Innovation Indicator: the gap to the leaders is shrinking

Despite many hidden champions in Germany, small and medium-sized enterprises play a minor role in our innovation system.

Germany is making up ground on the leader Switzerland in the international innovation competition. In general, the leading group are clustering closer together, whereas France and China are dropping behind the top bunch. This is the result of the Innovation Indicator 2015 from acatech and BDI. Despite many hidden champions in Germany, small and medium-sized enterprises play a subordinate role in the country’s innovation system. They need better access to promotion programmes, to skilled personnel from abroad and digital eco-systems based on the “easy access” principle.

Germany must expect itself to take a place at the top table

The global innovation competition is turning into an ever closer race, as is demonstrated by the Innovation Indicator 2015. Switzerland is still in the number one spot, followed by Singapore, but has dropped some points. Germany is in fifth place in the pursuing bunch, practically level with Belgium and Finland. Other euro countries, such as France, are dropping behind. China is also lagging behind on account of flagging exports and tardy reforms in the science system and in the economy. Germany’s strong points include high-tech exports, technology-based innovations and the cooperation between scientific research and industry. Despite noticeable progress, the education system remains a weak point.

“Germany must lay claim to the top spot in innovation competition”, said BDI President Ulrich Grillo. “For this aim the politicians must continue to improve the framework conditions for innovative entrepreneurial activity and invest still more in education and science.” The Innovation Indicator gives a positive evaluation of the interdepartmental approach of the Federal Government’s high tech strategy yet also recommends impact studies and more transparent criteria in the award of state funding. “Taking digitization and industry 4.0 into consideration, the expansion of the broadband network must be speedily advanced and a digital European single market must come into being”, said Ulrich Grillo.

In higher education the Federal Government and the regional states should improve coordination – together with providing rising investment, continuation of research packages and the consequent planning security for universities. Young scientists and researchers need better opportunities for developing their own research profiles and more stable career paths. In general, education and research should continue to be oriented to excellence and high performance. The lack of specialists is developing into a risk factor: interest in technical occupations is still declining, as is illustrated by the recently published MINT barometer of young people in such professions.

Easy access for small and medium-sized enterprises

A main focus of the indicator was on small and medium-sized enterprises (SMEs). The good news: nearly one in two hidden champions around the world comes from Germany. However, on the whole SMEs play a subordinate role in the innovation system. Only 16 percent of the funds spent by industry in Germany on research and development are invested by SMEs, a below-average figure. In South Korea, for example, it is 27 percent. Henning Kagermann, president of acatech – the German National Academy of Science and Engineering: “the poor figures for SMEs are also a result of the fact that there are many innovative large companies in this country. However, the start into industry 4.0 will only be successful if small and medium-sized enterprises also pull their weight. To do so they need improved access to innovation programmes and to staff with the required skills.” Programmes of innovation policy should be designed to suit SMEs better. One reason why the latter participate in state subsidised programmes less frequently is that they lack the structures for them. Only one in two SMEs actually allows itself to run its own formal research and development department. Yet promotion programmes targeted at SMEs prove to be an effective lever since the lack of resources of SMEs goes hand in hand with a strong performance in implementation. They often launch innovations on the market more rapidly than big concerns.

The principle of “easy access” should therefore apply to both SMEs and start-ups. This begins with non-bureaucratic application procedures for state promotion programmes. In contrast to many other national economies, Germany also lacks wide-ranging and effective tax-related R&D promotion. Simpler and assisted bureaucratic processes together with lower thresholds for gross annual salary would offset the structural disadvantage of SMEs in attracting skilled personnel from abroad.

The Innovation Indicator

The Innovation Indicator, which is published annually, is a comparative study of innovation capacity. It covers the conditions for innovation in Germany as an industrial location and compares them in a ranking in the areas of industry, science, education, state and society as well as in an overall indicator with the world’s leading industrial nations and emerging countries. This provides a basis for decisions on innovation policy. The innovation indicator is the product of co-operation between acatech – the German National Academy of Science and Engineering - and the Federation of German Industries (BDI). The study is compiled by the Fraunhofer Institute for Systems and Innovation Research (ISI) in cooperation with the Centre for European Economic Research (ZEW). The Innovation Indicator was initiated by the BDI jointly with the Deutsche Telekom Foundation, before acatech became the cooperation partner in 2015.