Highly Populated Areas Are Leading Forces of the German High-Tech Sector

Frankfurt (Main) does not only make its name as Germany’s financial capital but is also a leading force when it comes to high-tech start-ups in Germany. This is the finding of a recent study conducted by the Centre for European Economic Research (ZEW) in cooperation with Microsoft Germany. According to the study, Frankfurt shows particularly high start-up intensity in the high-tech sector. There are more than four high-tech founders (4.17) for every 10,000 employed people. Frankfurt is followed by Munich (3.88), Düsseldorf (3.79) and Hamburg (3.75). With these results, the study confirms the unrivalled position of highly populated areas in Germany as leading forces in the whole high-tech start-up scene. Still, the majority of German regions registered an ongoing decline of start-up intensity.

The regional environment plays a vital role for start-ups in the high-tech sector. "Highly populated areas benefit from a great knowledge infrastructure with universities, polytechnics and students in the fields of mathematics and natural sciences, the proximity to numerous clients and a great communication infrastructure," says Dr. Georg Licht, head of ZEW research department "Industrial Economics and International Management". He continues: "The regional distribution of high-speed internet access also has a verifiable effect on the start-up activities in the high-tech sector, particularly for technology-oriented service providers and the software sector".

Targeted promotion instead of inefficient dispersal of funds

"Cities like Frankfurt, Munich, Düsseldorf and Hamburg are successfully acting as leading forces of the German start-up landscape. These highly populated areas have been pulling other regions along and have thus been strengthening the national high-tech sector," explains Ralph Haupter, Chairman of the Managing Board Microsoft Germany. "To accelerate this effect, we need more selected investments for fostering IT clusters instead of distributing money in a non-selective way. The ICT site Germany can reach the greatest progress by this. To accelerate the growth of ambitious start-ups, Microsoft Germany fosters young firms in the high-tech sector with know how, networking with 30,000 partner firms as well as marketing and trade in its start-up initiative "unternimm was" ("found a company")".

"Behind the success of Munich, which has been standing on a top rank for years when it comes to regional development of the high-tech start-ups, is a selected fostering of clusters," confirms Dr. Carsten Rudolph, of "Münchner Business Plan Wettbewerb". The basis is an outstanding higher education and research sector, a good infrastructure, numerous qualified employees and the targeted promotion in every phase of the start-up activity. The support, as provided by Microsoft through its start-up initiative, is an exemplary addition to existing programmes. As a global player, Microsoft can provide particularly valuable help for start-ups in the phase of growth and internationalisation."

General decline in start-ups – Microsoft calls for start-up law

In spite of these positive results in highly populated areas, the overall situation does not look very bright for German high-tech start-ups. In the past years, start-up intensity has declined in the high-tech sector in most German regions. Compared to 2002 to 2005, start-up intensity fell by five to twenty percent in many regions from 2006 to 2009. In some areas start-up intensity even fell by more than twenty percent. This development is confirmed by the results of a study depicting high-tech start-ups published by ZEW and Microsoft Germany in 2010. The study shows that with 14,000 start-ups, the number of high-tech start-ups is still on the lowest level since the mid-1990s.

"In order to promote start-ups in the high-tech sector more effectively, additional impetus from the field of politics is needed. We need a start-up law in Germany, which provides improved access to venture capital for founders of companies, creates incentives for angel investors and improves tax incentives for research," says Ralph Hauptner. "Furthermore, we should promote a culture that encourages start-ups, reduces the fear of failure and awakes the entrepreneurial spirit early in pupils and university students".

Background of the study

In 2009, around 205,000 companies (with higher economic activity) were founded in Germany. Around 14,000 of these companies were founded in the high-tech sector. Start-up activity varied widely between different regions. The study analyses founding activities on the level of IHK districts (IHK: Chamber of Industry and Commerce) in Germany between 2002 and 2009. The analyses are based on data from the Mannheim Enterprise Panel (MUP). The intensity of foundation activities is measured as the number of start-ups in the IHK district by 10,000 inhabitants of working age (18 - 65). Since 2006, ZEW has been conducting studies in cooperation with Microsoft.

Increasing start-up intensity: the winners of the study

• The highest increase of high-tech start-ups during the last four years was determined for the region Oberfranken-Bayreuth (plus 27 percent). Positive developments were also registered in Frankfurt (plus 6 percent), Düsseldorf (plus 5 percent) and Dortmund (plus 4 percent).

Declining start-up intensity

• East German IHK districts in Mecklenburg-Western Pomerania and central Germany continue to fall behind on overall high-tech start-ups. The decline in start-up intensity is very strong. Changes in the start-up intensity from 2006 to 2009 compared to 2002 to 2005: Rostock -26 percent, Neubrandenburg -25 percent, Südthüringen -33 percent, Halle-Dessau -21 percent, Magdeburg -20 percent, Leipzig -23 percent.

Evergreens

• In IHK districts such as Munich and Upper Bavaria as well as Darmstadt-Rhein-Main-Neckar the start-up activity remains unchanged at a high level, although strong declines can be registered in the reference periods.

• Munich and Upper Bavaria: start-up intensity 3.9, change -13 percent; Darmstadt-Rhein-Main-Neckar: 2.8, change -24 percent.

For further information please contact

Dr. Diana Heger, E-mail heger@zew.de