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Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research
Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research
Pages 224-284
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The 60 Fraunhofer institutes in Germany, with an average staff of 400, perform research and test industrial processes on their premises which enjoy state of the art equipment and deep human competencies. Fraunhofer's funding is derived from diverse sources, including federal, state, and European Union public funding, fees from contract research for industry and public organizations and foundations, and licensing fees for intellectual property.
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Public funding of the Fraunhofer reflects a longstanding German national consensus that public investments must be made in research infrastructure that includes infrastructure for applied research with commercial relevance. 1 It is important, however, not to overrate the impact and the importance of Fraunhofer Gesellschaft for the German research and innovation system.
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House of Commons Science and Technology Committee commented in 2011 that "the name Fraunhofer resonates across the world and is widely associated with an impressive network of German technology and innovation centres."3 In 2010, the United Kingdom's Minister of State for Universities and Science, David Willetts, testified that the Fraunhofer Institutes "have been a key part of Germany's success in advanced manufacturing and high grade engineering.4 In 2010, Fraunhofer was Germany's second most popular employer for graduates in the natural sciences, fourth most popular for information and communications technology graduates, and seventh most popular for engineering graduates5. The amount of contract research business with industry -- an accepted benchmark of Fraunhofer's effectiveness in promoting industrial innovation -- is at an all-time high and increased by 15 percent between 2010 and 2011.6 Recent German Economic Performance A recent resurgence of interest in the Fraunhofer reflects the fact that Germany has weathered the financial crisis which began in 2008 far more innovation voucher programmes have been launched.
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Sectors which particularly profited from this development include the manufacture of road vehicles, machinery, electrical machinery, and chemicals."9 This performance poses the obvious question of how a wealthy, highwage country with a strong currency could compete so successfully in a global market where the terms of competition are increasingly driven by low-cost Asian firms.10 German Model of Innovation The German model of innovation applies science, technology, and engineering to drive incremental but constant improvements in processes and technologies and aims at niche areas where competition is less intense than in large commodity markets.11 Although Germany has a vast array of research organizations capable of supporting such a strategy, the Fraunhofer is the foremost, and is most often cited as the driver of German competitiveness in export markets. The perception of Fraunhofer as a success story underpinning German competitive achievements in global markets has led other countries to study its methods and structure to determine whether part or all of the 7 Spiegel Online.
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Fraunhofer staff acknowledge the success of the institute's funding approach, but emphasize its relational aspects as the real basis for its success. Fraunhofer institutes operate in vast, multiple overlapping human and institutional networks embracing universities, companies, research organizations, trade associations, and foundations, organized by scientific field and areas of interest.
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The best of these firms, the so-called Mittelstand, are typically family-owned, highly specialized, based in small cities and towns, and "build products that dominate obscure industrial subsectors". "There is no doubt that the German Mittelstand were one of the main factors that generated economic success and prosperity in Germany after World War II."19 Observing the slogan, "don't dance where the elephants play," the Mittelstand pursue niche markets, particularly at the high end of the product spectrum, and make continuous incremental improvements in their products to maintain leadership over their competitors.20 "It might be that their products will not be the cheapest, but they definitely have the best quality."21 A 2007 study 17 Typically the Fraunhofer Institute for Molecular Biology and Applied Ecology IME in Aachen states in its 2011/2012 Annual Report that "The R&D activities in the various IME business areas involve certain platform technologies that need sophisticated apparatus and infrastructure as well as highly trained staff…The services provided include sequencing, chip technologies, proteomics, metabolomics, recombinant protein production, protein purification, protection structural and functional analysis, antibody manufacturing, and high throughput imaging technologies and are available to the working groups within the IME as well as the external clients." Fraunhofer IME.
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How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States, and Japan. Cambridge: Cambridge University Press.
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108. Numerous Fraunhofer institutes pursuing research themes with little apparent nexus with the automotive sector are in fact active in that sector.
