Services in the Future - Zentrum für Europäische ...ftp.zew.de/pub/zew-docs/mip/MDP98_s_e.pdf · Services in the Future 3 The survey covers almost the entire area of market related

S u r v e y

1 9 9 8

M a n n h e i m

N o v e m b e r 1 9 9 9

Services in the Future

Innovation Activities

in the Service Sector

Z E WZentrum für EuropäischeWirtschaftsforschung GmbH

Innovation activities in the German ser-vice sector are developing in an altogetherstable way. Within the service sector, how-ever, clear conflicting developments areappearing. Innovation activities of mo-dern, growing service branches – ban-king/insurance, data processing and tech-nical services, consulting and other servi-ces (principally business-oriented) – arebeing intensified continuously. Innovationactivities among traditional services – re-tail trade, wholesale trade and transportservices – are falling back, however.

The most important results of the 1998survey on innovation activities of the ser-vice sector in 1997 are, in short:� The share of innovative service compa-nies not including trade and transporthad, at 66%, reached a level in 1997which was clearly above that of the pre-vious year. The share of innovators in tra-de and transport companies fell by 5% to56%.� Innovation expenditures of modern ser-vice companies climbed steadily to 26 bil-lion DM in 1997 and intentions of the com-panies indicate a resultant rise to 29 billi-on DM for 1998. Among trade and trans-port, innovation expenditure dropped to20 billion DM in 1997 and plans show thatit will have dropped further still in 1998, toa level of 17 billion DM.� Success of innovation measured as a share of turnover with innovative servicesor a share of reduced costs through pro-cess innovations is relatively high amongmodern services and corresponds in some

branches to the manufacturing industryand mining. In trade and transport, how-ever, the success of innovation is compa-ratively small.

Two problems arise in the German ser-vice sector:� Innovation activities of trade and trans-port companies are declining. Accordingto statements from the Federal Labor Offi-ce (Bundesanstalt für Arbeit), these bran-ches employ more than 4 million personssubject to social insurance contributions.In these branches, a comparatively largenumber of people who belong to the “pro-blem areas” of the job market, find em-ployment.� The number of innovative companies inthe new Länder is declining, despite apartly increasing number of companies.Many companies from the new Länder

lack the stamina to continuously pushahead with innovation activities. Compa-nies which remain, however, have increa-sed their innovation activities and expan-ded their innovation budgets.

Development and Structure

of Innovation Activities

Innovation activities in the German ser-vice sector in 1997 remained constant withregard to the previous year, at a levelof 61% of innovative companies. Around 230 000 service companies introduced in-novations. The share of innovations in thetotal service sector therefore lies below that of the manufacturing industry and mining. There, the share of innovativecompanies in 1997 rose by 6 percentagepoints with regards to the previous year,to a level of 66%.

Within the service sector, however, clear differences become apparent bet-ween traditional service branches with adecreasing number of companies, such astrade and transport, and modern, growingservices branches. The share of innovatorsand also the total number of innovativecompanies are increasing continually overthe total time period among the remainingservices, that is banking/insurance, dataprocessing and technical services, consul-ting and other services.

The share of innovators in these bran-ches has, with 66%, clearly oversteppedthe 60% mark and thus corresponds to

Services in the Future2

Innovation Activities in the

German Economy Service Sector: 1998 Survey

Number of Firms 1994 to 1997

1994 1996 19970

50

100

150

200

250

300

350

400

154

229

94

145

160

221

97

135

163

217

108

122

Source: ZEW (1999): Mannheim Innovation Panel-Services, Federal Statistical Office (various years).Comments: Values not surveyed for 1995, values preliminary. All information projected on the population inGermany.

Number of Firms:

Firms in Trade andTransport Services

Services w/o Tradeand Transport

Innovators:

Innovators in Tradeand Transport

Innovators in Services w/o Tradeand Transport

Num

ber o

f firm

s (i

n 10

00

)

Reference Numbers of Innovation 1997

Share of Share Change compared toFirms with 1997 1996 1994

Innovations 61 0 -1

Product Innovations 56 2 0

Process Innovations 52 14 11

Cost Reductions 18 – –

Turnover Share Share Change compared toin % 1997 1996 1994

Product Innovations 19 – –

Cost Reductions 2 – –

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values not surveyed for 1995, values preliminary. Turnover share surveyed 1997 for the first time. Shares in per cent, changes in percentage points. All information projected on the population in Germany.

that of the manufacturing industry and mining. Unlike in the manufacturing indu-stry, however, this increase can not befundamentally led back to the decreasingnumber of companies. On the contrary,the number of companies in these bran-ches increased within one year from about160 000 to 163 000. The number of inno-vative companies between 1996 and 1997thus clearly increased to a greater extentthan the total number of companies as awhole.

