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OCR for page 246
246 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY
scription is more detailed because the related sources need important enlarge-
ment or additional explanation. (See, for example, the "Universities" section,
below.)
THE GERMAN R&D ENTERPRISE
General Structures
In 1994, German institutions spent about DM78 billion (or 2.3 percent of
GDP) on R&D. This was equivalent to $35.9 billion (in purchasing power par-
ity), or about 21 percent of total U.S. R&D spending. The German ratio of R&D
spending to GDP, though slightly lower than the American ratio (2.5 in 1994), is
higher than most other large industrialized countries.) In recent years, the public-
sector/private-sector composition of German and American R&D spending has
converged. Between 1989 and 1994, the share of publicly financed R&D in
Germany increased from 34 percent to 37 percent. Over the same period, the
share of publicly financed R&D in the United States decreased from 46 percent to
39 percent. In Germany in 1994, about 8.5 percent of the public R&D budget was
spent for defense purposes; in the United States, that figure was 55 percent. Due
to the primarily civilian orientation of R&D in Germany, the share of publicly
financed R&D performed by industry (13 percent) is relatively low compared
with the share of such research performed by industry in the United States (31
percent) (Organization for Economic Cooperation and Development, 1995~.
These general indicators give only a rough sense of the German R&D sys-
tem. Particular institutional structures will be described here in more detail, fol-
lowing Meyer-Krahmer (1990) and Schmoch et al. (1996b). In Germany, the
organization of R&D activities is shaped largely by the country' s federal system
of government, in which public-sector responsibilities are more evenly divided
between the central government and the states (Lander) than is the case in the
United States. German states are principally responsible for the educational sec-
tor and consequently finance the vast majority of university budgets, including
more than 75 percent of academic research. The financial flows from the state-
level ministries to universities are depicted by a boldface arrow in the organiza-
tional chart in Figure 3.1. Roughly 90 percent of these funds are allocated by
universities for base, or general-purpose, institutional support of research. Only
10 percent of university research supported by the state is linked to specific
projects.
In addition to universities, other research institutions are partially supported
by state-level ministries (see Figure 3.1~. These include the institutes of the Max
Planck Society, the Helmholtz Centers, the institutes of the Fraunhofer Society,
and "other institutions" (the Blue List institutes and independent institutions es-
tablished by the states, including the An-Institutes). All these institutions are
described in more detail in "Technology Transfer from Universities," below.
OCR for page 247
TECHNOLOGY TRANSFER IN GERMANY
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OCR for page 248
248 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY
Another set of research institutions, called "departmental research institutes,"
are connected directly to specific state-level and federal ministries. These insti-
tutes often carry out general activities in addition to R&D activities in the area of
the related ministry. Federal ministries with important ties to departmental re-
search institutes include the Ministry of Health, the Ministry of Agriculture, the
Ministry of Transport (included in "Other Ministries" in Figure 3.1), and the
Ministry of Defense (BMVg). Compared with their counterparts in other coun-
tries, German departmental research institutes account for a relatively small share
of total publicly funded R&D. Nevertheless, they often play an important role in
the R&D landscape; some of them are leaders in special R&D sectors.
In the federal government, the most important source of R&D funding is the
Ministry for Education, Science, Research, and Technology (Bundesministerium
fur Bildung, Wissenschaft, Forschung und Technologie [BMBFi).2 The BMBF is
responsible chiefly for R&D budgets and long-term research programs on a gen-
eral level. The BMBF delegates more specific decisions to program agencies
(Projakttrager), which manage project-related activities for nearly all fields sup-
ported by the BMBF (see Figure 3.1~. A further intermediate institution between
the BMBF and it&D-performing institutes is the German Research Association
(Deutsche Forschungsgemeinschaft [DFG]) that is responsible for supporting
mainly basic research projects, especially at universities. It is noteworthy that the
DFG is funded jointly by the BMBF and state governments. Other institutions
that perform intermediate R&D management are the MPG, the FhG, the AiF, and
the Helmholtz Association of German Research Centers (Helmholtz-Gemein-
schaft Deutscher Forschungscentren, HGF). This variety of decision-making
institutions would seem to indicate a high degree of flexibility in German public
funding of R&D. In reality, however, the great majority of public funds are
earmarked for long-term commitments; only about 10 percent of the BMBF bud-
get each year is available for new tasks (Meyer-Krahmer, 1990, 1996~.
In the following sections, the distinct function and important role in technol-
ogy transfer of German universities, the MPG, the FhG, the HGF, and the AiF
will be described in more detail. What most distinguishes these sets of institu-
tions from each other is the focus of their research activity along the continuum of
R&D activities. The MPG is chiefly oriented toward basic and long-term applied
research; the FhG, toward mid- and short-term applied research; AiF supports
cooperative industrial research projects that generally have a precompetitive but
application-oriented character; Helmholtz Centers conduct their activities prima-
rily in areas requiring long-term investments or entailing considerable economic
risks. Some Helmholtz Centers concentrate mostly on basic research, while oth-
ers work in fields of strategic industrial relevance.
Figure 3.2 depicts the general structure of the German R&D enterprise.
Along the horizontal axis, institutions are classified according to their main
sources of funding, whether public or private. Most of the private-sector institu-
tions are industrial research laboratories; the number and research volume of in
OCR for page 249
TECHNOLOGY TRANSFER IN GERMANY
Public sector
Federal and 2.7 Helmholtz
state research -Centers
establishments 4.1
Development
Applied research
Basic research
249
Private sector
14.9
I ITniv~r~itie~ I I
1.9 52.1
-Centers
41 13 ~.. .