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Stefan Kulhman, Director of the Fraunhofer Institute for Systems Innovation Research in Karlsruhe, told a National Academies symposium in 2007 that Germany's education system, long considered quite strong, had declined to a point of crisis and required "and expensive restructuring."34The German university system is widely criticized and may prove incapable of supplying enough graduates with the skills required by German industry.35 In 2011, on any given month, Germany averaged 92,000 vacant engineering jobs. The director of the Köln Institute for Economic Research IW, Hans-Peter Kloes, commented that "if we cannot close the engineering gap, the continuing shortage of qualified employees will become a threat to the German business model."36 Even the vaunted vocational training system is under strain; a 2010 study by Germany's education ministry found that while there was an unmet need in German industry for 9-10,000 apprenticeships, one in five apprentices "did not stick out the apprenticeship," the number of students entering apprenticeships was declining, and "businesses are facing a huge drop-off in apprentice numbers."37 The Fraunhofer is implicated in at least some of these systemic weaknesses: Because the Fraunhofer business model is based on demand for research from industries that already exist, it has little economic 33 "East Germany and Berlin together eat up nearly one-quarter of the…federal research budget while employing only 11 percent of the country's R&D personnel and accounting for 6 percent of its patent production." Kuhlman, Stefan.
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In fact, one-third of Fraunhofer's funding consists of "core" money provided by the German federal and state governments, roughly another third comes from research contracts with government entities, and one third is provided through research contracts with the private sector -- which are frequently supported by government grants and other financial assistance. While Germany as a nation tends to regard such public expenditures as a necessary form of infrastructural investment, it is unclear that such a high-level of government spending on commercially-related research could be reconciled with U.S.
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Germany remains strong in industries like automobiles, 38 In the British Parliament's recent deliberations over the establishment of intermediate research organization patterned on the Fraunhofer, concern was expressed by the Institute of Physics that the result "may well be to put further pressure on the universities which use research contracts as alternative sources of funding." House of Commons Science and Technology Committee. Technology and Innovation Centres.
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THE INSTITUTIONAL SETTING The German innovation system is complex, featuring multiple levels of governance and interlocking responsibilities between different ministries and between authorities at different levels of the political system.40 Significantly, "in contrast to many other countries, [in Germany] , there is an implicit consensus at the federal and state levels that funding should, by and large, be geared towards bridging the gap between knowledge creation and application."41 The system is characterized by dispersion of authority and funding responsibility.42 Federal Ministries At the federal level, the main responsibility for science and technology policy lies with the Federal Ministry of Education and Research (BMBF)
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Under this arrangement, the Fraunhofer receives 90 percent of its core funding from the federal government and 10 percent from the Länder. The 90:10 funding ratio has endured for decades; it is one of many "organizational arrangements" in the German innovation system which "are very rigid because they are the result of complicated power balances which nobody can disturb because of possible incalculable consequences."44 The rigidity of the German research funding arrangements arise out of a concordat between the federal government and the Länder that was negotiated in the early 1970s.45 "Research Cartel" "Fraunhofer institutes occupy a specific role in a very elaborate division of labour within the German system of research."46The German nonuniversity scientific research arrangements are widely characterized as a research promotion cartel.
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is a designation for about 80 other large and medium-sized research organizations which engage in basic and applied research. Finally, 50 research institutes are directly organized under a federal ministry (Bundesforschungsinstitut)
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.Reflecting the concern that German public funding of R&D is characterized as a "sprinkling can," featuring large numbers of small grants for small projects, the High Tech Strategy seeks to concentrate public spending on targeted areas of cutting edge research. The strategy also targets perceived weaknesses in the German innovation system, including an inadequate market for venture capital and direct investment capital, inadequate participation by SME's in R&D, and difficult conditions confronting technology-based start-ups and their financial backers.52 State Initiatives Within the German federal system the Länder enjoy a degree of leeway for unilateral policy initiatives.
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It has 20,000 employees.53 Each Fraunhofer institute is linked with a German research university and the Directors of Fraunhofer institutes usually also serve on university faculties. The Fraunhofer has established seven institutes in the United States and research subsidiaries in Chile, Austria, Portugal, and Italy.
