Invented in Germany - made in Asia Print E-mail
October 2007 Life

The world's export leader fails to cash in on innovation - By Ulrich Hottelet

Germans have contributed significantly to technological progress. But their Asian competitors are far ahead in their ability to cash in on innovation.

A popular public relations campaign by the government and German business calls Germany the "Land of Ideas." Yet it doesn't seem to be a country that knows how to transform these ideas into cash. At least that's what people in German industry, academia and government think.

The examples are both prominent and noteworthy. German inventors substantially contributed to the development of the fax, the Walkman and MP3 technology. But the fruits of their ingenuity and labor were harvested by Asian companies. Fax technology was particularly attractive to Japanese business because teletypewriters did not print complicated Japanese characters correctly. Other examples are the scanner and liquid crystal display television. While the reasons vary, the common denominator was the failure of German industry to recognize the tremendous market potential of these ideas and follow through, in stark contrast to its Asian competitors.

Chancellor Angela Merkel keeps addressing this failure to cash in on innovation. She emphasized that if Germany wants to be a world leader in innovation, a climate is necessary in which "ideas are translated into action, science into marketable products, processes and services."

Her government has been busy setting up multi-billion euro programs to help achieve these goals. The "high-tech strategy" serves as an umbrella for industry-specific initiatives like "Information Society Germany 2010" and the program "IKT 2020" for the IT and communication sector. While the government has always funded programs to promote fundamental research across scientific disciplines, the new focus is on market-oriented application.

Both the public and private sector in Germany focused investment on the traditionally strong industries like automobile, machine and electronics manufacturing. But the true growth potential of innovation lies elsewhere: in IT, microelectronics, optical technologies and medical biotechnology.

Still, the creativity of German inventors remains strong. Germany ranks third after the U.S. and Japan, based on the number of patents submitted at the World Intellectual Property Organization in Geneva in 2006. However, every fourth patent in Germany is not introduced to the market, according to a study by the Institute of German Business in Cologne (IW). It estimates the resulting loss for the German economy at a minimum of ?8 billion.

Even more sobering are statistics of the Institute for Applied Innovation Research in Bochum (IAI), according to which only one out of every 16 inventions in Germany turns out to be a commercial success. "The rate of true market innovation even decreased from 42 percent to 37 percent in the past three years," said Friedrich Kerka, IAI's managing director.

He attributes the problem to management. "We have inventors but we lack the elites to promote invention," he said. "Controllers and lawyers have replaced engineers on company boards and for many managers, it simply has become unattractive to deal with innovation, because restructuring and cost-cutting are better rewarded. Keeping in touch with customers would help to develop ideas for creative new products but these managers prefer relying on superficial market research."

Christian Rammer, senior researcher on innovation policy at the Center for European Economic Research in Mannheim (ZEW), sees one of the country's traditional industrial strongholds in danger. "German car makers are poorly positioned for environment-friendly engines since they bet on the high price segment of the market," he said. The car industry developed and tested alternative fuel vehicles for decades but apparently not with the intention of introducing them to the market in the foreseeable future.

In 1973, engineers at the Technical University in Aachen had already made a hybrid car out of a VW van. Now German car manufacturers are in danger of missing the boat as their Japanese competitors move ahead in selling more environmentally sustainable cars. The Toyota Prius, a hybrid electric vehicle, was one of the first such cars to be mass-produced. According to a recent survey, Germans consider Toyota the environmentally friendliest manufacturer. Once more, German managers underestimated the potential of innovative products. Only this time it's both an economic and an ecological failure.

However, the German weakness in marketing is not the end of the story. For decades, German companies have complained of plagiarism by Asian competitors. It has become a constant topic at high-level bilateral government talks. Most recently, Merkel addressed the issue on her visit to Beijing. The Chinese usually promise to do something but rarely follow up.

At the recent IFA consumer electronics show in Berlin, German customs confiscated many Asian fakes. Most of the illegal goods came from China, Vietnam and Thailand. A sales representative of Loewe, a German manufacturer of TV sets, reported that a lot of Asian visitors at her stand took pictures of the goods on offer. However, the phenomenon is not limited to German stands at the fair: "Some visitors touch all the devices," said Alexander Wirth of Japan's Pioneer. "They want to know if the frame was welded, glued or screwed. They even take pictures of the remote controls."

- Ulrich Hottelet is a freelance journalist in Berlin.

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