Innovation in Germany: many strengths and some room for improvement

Germany is really a traditional innovation hub. It is not without reason that the ‘Made in Germany’ label is still regarded as a seal of approval in certain industries, which attests reliable, state-of-the-art technology and quality. This is paired with an academic system that is very strong by worldwide comparison and plays a prominent role in many disciplines: four Nobel Prizes in chemistry, just as many in physics and two in physiology or medicine won over the past 20 years alone, illustrate this very clearly. Globally speaking, however, various countries have picked up their pace, and the Federal Republic is struggling to keep up in the field of digital development in particular, despite its many strengths. Experts and representatives of the government are optimistic about the future, nevertheless, stressing that this can, must and will change. 

The Federation of German Industries (BDI) does not beat about the bush: the Federation’s president at the time, Dieter Kempf, warned of a downward movement in many areas and that Germany might be ‘left behind’, despite the fact that Germany reached an excellent fourth place – behind Switzerland, Singapore and Belgium – in the BDI’s 2020 innovation indicator ranking of the most innovative national economies. Is the situation really that bad for the Federal Republic? Professor Jakob Edler and Dr Rainer Frietsch of the Fraunhofer Institute for Systems and Innovation Research (ISI) that was involved in drawing up the referenced document among other activities, do not see things quite as critically.

‘Knowledge transfer is taking place to a high standard’

‘Germany has an innovation system whose subsystems are coordinated effectively and that works well with regard to task sharing,’ they say. ‘The economy has a strong focus on innovation, combined with a quality strategy and high willingness to invest. Exchange between the subsystems and knowledge transfer is also taking place to a high standard.’ However, they also point out some weaknesses: ‘Germans are generally associated with a certain risk aversion in society, academia and the economy, and investments tend to be made in more traditional areas, as a result,’ the two experts explain. ‘Adjustments to new technological challenges and changes to the competitive situation due to new participants are sometimes implemented too late, and scientific findings are not reflected sufficiently in new products and business models.’ However, they continued to say that this was due not so much to a transfer but to a commercialisation issue. 

'The conclusion reached with regard to the 2020 innovation indicator was mostly based on the fact that new and promising topics were not addressed quite as dynamically as could be observed around the world,’ Frietsch says. ‘This does not have to mean that we are less successful or that our prosperity is at risk. However, we are no longer a pioneering market as was still the case in many areas about 15 years ago. International competition is increasing, while technology cycles have become shorter. We must accept this fiercer competition and adapt to it, as it is not going to adapt to us ever again.’ 

The federal government is working on a new start-up strategy

The federal government has also recognised this development. ‘We cannot rest on our past achievements, but must increasingly promote young and agile enterprises. This must also involve removing certain obstacles,’ explains Anna Christmann, the federal government’s aerospace coordinator and commissioner for the digital economy and start-up businesses in the Federal Ministry for Economic Affairs and Climate Action (BMWK). ‘This includes the need to make some processes less bureaucratic, such as those that still make it relatively difficult to establish spin-off companies from higher education institutions. Further items on our agenda include simplifying visa applications and improving the infrastructure of higher education institutions. Among other things, we plan to start an excellence initiative for incubation centres.’ She continues to say that efforts are also being made to add programmes on the European level to the existing national start-up programmes such as EXIST and the high-tech start-up fund. 

The ISI speaks highly of the wide range of funding programmes available for start-ups. ‘We are doing quite well by international comparison,’ stresses Dr Marianne Kulicke, whose work focusses on state support offerings for young technology companies, in particular. ‘It should be highlighted that financial support here starts as early as in the preparation phase of a new business, rather than after it. Knowledge-intensive, innovative endeavours that do not require any further comprehensive development work can benefit from offerings on the federal and the state level. Applications are relatively likely to be approved. Things are more difficult, when comprehensive development work is still needed to achieve market readiness.’  

A new start-up strategy of the federal government that is currently being coordinated on the departmental level, might improve the situation further, especially for projects from the field of social entrepreneurship, which was granted particular importance. ‘Applicants should not look for public funding alone, however: there are now many business angels, early-stage funding providers, accelerators and incubator programmes in Germany that have a strong interest in innovative ideas that emerged in the context of the digital transformation or the challenges of climate change,’ Kulicke points out. ‘17.4 billion euros of venture capital were invested into start-ups in 2021 this way.’ 

Five to eight years to success

The necessary contacts are often established through the more than 350 incubation centres in Germany, which have helped close to 50,000 businesses to succeed to date. ‘Life sciences and AI are particularly strong topics at the moment, but any good idea ultimately stands a chance,’ says Andrea Glaser, Managing Director of the German Association of Innovation, Technology and Business Incubation Centres (BVIZ). ‘The Covid-19 pandemic did not change anything in this regard, quite the contrary: business establishment activities remained on a rather stable level and even increased in some areas.’  

The rule that employees had to work from home may also have contributed to people focussing on their own ideas increasingly. ‘Many start-ups are founded by people who have worked in a certain field for a long time and would like to introduce a new product or service, but who do not see a perspective for this in their previous working environment,’ Glaser explains. ‘In addition to this there are, of course, many innovative ideas from the academic sphere, and this works quite well in Germany. Many higher education institutions have their own incubation centres by now. However, these can only offer support for starting one’s own business up to a certain point. The members of our association often take over from there: innovation and incubation centres with comprehensive networks.’