Germany Gets a "C" in Innovation

Germany takes an impressive second place when it comes to the number of patent applications. With 18.6 percent of the world's patents, they trail only the US. But many of these patent ideas are being shelved; fewer and fewer are actually making it to production. Germany apparently has a problem with implementing, concluded a joint study conducted by the Institute of German Business and the Roman Herzog Institute.

"Employment patterns are linked to product innovation," said Michael Hüther, director of the Institute of German Business. "This can be observed in many key areas of industry, such as in the metal and electric sectors, where there are revenue-winners that lead to new markets and customer segments."

Lack of investment

Nevertheless, German companies are investing too little in research and development, in part due to the risk involved. Former President Roman Herzog, honorary chairman of his namesake's institute, reported that 0.22 percent of the US's gross domestic product was available to finance risk-friendly companies, but that in Germany only one seventh of this amount was on hand.

"Many good ideas that are patented for the global market develop into weak, unmarketable products because the funding doesn't come through or isn't sufficient," Herzog said.

Bringing a prototype to production isn't exactly cheap -- specialized personnel, new production processes and expensive marketing are all required. Small and mid-sized companies in particular shy away from the high costs.

"Mid-sized companies are not as active in research and development as large companies," Hüther said. "Only every seventh company focuses on R&D. But when they do, then they go about it with the same structure and logic as the large corporations."

Regional differences

The study also revealed that research and development is approached differently in various regions of Germany. So-called "innovation clusters" have developed within certain geographic areas, which offer a networking advantage. Not surprisingly, the regions with innovation clusters also attract the most qualified experts.

"They don't only want to know about the tax situation for research and what subsidies are available, they also want to know where the nearest opera house or golf course is, where they can go sailing, what the quality of life is like there," Herzog said. "And that is a very strong force behind the formation of these clusters, which we are now observing. Proximity to colleges and universities also comes into play."

A step in the right direction

These innovation clusters should be receiving more explicit support, according to former President Herzog. Along these lines, the study has suggested making R&D expenditures tax-deductible. But most importantly, a greater effort needs to be made to secure more funds.

"Macroeconomic research and development expenditures must be increased by more than 10 million euros ($12.8 million)," Herzog said. "In other words, they need to be 20 percent higher by the year 2010."

The German government is ready to take the first step. Economics Minister Michael Glos is to present a "high-tech strategy" for Germany in the coming months, which stipulates that the government will invest six million euros in research and innovation in the next four years.