the service sector, especially in finance services, wholesale, and transport, the innovation expenditures decreased considerably. In the economic sector of the other services, the innovation expanditure declined by 14 percent to 8.2 billion euro. The innovation budget in the economic sector research-intensive services was 21.6 billion euro in 2008, 1.1 billion euro less compared to the year before. This is a decline by more than five percent.

More Firms Successful with Product and Process Innovations

The increase in innovation expenditures in 2008 is reflected in an increasing number of firms which were successful with product and process innovations on the market. In all economic sectors, the so-called innovation rate increased by 3.5 percent to 47 percent compared to the previous year. In the research-intensive industry, 78 percent of firms were successful in introducing new products or processes to the market. This is mainly because of the strong innovations in the chemical and pharmaceutical industry and the electrical industry and mechanical engineering.

Vehicle Construction Invest Highest Percentage of Turnovers in Innovations

The innovation intensity, the percentage of innovation expenditure at the whole turnovers of all firms, decreased slightly in 2008 to 2.6 percent, compared to 2.7 percent in the previous year. This percentage varies considerably, depending on the sector. In 2008, the percentage of the sector’s turnovers used for innovation projects was about 8.5 percent in vehicle construction and 7.2 percent in the electrical industry. There were high percentages in the IT and telecommunication sector as well as chemical and pharmaceutical industry. Financial service providers and energy supply firms invested less than one percent of the sectors’ turnovers into innovations.

16.8 percent of all firms’ turnovers in Germany were earned with newly introduced products. In 2007, this percentage was 16.3 percent. In the research-intensive sector, 38 percent of turnovers were made with new products (39 percent in 2007). Other industrial firms report eleven percent, a stable percentage of turnovers for product innovations. The percentage for knowledge-intensive service providers stayed the same at 13 percent. Other service providers reported an increase to seven percent (five percent in 2007).

In 2008, the German economy was able to save costs of about 3.9 percent per piece by means of process innovations. The research-intensive sector even had savings of 5.2 percent; the knowledge-intensive service providers saved 5.0 percent. Smaller successes in cost savings could be seen in the other sectors (3.4 percent). Other service providers stood below the whole economy’s level at 2.1 percent.

For further information please contact

Dr. Bettina Peters, Phone: +49 (0)621/1235-174, E-mail: b.peters@zew.de