Within this strongly-growing sector ofmodern services, banks and insurancecompanies are above-averagely innova-tive. Here, 8 out of 10 companies were ableto successfully complete innovation pro-jects in 1997. Technical services reached asimilarly high level, with 7 out of 10 – inspite of a decline from 1994 to 1997 – anddata processing services achieved like-wise with 7.5 out of every 10 companies.

Among traditional service companies,i.e. trade and transport services, innovati-on activities clearly dropped back. Since1994, the number of trade and transportcompanies has continually fallen from 145 000 to a level of 122 000 in 1997. Thedecline of innovative companies even oversteps the decline in total number ofcompanies. The explosive force behindthis development is clear: over 50% of theservice companies are retail trade, whole-sale trade, or transport companies.

Product and process innovations deve-lop differently over the course of time. Thedevelopment of product innovators essen-tially runs parallel to that of entire innova-tion activities. Among service companies(not including trade and transport), theproportion of product innovators climbedby almost 10 percentage points between1994 and 1997, to 63%; for trade and

transport the proportions fell from 58% in1994 to 50% in 1997.

Within one year, the relative impor-tance of process innovations over all bran-ches rose considerably. The share of pro-cess innovators rose to 52% in 1997. Thiscorresponds to an increase of about50 000 companies, to a total of around 196 000. This increase occurs over allbranches in general and also in service sectors in which the share of innovators ingeneral clearly declined. The share of pro-cess innovators was at least 50% in 1997in almost all of the service sector bran-ches. From that, the development of thetotal share of innovators underestimatesthe development of the innovation activi-ties. In the service sector, process innova-tions still occur almost exclusively in com-

Services in the Future 3

The survey covers almost the entire area of market related services. Thedifferentiation of service sectors is ba-sed on the classification of economicsectors WZ93 of the Federal StatisticalOffice. Included are: trade, transportincl. postal and private courier servi-ces, bank and insurance companies,technical services and data proces-sing, non-technical consulting servi-ces such as legal, tax and companyconsultations as well as advertising,and other services. Other services include telecommuni-cations, estate and accommodationagents, rental, industrial cleaning andsewerage or waste disposal. Serviceswhich are predominantly related tohouseholds or individuals are not in-cluded, nor are services which areprovided by the state.

Service companies

Innovation Activities 1994 to 1997

(Share in Percent)

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values not surveyed for 1995 in theService Sector, values preliminary. All informationprojected on the population in Germany.

1994 1995 1996 199730

40

50

60

70

1994 1995 1996 199730

40

50

60

70

1994 1995 1996 199730

40

50

60

Innovators

Product Innovators

Process Innovators

Servicesin total

Trade/Transport

Other Services

Manufacturing

Innovation Activities in Selected Branches 1997

Banking / Insurances Data Processing Technical Services20

40

60

80

100Innovators Product Innovators Process Innovators

80 78 71 75 70 60 71 69 60

Source: ZEW (1999): Mannheim Innovation Panel-ServicesComments: Values preliminary. All information projected on the population in Germany.

Sha

re in

per

cent

636261

49

66

61

56

6362

56

50

58

53

46

56

5857

47

52

394143

Innovators are companies which havesuccessfully implemented at least oneinnovation project within the lastthree years, i.e. have introduced atleast one innovation.Innovations are made up of productand process innovations. Product in-novations are new or significantly im-proved services which a company hasintroduced on the market. Process in-novations are new or significantly im-proved methods used in producing ordelivering services. Organisationaland managerial changes only consti-tute innovations if they are directly re-lated to the introduction of new or sig-nificantly improved services or waysof producing or delivering them.The definitions and differentiationscorrespond to those of the OECD,which are established in the so-calledOslo-Manual.

Product and

Process Innovations

bination with, or as a result of, productinnovations. Out of companies which in-troduce new processes, only one in everyten does so without the simultaneousintroduction of new or significantly im-proved services.

Development and Structure

of Innovation Expenditure

Since 1995, innovation expenditure inthe service sector has been climbing stea-dily, similarly to that of the manufacturingindustry and mining. In 1997, its value forthe entire service sector was at around 46billion DM. Following a strong increase upuntil 1996, the growth then retarded:plans for 1998 even allow us to predictthat innovation expenditure will stagnatearound the 1997 value.