.. ....... m ~ ;,, .... , ; ; ; ; ;
1"' 1 'I' ~ ~ ~ ~ ~
1"'' If
... 1 No
~ ~ ~ 1.5 ... 1 ·- ~ ~ ~ ~ ~ ~
1 1 'd
~ .. ~ _ ...................................
...,.. ,. ....,. o
_ _ _ _ _ _
Max Planck l~ra~nhofer
Society Soclety
Major area of performance
~ Minor area of performance
FIGURE 3.2 Main it&D-performing institutions in Germany, expenditures in billion
1995 DM. SOURCES: Reger and Kuhlmann (1995~; Schmoch et al. (1996b).
dependent private research institutes are quite low. There is an intermediate class
of institutions, most notably the FhG and the institutes of the AiF, which receives
funding from both government and industry. The vertical axis displays the type
of R&D conducted: basic research, applied research, and (experimental) devel-
opment. The shading indicates major areas of performance of the different insti-
tutions. Thus, as extreme examples, the MPG concentrates on long-term basic
research, whereas research in industry is mostly short term and application ori-
ented, with time horizons on the order of 3 to 5 years. The sizes of the bars
indicate the annual budgets of the respective institutions.3
Of course, the R&D activities of the different research organizations are not
as clear-cut as Figure 3.2 makes it seem. Thus, it is not surprising that industrial
laboratories perform some basic research (about 6 percent of their total internal
R&D; cf. SV-Wissenschaftsstatistik, 1994) and public research institutes and uni-
versities perform some applied R&D. Nevertheless, it is important to know in
which major areas the different institutions are working in order to understand
relevant distributions of capital and manpower.
The greater orientation of institutions on the left side of Figure 3.2 toward
basic research reflects their commitment to supporting the research needs of non
OCR for page 250
250 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY
economic (in the broad sense), societal goals. The public sector tends to support
earlier stages of the innovation cycle, whereas industry concentrates on later
phases. Technology transfer from the left to the right side is important for the
efficiency of the total system.
All in all, Germany has only a small number of completely private, profit-
oriented research institutes. Instead, the intermediate position between universi-
ties and industry is occupied by nonprofit institutions, namely the FhG and AiF,
both of which operate with some public funding; these institutions do applica-
tion-oriented research. The MPG and the Helmholtz Centers largely supplement
the activities of universities in the areas of basic and long-term research. Among
the public or semipublic institutions, the sector consisting of departmental re-
search institutes is small compared to the Helmholtz Centers, the MPG, and the
FhG. The ratio of R&D expenditures in universities, other research institutions,
and industry is 1:0.7:3.5. As can be seen, the institutional sector lying between
universities and industry is quite large.
Industrial R&D Structures
ORIENTATION OF INDUSTRIAL R&D
To better understand the nature and dynamics of technology transfer to in-
dustry by German universities and other public and semipublic research institu-
tions, it is important to appreciate the comparative R&D and technological
strengths of German industry. In this context, European patent data offer a useful
window on the relative technological strengths and weaknesses of German indus-
try.4 A recent study by Schmoch and Kirsch (1994) compared Germany's share
of patents in 30 separate technology fields with the average share for the rest of
the world in each field.5 Using an indicator of specialization, the study identified
industries in which German patenting was above or below the world average.
The results show a strong orientation toward fields in mechanical engineering,
such as machinery, engines, handling, and transport (Figure 3.3~. Indicator val-
ues for consumer goods and civil engineering are also above the world average.
Fields such as organic chemistry, basic material chemistry, and polymers gener-
ally show average or positive values, whereas biotechnology and pharmaceutical
research (which is linked to biotechnology) show values distinctly below aver-
age. Finally, information technology and related fields such as audiovisual tech-
nology and telecommunications show below-average values. One can conclude
from these data that German industry is marked by a strong emphasis on me-
chanical engineering, a conclusion that is supported by international trade statis-
tics (Bundesministerium fur Bildung, Wissenschaft, Forschung und Technologie,
1997; Gehrke and Grupp, 1994; Hausler, 1989~. Indeed, in Germany there are a
variety of innovative SMEs conducting research related to mechanical engineer-
ing that have a distinct focus on export.
OCR for page 251
TECHNOLOGY TRANSFER IN GERMANY
Electrical energy
Audiovisual technology
Telecommunication
Information technology
Semiconductors
Optics
Control
Medical engineering
Organic chemistry
Polymers
Pharmaceuticals
Biotechnology
Materials
Agriculture, food
Basic materials chemistry
Process engineering
Surfaces
Material processing
Thermal processes
Environment
Machine tools
Engines
Mechanical elements
Handling
Agricultural machines
Transport
Nuclear engineering
Weapons
Consumer goods
Civil engineering
251
is,
l
1 1 1 1 1
- 1 00 -80 -60 -40 -20 0
Specialization index
. . .
. .
20 40 60 80 100
FIGURE 3.3 Specialization index of European Patent Office (EPO) patents of German
origin in relation to the average distribution at the EPO for the period 1989 to 1991.
SOURCE: Schmoch and Kirsch (1994~.