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The Executive Board manages the institutes' business activities, develops science and research strategies, and negotiates with governmental organizations to raise funding. The Executive Board appoints the Directors of the individual Fraunhofer Institutes.60 56 Written Evidence Submitted by Manchester Institute of Innovation Research, Manchester Business School, University of Manchester.
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The individual Fraunhofer institutes enjoy a high degree of autonomy and are allowed to choose their research fields and topics, their projects and the handling of project results. Individual institutes are free to determine their own internal organizational structure, set up separate profit centers, and distribute basic funding.
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A total of 18 chairs and institutes at RWTH Aachen and two Fraunhofer institutes (ILT and IPT) have established a "Cluster of Excellence…Integrative Production Technology for High Wage Countries," the purpose of which is "to engage process engineers and materials scientists to develop new concepts and technologies for sustainable manufacturing."64 Another example of the close Fraunhofer-university collaboration is the Dresden Innovation Center Energy Efficiency (DIZEEFF)
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In the 1980s, the federal research ministry provided grants to small and medium companies to participate in contract research projects at Fraunhofer institutes to develop applications for hybrid integrated circuits in sensor systems. "Technologie Nachrichten -- Management Informationen.
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Funding Federal Government 490 Lander Government 63 Revenue from FhG Activities Federal Government Project Funding 323 Contracts 11 Lander Government Project Funding 190 Contracts 3 Revenue from the Private Sector 454 Research Funding 111 Organizations/Other Increase in work in progress 36 Other operating income 39 Interest and other income 1 Total 1,727 SOURCE: Fraunhofer Gesellschaft Annual Report 2010. probably understate the amount and proportion of public funding because they do not break out funding from the European Union programs as a separate line item.71 71 EU funding may be included in "research funding organizations and other funding sources", it may be reflected in "revenue from the private sector, or both.
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10 percent of the basic fund is used to purchase new equipment.72 The remaining 15 percent is retained by the FhG Executive Board for use for special projects and the opening of new institutes.73 In recent years, the Fraunhofer has been able to establish new research units with public economic stimulus funds from the federal government and the Länder, as well as the European Regional Development Fund (ERDF) .74 The Fraunhofer also derives income from donations, which are tax-deductible like charitable contributions.75 Infrastructure capital outlays are reported separately from Fraunhofer's operating budget, which reports 143 million Euros in "current capital outlays." This figure reflects investments in equipment and other fixed assets to maintain the operations of existing Fraunhofer units.
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20. Contract Research for Industry German and foreign firms contract with Fraunhofer institutes for research on specific themes.
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79 An example is Roth and Rau's R&D center at the company's headquarters in Hohenstein-Emsttal, Germany, an 11-million Euros project to develop products and processes to support more efficient solar cells. Fraunhofer-Gesellschaft contributed 3 million Euros to this project to equip the center with technology for research projects to be performed jointly by Roth & Rau and Fraunhofer institutes in Saxony.
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and Germany's semiconductor maker Infineon to open the Center for Nanoelectric Technology (CNT) near Dresden, with the two companies assuming responsibility for operating the site.83 The Fraunhofer Institute for Cell Therapy and Immunology IZI manufactures cell-based therapeutic products for pharmaceutical companies such as Northwest Biotherapeutics and Cognate BioServices Inc.84 Fraunhofer institutes are organized in parallel structures of thematic "research units" and "business units." Contacts with industry are made by the business units, which are the point of entry into the Fraunhofer system.
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Nevertheless, some studies have observed that Fraunhofer institutes "tend to pursue longer-term R&D for larger corporations and have often had a difficult time reaching and serving SMEs".86 The Fraunhofer's figures for 2008 indicate that over two-thirds of its contract R&D for industry is conducted for firms of 250 or more employees. The term Mittelstand is sometimes used to refer to all German SMEs, but it more accurately describes a subset of German SMEs "characterized by 86 Shapira, Philip and Stuart Rosenfeld.