The development of innovation expen-diture in services clearly goes hand inhand with the development of turnover.The average turnover share of innovationexpenditure in the entire service sector re-mained constant from 1995 to 1997, ataround 1.3%. Service companies thereforespend a far smaller amount of their turn-over on innovation projects than com-panies in manufacturing and mining, wherethe share lies at over 5%.

The levelling-out of the annual growth,however, can be exclusively led back to


Innovation Indicators in the Service Sector

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values not surveyed for 1995, values preliminary. All information projected on the population in Germany.

1994 1996 1997absolute in % absolute in % absolute in %

Firms in the Service Sector 383,393 100 380,927 100 380,589 100amongst those:

Innovators 239,342 62 100 231,692 61 100 230,484 61 100Product Innovators 214,369 56 90 206,290 54 89 211,310 56 92Process Innovators 155,848 41 65 145,569 38 63 196,032 52 85

under them:– Trade and Transport 229,469 100 221,088 100 217,459 100

amongst those:Innovators 144,884 63 100 134,663 61 100 122,228 56 100Product Innovators 132,087 58 91 121,386 55 90 109,186 50 89Process Innovators 89,540 39 62 79,591 36 59 103,095 47 84

– Services w/o Trade/Transport 153,924 100 159,839 100 163,130 100amongst those:


for comparison:Firms in Manufacturing and Mining 69,628 100 63,209 100 61,912 100


Source: ZEW (1999): Mannheim Innovation Panel-Services. Comments: Turnover shares not including ban-king/insurances. Values preliminary. Distinction in current innovation expenditures and investment for inno-vation projects surveyed in 1997 for the first time. All information projected on the population in Germany.

1995 1996 1997Information in Bill. DM absolute in % absolute in % absolute in %

Innovation Expenditures in the Service Sector 1995-1997 (in total) 40 44 46Share of Turnover in % 1.2 1.3 1.3under them:Current Innovation Expenditures 21.4 46Investment for Innovation Projects 24.8 54

under them:Trade and transport 20 21 20Share of Turnover in % 1.0 1.1 1.0under them:Current Innovation Expenditures 8.3 42Investment for Innovation Projects 11.5 58

Services w/o Trade and Transport 20 23 26Share of Turnover in % 2.0 2.3 2.4under them:Current Innovation Expenditures 13.1 50Investment for Innovation Projects 13.3 50

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Turnover shares not including banking/insurances. Values preliminary. All information projectedon the population in Germany.

Service under them: for comparison:Sector Trade/ Services Manufacturing

in Transport w/o Trade/ and MiningInformation for 1997, in % total Transport

Share of Turnover 17.6 15.5 25.3 39.0with Product innovations

Firms with Cost Reductions 18.0 13.1 24.2 40.2

Share of Reduced Costs 2.3 2.0 3.5 6.5

the drop in innovation expenditure of thetraditional service companies. Trade andtransport companies reduced their inno-vation expenditure by 5% in 1997; accor-ding to company statements, even a furthercutback of 10% is planned for 1998. In the constant proportion of innovation ex-penditure to turnover, it can be seen thatthese cuts in innovation expenditure canbe led back to the deteriorating economicsituation which is particularly evident inthe trade sector. Companies belonging tothe trade and transport sector consistentlyuse around 1% of their turnover as innova-tion expenditure. The strengthening com-petition and the fall in turnover related tothat, also led to a reduction in innovationexpenditure.

Companies from the modern and grow-ing service branches have, however, steadilyraised their innovation expenditure an-

nually by around 15%. And a further increasein innovation efforts is planned for 1998.Whether or not the high annual growth rates will continue, remains to be seen.

Even when looking at the growth in turn-over, an increase in innovation expenditurestill comes about. At a level of 2%, the share of innovation expenditure of turnoveramong these services (excluding bankingand insurance) was in 1995 already twiceas high as that of trade and transport. By1997, the proportion was clearly climbingagain, reaching a mark of 2.5%.

In comparison to companies from ma-nufacturing and mining, which use over5% of their turnover for innovations on average, this value is still relatively low.When comparing though, one must takeinto consideration that large areas of theservice sector – particularly in trade – na-turally attain profit-turnover ratios whichare considerably smaller than those of themanufacturing industry, since the value-added quota is smaller.

