"It is not enough to develop patents, they must also be
brought to market maturity and commercialized. The Americans and Chinese are
much better at this than the Europeans, warns the President of ESMT Berlin.
How innovative and therefore efficient are economies in the
long term? Hardly any other question in the political and economic discussion
about global location competition is currently receiving more attention. One
example is the Olympic Games in Paris that have just ended. The respective
performance of individual countries in the medal table was quickly interpreted
as an expression of their general performance.
The large gap between the USA and China on the one hand and
Germany on the other, combined with Germany's poorer performance than in
previous Olympic Games, was quickly taken as an indicator of the decline of an
entire country.
The Olympics are not a good example
Historically, there are enough prominent examples in which
the sporting performance of a country measured by the medal table could not be
further from its economic performance - just think of the GDR. Basically, the
important conclusion that can be drawn from this discussion is that it is not
countries that are competing against each other, but athletes. Their home
countries merely create the framework and support for the athletes.
When it comes to the question of the innovative power of
companies in an economy, the number of patents that these companies receive is
much more meaningful. According to figures from the European Patent Office,
Germany, as the European leader, will rank second worldwide in 2023, behind the
USA and ahead of China. However, this view, which is fundamentally positive
from a German perspective, is clouded by two aspects.
Firstly, the number of patents in Germany is no longer
growing in trend; on the contrary, it has fallen slightly since 2014 from
25,633 to 24,966. In the USA, the number rose from 36,668 to 48,155 during this
period, and in China it even multiplied from 4,680 to 20,735.
Secondly, Germany
is particularly well represented in its traditional economic fields such as factories and mechanical engineering.
Over the past few years, these have not
experienced the same growth dynamics as fields of digitization and medical
technology, in which China and the USA dominate. It would therefore not be a
surprise if China overtook Germany in this ranking in the foreseeable future.
Germany is missing the unicorns
These global shifts become even clearer when you look at the
market value of companies as an expression of their expected future cash flows.
There is currently not a single European company that is among the top ten
worldwide, in stark contrast to American companies that dominate this ranking
at will. To put it even more succinctly: the market value of a single company
such as Apple or Microsoft is higher than the combined market value of all 40
companies in the German leading index Dax.
This global comparison is no better
for Germany and Europe when you look at the distribution of unicorns, i.e.
start-ups with a company valuation of at least one billion dollars. According
to recent figures, more than 50 percent of these companies are based in the
USA, 22 percent in China and only 2 percent in Germany.
Several points are striking when looking more closely at
this development. Firstly, the large American platform companies are building
their future massively and with high growth rates. Amazon alone spent more than
85 billion dollars on investments in technology and infrastructure last year.
With the major disruptions in the areas of digitization and artificial
intelligence, these investments are an essential prerequisite for companies to
be able to reap the fruits of these innovations in the coming years.
Secondly,
an increasing proportion of the highest-valued companies in the USA are
receiving initial financing through venture capital.
Financing from banks is reaching its limits
Given the great uncertainty surrounding the future prospects
of many companies in fields of technological breakthroughs, traditional bank
financing is reaching its limits here. The risk of default for a bank would be
far too high, and significant usable collateral would not be expected. It is
therefore not surprising that the USA and even China are investing more money
in venture capital relative to their economic strength than Germany and many
other European countries.
The amount and source of private investment is therefore an
important aspect in enabling innovation, but not the only one. Compared to the
USA and relative to gross domestic product, Germany invests on an equal footing
in basic research, often driven by the state. However, this comparison is
increasingly and ever more in favor of the USA the closer an invention comes to
market readiness.
In short, it can be said that Germany invents, America
innovates and commercializes.
Or to illustrate this with an example: The
company Biontech was founded in Germany, but went public in the USA.
In
addition to pure financing, all barriers to innovation in Germany and Europe
must therefore be removed, be it in the founding process, the application of
data protection or the outsourcing of intellectual property.
China is also making life difficult for Germany abroad
In comparison to China, other relevant questions arise.
Recently, a lot of attention has been paid to the current accounts of China and
Germany and especially to the respective imports and exports between the two
countries. The focus of the public debate is on the question of whether the
German automotive industry can maintain its traditionally strong Chinese sales
market or whether it will fall behind in the wake of significant developments
in electric drives and changes in customer requirements for software. In any
case, competition here has increased significantly, with an open outcome.
Less publicly observed but just as relevant is another
development. More and more Chinese companies are conquering new markets abroad
with their innovations, for example Indonesia, and are competing there with
traditionally strongly export-oriented German companies.
German companies, which are often "hidden
champions" in market niches and only reach a relevant size through
international scaling, also traditionally invest significantly in research and
development and are now facing even more intense competition from China.
Competition is therefore not only taking place in the respective home markets,
but globally - and governments can create positive conditions for this by
concluding as comprehensive trade agreements as possible that make market
access easier for domestic companies.
Europe is squandering its good conditions
The great race for innovation has become more intense, all
the more so in times of major technological disruptions and geopolitical
challenges. Germany and Europe are increasingly under pressure to maintain and
expand their own prosperity by increasing their own innovative strength. In his
latest report, Mario Draghi, the EU Commission's representative for competitiveness,
puts his finger on the sore spot in a particularly painful way, showing the
significant decline in European competitiveness. Many basic prerequisites for
more dynamic economic development are in place, but they are not being
sufficiently exploited at the moment.
Germany - and this also applies in
principle to Europe - can invent, but cannot adequately convert these
inventions into new products.
Germany has sufficient capital, but does not distribute this
capital appropriately in growth areas. Germany has a strong position abroad,
but does not use this enough to develop strategic global alliances.
All of
these aspects are important in order to be at the forefront globally in the
race for innovation. In the Olympic sense, this race is more like a marathon
than a sprint. But the start is also crucial in the marathon, because if you
are too far behind, it is difficult to catch up."
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