OCR for page 252
252 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY
The moderate specialization indexes for microelectronics and information
technology are confirmed by foreign trade statistics: The related specialization
(RCA) index in the areas of computers and semiconductor devices is distinctly
below average (Gehrke and Grupp, 1994~. In part, this result reflects the fact that
only a few large companies Siemens, Temic Telefunken, Bosch, and the Ger-
man subsidiaries of IBM, ITT Semiconductors, Philips, and Texas Instruments-
are internationally competitive in these areas of research. This means that the
German public and semipublic research institutions have only a few resident in-
dustrial counterparts capable of supporting significant levels of intra- and extra-
mural research. (For further details, see "Technology Transfer in Microelectron-
ics," below.)
The low specialization index in biotechnology has to be interpreted in light
of the very high level of U.S. activity, which largely determines other nation's
average share of biotechnology R&D. Nevertheless, the moderate indicator for
Germany reflects a quite hesitant start on the part of the big chemical companies.
Current activities are often based on affiliations and acquisitions in the United
States, whereas research in German laboratories is still at a moderate level.6
The patent profile of the United States differs significantly from the German
one. The United States has positive index values in the fields of information
technology, semiconductor devices, and biotechnology and negative ones in me-
chanical engineering and consumer goods (Figure 3.4~. The closest correspon-
dence to the German profile can be found in the fields of organic chemistry,
polymers, and basic materials chemistry, which have above-average specializa-
tion indexes in both countries. Also in both countries, the specialization profiles
are generally stable over time. In comparing the German and American technol-
ogy transfer systems, these differences in the orientation of industrial R&D have
to be borne in mind.
TECHNOLOGY TRANSFER TO SMALL AND MEDIUM-SIZED ENTERPRISES
Growing technological and market demands have fostered considerable
growth of R&D cooperation and technology transfer between large companies
and noncommercial R&D institutions in Germany. Although German SMEs face
many of the same challenges that have prompted large firms to seek external
sources of technology and R&D, R&D cooperation between SMEs and noncom-
mercial R&D institutions does not appear to be as widely established as that
involving large companies. Admittedly the collaborative research activities of
German SMEs have not yet been studied extensively. Some analyses, however,
suggest that in recent years, SMEs, especially in the manufacturing sector, are
relying increasingly on technology transfer from external research institutions.
According to a joint survey by the Fraunhofer Institute for Systems and Inno-
vation Research (FhG-ISI) and the German Institute for Economic Research
(Deutsches Institut fur Wirtschaftsforschung (Becher et al., 1989), approximately
OCR for page 253
TECHNOLOGY TRANSFER IN GERMANY
Electrical energy
Audiovisual technology
Telecommunication
Information technology
Semiconductors
Optics
Control
Medical engineering
Organic chemistry
Polymers
Pharmaceuticals
Biotechnology
Materials
Agriculture, food
Basic materials chemistry
Process engineering
Surfaces
Material processing
Thermal processes
Environment
Machine tools
Engines
Mechanical elements
Handling
Agricultural machines
Transport
Nuclear engineering
Weapons
Consumer goods
Civil engineering
253
_-
. . . . .
. . . . .
. . . . .
. . . . _
-100 -80 -60 -40 -20 0 20 40 60 80 100
Specialization index
FIGURE 3.4 Specialization index of European Patent Office (EPO) patents of U.S. ori-
gin in relation to the average distribution at the EPO for the period 1989 to 1991.
SOURCE: Schmoch and Kirsch (1994).
OCR for page 254
254 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY
25,000 SMEs of the former West Germany engage in R&D. A further study by
FhG-ISI and Prognos (Wolff et al., 1994) estimated that in 1991 13,000 German
firms were conducting cooperative R&D and about 3,000 to 5,000 R&D-per-
forming firms offered plausible reasons why they were not engaged in collabora-
tive R&D. Still, a significant number (7,000 to 9,000) of it&D-performing SMEs
could potentially engage in collaborative research but have never done so (Wolff
et al., 1994).
The FhG-ISI and Prognos study differentiated between "hard" and "soft"
technology transfer, as follows:
R&D cooperation (hard) consists of contract research by third parties (com-
panies, public or industrial research facilities, universities, technical colleges,
engineering offices) and joint R&D with or without a contractual basis;
Technology-related activities (soft) includes informal contacts for the pur-
pose of information exchange, performance of technoeconomic studies,
joint utilization of laboratories and other testing instruments and facilities,
employment of university students as trainees or interns, and the prepara-
tion of a graduation or doctoral thesis.
Whereas 50 percent of all SMEs surveyed are involved in R&D cooperation,
30 percent declared that they practice cooperation in "less active technology-re-
lated activities" (Kuhlmann and Kuntze, 1991~. With respect to the importance
of potential partners, there are significant differences between the two types of
technology transfer. In the area of R&D cooperation, customers and consulting
engineers play a vital role, whereas universities and research institutes are of
medium importance, and the impact of polytechnical schools (Fachhochschulen)
is negligible (Figure 3.5~. With respect to cooperation in technology-related ac-
tivities, polytechnical schools and suppliers are the SMEs' most important part-
ners. Universities and research institutes again occupy a middle position.
