German companies strengthen research and development – both domestically and abroad

Press Release of November 22, 2017

The R&D expenditure of German companies abroad has more than doubled compared to 2003. At the same time, their domestic investments are increasing sharply – The majority of the investments can be attributed to the automotive engineering and pharmaceutical industries – The share of foreign companies in R&D investments in Germany is sinking.

In recent years, German companies have invested more in research and development (R&D) abroad. Between 2003 and 2015, the annual volume of investments abroad more than doubled from 10.9 to 24 billion euros. Thus, the foreign share of German companies’ total R&D investments amounted to 35 percent. However, domestic expenditure for research and development rose by 76 percent to almost 45 billion euros. In total, locations in Germany accounted for 60 percent of the additional R&D investments, while locations abroad accounted for the other 40 percent.

These are the results of a study conducted by DIW Berlin that analyzed annual investments in research and development of German companies with international activities using official data. “The development of R&D expenditure in Germany and abroad is largely parallel in the two sectors,” says study author Heike Belitz. An increase or decrease in R&D in Germany often goes hand in hand with a similar change abroad. “The correlation is clearly evident, although it does not mean there is a causality,” says Belitz.

At the same time, those companies that invest more domestically are also the ones behind the expansion of the R&D activities of German companies abroad. This applies to the automotive engineering and pharmaceutical industries in particular. Automotive engineering has accounted for 80 percent of additional domestic R&D expenditure since 2003 and for 42 percent abroad. The pharmaceutical industry has also expanded its R&D expenditure substantially and is thus responsible for 32 percent of the growth in R&D expenditure by German companies abroad. However, German pharmaceutical companies have also expanded their domestic R&D. Mechanical engineers were the only ones to strengthen their efforts abroad after 2009 while scaling them back domestically.

Involvement of foreign companies in R&D in Germany is stagnating

The R&D expenditure of all companies in Germany rose to two percent of the GDP, putting them on the same level as the U.S. and significantly higher than, for example, France and Great Britain. In Germany, the drivers of the positive development were multinational companies with R&D abroad.

In 2015, foreign companies generated a total of 13.1 billion euros in internal R&D expenditure in Germany, an increase of ten percent in comparison to 2013, the year of the last survey. In a longer-term comparison, however, their proportion decreases slightly.

The proportion of foreign R&D investments in the total R&D expenditure in Germany has sunk since 2003 from 25.2 to 21.5 percent. France and Switzerland have similar proportions, whereas the proportions in the United States and Japan are significantly lower, at 16 and seven percent respectively. Against the background of direct investment stocks from abroad, however, higher R&D expenditure by foreign companies would be expected in these countries. “Research policy should clarify whether barriers to accessing the research landscape exist in Germany for foreign companies,” says Belitz. "Especially in the field of cutting-edge technology, where foreign companies are already particularly active, but also beyond, the removal of obstacles could contribute to the intensification of international knowledge transfer.”

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Heike Belitz

Research Associate in the Firms and Markets Department