National Innovation System (NIS) from Germany. An Analysis

Table of content

Table of content

1. Introduction

2. The creation and diffusion of innovation within the German NIS
2.1 Joint industry activities in Germany
2.2 Public and private interactions
2.3 The diffusion of technology
2.4 Education system and personnel mobility of German researchers

3. Conclusion

List of references

The appendix is not included in this publication due to copyright issues

1. Introduction

Germany's innovative potential roots back to the 19th and 20th century when major companies like Siemens, Daimler and BASF which are today known for their innovative capabilities, were founded. This period of time was also characterized by the emergence of research institutions like the Max Planck Society, which have now a global reputation for numerous fields of inno­vation. Even today, the national innovation system (NIS) of Germany is mainly characterized by and tailored to the industries, which inhere the long-established actors mentioned before. Here, it becomes obvious that sectors like the automotive, engineering and electrical-related industries have traditionally been and still are in the center of focus regarding the overall Ger­man NIS. Alongside with the historical embedded innovative approach, some further charac- teristics of Germany are noteworthy in the context of its NIS. Due to Germany's federal struc- ture, especially education and workforce differs between the federal states. Especially on the federal level, the local governments are able to emphasize different innovative systems in con- trary to the ones that the overall national government does. Furthermore, it is important to keep in mind that Germany has been separated for 40 years in the second half of the 20th century, leading to an overall more competitive West and a less innovative, less attractive East due to its mismanagement under the Soviet reign (Allen, 2015).

Germany's reputation as innovation driver is however not only rooted in the achievements of the past. The country has seen drastic changes within its industries whereby some of the former flagship industries disappeared and new ones gained more importance. Especially in today's times, the challenges of globalization, a growing amount of (digital) interconnections and the emergence of new national and international players put pressure on the German NIS. It is therefore important to maintain the focus on the most important and economically sustainable industries by creating new knowledge and innovation and by assuring the directed and speedy diffusion of both (Allen, 2015). The nation has properly assessed the current challenges and acts in accordance with the fast changing environment by investing more than 100 billion US- Dollars in research and development (R&D) per year, securing their place as the nation with the fifth most patents worldwide and eventually turning Germany into one of the most important actors on the global economic landscape. Here, the country is especially characterized by its highly innovative industries with the automotive sector leading the way in terms of innovation spending (FMER, 2017). The successful German NIS however is not only achieved through its national industries but moreover roots in other factors like the interactions of public and private research efforts. These factors and characteristics of the German NIS are multifaced and will therefore be examined more closely during the following to provide a comprehensive overview of Germany's approach to innovation and its subsequent diffusion.

2. The creation and diffusion of innovation within the German NIS

Since Germany provides an overall good example for a successful and innovation-fertilizing NIS, the following will examine the interrelating components of this system more closely. The German NIS can be clustered in the following sub-chapters which are structured as the joint industry activities within the German borders, the interactions between public and private re­search institutions, the overall speed and direction of the innovation's diffusion and lastly, the educational system and mobility of German academics and researchers.

2.1 Joint industry activities in Germany

Joint industry activities play a crucial role in the overall NIS since most R&D and therefore innovation derives from the business sector. Here, a major contribution to the overall creation and flow of innovation is achieved through formal and informal cooperation and collaboration within actors, originating from the same or a differing industry. Generally, those collaborations are divided into two parts, namely formal and informal. While the first mentioned focusses on the actual practical creation of innovation, the latter emphasizes the creation of informal link- ages and connections between companies and industries which are necessary to diffuse the cre- ated knowledge and innovation. This informal part of collaboration also includes the end-users and the competitors, turning both into an important source for innovation (OECD, 1997).

Joint activities or R&D collaborations between actors of a common or different industry are gaining rapidly momentum worldwide, especially in relatively new and cost-intensive research fields like information and communication technologies as well as biotechnologies. The major aims of the involved collaborators are the pooling of technical, human or financial resources, the achievement of scale effects and the overall generation of synergetic results (OECD, 1997). The authors Becker and Dietz (2004, p. 211) fittingly stated here that the “exchange of infor­mation and resources with different partners are important factors in the innovation process.” Research efforts by industries contribute approximately 70% to Germany's total yearly spend- ing on R&D, making the joint activities to a major driver for the overall national innovation, accelerating and promoting the total competitiveness of German-based industries (FMER, 2017). As stated above, the historical founded and developed core industries like the automotive and electrical industries are forming clusters of joint activities (Allen, 2015). These manufac­turing sectors provide therefore a suiting impression of joint industry activities in Germany and reflect their importance for the overall German NIS. This specific industry is investigated by Becker and Dietz (2004) who found out that the automotive sector emphasis especially joint venture approaches to discover complementary solutions by collaborating with other vertical or horizontal market participants. In general, the aim is to gain access to knowledge, innovations and competences which a particular company does not inhere or cannot develop on its own, but which are accessible through collaboration. As a result, the cooperating partners strive to achieve a) a higher intensity of inhouse R&D efforts as generally improved input and b) more frequent product, process or organizational innovations as generally improved output. In this context, it is to mention that a higher number of cooperating partners results also in a higher number of improved innovativeness, leading to the conclusion that an extensive joint research network fosters the innovation of its members even more. This becomes significantly evident when the network is characterized by a high degree of heterogeneity which is particularly achieved in the automotive sector through collaborations with tier 1 or 2 suppliers, other origi­nal equipment manufacturers (OEMs), retailers and even the final customers. This cross-ferti- lizing environment promises a multifaceted approach to problems and trends and fosters the generation of more frequent and demand-tailored ideas for innovation which will finally result in improved products not only for a single OEM, but moreover for the entire automotive sector. Such cross-company R&D efforts become especially important with regard to new, potentially industry threatening trends and developments. One of such trends is autonomous driving, a technology which is anticipated to be introduced gradually to the majority of new cars within the next 5 to 10 years. With a radical innovation like this on the future horizon, the established actors of the German automotive sector mobilized their resources and formed collaborative R&D alliances in order to withstand the emerging competitors from Asia and the US. In this context, BMW, Daimler and Volkswagen committed to a collaboration by developing together the autonomous technologies for their cars, aiming to reduce the overall costs of production as well as of the final products and to set the standards for this future way of mobility. But not only OEMs are involved in this joint venture, also tier 1 suppliers like Bosch, Continental and ZF are contributing their knowledge and expertise (Menzel, 2019). This wide-range cooperation underlines the importance of the new technology and is a perfect example for the necessity of joint research activities as a focal part of the German NIS.

