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Foreign-owned companies in Germany are investing less in R&D

Press Release of June 9, 2016

DIW Berlin study reveals decline in foreign-owned companies’ R&D spending, but increase in overall R&D expenditure due to domestic companies’ considerable investment – foreign-owned companies are investing more strongly in leading-edge  technologies, and midsize foreign-owned companies recently raised their R&D expenditure

Private companies’ overall R&D investment continued to grow between 2011 and 2013. At the same time, companies that are predominantly foreign-owned invested less in R&D than they did in previous years; in contrast, domestic companies spent more on R&D and bulked up their R&D personnel accordingly. These are the results of a new study conducted by the German Institute for Economic Research (DIW Berlin).

For their analysis, experts Heike Belitz and Alexander Eickelpasch of DIW Berlin’s Department of Firms and Markets evaluated data (Wissenschaftsstatistik) from the Stifterverband für die Deutsche Wissenschaft (“Wissenschaftsstatistik”) as well as cost structure surveys from the Federal Statistical Office.

Companies that conduct R&D are more productive

In 2013, foreign companies’ spending on R&D in Germany amounted to nearly 12 billion euros, which is over one billion euros less than in 2011. As well, the number of R&D employees at these companies dropped from 90,900 to 80,800.

“All the same, foreign companies are investing 37 percent—a relatively large proportion—of their R&D expenditure in high-tech industries like pharmaceuticals and aerospace equipment. This figure is significantly lower among German companies: only 21 percent,” says Belitz.

As expected, research-based companies are significantly more efficient than are non-research-based companies. Moreover, the study reveals that foreign-owned research-based companies have 13-percent higher labor productivity than do domestically owned companies. Eickelpasch explains the difference: “Foreign-controlled companies are often part of multinational corporations, which means they benefit from having an international presence—however, this is not necessarily the case for all domestic companies.”

Germany still an attractive research location

In Germany, foreign-controlled companies have a smaller share in private R&D spending in Germany than they do in France or the UK. Yet the R&D intensity among all German-based companies—measured as R&D expenditure relative to the GDP—is significantly higher. On its own, foreign-owned companies’ lack of R&D spending does not indicate whether a research location is attractive. Belitz and Eickelpasch do not see the recent decline in foreign companies’ R&D activities as a sign of Germany’s decreasing attractiveness as a research location, especially since the decline is more due to the decisions of individual larger companies than it is to a general trend: in fact, R&D expenditure among midsize foreign-controlled businesses in Germany actually increased between 2011 and 2013.