Number of Innovative German Firms Increases

A trend reversal is likened regarding the German industry's innovation behav-iour. The share of industrial firms investing in new products or processes has once again increased a great deal in the "year of innovation" 2004 from 59 to 65 percent after it had already gained in the year 2003 for the first time in three years.

For 2005 firms are somewhat cautious however: The share of firms innovating will presumably not increase further. The business related service provid-ers were more optimistic again as well in the year 2004 and place an emphasis on innovations. Thus the share of firms with innovation activities which ranged at 57 percent in the year 2003, increases to 61 percent in the year 2004 and pre-sumably to 62½ percent in the year 2005. This is the result of the present innova-tion survey by the Centre for European Economic Research (ZEW), Mannheim, on behalf of the Federal Ministry of Education and Research. For the largest innovation monitor in Germany the ZEW has surveyed 8.000 firms from the manufacturing and the service sector.

Since the year 2000 the firms' participation in innovation activities had been gradually declining. This was at first due to shortages in highly-qualified labour, and since 2001 the worldwide recession and concurrent stagnation of the German economy have created unfavourable conditions for innovation activities. That the firms look to the markets with more confidence and place greater em-phasis on innovations since the year 2003 is to a great part indebted to the worldwide economic recovery and the therefore booming exports of German firms. At the same time the innovation activities have shifted towards process innovations. The increase in innovation activities is mainly attributable to firms that have introduced new processes. An important motive therein is the ration-alization of processes to drive down costs and meet the pricing pressure.

Innovation expenditures of the German economy as a whole have reached 96.1 billion euro in 2003, which was 2 percent more than in the previous year. 2001 and 2002 growth rates were however, at 4 and 6½ percent, respectively, signifi-cantly higher. For the year 2004 the numbers indicate a further nominal increase of well around 1 percent. 2005 the innovation expenditures are presumably to increase once again marginally by 0.7 percent and reach 98 billion euro. The innovation expenditures of the manufacturing firms in the year 2004 slightly increased by 1 percent up to 71.8 billion euro. 2003 the increase had still been at 5 percent. In the year 2005 the innovation expenditures are to increase by about 2.5 percent. After the innovation expenditures of the business related service providers had still declined by 10 percent to 15.4 billion euro in the year 2003, they increased in the year 2004 by 5.5 percent to reach 16.3 billion euro. In the year 2005 they are presumably to decrease again by 4 percent.

The raised innovation efforts by the German economy are met by a decreasing direct return on innovations. The turnover share in German manufacturing gen-erated by new products dropped from 30 percent (2000) to 25 percent in the year 2003. Business related service providers generated but 16 percent of turnover with new products in 2003, compared to still 23½ percent in the year 2001. The same picture presents itself regarding the process innovations: The reduction of costs obtained with the aid of new processes decreased in manufacturing from about 7 percent in each of the years from 1997 to 1999 to 4½ percent in the year 2003. For the business related service providers the decline, ranging at an overall lower level, is less significant in the year 2003 (4 percent after 5 percent in each of the years 2001 and 2002).

Small and medium-sized enterprises remain woefully underrepresented regard-ing the innovation dynamics. The share of innovative firms is significantly be-low that of large enterprises and was lower yet by about 10 percentage points in the year 2003 compared to 1999. While large enterprises consistently extend their innovation expenditures, the dynamic of expenditures by small and me-dium-sized enterprises is reserved. The industrial firms among the small and medium-sized enterprises spent 16.5 billion euro on innovations in the year 2003. While this is a slight increase compared to the year 2002 it is, however, still significantly lower than in each of the years 1998 and 1999, when innova-tion expenditures amounted to well around 18 billion euro. For the year 2004 a decline to 15.8 billion euro is to be expected and for the year 2005 the target figures point downward as well. The situation is more positive however in the small and medium-sized enterprises of the business related service providers: There the innovation expenditures reached a record high at 8.4 billion in the year 2003. In the year 2004 a further increase to 8.6 billion is to be expected. For the year 2005, however, the small and medium-sized enterprises of this sector as well are still reserved. The target figures for innovation expenditures are allotted at no more than 7.9 billion euro.

Contact

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