2.2 Public and private interactions

There are many important research institutes in Germany. Due to rapid changes over the last decades, an institutional structure has been created to promote research excellence, to make the best possible use of the resources already invested, and to direct the funds to the researchers and institutes which are most likely to achieve the desired results. In view of the fact that the Science Council and the Deutsche Forschungsgemeinschaft (DFG) occupy important key posi- tions in the distribution of resources, and that the Hermann von Helmholtz Association of Re­search Centers, the Max Planck Society, the Fraunhofer Society, the Leibniz Science Associa­tion and the Foundation Centre for Advanced European Studies and Research (CAESAR) are the most important research institutes in Germany, these will be examined and described more in detail below. The German Science Council and the German Research Foundation hold key positions with regard to political coordinate on and the channelings of research resources into specific institutes or areas (Allen, 2015).

The Science Council

The Science Council was founded in 1957 by an agreement between the Federal Government and the German states, also called Länder, and has a coordinating and advisory function in the development of universities, science and research. It is thus the most important science policy advisory body in Germany. Recommendations have significant political influence on the intro- duction of new study structures at German universities, as well as advice on the future role of universities in the German NIS. In order to provide guidance within the overall system, the Science Council must evaluate research institutions and accredit newly founded private univer- sities to keep education at standards. Furthermore, the Council ensures that the high research standards within the universities are monitored, which is an important element of the NIS (Allen, 2015).

The German Research Foundation

The German Research Foundation DFG can be traced back to 1920 and is the central, self- governing agency for the allocation of funds in Germany. It has the task of supporting financial research projects, especially in the university sector, and primarily promotes research at all in- stitutions of natural sciences and humanities and, secondarily, at other public financial research institutes. In addition to funding, it is intended to support the development of young researchers, facilitate cooperation among researchers and promote links between German and foreign re­search centers (Allen, 2015). Its current members include 69 universities, 19 non-university research institutions, 8 academies and 3 industrial associations. In 2019, more than 31,150 pro- jects were supported with a funding budget of around 3.3 billion euros. It is financed by two thirds from the federal government, the rest is paid by the states. The members of the DFG are mostly universities and research institutions of "general importance" and the German Acade- mies of Sciences and Humanities (DFG, 2019).

The Hermann-von-Helmholtz-Association of Research Centers

The Helmholtz Association founded in 1958 is a member association of 19 independent scien- tific-technical and biological-medical research centers, being the largest research institution in Germany with more than 40,000 employees and a budget of 4.8 billion euros in 2019. The main objective is to discuss the major pressing issues facing science, society and the economy, which is why the centers are concentrated in six research areas: Energy, Earth & Environment, Health, Key Technologies, Matter and Aeronautics and Space & Transport. Approximately two thirds of the budget are financed by the public sector, while the remaining third is raised by the mem- bers as third-party funding. Basic funding is provided by the Federal Government (90%) and the Länder (10%), with planning security provided by continuous budget increasing through the Pact for Research and Innovation (Helmholtz, 2020).

The Max Planck Society for the Advancement of Science

The Max Planck Society for the Advancement of Science (MPG) was founded in 1948 and is one of the leading German institutions in the field of basic research. As of 2019, the non-profit association operates 86 legally dependent research institutes and facilities in Germany and, in the interest of the general public, is dedicated primarily to basic research in the natural, social and human sciences, cooperating independently with universities. The goal is to engage in in­tegrative research or resource-intensive research that cannot be investigated by other research and basic research institutions due to limited resources (MPG, 2019). The Max Planck Society is funded by approximately 82% through federal and state grants, with the remainder coming from donations, membership fees and third-party funded projects (Allen, 2015). The total budget was approximately 2.4 billion euros in 2019 (MPG, 2019).

The Fraunhofer Society

Founded in 1949, the Fraunhofer Society is the largest organization for applied research and development services in Europe. It consists of universities, the Max Planck Society, the Helm­holtz Association of German Research Centers, the Gottfried Wilhelm Leibniz Scientific As­sociation and the German Research Foundation. The society currently consists of more than 80 research institutions and has an annual research budget of about 2.8 billion euros (as of 2019), which is mainly used for application-oriented research, for the direct benefit, for linking private and public companies and the resulting benefit for society. 70% of the budget comes from con- tracts from industry and publicly funded research projects, with the remaining 30% being con- tributed by the federal government (90%) and the Länder (10%) to conduct preliminary research and problem solving (Fraunhofer, 2019).

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