The varying levels of innovation expen-diture in service sector and in manufac-turing industry can partially be explainedby the structure of innovation expenditure.On average, two thirds of total innovationexpenditure in manufacturing industry isspent on current expenditure and onethird on investing in innovation projects.In the service sector, innovation expendi-ture for most of the economy branches isdivided up so that one half is used for in-vestments and the other half for currentexpenditure. Transport companies havinga naturally high investment share of twothirds of the total innovation expenditureare an exception to this.

Current costs of innovation, i.e. costsfor personnel, materials and services, playa relatively less significant role in servicesthan in the manufacturing and mining.


Innovation expenditure refers to ex-penditure for all current, completedand aborted projects within a year. Itincludes current costs (personnelcosts and expenditure for materialsand services etc.) and capital expen-diture.To this belong expenditure for R&D,conception of services or methods fortheir production, acquisition of machi-nes and equipment, education andtraining of the workforce, preliminarymarket research, market tests andlaunch advertising, as well as other im-material goods (e.g. software, patents)insofar as these expenses are linkeddirectly to an innovation project. Dividing total innovation expenditureinto current expenses and investmentcosts appeared for the first time in the1997 survey. Therefore, developmentscannot be shown.

Innovation Expenditure

Innovation Expenditures 1995 to 1998

1995 1996 1997 19980

25

50

75

100

125

20

20 23

21

26

20

29

17

105 109120

94

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values preliminary. Values for 1998 are plans/expectations of firms. All information projected onthe population in Germany.

Inno

vati

on E

xpen

ditu

res

in B

ill. D

M Service Sektor:

Trade/Transport

Services w/oTrade/Transport

For Comparison:

Manufacturing/Mining

Share of Innovation Expenditures

of Turnover 1995 to 1997

1995 1996 19970

1

2

3

4

5

6

4,4

5,2

2,02,4

1,2 1,31,0 1,01,1

1,3

2,3

4,9

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Turnover shares not including ban-king/insurances. Values preliminary. All informati-on projected on the population in Germany.

Inno

vati

on In

tens

ity

in P

erce

nt

of T

urno

ver

Manufacturing and Mining

Service sector: under them:

Service Sector Services w/o Trade/ Transportin total Trade/ Transport

The results of the ZEW innovation sur-vey are extrapolated to the stratifiedpopulation of all service companies inthe observed sectors in the FederalRepublic of Germany having at least 5employees. The differentiation of ser-vice sectors is based on the classifica-tion of economic sectors WZ93 of theFederal Statistical Office. In this, bran-ches, company size (employees) andregion (old and new Länder) serve asstratification characteristics. Information about the population upuntil 1995 (number of companies andturnover amounts) was based on pub-lications of the Federal Statistic Office(company and sales tax statistics); publications of various associations,and estimations made by the ZEW it-self. Employee figures are not availablefor the frame population. Statementsfrom 1996 onwards are partially basedon forward projection of the populati-on and are therefore preliminary.As a sample frame, the CREDIT-REFORM databank is used. The 1998sample survey includes 4010 compa-nies, of which 1768 actively took partin the survey. This corresponds to aresponse rate of 44%. To correct for apossible bias in response behaviour,a further 910 companies were que-stioned by telephone about basics oftheir innovation behaviour.The field phase of the survey, whichwas carried out from April 1998 tillOctober 1998, was in the hands ofinfas (Institut für Angewandte Sozial-wissenschaft).

Population and Extrapolation

This is because R&D, with the exception ofa few branches, also has a relatively smallsignificance. A large amount of the inno-vations – even of the new and improvedservices – are essentially made possiblethrough investments in information andtelecommunication facilities in particular.

Size and Structure of

Innovation Success

In 1997, share of turnover with productinnovations in the entire service sector(not including banks and insurance com-panies) was clearly below the correspon-ding amount of the manufacturing and mi-ning industries, at a figure of 18%. In thelatter industries, the figure is more than twice as high. At first, this result looks sur-prising, since services are very often cus-tomer-specific and therefore a higher shareof turnover among new or significantly im-proved services could be expected.

The share of turnover with product inno-vations varies a lot within the service sec-tor. The overall picture is characterised byretail and wholesale trade, as well as the“other” service providers, who togethermake up over 50% of all service companiesin 1997 and produced three quarters of thetotal turnover (not including banks and in-surance companies). Around 16% of theturnover of these companies was obtainedby product innovations.

