Innovation Indicator: Germany lags behind the global leaders and should give more support to small enterprises

21.12.2015

Germany is shortening the gap to Switzerland, which is still the international leader in innovation. The leading group is drawing closer together, while France and China are being left behind. In spite of many Hidden Champions in Germany, small and medium-sized enterprises only play a subordinate role in the national innovation system. They need better access to support programs, skilled workers from abroad and digital eco-systems according to the principle “Easy Access”.

These are the results of the innovation indicator 2015, compiled by Fraunhofer Institute for Systems and Innovation Research ISI in cooperation with the Center for European Economic Research (ZEW) on behalf of the National Academy of Science and Engineering acatech and the Federation of German Industries (BDI). “In an international comparison Germany can assert itself despite difficult world economic conditions. The gap between the global leaders is shrinking”, says Professor Marion A. Weissenberger-Eibl, Director of Fraunhofer ISI.

The innovation indicator 2015 shows that global competition in innovation is heating up. Switzerland is still the champion ahead of Singapore, but has lost points. Germany ranks fifth in a runners-up group, virtually on a par with Belgium and Finland. Other euro countries like France are losing ground. China is also falling behind due to stagnating exports and sluggish reforms in its science system and the economy. Germany’s strengths include high-tech exports, technology-based innovations and the close cooperation of science and industry. The education system remains a weak point despite visible signs of progress.

The President of the Federation of German Industries (BDI), Ulrich Grillo stated that “Germany must aspire to lead the competition in innovation. The government has to further improve the framework conditions for innovative, entrepreneurial behavior and invest even more in education and science.” The Innovation Indicator assesses the inter-departmental approach of the German government’s High-Tech strategy positively, but recommends impact assessments and more transparent criteria when allocating funds. “With regard to digitalization and Industry 4.0, there must be rapid broadband deployment and the emergence of a European digital, internal market,” according to Ulrich Grillo.

In higher education the federal government and the federal states should do more to coordinate their activities – with increasing investments, continuing research packages and therefore more long-term planning for universities. Young researchers need better opportunities to develop their own research profiles and more stable career paths. Overall education and science should continue to aim for excellence and be performance oriented. The skills shortage is becoming a risk. The recently published MINT Nachwuchsbarometer showed that fewer and fewer people are interested in technical careers.

Easy Access for small and medium-sized enterprises 

The indicator focused on small and medium-sized enterprises (SME). The good news: Almost every second Hidden Champion worldwide comes from Germany. However, overall SME play a minor role in the innovation system. SME invest only 16 percent of the funds for research and development from industry in Germany, which is below average. In South Korea, for example, it is 27 percent. Henning Kagermann, President of acatech – National Academy of Science and Engineering, “The poorer figures for SME are also a result of the many innovative large companies in Germany. We will only be successful in implementing Industry 4.0 if small and medium-sized companies are also involved. They therefore need better access to innovation programs and a skilled workforce“.

Innovation political programs should be oriented more towards SME. Few of them take part in government-funded programs because they lack the structures. Only every other SME can afford formal research and development in-house. Funding programs which are aimed at SME, however, prove to be an effective lever; the reason being that the weak resources of SME are at the same time matched with an exceptional strength in implementation. Often they bring innovations onto the market faster than large companies“.

Therefore the principle “Easy Access“ should also apply to SME as well as start ups. It starts with unbureaucratic application procedures for government-funding programs. In contrast to many other economies Germany does not have broadly effective tax-based R&D support. Simpler, supported bureaucratic procedures and lower thresholds for the gross annual income would offset the structural disadvantage of SME when recruiting skilled workers from abroad.

About the innovation indicator

The innovation indicator, which is published annually, is a comparative study on innovation strength.  It captures the conditions for innovation in Germany as an industrial location and compares them in a ranking in the areas of industry, science, education, governance and society as well as in an overall indicator with the globally leading industrial countries and emerging nations. This creates a basis for innovation political decisions. The innovation indicator is a cooperation of acatech – National Academy of Science and Engineering and the Federation of German Industries (BDI). The study is conducted by the Fraunhofer Institute for Systems and Innovation Research ISI in cooperation with the Center for European Economic Research (ZEW). The innovation indicator was initiated by the BDI together with the Deutsche Telekom Stiftung before acatech became a cooperation partner.

The publication can be downloaded at www.innovationsindikator.de.

The Fraunhofer Institute for Systems and Innovation Research ISI analyzes the origins and impacts of innovations. We research the short- and long-term developments of innovation processes and the impacts of new technologies and services on society. On this basis, we are able to provide our clients from industry, politics and science with recommendations for action and perspectives for key decisions. Our expertise is founded on our scientific competence as well as an interdisciplinary and systemic research approach.