Although German SMEs appear to be drawing effectively on the technology
transfer abilities of customers, suppliers, and consulting engineers, some observ-
ers believe that the capabilities of university polytechnical schools and research
institutes are underutilized by SMEs. In general, the knowledge generated by
universities, polytechnical schools, and research institutes is sought by an SME
when the firm needs to understand unfamiliar techniques, wants to make use of
testing equipment, or is seeking new approaches. SMEs identified three major
impediments to greater collaboration with universities, polytechnical schools, and
research institutes:
· the low level of interest displayed by these research institutions in the
specific research needs of SMEs (47 percent);
· the high cost to SMEs of cooperating (mentioned by 44 percent);7 and
· the perception by SMEs that these collaborations do not lead to usable
results quickly enough (42 percent) (cf. Wolff et al., 1994, p. 166~.
OCR for page 255
TECHNOLOGY TRANSFER IN GERMANY
customers
T
(export-)dealers~
50%
companies in same
technology fields ~
50% / ::
public testing''
laboratories \ f
~ 1,':
'\/
polytechnics
50%
255
suppliers:
raw-materials,
7( Pre-products
\/ \
A \ suppliers:
' ~ machinery, equip., tools
50%
consulting
engineers
universities/
research institutes
R&D
cooperation
- mother forms of technology
related cooperation
FIGURE 3.5 Partners of SMEs in R&D and technology-related activities, by percent.
SOURCE: Wolff et al. (1994~.
Herden (1992) asked 1,349 German SMEs about the type and frequency of
their contacts with universities and other research institutes during the past 5
years. The results of this study (Table 3.1) further verify the above findings.
According to the Herden data, a mere quarter of all SMEs received techno-
logical knowledge from research institutions or universities. Among those that
did, the most frequent type of technology transfer was soft contacts without R&D
cooperation. In this regard, consulting on the solution to a problem was the most
important channel (cited by 69.8 percent), whereas licensing, which may be
viewed as another information channel, was significantly less important (men-
tioned by 9.1 percent). Training of qualified personnel at universities ranked
second in importance (45.4 percent). The joint implementation of R&D projects
(i.e., hard cooperation) ranked third (33.5 percent). Nonetheless, only about 8 per-
cent of the 1,349 firms surveyed cooperated in joint R&D projects with academic
institutions. Unfortunately, this survey did not ask firms about the temporary
assignment of scientific personnel from universities to firms, therefore, the fre-
quency of this kind of personnel transfer cannot be measured.
The level of SME cooperation with universities and research institutions is
surprisingly low compared with the potential impact of the scientific knowledge
that could be gained through such partnerships (Schmoch et al., 1996b). Tech-
nology transfer from universities and other research institutions to SMEs could
be improved by using public subsidies to reduce the cost of collaboration. It is
estimated that roughly 30 percent of the SMEs involved in R&D cooperation
OCR for page 256
256 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY
TABLE 3.1 Types of Knowledge Transfer from Academia to Industrya
Channels for technology transfer (multiple choices possible)
Percent
Consulting on problem solution
Training of qualified personnel at universities
Joint implementation of R&D projects
Subcontracting of R&D projects
Sharing of laboratory and equipment
Information on the market potentials of new products
Directed search for R&D personnel
Directed search for recent graduates (non-A&D personnel)
Licensing
Short-term assignment of R&D personnel to universities
69.8
45.4
33.5
25.9
24.1
17.7
17.4
14.6
9.1
5.2
aThe survey question was, "Have you directly obtained technical knowledge from research institu-
tions and/or universities during the past five years?" Of the SMEs surveyed, 24.5 percent answered
"yes," 67.1 percent answered "no," and 8.4 percent answered "not yet but planning to."
SOURCE: Herden (1992).
could benefit from public support (Kuhlmann and Kuntze, 1991~. However, much
more difficult to remedy is the perception among SMEs that nonindustry research
institutions are not particularly interested in the research problems of SMEs. Here,
technology transfer units of universities and polytechnical schools could prove
their efficiency by improving mutual understanding of the different research needs
and capabilities of SMEs and research institutions (Kuhlmann and Kuntze, 1991~.
In general, SMEs are considered important pillars of the German innovation
system (Harhoff et al., 1995~. Although they contribute to new and emerging
areas, their specific strength is the rapid diffusion and adaptation of existing tech-
nologies. In this regard, they can draw upon the resources of a variety of R&D-
performing, transfer-oriented institutions such as Fraunhofer institutes and the
research institutes of industrial research associations. (For details, see "Fraun-
hofer Society" and "Federation of Industrial Research Associations," below.)
Furthermore, a dense network of non-A&D-performing institutions supports
technology transfer through innovation-oriented consultancy and the organiza-
tion of knowledge exchange among firms. All Chambers of Industry and Com-
merce (Industrie- und Handelskammern) offer consultancy services concerning
not only technological innovation and potential cooperative partners but also fi-
nancial problems relating to investment and public support programs. The Cham-
bers of Crafts (Handwerkskammern) offers the same services for craftsmen
(Bundesministerium fur Bildung, Wissenschaft, Forschung und Technologie,
1995a; Bundesministerium fur Forschung und Technologie, 1993b). Both insti-
tutions are legal representatives of commercial enterprises in Germany. The
Chambers of Industry and Commerce are financed completely by industry; the
Chambers of Crafts receive considerable public support.
OCR for page 261
TECHNOLOGY TRANSFER IN GERMANY
261
In the United States, the use of venture capital to finance NTBF start-up is
relatively commonplace. The American concept, combining equity as well as
technical and management support, is not working that well in Germany, how-
ever. This is in part because of legal regulations, but also because traditional
ways of doing business are difficult to change. Even if habit and mind-set prob-
lems are easy to identify, it is quite impossible to verify their impact and the
scope of their influence on the difficulties faced by NTBFs. And while it is
possible to modify habit and mind-set on an individual basis, broad structural
change is taking place very slowly. Nevertheless, it is necessary to address these
"soft" factors because they point to the limits of a sudden change in regulations.
