EU Research and Innovation Strategies: Lessons for Thailand and Emerging Economies Germany: Innovation and Research in SME Sascha Ruhland Fraunhofer ISI, Karlsruhe

Germany: Innovation and Research in SME Innovation performance and, therefore, innovation policy as such is a major topic 70% of the total R&D expenditures is spent by industry SME provide approx. 70% of the total employment, while 87% of R&D is provided by companies with more than 500 employees 6% of R&D expenditures in industry stem from public budgets (Federal and States) Government-business cooperation is not an issue – Germany has a strong tradition of incorporating stakeholders (and companies especially) via their associations and interest groups, cooperation is permanent Private companies are involved in every phase of the innovation policy cycle and their role is widely accepted = industrial associations have an organised access to the formulation, negotiation and implementation processes of national policies Innovation and R&D policies widely rely on bottom-up approaches

Germany: Innovation and Research in SME Cooperation between private companies and public research is an issue Commercialisation of scientific results in private companies is generally insufficient (esp. in Eastern Germany or some technologies) 2 reasons: (1) lack of cooperation and (2) lack of ability to adopt scientific knowledge (1) is addressed by almost every public support measure using cooperative approaches (e.g. cooperation between HEI and companies and among companies as a prescribed criterion in public support actions or funding of regional / local networks including both public and private players) New approaches (Federal High-tech Strategy) include the introduction of a so-called research bonus for researchers at public institutes who engage in contract research, additional funding for the proof of technology and funding schemes dedicated to increase the exchange of personnel between (public) research and companies

Germany: Innovation and Research in SME (2) points out to education and limited (financial) resources of SME Education: quality of education is being addressed by reform of the system as such (all-day schools, integration of foreign students etc.) awareness measures (e.g. special support for girls' interest in science and engineering) opening the labour market for foreign experts Additional funding for further education of employees Resources: Public VC programmes and a special High-tech Fund for start-ups Tax incentives / simplification of the tax system as such Variety of thematic and horizontal programmes to foster R&D

Germany: Innovation and Research in SME Government and public financial institutes provide companies with loans for R&D projects (including lower interest rates) Joint investments in start-ups from public budgets and large companies to establish strategic partnerships

Germany: Innovation and Research in SME Public spending on R&D in SME has not changed significantly over the past years Two main players – BMBF and BMWi (BMWi has a special responsibility for SME) Horizontal R&D programmes are the most important instrument for the support of SME with a large and still growing share of cooperative funding Bottom-up approaches outweigh mission oriented funding programmes (e.g. in energy technologies) Policy mix includes: Grants for R&D projects in high-tech sectors (2004: approx. € 2.7 billion of which € 1.1 billion was dedicated to private companies), e.g. biotechnology, nanotechnology, ICT, health technologies Funding of regional clustering (both public-private and private-private)

Germany: Innovation and Research in SME Example: PRO INNO – Programme for the enhancement of innovation competencies of SME (responsible: BMWi) Horizontal approach: eligible are all developed innovative products, services and processes Private companies (Business must be located in Germany), public and private non-profit research institutions (as partners of companies) 25%) Long-term support scheme ( , two phases so far with slight changes), 2005: € 106 million Four project types: cooperation among companies, between companies and R&D institutions, companies and R&D institutions (contract research), exchange of personnel

Germany: Innovation and Research in SME Upper limits € (Eastern Germany, Berlin) per project New approach in phase II: funding bonuses for trans-national projects (€ ) Administered by AiF (German Federation of Industrial Research Associations "Otto von Guericke") i.e. the incorporation of an association of companies (AiF is covering over 100 industrial research associations, with approx SME, and about 700 associated research institutions) in the formulation and implementation of policies as well as in the evaluation of the proposed R&D projects Evaluation criteria for proposed R&D projects are scientific excellence / innovativeness and plans for commercialisation, including assumed effects on employment and turnover

Germany: Innovation and Research in SME Ex-post evaluation and monitoring by FhG ISI Evaluation of phase I was used for successful negotiations with the budget committee of the Bundestag results of the monitoring of the first year of phase II (2004-5) led to changes BUT incorporation and consensus orientation caused minor difficulties in terms of reporting the actual evaluation results