German Innovation Survey 2007 – Strongest Growth in Innovation Expenditures of German Companies Since 2002

Driven by the good economic situation, German companies have increasingly invested in innovation. In 2006, the innovation expenditures of the German economy saw a strong six per cent growth and amounted to 115.5 billion euros. For 2007, businesses are planning a further increase in their innovation budgets of over 5.5 per cent. Yet for 2008, companies only expect a relatively moderate increase of around 2 per cent.

The increase in investments has not affected the number of successful innovators yet. The share of businesses able to launch new products that penetrated the market has increased only slightly. These are the findings of the recently published German Innovation Survey 2007 conducted by the Centre for European Economic Research (ZEW), Mannheim, on behalf of the Federal Ministry for Education and Research and in cooperation with the Fraunhofer Institute for Systems and Innovation Research as well as infas – Institute for Applied Social Sciences (for further details, please see end of press release).

The economic upturn – reflected in an increased demand for high-end products – and the mounting pressure due to competition were the main reasons for the strongest growth in innovation expenditures since 2002. In all sectors of the economy, an increase in innovation budgets could be noted: In the industrial sector, expenditures for the development and introduction of new products grew by 4 billion euros and amounted to 82.8 billion euros in 2006, which equals a five per cent increase. The knowledge-intensive service providers also spent an additional five per cent (a total of 22.1 billion euros) on innovation. The remaining service providers allocated an additional 8.0 billion euros (11 per cent) to innovation. The boost in innovation budgets went hand in hand with an increase in turnover. Thus, innovation intensity, a measure of innovation expenditures as a percentage of total turnovers in all businesses, stays largely unchanged. In the industrial sector innovation intensity remains unaffected at 4.9 per cent. In the knowledge-intensive service sector it has risen slightly from 5.5 to 5.6 per cent.

Altogether, 2007 was a successful year with regard to the innovation activities of companies. Apart from the group of other service providers, all economic sectors expect a further increase in innovation expenditure, which has risen to 122 billion euros in total. For 2008, company predictions are relatively cautious: A slight increase to 124 billion euros is expected. While the industry and the energy sector predict a rise in expenditures by 3 and 9 per cent respectively, the service sectors believe that expenditures will be reduced (knowledge-intensive service providers: -2.5 per cent, other service providers: -5 per cent).

The increase in innovation expenditure in 2006 was primarily attributable to large companies with more than 500 employees. Small and medium-sized businesses from the industrial sector and the knowledge-intensive service sector did not increase their innovation expenditures due to the economic upswing in 2006. Their expenditures remained largely unchanged at 18.6 and 9.2 billion euros respectively. Only small and medium-sized enterprises (SMEs) from other service sectors increased their innovation budgets: a 10 per cent increase to 3.2 billion euros could be noted. SMEs from the industry and knowledge-intensive service sectors, which were regarded as the problem child of the German innovation landscape during the past years, send positive signals as well. For 2007, they expect a strong increase in innovation expenditure (+7 and +5 per cent). In 2008, this level is supposed to remain constant.

The share of companies having successfully introduced new products or production techniques (the so-called innovation rate) remained constant (46 per cent) in 2006. In the service sectors a rise in the innovation rate of other service providers (from 29 to 33 per cent) was offset by a fall in the innovation rate of knowledge-intensive service providers (from 55 to 52 per cent). In the industrial sector the innovation rate stayed unchanged at 58 per cent. The different development of innovation expenditures compared with the innovation rate can be explained by two facts: Firstly the innovation rate is mainly determined by the innovation activities of SMEs and secondly developing new products and processes usually takes several years. An additional 5 per cent of industry businesses and 3 per cent of knowledge-intensive service providers launched innovation projects but were not able to successfully finish them in 2006. For 2007 and 2008 the trend is toward stable to slightly reduced investments in innovation in both economic sectors. The other service providers are more optimistic; a slight increase in innovation activity can be expected.

In 2006 the innovation projects of German companies were more successful than in previous years. New products made up 19 per cent of overall turnover in the German economy – one percentage point more than in 2005. This increase is mainly attributable to the development in the group of other service providers, who were able to boost their turnover with new products from 6 to nearly 7.5 per cent. In contrast, the innovation success with new products of both industrial companies and knowledge-intensive service providers only increased by half a percentage point. Compared with the boom year 2000, companies generated a significantly lower share of turnover with new products in 2006. In the industrial sector, the share of turnover with new products was three per cent lower and in the group of other service providers it was one percentage point lower than in 2000. A similar development could be observed for the percentage of turnover generated with new products in the individual economic sectors. In 2006 the share was 6.5 per cent in the industrial sector and 4.7 per cent in the sector of knowledge-intensive service providers (banks and insurance companies not included), compared to 8.5 and 7.8 respectively in 2000.

Apart from the product range and the production process, organisational and marketing factors also influence the success of companies to a significant extent. Therefore, questions regarding the introduction of new marketing and organisational methods were included in the survey for the first time. In the industrial sector, 56 per cent of companies launched marketing innovations and 60 per cent introduced organisational innovations. These shares are slightly lower for the knowledge-intensive service providers (43 and 59 per cent) and the group of other service providers (38 and 43 per cent). In all economic sectors the share of companies with non-technological marketing and organisational innovations is higher than the share of companies with product and process innovations.

Press summary regarding the innovation survey

Since 1993, the Centre for European Economic Research (ZEW) has conducted an annual survey about innovation activity in the German economy. The German Innovation Survey is conducted on behalf of the Federal Ministry of Education and Research. In the 2007 survey, more than 10,200 businesses representing industry (manufacturing industries, including mining), knowledge-intensive services (computers and data processing, telecommunications, technical services, research and development, business services, advertising, banking, and insurance), other services (wholesale, transportation, postal services, cleaning, security, employment agencies, other business services, waste disposal), energy and water supply, and the media sector.

Contact

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

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