For services belonging to the modernand growing service areas of data proces-sing and technical services as well as non-technical consulting services, new or sig-

nificantly improved services are, however,of greater importance. They obtain bet-ween 33% and 50% of their turnover withproduct innovations, therefore partly evenmore than the manufacturing industry.This extremely high share of turnover withproduct innovations is partly due to theabove-averagely high number of companystart-ups. By definition, young companiesoffer services which are new to the com-pany simply because of their age. How-ever, the start-up quotas in these branchesalone are not high enough to account forthe above-averagely high share of turn-over with product innovations alone.

Apart from product innovations, pro-cess innovations are the second compo-nent of innovation activities. Process inno-vations do not necessarily have to be ac-companied by rationalisation, since newmethods for delivering services can comeabout as a direct result of new services, orthey can fulfil statutory regulations. The share of cost reducing process innovationsis therefore an indicator for process inno-vations which were based on the rationali-sation motive.

In 1997, not even one in every five com-panies in the service sector was able to re-duce costs due to process innovations. Inmanufacturing and mining, four out of ten

enterprises were able to do so. New or sig-nificantly improved methods in servicesare regularly introduced as a result of newor significantly improved services and notas often due to rationalisation aspects.Retail trade lies clearly below the servicesector average: not even one in every tenGerman retailer was able to reduce costsdue to process innovations. Possibly, thepotential of rationalisation in retail tradeis more exhausted at present.

As far as rationalisation innovationsare concerned, companies from modernand growing service branches greatly re-semble companies of the manufacturingindustry. Around a third of all data proces-sing and consulting services save costsbecause of process innovations. And forbanks and insurance companies, this va-lue is even surpassed.

The service sector branches actuallyvary considerably in the share of compa-nies having cost-reducing process innova-tions; however, the shares of reducedcosts which are subsequently obtainedonly vary insignificantly, with the excepti-on of data processing services. The aver-age of the entire service sector (not inclu-ding banks and insurance companies) shows that in 1997, fewer than 3% of thecosts were reduced through new or impro-


Process Innovations 1997

ProcessInnovators

Cost ReducingProcess Innovations

Share ofReduced Costs

0

10

20

30

40

50

60

7058

5247

57

40

1813

24

6,52,3 2,0 3,5

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values preliminary. All information projected on the population in Germany.

Sha

re in

Per

cent

Manufacturingand Mining

Service sectorin total

under them:Trade and Transport

Services w/o Trade/Transport

Cost-reducing process innovations re-fer to new or significantly improvedproduction or delivery methods whichhave led to a reduction in averagecosts. Shares of reduced costs refer to costsof the previous year which were redu-ced through cost reducing innovati-ons of a three year time period. Theproportions are weighted with the turn-overs and therefore calculated withthe exclusion of banks and insurancecompanies.Cost-reducing process innovationsand the share of reduced costs belon-ging to those, were asked for in 1997for the first time. Therefore, develop-ments cannot be shown.

Shares of Reduced Costs

through Process Innovations

Product Innovations 1997

Product Innovators Share of Turnoverwith Product Innovations

010203040506070 62

5650

63

39

18 1625

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values preliminary. All information projected on the population in Germany.

Sha

re in

Per

cent


Service sectorin total

under them:

Trade and Transport

Services w/o Trade/Transport

ved methods. In manufacturing and mi-ning, the share for the same year was twiceas high. Then again, data processing ser-vices realised a clearly higher reduction incosts, at a figure of 13%.

Innovation Activities of Small

and Medium-Sized Enterprises

The varying structure and developmentof traditional and modern services can also be recognised among small and medium-sized companies (SMEs). From1994 until 1997, the number of companiesactually remained at the same level. In tradeand transport services, the number ofSMEs fell by 5% from 228 000 to 216 000.For the remaining services, however, thenumber of companies increased by 6%,climbing from 150 000 to almost 160 000.

The development of the share of inno-vators in all companies is widely characte-rised by the corresponding developmentamong SMEs. The increase in the share ofinnovative service companies excluding trade and transport services, for example,initially is a result of the clear and conti-nual rise in innovators among SMEs. From1994 until 1997, the number of innovativeSMEs grew by about 14 000 companies toalmost 105 000 innovators. This corres-ponds to a share of 66%.

In trade and transport, the number ofinnovative SMEs clearly fell between 1994and 1997 more dramatically than the num-ber of companies. The share of innovatorsfell by 7 % points to 56%.