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89 While some German machine builders have moved production overseas to take advantage of lower labor costs, many others view outsourcing with skepticism. Mittelstand producer BueMi in Gevelsberg near Wuppertal, manufactures precision parts for machine tools and supplies companies like Thyssen Krupp, Siemens, and Bombardier.
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The Mittelstand are "very important in the context of the Fraunhofer model as these are the companies that are very commonly the funders, customers and economic beneficiaries of the work of each of the Fraunhofer Institutes, alongside the smaller number of industrial giants." Written evidence submitted by the University of Bristol (TIC 43) , House of Commons.
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The Fraunhofer FEP team worked with the company to build a complete pilot manufacturing line at the institute to produce thin film cells with the highest possible efficiency, with a target completion date of 2015. Four Roth & Rau employees work directly on the pilot line at the institute in order to facilitate continuous knowledge transfer to the company.
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The parties also developed and refined a manufacturing process for the filters which was tested and perfected on a pilot production line at Fraunhofer IKTS. The company hired staff for its own production facility in Grossrohrsdorf who worked on the pilot line at the institute for six months, enabling them to bring their know-how to the company's commercial production line.
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Fraunhofer concurrently established the Fraunhofer Institute for Machine Tools and Forming Technology IWU in Dresden and Chemnitz. Since then Volkswagen and Fraunhofer IWU have worked on a "whole series of joint research and development projects in the field of production engineering." The Fraunhofer IWU Advisory Board has always included Volkswagen executives and the Advisory Board has been chaired by Professor Hochem Heizmann of Volkswagen since 2007.b In 2008, Volkswagen concluded an agreement with Fraunhofer-Gesellschaft to establish a joint "Center of Excellence for Automotive Production" in Chemnitz which would develop and test flexible resource-efficient production methods for automobiles.c The center has become an "integral part" of the Research Factory for Resource Efficient Production, a project jointly operated by Fraunhofer IWU, Volkswagen, and Audi.
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Cit. EU-funded Research The Fraunhofer Institutes derive a portion of their funding from European Union programs supporting R&D: Framework Program Seven (FP7)
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105 "[T] he lobbying power of the Fraunhofer Institutes at the European level should not be underestimated and should be a force to be reckoned with if similar institutions wish to influence or benefit from European initiatives in Research and Development." House of Commons, Science and Technology Committee.
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Fraunhofer Institutes are each staffed with an average of 300-400 people. There are exceptions to this pattern -- the Fraunhofer Institute for Solar Energy Systems (ISE)
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258 21ST CENTURY MANUFACTURING FIGURE APP-A2-3 Growth in the Fraunhofer-Gesellschaft's workforce, 2007-2011. SOURCE: Fraunhofer Annual Report 2011, p.
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Stuttgart, Germany, June 14, 2012. 110 Written Evidence Submitted by Advanced Manufacturing Research Centre (AMRC)
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He comments that "our experience of the U.S. is that there is a lot less collaboration by laboratories with each other and industry."112 Companies that engage Fraunhofer for research tap into a rich university research network.113 The Fraunhofer institutes also form networks with each other, with the recognition that "coordinated competencies allow quick and flexible arrangements of research work on the requirements of different fields of application to answer actual and future challenges."114 Fraunhofer has 23 "Fraunhofer alliances," which are combinations of Fraunhofer institutes with expertise relevant to topical themes such as cloud computing, adaptronics, embedded systems, high-performance ceramics, and optic surfaces.115 The Fraunhofer plays a prominent role in international networks formed to address specific technological themes.116 pace with this increasingly dynamic business environment is by working within innovation networks which we can draw upon as needed.
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The second phase, another workshop was to be a forum for winnowing these ideas down to a manageable number. However, "a second purpose of the workshop was to create networks and partnerships between the client and other Fraunhofer institutes." Accordingly, representatives from four Fraunhofer institutes were present at the workshop.