Legal restrictions can be addressed more easily. Of particular relevance to
NTBFs are the restrictive regulations concerning bankruptcy and liability. The
bankruptcy law (Konkursordnung [KO]), dating back to 1877, states that every
partnership and legal entity can apply for the commencement of bankruptcy pro-
ceedings and can be made personally liable. Some companies have no limits on
their liability. If bankruptcy is declared, the partnership is automatically made
personally liable in the event that the company's equity capital is insufficient to
pay off debts. But even with limited liability, partners can be made liable beyond
the level of their investment in the firm. In general, bankruptcy is closely con-
nected to the securities offered to and demanded by banks: Debtors with a weak
financial background, in particular, are often made personally liable. For the
GmbH (Gesellschaft mit beschrankter Haftung), banks often demand personal
liability when a limited partnership has liable equity capital of at least DM 50,000.
The same standard can apply to legally formed corporations (Aktiengesellschaft
[AG]), where the partnership can also be made personally liable. In this case,
private assets are used to repay excess business debt by means of an attachment.
According to the regulations, employee claims have first priority, followed by
"ordinary" business creditors, employee pension plans, and public social insur-
ance and pensions (§ 61 KO). A number of other public entities follow those
four, but very often private assets are not sufficient to pay back all the claims.
This threat of personal liability in bankruptcy contrasts sharply with the situ-
ation in the United States. If somebody goes out of business in the United States,
he or she faces almost no problems starting another business. In contrast, one
failure in Germany almost always ends the dream of operating one's own busi-
ness. Therefore, the risk inherent in establishing an NTBF is higher in Germany
than it is in the United States. The apparent risk-averse mentality of founders of
German NTBFs can be connected directly to these legal restrictions.
Two-thirds of American venture capital is administered by independent
funds, one-fourth is handled by corporate venture capital firms, and the remain-
ing portion is held by small business investment companies (SBICs). By con-
trast, the German venture capital and equity stock market is dominated by subsid-
iaries of banks. Some general characteristics of banks, their goals, and attitudes
may hamper their supposed supportive function.
OCR for page 262
262 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY
Banks do not possess the necessary technological knowledge to assess
accurately the risks of investing in NTBFs. Their risk-diversifying port-
folio strategy limits the financing of uninsurable and risky operations.
The universal banking system in Germany and the different inherent func-
tions of saving, lending, and issuing bonds means banks can lose their
reputations if a business they finance fails, and this loss can have a nega-
tive impact on their saving and lending functions. Therefore, banks do
not want to take the risk of issuing bonds for NTBFs. Banks are also
concerned about a possible loss in reputation and the profit margin, which
is low for a small firm compared with a large one, when private busi-
nesses go public. For these reasons, banks prefer to issue credit to NTBFs
without any further commitment to the start-up.
· Banks follow the strategy of constant returns. Therefore, rather than rein-
vesting their capital gains, NTBFs are required to pay dividends or inter-
est to the bank or the equity stock company. This policy limits the growth
potential of NTBFs.
One of the main barriers to success of the American venture capital model in
Germany is the virtual impossibility for SMEs to go public. An equivalent to the
U.S. over-the-counter market, which allows investors to sell off their shares in a
start-up company, does not exist in Germany, but will be established in spring
1997. Venture capital companies therefore have faced a relatively low rate of
return when investing in NTBFs. Going public in Germany is only possible for
corporations (i.e., the legal form of AGs) and can only be done following strict
and conservative financial requirements. An attempt has been made to remedy
this problem by creating the "small corporation" (Kleine AG), which is linked to
significantly fewer financial and bureaucratic requirements. In November 1996,
a European stock exchange, the European Association Securities Dealers Auto-
mated Quotation (ESDAQj, came into being for NTBFs and small technology-
based firms. Its purpose is to promote the concept of venture capital companies,
as the individual national markets of the EU are too small to match the supply and
demand of the relevant actors on the market. Another barrier is that there are no
tax privileges for share capital and capital share gains, which are major incentives
in the United States.
Resistance to venture capital investment is not encountered only on the sup-
ply side. Venture capital and the underlying concept are not widely accepted by
the German founders of NTBFs. Founders vehemently oppose equity stock capi-
tal and venture capital because the investors are accorded executive rights
(Kulicke, 19931. When faced with the financial difficulties associated with
launching an NTBF, a majority of individuals change their minds about wanting
to start their own companies. Most of those who do attempt to form NTBFs favor
remaining independent (Kulicke and Wupperfeld, 19961. Even if NTBFs accept
managerial help and agree to share the executive right of decision making, the
OCR for page 263
TECHNOLOGY TRANSFER IN GERMANY
263
limited competence of German venture capital and equity stock companies in
anything but financial matters can create problems. NTBF founders recognize
the financial expertise of these firms but lament their lack of other supporting
competences (Kulicke and Wupperfeld, 1996~.
The main current impediments to a functioning venture capital market in
Germany, according to Kulicke and Wupperfeld (1996), are
.