Both the share of product innovatorsand the share of process innovators clear-ly increased more strongly among smalland medium sized enterprises in services(not including trade and transport) thanthe average. Among SMEs, the proportionof product innovators increased between

1994 and 1997 by 9 % points to a level of62%. The share of process innovators in-creased even more strongly, by 14%points, to 56%. This corresponds to a totalof around 90 000 SMEs. In trade andtransport, the share of product innovatorsamong SMEs continually fell from 58% in1994 to 50% in 1997. A clearer growth isrecognisable among the process innova-tors. Following a slight setback in 1996, that share increased by 8% points bet-ween 1994 and 1997, reaching 47%.

The development of innovation expen-diture is essentially characterised by largeenterprises. Along with size of the com-pany, the readiness to increase innovationexpenditure in the near future also increa-ses: companies with more than 500 em-ployees represent only one fiftieth of allservice companies, but they accounted foralmost half of the innovation expenditureat a figure of more than 20 billion DM inthe service sector in 1997.

In spite of this, SMEs’ innovation expen-diture has increased steadily since 1995and reached a total of 26 billion DM in1997. The fall expected for 1998 can be pri-marily led back to companies in trade andtransport, which are planning large cuts intheir innovation budgets of around 20% for1998. Among SMEs in trade and transport,

the development in innovation expenditu-re once again only reflects the develop-ment in turnover: for the SMEs, innovationintensity remains constant at 1.2%.

The remaining part of the service sectorpaints a positive picture. The annual in-crease of around 1 billion DM in innova-tion expenditure of SMEs in modern servicebranches may have continued for 1998.What is more, companies in these bran-ches increase innovation expenditure notonly in absolute numbers, but also rela-tive to turnover. At a value of over 3%, theshare of innovation expenditure to turn-over is in the meantime entirely comparableto that of the manufacturing industry.

The success of product innovations in1997, measured as share of turnover with


Innovation Success in Selected Branches of Services 1997

Turnover due to Firms with Cost(all information in Percent) New Products Cost Reduction Reduction

Wholesale Trade 15.9 20.0 1.6

Retail Trade 12.1 9.4 2.2

Data Processing 50.2 30.3 12.9

Banking / Insurance – 36.7 –

Technical Services 42.2 20.5 2.1

Consulting Services 33.1 34.1 3.1

Other Services 16.5 19.9 3.0

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values preliminary. Turnover share surveyed 1997 for the first time. All information projected onthe population in Germany.

Innovation Activities in Small and

Medium Sized Firms 1994 to 1997

(Share in Percent)

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values not surveyed for 1995 in theService Sector, values preliminary. All informationprojected on the population of SMEs in Germany.

60

63

56

61

66

1994 1995 1996 199730

40

50

60

70

62

56 5558

50

53

62

1994 1995 1996 199730

40

50

60

70

40

51

39

47

42

56

1994 1995 1996 199730

40

50

60

Innovators

Product Innovators

Process Innovators

Services.in total

Trade/Transport

Other Services

underthem:

Small and medium-sized enterprises(SMEs) are companies which have atleast 5 and less than 500 employees. Small and medium-sized companiesdominate because of their relativelylarge number all shares which refer tonumbers of company. Contrary to that,large companies dominate as a resultof their large financial totals all shareswhich refer to amounts of DM.

SMEs

new or significantly improved services, ishigher among the SMEs than it is amongthe large companies. SMEs from modernservice branches obtain 28% of their turn-over from product innovations; SMEs fromtrade and transport obtain at least 18%,nevertheless.

For the success of process innovations,completely different results occur. Only re-latively few SMEs managed to reduce theircosts in 1997 through new or improvedmethods for delivering services. For SMEsof the trade and transport services, the fi-gure was 13% of the companies and forthe remaining services at least 24%.

In 1997, even the share of costs whichwere reduced through process innovati-ons is relatively low, both in trade andtransport as well as in remaining services.Among trade and transport services, me-rely 1.6% of the costs were reduced due toprocess innovations in 1997. In the remai-

ning service sector, the figure was 3.6%.Obviously, especially among SMEs in ser-vices, considerable rationalisation poten-tial is still available.


in the New Länder

The number of service companies in thenew Länder is slightly declining in 1997,unlike the situation in the manufacturingand mining industries. This developmentis particularly characterised by traditionalservices in which the number of compa-nies is constantly decreasing. In trade andtransport, the number of companies drop-ped by about 6 000 to almost 50 000 bet-ween 1994 and 1997. In modern servicebranches, the number of companies in-creased during the same time period byabout 4 000 to a level of 29 000, whichcorresponds to a growth rate of 16%.

