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'Mittelstand' in innovation crisis

Nicole Goebel
February 25, 2015

Investment in innovative products and processes at Germany's small and medium-sized firms has dropped for the third year in a row, according to KfW bank. Price pressures and funding are two key factors.

Deutschland Mittelstand F. Dick GmbH & Co. KG
Image: picture-alliance/dpa

A mere 28 percent of small and medium-sized business (SMEs) in Germany - known there as the "Mittelstand" - are still investing in new products and innovative processes, an annual survey by Germany's development bank KfW found.

Just over one million SMEs focused on innovation between 2011 and 2013 - which is the most recent data available - 51,000 fewer than in the bank's last survey and significantly below the number registered between 2007 and 2009, when the global financial crisis was at its peak.

Innovative products and processes are known to boost income and secure jobs by keeping a company ahead of the competition. So, "when the Mittelstand's ability to innovate weakens, it's bad news for the competitiveness of the German economy and Germany as a place to invest," says Jörg Zeuner, chief economist at KfW.

The survey cites the "continuing economic standstill" in Europe as one of the reasons for the drop. In sectors such as engineering, pharmaceuticals and electronics, companies find it hard to place their products, which hampers innovation. Pricing pressures are also a major factor.

Funding is an issue, too, with the KfW calling on the government to "keep the ball rolling" when it comes to facilitating access to finance.

The KfW points out that it is small firms that struggle the most. Since the mid-2000s, innovation has dropped by 39 percent in companies that employ five people or fewer.