German High-Tech Founders Quickly Show the Flag on the International Stage

Young German high-tech start-ups quickly take the risk of entering international markets. Within the first years after their foundation, 31 per cent of the start-ups alreadygenerate profits abroad. Start-ups which themselves are intensively committed to research and development (R&D) are especially successful, and are able to make use of their advantage, also on the international stage. But strategic preparation is a must. For 59 per cent of the start-ups that want to enter the international market, the efforts are fruitless. Usually, this is due to the insufficient planning of the internationalisation. The most important market for young German high-tech start-ups is Europe. But also Asian markets do have an increasing importance. These are the results of a current study conducted by the Centre for European Economic Research (ZEW) in Mannheim, Germany, in cooperation with Microsoft Germany.

The study shows that young high-tech companies which operate on the international stage are more successful than high-tech start-ups which did not or not yet enter the international market. Exporting high-tech companies generate more profits and grow faster. During the first business year, the profits of exporting high-tech companies are about three quarters larger than the profits of firms that do not export. And also the growth rate for profits with 66 per cent is about 14 percentage points higher than the growth rate of companies that do not export.

Start-Ups with Innovative Technologies Are More Successful on the International Stage

High-tech companies with intensive investments in R&D are better prepared for the global market, since technological lead creates competitive advantages for these starts-ups, and therefore they are able to succeed much faster on the international stage. The share of the exporting companies among start-ups with steady R&D efforts is 53 per cent and therefore clearly above the average of all high-tech start-ups (31 per cent).

“Innovative high-tech companies with their products “Made in Germany” make use of their possibilities on the global market and therefore create and secure jobs at home. With our entrepreneurship initiative “unternimm was”, we support high-tech starts-ups especially with the internationalisation”, explained Achim Berg, management board chairman at Microsoft Germany.

Strategic Preparation is Crucial

For that the step to the international market will be successful, a good preparation is crucial: “It is important to approach the internationalisation strategically. The management has to concentrate on the export activity, toaccumulate the right expertise, and to plan with the respective resources. Half-hearted attempts to conquer international markets will fail”, said Dr. Georg Licht, head of the ZEW Research Department “Industrial Economics and International Management”, commenting the research results. The study gives clear evidence for this. More than half of the exporting companies (59 per cent) are not able to generate profits abroad. Start-ups are especially successful if they simultaneously rely on different measures in order to conquer new markets. Besides visiting international fairs, this means for example to commit employees abroad, to adapt one’s products to foreign markets and to implement specific marketing strategies in the targeted regions. Too cautious efforts in these areas will let the internationalisation fail quickly. On the other hand, according to the surveyed start-ups, the costs of export activities for young high-tech companies are no obstacle for their internationalisation.

Europe is Target Number 1

The most important market for young exporting high-tech companies is Europe. German high-tech start-ups sell their products and services predominantly via direct exports within the European Union, or other European countries, and make about 76 per cent of all export sales. Nearly equal to North America (7,5 per cent) is Asia with a share of export sales of 6,8 per cent, where many companies seem to already start taking advantage of the emerging Asian markets.

A Successful Example from the Region of Munich

An example for how young high-tech companies manage to succeed on international markets is the company Metaio GmbH. Founded in 2003 in Munich – still the region with the greatest start-up activity in Germany, which was shown by a study of ZEW and Microsoft in May 2008 – metaio has built up a worldwide network of costumers und cooperation partners.

Metaio GmbH is a pioneer in the field of Augmented Reality (AR) technology. The high-tech start-up develops software products for visual interactive solutions within real and virtual worlds. Metaio has 45 employees at the three headquarters in Munich, San Francisco, and Seoul. Metaio is currently working for 140 prominent international costumers from different sectors and areas. The fundament of this international success, besides the technological superiority of the company, has been especially the intensive preparation of the market entry abroad, which has been supported by “unternimm was”: the creation of a solid network of partners, the strategic approach to the targeted markets, and active networking facilitated the entry to new markets in the USA and Asia.