Not only the number of companies, butalso the number of innovative companiesis declining in the East German service sector. In the old Länder, this is only truefor the traditional services of trade andtransport. Since the decline in numbers ofinnovators is stronger than the decline intotal numbers of companies, the share ofinnovators is also decreasing. Not only the

traditional services of trade and transportare affected by the decline in share of in-novators, but also fast growing branches,such as technical and data processing ser-vices. Here the shares for 1997 fell by 8%points with respect to the previous year, toa level of 52%. Only non-technical consul-ting services, such as legal, tax and busi-ness consultants, show positive growth ra-tes. The number of innovative consultantservices grew by about 600 companies toa total of around 2 500. This represents53% of all consultant companies in thenew Länder.

In East German trade and transport ser-vices, the importance of product innova-tions decreased between 1996 and 1997after a continual growth before. The shareof product innovators fell by 8 % points toa current level of 52%. The proportion ofprocess innovators is climbing steadilyand is now at a level of 48%.

Among other services, both share ofproduct innovations and share of processinnovations increased considerably from1996 to 1997, after they had been steadilyfalling in the preceding years. In 1997, 51%of these companies introduced new or sig-nificantly improved services and 45% newor significantly improved methods for deli-


Innovation Expenditure of Small and Medium Sized Firms 1994 to 1998

1995 1996 1997 19980

10

20

30

40

10

13

31

11

1328

12

14 27

13

1128

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values preliminary. Values for 1998 are plans/estimates of firms. All information projected on thepopulation of SMEs in Germany.

Inno

vati

on E

xpen

ditu

re

in B

ill. D

M

Services:

Trade/Transport

Other Services

For information:

Manufacturing

Turnover Share of Innovation

Expenditure of Small and

Medium Sized Firms 1995-1997

3,7 3,4 3,3

1,4 1,4 1,4

2,9 3,23,1

1,11,2

1,2

1995 1996 19970

1

2

3

4

5

6

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Shares not including banking/insuran-ces. Values preliminary. All information projectedon the population of SMEs in Germany.

Inno

vati

on In

tens

ity

in %

of T

urno

ver

Manufacturing Sector

Services: under them:

Services Services w/o Trade and Transportin total Trade and Transport

Product Innovations of Small and Medium Sized Firms

Product Innovators Turnover Share due to new Products0

10203040506070

55 5062

19 1828

Services in total Trade/Transport Other Services

Sha

re in

Per

cent

Process Innovations of Small and Medium Sized Firms

Process Innovators Cost Reducing Firms Share of Reduced Costs0

10203040506070

51 4756

18 1324

1,9 1,6 3,6

Services in total Trade/Transport Other Services

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values preliminary. Turnover share not including banking/insurances. All information projectedon the population of SMEs in Germany.

Sha

re in

Per

cent

vering services. Remarkable is the factthat both shares increased between 1996and 1997 even though the percentage ofinnovators decreased as a whole. Thismeans that when looked at relatively, fewer companies are innovative. Innovativecompanies are however pushing aheadboth product and process innovations.

At around 7 billion DM, companies inthe new Länder actually carry only a smallfraction of the service sector’s total inno-vation expenditure of 46 billion DM. In re-cent years, innovation expenditure hashowever increased continually.

According to their own statements, ser-vice companies in the new Länder haveplanned to cut their innovation budgets in1998. Again, this can be led back to a dec-line in innovation expenditure of tradeand transport companies. Innovation ex-penditures of remaining service compa-nies will stay stable. Trade and transportcompanies clearly put less into innovationprojects than companies from other bran-

ches. From 1995 to 1997, companies in tra-de and transport services constantly spentaround 4 billion DM on innovation purpo-ses. For 1998 we can expect that in the tra-de and transport sector of East Germany, aslight cutback in innovation expenditurewill probably come about, although the re-duction will turn out to be clearly smaller

than in the old Länder. In remaining servi-ce branches, innovation expenditure in-creases from 2.1 to 2.7 billion DM.

The increase in innovation expenditurecan also be diagnosed when one regardsthe development in turnover. The share ofinnovation expenditure to turnover is, at2.6%, even twice as large in the new Län-


Companies from the new Länder inclu-de companies from former West Berlin. Due to the relatively small amount ofcases, statements about larger com-panies (more than 500 employees)and individual branches are taintedwith very large uncertainty. Moreover,the company and turnover figures aresubject to relatively large fluctuationsover the course of time, and thesefluctuations make it difficult to reco-gnise general tendencies.

New Bundesländer

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Turnover shares without banking/insurances. Values preliminary. All information projected on thepopulation of SMEs in Germany.

