Innovations in the Services Sector: East Germany Successful in Trade and Traffic

East German companies in the trade and traffic industries, the so-called distributive service providers, are significantly more innovative than companies in West Germany. The share of innovative companies as well as the share of innovation expenditures relative to turnover is larger among distributive service providers in East Germany than among distributive service providers in West Germany.

This is the result of the current innovation survey in the services sector by the Centre for European Economic Research (ZEW), Mannheim, on behalf of the Federal Ministry of Education and Research.

In 1999, ZEW interviewed approximately 2,500 enterprises in the services sector about their innovation activities and projected the results for Germany. The survey shows that, in 1998, almost 19,000 East German companies in the trade and traffic industries introduced new or significantly improved services to the market. This corresponds to a share of 58 per cent of all companies in these industries. By contrast, the share of West German companies stands at merely 50 per cent. Besides, distributive service providers in East Germany invest a larger share of their turnover in innovation projects: an average of DM 14,000 per one million DM of turnover is spent on the development of new services. This is about twice the amount spent by companies in West Germany.

In comparison with West German firms, East German companies in the trade and traffic industries not only score well in terms of innovation input. They are also more successful in terms of innovations. It is true that they less frequently introduce fundamentally new services (market novelties) and rather expand their range of services by incorporating new technologies and service products that had already been introduced by third parties; however, East German distributive service providers are particularly successful when it comes to the implementation of cost-reducing processes. In 1998, they managed to save almost three per cent of their costs by introducing new processes. In the old federal states this cost reduction was less than two per cent. The results of the ZEW survey show that the widely shared view that companies in West Germany are innovative while companies in East Germany are still in the catch-up process is not entirely true. The dividing line does not stereotypically run along the border between East and West, but also between the individual sectors. Among business-related service providers such as consultancy firms as well as software and telecommunication providers, the share of innovative companies in the new federal states is indeed lower than in the old federal states. In the case of distributive service providers, however, the opposite is the case. Due to this heterogeneity of the services sector, it is difficult to allocate general government subsidies to companies that are actually in need of support. Funding based exclusively on the location is inappropriate as long as it benefits industries that already record intensive innovation activities. Subsidies granted solely in accordance with the economic sector, in turn, would neglect regional differences.

Contact

Günther Ebling, E-mail: ebling@zew.de