.
a lack of attractive "exit routes" for venture capital companies to achieve
high rates of return from NTBFs going public;
· no favorable tax treatment for investors in venture capital companies or
for venture capital companies themselves;
· avoidance of risk by investors and venture capital and business invest
ment companies; and
aversion to loss of independence on the part of NTBF founders and entre
preneurs.
There are a variety of steps that could be taken to increase the usefulness of
the venture capital option for German NTBFs. These include:
· allowing a tax reduction for investors' contributions to special funds and
reducing the applicable capital gains tax rate;
strengthening the pan-European stock exchange for NTBFs;
· teaching managerial skills in natural sciences and engineering schools;
and
improving the competence of venture capital and equity stock companies
to assess financial and technological risks and to deepen their knowledge
of technology.
.
.
To sum up, in Germany, NTBF formation is discouraged by an unfavorable
financial, legal, and social environment. As a result, this important instrument of
technology transfer is used insufficiently. However, various steps are being taken
to adapt this means of technology transfer, which has proved very successful in
the United States, to the specific conditions in Germany and Europe.
Impact of European Research
RESEARCH PROGRAMS OF THE EUROPEAN UNION
The Single European Act, ratified in 1987, formulated a European research
and technological development policy. Its most important aim was to strengthen
the international competitiveness of European industry in technology-intensive
sectors such as information and communication technologies, the biosciences,
and materials research.
The policy's main instruments are the Framework Programs of Community
Activities in the Field of Research and Technological Development. Practical
OCR for page 264
264 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY
realization of the framework programs takes place in so-called specific programs,
which describe in detail the scientific topics and the procedures for carrying them
out. These programs last for 4 years. The Fourth Framework Program, started in
1995, is the most recently initiated, although some specific activities of the Third
Framework Program (1990-1994) are still in operation. The latter established
three focal areas for R&D: basic technologies, management of natural resources,
and management of intellectual resources. These areas were in turn broken into
six sections and a series of specific programs:
Information and communications technologies
Industrial and materials technologies
Environment
Life sciences and technologies
Energy
Human capital and mobility
The Fourth Framework Program extended the specific programs within the
existing sections and added another two sections, in transportation technologies
and socioeconomic research; however, those two programs account for only 4 per-
cent of the EU budget for research and technological development. Information
and communication technologies clearly dominate with more than 36 percent of
the budget.
With a volume of European Currency (ECU) 5,700 million, or just under
5 percent of the total EU budget, the Third Framework Program is relatively mod-
est compared with other EU operations. The significant increase in budget for the
Fourth Framework Program, to ECU 9,432 million, is a further indicator of the
growing importance of EU funds. In absolute terms, EU support for R&D is
becoming increasingly important, especially considering the expected decreases
in the flows of national R&D funds. The growing importance of the EU in sci-
ence and technology becomes even more apparent if one looks at the substantial
efforts that have been made since the late 1980s to strengthen the research and
technology base, particularly of the less-developed regions of the KU, with so-
called structural (regional, social, and agricultural) funds.
EU support for research and technological development is awarded without
regard to national proportional representation or quotas. The success rate of
project applications is influenced mainly by the number and quality of applicants.
In fact, the number of applications has risen substantially in the past few years,
and application approval acceptance rates have dropped continuously. The in-
crease in applications can be explained by a number of factors. The relatively
high number of applications from British institutes of higher education, for ex-
ample, is due to a severe cut in the national research budget for universities (Fig-
ure 3.6~.
EU support primarily takes the form of contracted research with cost sharing.
OCR for page 265
TECHNOLOGY TRANSFER IN GERMANY
60
50
40
30
20
10
o
265
1
P UK
GR ES F IRE I L NL
|-BIG SOME VERDI EI3HEI ~
FIGURE 3.6 Participation structure in the Second Framework Program, by country,
1987-1991. NOTE: BIG = large enterprise; SME = small and medium-sized enterprise;
RDI = nonuniversity research institute; HEI = higher education institution. B = Belgium;
D = Germany; OR = Greece; ES = Spain; F = France; IRE = Ireland; I = Italy; L =
Luxembourg; NL = Netherlands; P = Portugal, UK= United Kingdom. SOURCE: The
database CORDIS.
The selection of projects is based on the following general criteria (see Kom-
mission der Europaischen Gemeinschaften, 1990~:
Precompetitive character of the proposed R&D activities
Transnationality of the project
Scientific and technical quality and originality of the project proposal
European dimension of the proposal (value added through European co-
operation that could not be attained at a purely national level)
Technical and economic usefulness
· Exploitation possibilities for the expected results
However, the EU is currently redirecting its technology policy from pre-
competitive research toward market-oriented projects (Klodt, 1995~. Therefore,
the precompetitive character of proposed projects is no longer a formal prerequi-
site and actually was not strictly applied in former programs.
Compared with what is contributed by industry and the federal and state
governments, the importance of EU financing is still minimal from the German
perspective. From 1987 through 1991, a total of DM 1.3 billion (ECU 653 mil-
lion) was received by German institutions from the KU. This represented only
0.4 percent of total German domestic expenditures on R&D. EU funding repre-
sented about 1.8 percent of R&D expenditures by the federal government and
about 5.9 percent of direct project support by the government (not including R&D
expenditures by the Ministry of Defense).