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In 2008 over half the institutes' total revenues from licensing were derived from patents generated by two Fraunhofer Institutes, the Fraunhofer Institute for Integrated Circuits (IIS-Erlangen) and the Institute for Digital Media in Technology (Ilmenau)
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. Since its inception, MFI has continued to work closely with Fraunhofer ISIT in "converting the results of research projects between Fraunhofer ISIT and industrial partners into a commercial volume manufacturing environment." "X-Fab and MFI Combine MEMS Foundry Offerings." 2011.
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These typically involve one or more Fraunhofer Institutes, a local university, and a number of large and small industrial partners.b ____________________________ a In 2007, Baden-Wurttemburg's Minister of Economic Affairs, Ernst Pfister, defined "cluster" as a "geographic concentration of companies linked to each other, specialized suppliers, service providers, companies in related sectors, and supporting organizations like universities and research institutes, other scientific and educational institutions, chambers, associations, and the like." Business Baden-Wurttemburg.
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is…context dependent, which includes the presence and nature of other academic or business centres of excellence; the balance of business sectors; and the importance attached by the public and private sector to innovation within a particular nation." Written Evidence Submitted by British Private Equity and Venture Capital Association (BVCA)
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These elements of the German innovation system were in place long before the Fraunhofer first opened its doors in 1949, and the place which applied research institutes like Fraunhofer were expected to occupy within the system were well understood throughout German society by the time Fraunhofer was founded. Today, many well-educated Germans understand what Fraunhofer is, what it does, and where it fits in the German economic system.
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The institutions were linked to Baden's institutions of higher learning, and in the latter Nineteenth Century, evolved into specialist schools (Fachschulen) designed to provide mid-level instruction in specific disciplines such as metalworking, engineering, and woodcutting.140 The speed and extent to which these schools improved the quality of local production "astounded" visiting German officials and led to "general acclaim" for Black Forest wood products at Economic Performance in the German Economy.
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The Handiwork Protection Law created a system under which chamber-supervised small business provided high-quality skills training to apprentices and journeymen which was frequently linked to mandatory school attendance, The system, which produced a flow of skilled workers into German industry from the artisanal sector, established "some of the scaffolding on which Germany's system of vocational education and training would ultimately be built." Thelen, Kathleen.
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Established as a private association, the KWG derived most of its funding from private sources but the Prussian government contributed building, land and salaries for the directors of the institutes.147 Between its founding in 1911 and 1948, the KWG supported the establishment of 35 research organizations, which included some of the most important and prestigious academic institutes in the world.148 The Institutes were a source of trained scientific and engineering talent, but also a source of scientific and technical knowledge for German industry, a linkage which "was much closer in Germany than in Britain, where it rarely existed at all, and even in the United States, where at the turn of the century, the process was just beginning."149 Education and Industrialization Fredrich List, a native of Wurttemburg, was a German economist who developed and espoused a series of proposals to enable Germany to overtake England in industrial development. His 1841 book, The National System of Political Economy, is widely regarded as the first articulation of the concept of national systems of innovation.150 He advocated protection of infant industries and a broad array of economic development policies, most of which "were concerned with learning about new technology and applying it." Due to List's advocacy as well as that of other economists, "Germany developed the best technical education and training systems in the world [which was]
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1990. "Trends in the Twentieth Century German Research Enterprise," in National Academy of Sciences, The Academic Research Enterprise within the Industrialized Nations: Comparative Perspectives.
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Considerable efforts were made to keep the technology secret, and British government banned export of the machines. The Prussian government ensured that its Technical Training Institutes received British machine tools for reverse engineering and training of craftsmen who disseminated the technology through German industry.
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1974. The Rationalization Movement in German Industry: A Study in the Evolution of Economic Planning.
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The rise of Hitler to power saw a massive increase in public investment in infrastructure and industry and under the leadership of the Reich Research Council, founded in 1937, academic research was mobilized to support the war effort, and yielded dramatic new technologies, including jet aircraft, nerve gas, stealth technology, hardened armor, ballistic missiles, radar, and synthetic materials such as nylon and synthetic fuels. However, the Nazi regime's anti-Semitic policies led to an exodus of Jewish scientists, decimating the faculties of German universities and research institutes.
