Since 2008, chambers of commerce and industry have been recording how their members research and develop. The situation is bad at the moment. Chemicals and pharmaceuticals are also complaining. Will a patent box bring momentum?
The Association of German Chambers of Industry and Commerce has found that more companies in Germany want to reduce investments in research and development than increase them.
The proportion of companies wanting to increase their investments fell from 38 percent in 2023 to 25 percent this year, while 32 percent want to reduce their research activity.
Companies cite bureaucratic requirements, the expense of standards and certifications, and a lack of tax incentives for equity as barriers to innovation.
The chemical and pharmaceutical industries criticize the bureaucratic effort involved in tax funding for research.
Berlin. The economic outlook and the mood in the economy may improve somewhat: companies in Germany are holding back when it comes to investing in research and development and thus in their own future viability. This is the conclusion reached by the German Association of Chambers of Industry and Commerce (DIHK) in its new innovation report.
What's more: For the first time since the first survey in 2008, more companies stated that they wanted to reduce investments in research and development than increase them.
Accordingly, the proportion of companies that want to get more involved fell from 38 percent in 2023 to just 25 percent this year. At the same time, 32 percent, twice as many companies want to scale back their activities than in the last survey (15 percent).
The report cites the lower recruitment of foreign skilled workers and researchers as well as the declining importance of employee qualifications as indicators. The same applies to cooperation projects with customers, suppliers and other companies. âCompanies are not only forgoing individual projects, but are increasingly foregoing skills, partnerships and structures that are needed for future innovation projects,â the report concludes.
Instead of focusing on innovations, companies would increasingly concentrate on their core business. According to the survey, nine out of ten companies want to further develop their existing products or services.
âThe results are more than a snapshot of the weak economy,â says the study. Rather, they are âa warning signal for the locationâ. Less investment permanently weakened productivity, technological sovereignty and the ability to open up new markets.
The survey also identifies âobstacles in the innovation processâ. This includes the effort required by companies to meet norms, standards and certifications. Bureaucracy is also mentioned. This applies, for example, to the costs and procedures for protecting your own ideas or when applying for funding or tax support for research.
The companies also cited âthe lack of tax benefits for equity capitalâ as a problem. Accordingly, the DIHK calls for equity and debt capital to be treated equally when investing in research and development. According to Chamber Day, four out of five companies have financed projects with their own money in the past two years.
âMany companies want to keep Germanyâs innovation engine running,â said DIHK Managing Director Helena Melnikov. âBut more and more bureaucratic requirements, lengthy procedures and inadequate framework conditions are slowing them down.â She called for âreliable framework conditions and, above all, more freedom for new ideas and successful innovationsâ.
The 79 chambers surveyed their members from mid-July to the beginning of September. According to DIHK, 2,320 companies took part. The majority of those surveyed (62.4 percent) have up to 49 employees, ten percent have more than 500.
The Center for European Economic Research (ZEW) in Mannheim, together with the Center for Economic Policy Studies at the University of Hanover, identified the concerns of large industry, especially in the chemical and pharmaceutical sectors, in a study commissioned by the Association of the Chemical Industry. Accordingly, tax support for research for large companies is insufficient. This allows companies to claim investments in research and development of up to twelve million euros per year for tax purposes.
âCurrently, less than half of research-based chemical and pharmaceutical companies use the research allowance,â says the study. One reason is the bureaucratic effort. The authors therefore recommend further developing the allowance introduced in 2020, increasing the funding cap as well as the proportion of eligible costs and the funding rate for industrial research.
The DIHK is also calling for tax research funding to be made more easily accessible for small and medium-sized companies. According to Innovation Monitor, only ten percent of companies with up to 249 employees took advantage of the allowance. Even fewer companies would use European funding programs.
The companies surveyed also criticized the fact that the federal government stopped the Central Innovation Program for SMEs (ZIM) in the summer due to tight budgets. Because it secured direct grants, it was popular with small businesses.
ZEW study author Christian Rammer, an expert in promoting innovation, confirms that the economy is holding back. âCompanies are visibly stressed and tired of the developments of the last few years,â he said. These generally included rising costs, falling demand, increasing competition, tariffs, raw material prices and bureaucracy. Small companies in particular would concentrate on their core business. âInsecurity is poison.â
According to the Federal Government's Research and Innovation Expert Commission (Efi), medium-sized companies in particular are drivers of innovation. Every second company produced âat least one product or process innovationâ between 2020 and 2023. They succeed in producing innovations more often than non-medium-sized companies.
In a new survey, the German Economic Institute, commissioned by the Association of Family Businesses, points out that family businesses are the mainstay of the innovation location. The top 500 are particularly strong in patents in the automotive industry, mechanical engineering and the electrical industry. Accordingly, they registered 57 percent of all patents last year, more than ever before.
According to the Efi report, medium-sized companies achieve a âhigher share of sales through the introduction of product innovationsâ than others. This circumstance could become interesting when it comes to tax incentives for investments in research and development: The Federal Ministry of Finance is currently having the ZEW develop a new model: the patent box.
With the concept, it is not the investments that would receive tax relief, but rather the income from the innovations. Accordingly, trade or corporate tax for innovative companies could decrease. Other countries are already taking this approach, such as France, the Netherlands and Switzerland.