In some fields of research and technology, however, EU financing has gained
OCR for page 266
266 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY
40
35
30
25
20
15
10
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Life Energy Human
capital and
mobility
9
ment sciences
FIGURE 3.7 R&D expenditures of Germany (1992-1993) and the EU by sections of the
Third Framework Program. NOTE: ICT = information and communication technology;
IMT = industrial and materials technologies. SOURCE: Reger and Kuhlmann (1995~.
considerable significance in Germany. The EU is relatively more active in infor-
mation and communications technologies (ICT) than is Germany (Figure 3.7~. In
absolute terms, EU financing of German R&D activities in this field is equivalent
to approximately one-fifth to one-quarter of what the German government spends
on R&D in this area.
As to the four focal areas of this report, the research and technological devel-
opment activities of the EU are particularly relevant for information technology,
microelectronics (included in information and communications technologies), and
biotechnology. Production technology is supported under the heading of indus-
trial technology.
In 1991, German participants received 22 percent of available EU funding, a
quite significant percentage. However, the allocation of those funds among dif-
ferent sectors of the R&D systems is uneven. EU funding for predominantly
industrially oriented programs goes chiefly to German industry. Even in the rela-
tively science-oriented programs, contractors from industry predominate. How-
ever, nonacademic German R&D institutes are significantly underfunded com-
pared with similar institutions in other countries that receive EU support. German
institutes of higher education are also underrepresented compared with the aver-
age of all EU countries (see, for example, Figure 3.6 and Reger and Kuhlmann,
1995, p.25~.
The impact of EU-funded R&D varies significantly among recipient coun-
tries (Figure 3.8~. Whereas EU funds play a minor role in the German R&D
system, in other, structurally weaker countries (especially southern countries),
OCR for page 267
TECHNOLOGY TRANSFER IN GERMANY
300C =
2500
2000
1 500
1 000
500
o
267
_=
i.. U~t
B OK D ES F IRE I L NL P UK
FIGURE 3.8 Participants in the Second Framework Program, by country, 1987-1991.
NOTE: B = Belgium; DK = Denmark; D = Germany; ES = Spain; F = France; IRE =
Ireland; I = Italy; L = Luxembourg; NL = Netherlands; P = Portugal; UK = United King-
dom. SOURCE: The database CORDIS.
EU funds support a significant portion of national R&D programs. Thus, if a
country's gross domestic product is taken into account, the dominance of Ger-
many, France, and the United Kingdom is diminished. From Figure 3.8, of course,
one can only imagine the relative importance of EU support for "weaker" coun-
tries like Ireland, Portugal, and Spain.~°
German R&D institutions have a number of concerns about EU R&D sup-
port (see, for example, KoWi, 1992), including
.
· that there is inadequate representation of some research fields among those
that gain EU support;
that there is excessive amount of bureaucracy involved in the application
procedure and the management of the project (see, for example, Schmoch
et al., 1996b);
· that the dominant role of the English language can be a hindrance in the
running of EU projects and in the work of transnational project consortia;
and
· that low rates of approval for project proposals waste resources if the
application fee is high.
Despite these problems, German R&D institutions will likely become more
interested in receiving EU funding. This is in part because they are becoming
increasingly aware of the growing importance of international and in this con-
text, European cooperation in R&D. In addition, the "years of affluence" in
German national R&D support are over. Therefore, research institutions must
search for other sources of support to compensate for the reductions in govern-
ment funding.
OCR for page 268
268 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY
THE EUREKA INITIATIVE
General Structures
The EUREKA initiative was launched in 1985 as a reaction to the American
Strategic Defense Initiative. It is not a program of the KU, but it has provided a
framework for international collaboration among firms and research institutes in
the fields of advanced civil technologies. Its aim is to
· strengthen the productivity and competitiveness of European industry,
· develop a common infrastructure, and
· solve problems, especially environmental ones, affecting more than one
country.
EUREKA is not intended to harmonize European R&D policy, but rather to
use available potentials for common goals. In contrast to the generally pre-
competitive EU programs, EUREKA projects are market oriented. EUREKA
projects are intended to complement existing programs of the KU. Members of
EUREKA are the countries of the KU, the European Free Trade Area (EFTA)
countries, Turkey, and the European Commission.
Two keys to the EUREKA concept are its bottom-up approach for setting an
R&D agenda and its flexible structure. This means that, in contrast to EU pro-
grams, there are no predetermined technological areas. It is left to participating
companies, universities, and other public- or private-sector research bodies to
determine their particular areas of interest. In principle, there are no limitations
to the type of projects undertaken. However, nine focal areas have been identi-
fied: communication technology, information technology, lasers, transportation,
energy technology, robotics, biotechnology, new materials, and environment (Fig-
ure 3.9~. Each EUREKA project is conceived and managed independently.
There are no limitations to the size or scope of EUREKA projects. Although
governments may play a role in setting standards and norms (e.g., in the environ-
mental area), the particular R&D approach is left to the participants. A special
60
50
~ 40
~ 30
~ 20
10
o _
58.3
8 6.6 8.8
'I V.V 1 1
1 9 4.7 5.5 2.3 3.9
.. .. 1 1.1 1 .. , ,.
. . . . .
Enviro- Biotech- Robotics IT
nment nology
New Transport Commun- Energy Lasers
materials ications
FIGURE 3.9 Volume of research conducted in areas of technology, as a percentage of
total EUREKA financing, status as of 1995. SOURCE: EUREKA (l995~.
