Innovation Survey 2010 for Germany: Emerging From the Crisis With Drive

In spite of the severe economic crisis, German businesses have maintained their levels of innovation. Although innovation expenditures declined in 2009 for the first time in thirteen years, the decline was lower than the sales collapse and therefore innovation intensity increased. Innovation intensity is a measure of innovation expenditures as a percentage of total turnovers in all businesses. For 2010 and 2011, businesses are already planning higher innovation expenditures, which will almost return to the pre-crisis levels of 2008. These are the findings from the recently published Innovation Survey 2010 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, innovation expenditures of German firms dropped by eleven percent to 112.1 billion euros, reaching the level of 2005. The main reason for this decrease is the decline in investments in assets such as machines, software and patents by 22 percent compared with the previous year. In contrast, current innovation expenditures, which are composed of labour costs, material costs and other current costs, were only slightly reduced. The expenditures for Research and Development (R&D) basically remained the same.

The cutbacks in innovation budgets are a direct reaction to the economic crisis. Due to the largely declined capacity utilisation and the weak demand, new investments in more rational procedures and the production of new products became unattractive. Furthermore, the introduction of new products was deferred, which meant that no marketing expenditures for these products were necessary. However, innovation expenditures did not decrease as strongly as the whole turnovers and therefore innovation intensity increased from 2.72 to 2.74 percent. Especially the research-intensive industry (vehicle construction, mechanical engineering, electronics, chemicals/pharmaceuticals) increased investments continuously and its innovation intensity increased from 7.7 to 8.4 percent.

Increase in Innovation Expenditures 2010 and 2011 Planned

Innovation expenditures will increase in line with the economic recovery. Companies have budgeted for an increase in innovation expenditures by six percent for 2010 and by four percent for 2011 to 123.4 billion euros. This would mean that innovation expenditures would climb back nearly to 2008 levels (125.8 billion euros). It has to be taken into account that the budgeted figures were announced in spring and summer 2010, a time when the economic outlook was rather negative. Due to the significantly improved economic development in 2010 and the positive economic outlook for 2011, higher growth rates of innovation expenditures are likely.

Highest Innovation Rate in Chemicals and Pharmaceuticals Industry

The difficult market environment for innovations in 2009 is also reflected in the percentage of companies having introduced product or process innovations. In all economic sectors the so-called innovation rate dropped from 47.2 percent in 2008 to 42.4 percent in 2009. The innovation rate considerably differs between the individual economic sectors. As seen in previous years, the chemicals and pharmaceuticals industry was especially successful in establishing new products or processes. Other industries that attained high innovation rates were the electronics industry, IT and telecommunications, vehicle construction and mechanical engineering.

On the contrary, the innovation rate was especially low in the sectors transport, business services, waste disposal and wholesale trade. For 2010, a significantly higher number of companies budgeted for innovation activities and an increase in the innovation rate to 46 or 47 percent can be expected.

Share of Firms Engaged in Research Remains Stable

In 2009, around 30,000 firms in Germany (which have at least five employees and are active in the sectors surveyed) were engaged in continuous R&D activity. Compared with the previous year, this means that the total number of firms engaged in continuous R&D activity declined by 1,800 firms. However, the share of firms engaged in continuous R&D activity remained relatively stable at 11.6 percent compared to the peak of 12.1 percent in 2008 because the total number of firms also declined significantly in the crisis year of 2009. These results show that the willingness of small and medium-sized companies for continuous R&D activity is largely resilient to crisis.

Decrease in New Products’ Contribution to Turnover

In 2009, 12.6 percent of total turnover for all companies in Germany was brought in by newly-launched products. In 2008, this share was 16.3 percent. The decrease was especially noticeable in the research-intensive industries, where the share of turnover due to new products fell from 38 to 32 percent. The primary cause of this decrease is that, given the crisis-induced decline in demand, many firms postponed the introduction of new products.

Electronics Industry and Vehicle Construction Invest Highest Percentage of Turnovers in Innovations

As in previous years, the innovation intensity in 2009 was high in the electronics industry (9.6 percent), in vehicle construction (9.6 percent) and in the chemical and pharmaceutical industry (7.5 percent). Financial service providers and energy supply firms invested less than one percent of the sectors' turnovers into innovations.

For further information please contact

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