Innovation Survey 2006: German Industrial Companies Are the Most Innovative Companies in Europe

In 2005, German companies spend 106.8 billion euros in innovation. One year later, this amount increased to 108.1 billion euros. Similar innovation expenditure is expected for 2007.

The innovative strength of German companies is leading not just on EU-level, but also on an international level (in comparison with Asian industrialised countries such as Japan or South Korea). In no other European country is the proportion of industrial companies that have successfully concluded innovative projects as large as in Germany. Even in terms of sales generated through new products, the German economy ranks first among European countries.

The top position of the German economy in Europe is not least based on the high innovativeness of small and medium-sized enterprises (SMEs). In Germany, there are significantly more SMEs launching new products and improving their production efficiency via new processes than in other countries. Therefore, innovation can be considered a central element for Germany’s successful export performance, next to the reduced unit labour costs compared to international standards. These are the findings of the German Innovation Survey 2006 conducted by the Centre for European Economic Research (ZEW) in cooperation with the Fraunhofer Institute for Systems and Innovation Research and infas (Institute for Applied Social Sciences) on behalf of the Federal Ministry for Education and Research.

It would be disastrous for the German economy to rest on its innovation successes since the leading position in innovation requires constant great efforts in developing and realising new products and production techniques. Germany’s success is marked by one setback and that is the slowing down of innovation efforts, which has also been revealed by the study. The companies do not consider a new innovation boost in 2007 very likely. In particular, the innovation performance of the German economy is assessed as follows:

- The share of enterprises successfully introducing innovations in the total number of companies (rate of innovators) decreased from 47 per cent in 2004 to 45 per cent in 2005. In 2006, an increase back to the value recorded in 2004 can be expected. At the date of the survey (the first half of 2006), the companies’ forecasts for 2007 were rather restrained. A further growth is not to be expected.

- In 2005, innovation expenditure rose a nominal five per cent to 106.8 billion euros. This roughly corresponds to the sales growth lying at four per cent. For 2006, the companies expect only a slight increase by one per cent to 108.1 billion euros and for 2007, a stagnation of the innovation budget (107.7 billion euros). It is yet impossible to forecast to what extend the exceptionally good sales performance in the second half of 2006 may result in revising the initial plans for 2007.

In 2005, the industrial branch recorded innovation intensity of 5.0 per cent, the share of innovation expenditure in the total revenues of all companies, and thus has remained on the previous year’s level. Due to the positive sales performance, a decrease to 4.6 per cent is expected for 2007. The knowledge-intensive service providers were able to increase this measure to 5.4 per cent in 2005. However, the companies’ forecasts for 2007 are rather pessimistic in this sector as well.

The turnover share generated by new products slightly increased, averaged over all sectors. The industrial companies recorded a slight growth to 27.3 per cent (25.9 per cent in 2004) and the knowledge-intensive service providers were able to generate 13.8 per cent of their overall sales (11.8 per cent in 2004) by introducing new services. In other service sectors, this quota dropped from 7.3 per cent in the previous year to 6.1 per cent in 2005.

The turnover share generated by products being new to the market has decreased as well. This crucial indicator signals to what extent a company can successfully launch original product innovations no other company has ever offered before. In the industrial sector, about six per cent of the overall turnover was generated by new products in 2005. From 1998 to 2002 this quota had ranged at about eight per cent.

In spite of their rather low dynamism regarding innovations, German companies still hold the leading position in Europe. These are the recently published results of the fourth European innovation survey (the figures of this survey referring to Germany diverge from the values calculated for the national statistics as the EU statistics only take account of companies with at least ten employees. Furthermore, the “industry sector” also includes energy and water supply. The different service sectors, in contrast, are more enclosed. The figures of the European innovation survey refer back to the year 2004).

- Concerning the rate of innovators, German industry clearly ranges first. In the service sector, only the Luxembourg economy indicates a slightly larger proportion of successful innovators.

- The innovation intensity of the German industry is merely beaten by Sweden. Displaying a share of innovation expenditure out of total turnover of 1.2 per cent, German service providers rank fifth on a European level.

- At 24 per cent, German industrial companies generate the highest turnover shares introducing new products in comparison with all 15 EU countries. The German service providers take the fifth place following Luxembourg, Great Britain, Italy and Spain.

In view of the innovation figures for Japan and South Korea, the German economy is clearly ahead of its East Asian competitors. Corresponding figures for the United States are not available.

German 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 under a mandate from the Federal Ministry of Education and Research. In the 2006 survey, more than 20,000 businesses representing manufacturing industries, 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(0)621/1235-184, E-mail: rammer@zew.de