Mixed Picture across the Economy – Many Companies Engaged in Social Innovations
Research
30.01.2024
Innovation Survey 2023: Innovation Activity in the German Economy
In 2022, innovation expenditure of enterprises in Germany recorded a notable increase of 6.8 per cent compared to the previous year, reaching a total of 190.7 billion euros. However, certain key indicators of the country’s economic innovation strength have shown a decline, such as the share of companies that have introduced innovations, known as the innovator rate. These are some of the main findings of the Innovation Survey 2023, which ZEW Mannheim conducts annually on behalf of the German Federal Ministry of Education and Research. In this year’s survey, ZEW took a closer look at one particular aspect – social innovation. The central finding is that, between 2020 and 2022, one in two companies introduced social innovations, i.e. novel, viable and sustainable solutions to socially relevant challenges.
Federal Research Minister Bettina Stark-Watzinger explains: “The increased expenditure on innovation demonstrates the resilience of Germany’s economy even in challenging times. However, the downward trend in key indicators like the innovator rate is a cause for concern. We need to reverse this trend if we are to meet the challenges facing Germany. With its ‘Future Research and Innovation Strategy’ and the planned expansion of the tax credit, the German government is committed to strengthening innovation and knowledge transfer in the long term. It is encouraging to see that many companies are already engaging in social innovations.”
Many companies develop social and environmental innovations
Between 2020 and 2022, 51.1 per cent of all companies included in the Innovation Survey introduced social innovations. This significant percentage is attributed to the implementation of work-related measures, mainly aimed at facilitating remote working during the COVID-19 pandemic. Other social innovations within companies concern the employment of older individuals, the integration of immigrants and people with disabilities, and efforts to promote gender equality. Another form of social innovation includes market offers that support or enable socially innovative behaviour by users, with 7.6 per cent of companies reporting to have introduced such innovations.
During the same period from 2020 to 2022, 55.6 per cent of all companies introduced environmental innovations. Of these, 48.7 per cent implemented process innovations, i.e. the positive environmental effects occurred within the company. Additionally, 39.7 per cent introduced environmental innovations in products, meaning that the positive environmental effects were experienced by the customers and users of the products. In both processes and products, the primary focus was on environmental innovations that enhance energy efficiency and reduce greenhouse gas emissions.
Large companies drive innovation expenditure to new heights
In 2022, innovation expenditure soared to a record-breaking 190.7 billion euros. Part of this increase could be due to inflationary effects, although it is impossible to quantify this share. Much suggests that only a small part of the increase is due to inflation, as the average price increases of 5.3 per cent in 2022 mainly affected energy, raw materials, and intermediate goods – factors that play a minor role in the cost structure of innovation activities. Key cost factors such as personnel, services, and tangible assets experienced a price increase in 2022 that was lower than the overall inflation rate.
In the services sector, expenditure for innovation grew by 10.6 per cent, outpacing the 5.4 per cent growth in expenditure in the industrial sector. Nevertheless, at 137.6 billion euros, innovation expenditure in the industrial sector remains nearly three times higher than in the services sector at 53.1 billion euros. The increase in innovation expenditure was driven exclusively by large enterprises, which raised their innovation expenditure by 8.2 per cent to 160 billion euros. Small and medium-sized enterprises (SMEs), on the other hand, saw little change in their innovation expenditure (minus 0.2 per cent), which amounted to 30.6 billion euros in 2022.
In 2022, 40.4 per cent of companies provided financing for innovation activities. However, for 2023, only 33 per cent of companies expect to spend money on innovation. Looking ahead to 2024, uncertainty prevails, with 31.1 per cent of companies planning to spend money on innovation and 21.5 per cent still unsure. The outlook for 2023 and 2024 is therefore fraught with uncertainty, affecting companies’ ability to plan ahead.
More R&D, fewer innovating companies
The number of companies continuously conducting R&D reached a new high in 2022, surpassing 43,000. This is equivalent to 12.9 per cent of all companies considered in the Innovation Survey, and marks a 2.0 percentage point increase since 2019.
However, the rising number of companies active in R&D contrasts with a declining number of innovating companies. In 2022, approximately 169,000 companies, or 50.7 per cent of all businesses, were identified as innovators. The innovator rate has been on a downward trend for two decades. Small businesses, in particular, which don’t engage in R&D are constantly withdrawing from innovation pursuits. Possible reasons range from high costs and limited funding to skills shortages and regulatory and bureaucratic barriers.
About the ZEW Innovation Survey
ZEW Mannheim, in cooperation with the Institute for Applied Social Sciences (infas) and the Fraunhofer Institute for Systems and Innovation Research (ISI), collects data on the innovation activities of German companies every year on behalf of the German Federal Ministry of Education and Research. The study considers companies with five or more employees. In 2022, these were around 333,700 companies.