OCR for page 269
TECHNOLOGY TRANSFER IN GERMANY
160
140
120
5: 1 00
E 80
Z 60
40
20
lo
269
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52 . 42 . 38 . 27 . 52
| ~ Without German participatiol|
| ~ With German participatiol ~
, . . . ~ I
Environ- Biotech- Robotics IT
New Transport Energy Commu- Lasers
ment nology materials nication
FIGURE 3.10 EUREKA projects, including those with German participation, according
to technology, status as of 1995. SOURCE: EUREKA (1995~.
form of cooperation has arisen with so-called umbrellas. These serve as framing
projects in which single projects are organized and carried out in a flexible but
coordinated manner. Results are shared among participants as a way of promot-
ing awareness (EUREKA, 1995~. Important to EUREKA's flexibility is its de-
centralized structure. Each member nominates a National Project Coordinator to
assist participants from that country.
As of June 1995,711 EUREKA projects were in progress, and 226 had been
completed. The budget for current projects is DM 19.6 billion (including the
contribution of participants). A total of 3,591 participating institutions were
counted. Figure 3.10 shows the considerable German participation. Large com-
panies are participating in about 43 percent of EUREKA projects, SMEs are in-
volved in 24 percent (Figure 3.11~. The budget figures for EUREKA and EU
programs are not directly comparable, since they relate to different periods of
Research
institutes 28%
SMEs 24%
Other organizations 5%
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:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::1
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:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: :y
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::1
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:::::::::: ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::1
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::,
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: :/
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: :/
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::/
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::;,'
::::::::::::: ::::::::::::::::::::::::::::::::::::::::::/
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::;~
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::::::::::::: ::::::::::::::::::::::::::;'
::::::::::::::: :::::::::::::;'
::::::::: :::::::::::::::::
::::: :::::::::::::::
:::::::::~
Lit
Large companies 43%
FIGURE 3.11 Involvement of EUREKA participants by major organization types status
as of 1995. SOURCE: EUREKA (1995).
OCR for page 270
270 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY
time and involve different contributions by the participants. In any case, the
budgets have the same order of magnitude.
A prerequisite for EUREKA projects is sound financing, which may come
from either national or EU sources. In most cases, if German participants apply
for public support, the BMBF will allocate them funds out of its programs.
All in all, the participating companies assess the EUREKA initiative very
positively. Almost two-thirds considered that they have improved their interna-
tional technological competitiveness, nearly 90 percent expect to produce new or
improved products, and about 40 percent expect to achieve an increase in sales
(EUREKA, 1993~.
The Impact of JESSI
JESSI became a EUREKA project in 1989 and was scheduled to end in 1996.
Its goal was to enhance the competitiveness of Europe in the areas of information
technology and microelectronics. Financing sources for JESSI are shown in Fig-
ure 3.12.
More than 180 partners from 16 countries contributed to the JESSI program,
providing approximately 3,100 person-years of effort annually. The estimated
cost of this work was ECU 460 million in 1994 and will probably turn out to be
the same in 1995. Approximately 50 percent of the work is carried out in France
and Germany.
All of the JESSI projects are funded on a cost-shared basis. The partners pay
50 percent and either national public authorities or the EU pays the remaining
50 percent. The total budget for 1989 through 1996 was ECU 2,560 million.
National
governments 37%
::::::::
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:::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::
:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:
x::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
N...........................................
~
EU 13% ~ - ~
JESSI
partners 50%
FIGURE 3.12 Financing sources for JESSI, 1989-1996. SOURCE: JESSI (1995~.
OCR for page 271
TECHNOLOGY TRANSFER IN GERMANY
, [
""""""""""""""""""""""""""""""""""""""1
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competitive I I clean l l
manufacturing | I environment ~ ~ lithography
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logic I I chemicals
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packaging I I gases
271
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......................................... ..................................
| broadband | I HDTV | | advanced
I communication r 1 | | CMOS l
silicon I safety electr. ~ ~ mobile radio
etching and | | digital audio L I
~ | deposition | | broadcast |
testing ~computer
FIGURE 3.13 Program structures of JESSI. SOURCE: JESSI (1995~.
.
single projects:
JESSI common framework
HDL component modeling
technology assessment
SMI support
high-resolution displays
The program was divided into four subprograms (see also Figure 3.13~:
· Technology: Development and testing of the basic flexible competitive
manufacturing technology for advanced system applications, to be avail-
able by the mid-199Os.
· Application: Devising flexible, competitive system-design procedures and
tools for the development of highly complex integrated circuits.
Equipment and materials: Development by the European supply industry
of manufacturing equipment and materials for selected areas of micro-
electronics.
· Basic and long-term research: Basic and complementary applied research
with the long-term perspective.
JESSI was successful in establishing a pan-European platform for collabora-
tive research. Europe leads the field of digital audio broadcast thanks to relevant
activities in the application subprogram. The digital audio broadcast project pro-
vided all the necessary components for planned field tests. Transmissions are in
progress in 21 areas (10 more are planned), and 8 million people can already
receive digital audio broadcasts.
Significant results have been achieved in the important JESSI subprogram of
technology. Technological competence has been attained in the area of micro-
electronics. For example, a close cooperation between all major European inte-
grated circuit companies has been established. Outcomes of this collaborative
research include:
.
the 0.5-micron CMOS technology of Crolles (jointly developed by SGS-
Thomson, CNET, and PHILIPS), which is being transferred to the new
PHILIPS Waferfab. Siemens and ES2 have signed an agreement allowing
ES2 to produce chips with the Siemens 0.5-micron CMOS process.
Representative terms from entire chapter:
research institutes
