Main lessons learned from the German national innovation system May 2016 Introduction Germany has one of the most powerful national innovation systems in the world. On the 2015 Global Innovation Index, Germany ranks 12 out of 172 countries. In the 2015 Innovation Union Scoreboard which measures the innovative performance of EU member states, Germany is part of the innovation leaders and only lags behind Finland, Denmark and Sweden. In April 2016, a delegation of Egyptian innovation stakeholders visited Germany to explore the success factors of the German system. This study tour was meant to contribute to the development of an Egyptian innovation strategy. Based on the findings of the study tour this report gives an overview over key characteristics of the German national innovation system which Egypt might consider to adapt to strengthen its own innovative capacity. Decentralized and multi-level innovation governance One central characteristic of the German national innovation system is its decentralized structure. Different levels of government institutions share tasks and responsibilities in order to foster innovation. The education system is entirely managed by the sixteen states (Länder) whereas public support schemes for science and research projects are in shared responsibility of the state governments and the federal government. The federal government is responsible for the general direction of German innovation policy (Hightech Strategy 2020) which is integrated into the European Research Area and in particular the European Innovative Union. Even on the city level, specialized innovation promoting agencies exist, e.g. the public-private partnership Berlin Partner. The decentralized structure of the German innovation system favors the consideration of regional specificities, the use of comparative advantages of one region over another as well 1
as competition between regions and cities and results in more targeted policies and incentive structures. Clear division of tasks and mandates between intermediaries and government Innovation intermediaries are organizations that enable innovation, either directly by enabling the innovativeness of one or more firms, or indirectly by enhancing the innovative capacity of regions or sectors. They intermediate on the inter-organizational level by creating networks as well as by conducting and supporting technology development activities in the innovation gap between business and research. In Germany, intermediaries like the cluster management organization Fachverlag Moderne Wirtschaft GmbH (futuresax) receive their funds mainly from public bodies but are managed by private companies. The private management is in two respects beneficial for the efficiency of the system. First, it creates competition between companies in the project management application process. The mandate to manage the intermediary is in such cases only given for a limited timeframe. This gives the intermediaries strong incentives to work efficiently, provides the system with a self-correction mechanism and leads in the long run to an ever improving performance of the intermediaries and the system. It is further in the interest of the chosen intermediaries to keep up their managerial skills because of reputation losses in the case of non-satisfying performance. Second, privately managed organizations like VDI/VDE-IT have a professional center management free of political influence, are highly customer and demand oriented and work under hard budget constraints. All these factors favor the efficient use of resources. While the provision of services and funding is conducted through intermediaries, the governmental entities on Federal level as well as state level are focusing on the provision of a beneficial regulatory and institutional framework. The challenge here is to make the balancing act between regulation and at the same time leaving enough room for flexibility and individual responsibility. Framework conditions could include tax incentives, technical regulation, education policy, demand-oriented innovation policy, infrastructure and low administrative barriers for SMEs. Innovation culture & educational system German innovation policy is setting a strong focus on creating an innovation culture among youth, business owners, technicians and researchers. The educational system is providing the basis for a culture of innovation in Germany. A good example for the 2
establishment of an innovation culture in the tertiary education is the Centre for Entrepreneurship at the TU Berlin. The center inspires students about innovation at Start- Up Days, offers lectures in entrepreneurship and innovation management and combines all this with Access to Finance events to support the commercialization. Further, already in primary and secondary education, entrepreneurship and creativity are included in the teaching methods and are actively fostered by competitions and awards. The strong Technical and Vocational Training (TVET) System, in which TVET-schools and industries are working hand in hand (so called Dual System, comparable to what has been established in Egypt under the Mubarak-Kohl-Initiative), is providing German industries with highly skilled technical experts. The necessity to promote these professions further to fill gaps in the supply of qualified experts is recognized as a crucial task by the ministries, universities and companies involved. On company level, Germany s strong integration into European and global markets and the resulting competition creates the needed pressure and urgency for innovation on a high level. Competition in the funding mechanisms for R&D The financial structure of the German innovation system has been over time restructured towards financial Innovation & Investment competition instead of fix budget allocation for research institutes or universities. For example, the budget of the Fraunhofer Gesellschaft (Europe s largest applicationoriented research organization) consists of 30 percent Knowledge Money public base funding and 70 percent privately funded Education & Research contract research projects and publicly funded, competitive research projects on federaland EU-level. The publicly funded projects require collaboration with industry. Roughly the same numbers are found in the financial structure of German universities, although basic research is still funded on a non-competitive basis. This competition over funding directs the German R&D projects towards the most promising outcomes with regard to valorization and commercialization. In this environment, public funds are further not only allocated for public research institutions only. To increase the commercialization success rates, funding schemes also include private companies to compete in the tenders. Adding to that, two-thirds of German R&D spending is done by private companies themselves, money that is anyways almost exclusively directed towards immediate commercialization. 3
Networking and cooperation Networking and cooperation between the different stakeholders of the innovation system is crucial for the Germany s innovative capacity. Knowledge spill-over between academia and industry and business-to-business linkages are of utmost importance for innovation. The German system consists of multiple networks and platforms where needs and demands can be exchanged and innovative services, products and technologies are created. futuresax, the innovation platform of Saxony alone has over 6.000 contacts from all sectors and technologies and maintains close relations to relevant bodies from politics, public administration, science, chambers and associations. Another example is the sciencetechnology-park Adlershof where a new innovation network for advanced materials is created in the upcoming two years in order to strengthen the links between the over 1.000 companies of the cluster among themselves and with international partners. In both cases the networks are managed actively and professionally and therefore require investment in the innovation intermediary. Networking among German companies does not happen to the necessary extend by itself business initiatives need to be supported to reach their full impact; in specific cases the creation of networks even needs to be initiated from the public side. Innovation policy needs to encourage companies and research institutions to cooperate. Sectoral vs. cross-sectoral focus The question whether a sectoral or a non-sectoral focus of innovation promotion would be best for the economy is controversial among different stakeholders of the German system. The German High Tech Strategy identified certain societal challenges that have to be solved by innovative technologies like healthy living, sustainable economy and energy, intelligent mobility and digitalization. Coming up with suitable solutions is in the responsibility of various sectors and therefore promotes cross-sectoral collaboration and innovative solutions. Other stakeholders like the Saxon State Ministry for Economic Affairs, Labour and Transport determined the automotive industry, mechanical engineering, microelectronics and ICT as sectors that will be strengthened in the region. Also Berlin follows this strengthening of strengths approach by focusing on health industry, creative industry, transport and logistics, energy technologies and photonics as priority sectors. 4
The Egyptian-German Promotion of Small and Medium Enterprises (PSME) programme is a bilateral technical cooperation programme under the guidance of the Egyptian Ministry of Trade and Industry (MTI) with Technical Assistance provided by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). The programme has been requested by MTI to support the development of an Innovation Strategy for the industrial sector. For this purpose, a study tour to Germany to understand the German Innovation System and its success factors was conducted. The lessons learned and the actions identified during the week in Berlin and Dresden is meant to feed into the strategy development and its implementation. 5