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German industrialists were aghast at deconcentration measures that "dismantled hundreds of viable plants, disrupted supply networks, and broke many of the links between the agricultural and industrial sectors." "Many Germans saw the Allied controls as even more oppressive than the Nazis," and those measures contributed to the subsequent German "atmosphere in which enthusiasm for state intervention was quite limited."170 Despite the massive discontinuities of the period 1914-50, the German innovation system reestablished itself in the immediate aftermath of World War II with a remarkable degree of continuity with respect to pre-1914 institutions 166 BBC News.
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7. 172 Plant-based apprenticeship "more or less spontaneously re-surfaced after the war recommencing most quickly and thoroughly in the craft sector as early as 1945." By the time of the founding of the federal republic in 1949, "the enterprise-based part of the dual system had been re-established on the basis of employer self-governance with distant supporting roles assigned to both the state and unions." One academic terms these developments a "re-anchoring of traditional training structures."Thelen, Kathleen.
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October 22. The Fraunhofer's first president, Nobel Prize winner Walther Gerlach, established a pattern that still characterizes Fraunhofer institutes, retaining a university position while simultaneously serving as head of the research institute.
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The German Federal Ministry of Economics formally recognized it in 1952 as the "third pillar in the German research infrastructure" alongside the Max-Planck-Gesellschaft and the Deutsche Forschungsgemeinschaft (DFG, the German Research Council) , but it met with resistance and competition from established research organizations.182 Originally largely limited to geological surveys, it was ridiculed as "the Bavarian Research Association for Mining." The organization's first president, Gerlach, was a basic scientist who disdained applied research, and as a result, was pressured into resignation by the Fraunhofer Senate in 1951.183 The Fraunhofer survived its shaky beginning largely as a result of public support.
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cit. The Bavarian politician Franz Joseph Strauss who was Defense Minister at the time, "set-up the Defense Ministry as a patron of the Fraunhofer Foundation." Five Fraunhofer institutes were opened at the instigation of the Ministry and by 1959, the Fraunhofer had four institutes working exclusively for the ministry and six others working part time.
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In 1970 it took over an organization originally formed in 1930 as the Prussian Institute for Wood Research, which was rebranded as the Fraunhofer Institute for Wood Research WKI.196 In 1971, it acquired the Max-Planck Institute for Silicate Research in Wurtzburg, which became the Fraunhofer Institute for Silicate Research ISC.197 In 1991, in the wake of German reunification, numerous research organizations based in former East Germany were absorbed into Fraunhofer.198 In 2001, Fraunhofer acquired 8 research institutes of the German National Research Center for Information Technology (GMD) a move that was backed by the German research ministry but bitterly resisted by the GMD's management and staff, who believed (correctly)
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"There was a flood of applications" from German industry and 1,285 applications for CAD/CAM grants were approved. Produktion.
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, operated research institutes in the city, or were involved in research collaborations with one of Munich's research institutes. The greater Munich region was the site of 10 Fraunhofer institutes, 11 Max-Planck institutes, 11 universities, and 17 polytechnics.
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The German innovation model in general, and the Fraunhofer's approach, in particular, do not offer the prospect of radical, paradigm-shattering technologies. They do, however, demonstrate that a high cost, high wage country can compete effectively in global markets in established industries through the systematic and continuous application of knowledge -- without necessarily moving production processes offshore.
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Whatever the obstacles to a literal implementation of the Fraunhofer model in the United States, the United States has adopted and adapted other German institutional innovations ranging from Kindergarten to the modern university research laboratory system, and it would appear that limited aspects of the German system could be adopted in this country. While the United States will not replicate Germany's Dual System of vocational education, the enlightened expression of that system at the high end of the educational ladder in the Fraunhofer institutes, featuring concurrent academic study and applied 202 The Economist.
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The Prussian initiative which established the first Kaiser Wilhelm institute eventually led to the creation of a nationwide network of parapublic research organizations. A similar initiative by Bavaria and Baden-Wurttemburg in the 1950s culminated in the creation of the nationwide network of Fraunhofer institutes.
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