Service under them: Services w/oSector Trade/ Trade/

Angaben für 1997 in % in total Transport Transport

Share of Turnover 19.2 17.9 27.9with Product Inovations

Firms with Cost Reductions 17.7 13.0 24.1Share of Reduced Costs 1.9 1.6 3.6

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Turnover Shares not including banking/insurances. Values preliminary. Distinction in current in-novation expenditures and investment for innovation projects surveyed in 1997 for the first time. All informati-on projected on the population of SMEs in Germany.

1995 1996 1997(Information in Bill. DM) absolute in % absolute in % absolute in %

Innovation Expenditure inServices 23 24 26Share of Turnover in % 1.4 1.4 1.4under them:Current Innovation Expenditure 12 46Investment for Innovation Projects 14 54

under them: – Trade and Transport 13 13 14Share of Turnover in % 1.1 1.2 1.2under them:Current Innovation Expenditure 5 37Investment for Innovation Projects 9 63– DL ohne Handel und Verkehr 10 11 12Share of Turnover in % 2.9 3.2 3.1under them:Current Innovation Expenditure 7 56Investment for Innovation Projects 5 44

Reference Numbers of Innovation Activity in the Service Sector - Small and Medium Sized Firms

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values not surveyed for 1995, values preliminary. All information projected on the population of SMEs in Germany.


Firms in the Service sector 377,996 100 375,431 100 375,036 100amongst those:


under them:– Trade and transport 228,347 100 219,946 100 216,300 100

under them:Innovators 143,998 63 100 134,040 61 100 121,388 56 100Product Innovators 131,315 58 91 117,645 53 88 108,386 50 89Process Innovators 88,788 39 62 78,862 36 59 102,626 47 85

– Services w/o Trade/Transport 149,649 100 155,485 100 158,736 100amongst those:


der as it is in the old Länder. In general,this can be seen as a positive signal. Inparticular among modern service bran-ches, the share of innovation expenditureto turnover increases notably in 1997 tomore than 3.5%.

Among service companies in the newLänder in 1997, almost 25% of turnoverwas obtained through new or significantlyimproved services. This value actually liesalmost 15 % points below the value of themanufacturing industry, but 7% pointsabove the share of the entire service sectorin Germany.

The share of turnover with product in-novations among modern, growing servi-ces, is still evidently higher. Here, the va-lue lies at a good 30% and in some of thebranches it even reaches almost 50%. Among trade and commercial companies,however, the share of turnover lies at littlemore than 20%.

The share of cost reducing process in-novators in the new Länder correspondsto roughly that of the entire Federal terri-tory, at around 17% in 1997. In the newLänder, the share in trade and transportis, at 12%, also much lower than it is

among the remaining service companies,where it is twice as large.

This is also true for the share of costs,which could be reduced through processinnovations. At around 3%, it is somewhathigher in 1997 in the East German servicesector than in the entire Federal territory.In trade and transport services, only around2% of costs are saved. In the remainingservice sector it is 5%; a value which iscomparable to manufacturing industryand mining.



in the New Länder 1994 to 1997

(Share in Percent)

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values not surveyed for 1995 in theService Sector, values preliminary. All informationprojected on the population in the New Länder inGermany.

63

55

61

56

68

52

58

64

1994 1995 1996 199730

40

50

60

70

55

5154 52

5861

1994 1995 1996 199730

40

50

60

70

38

47

32

4850

4548

55

1994 1995 1996 199730

40

50

60

Innovators

Product Innovators

Process Innovators

Services in total

Trade/Transport

Other services

Manufacturing

Innovation Expenditures in the New Länder 1995 to 1998

1995 1996 1997 19980

2

4

6

8

2,1

3,95,5

2,1

4,05,5

2,7

4,06,2

2,6

3,7 6,2

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Values preliminary. Values for 1998 are plans/expectations of firms. All information projected onthe population in the New Länder in Germany.

Inno

vati

on E

xpen

ditu

re in

Bill

. DM

Service Sector

Trade/Transport

Services w/oTrade/Transport

For information:

Manufacturing/Mining

Product Innovations in the New Länder 1997

ProductInnovators

Share of Turnoverwith Product Innovations

010203040506070 61

51 52 51

39

25 2231

Sha

re in

Per

cent

Manufacturing andMining

Service Sectorin total

under them:

Trade and Transport

Services w/oTrade and Transport

Process Innovations in the New Länder 1997

ProcessInnovators

Cost ReducingProcess Innovations

Share ofReduced Costs

0

10

20

30

40

50

60 5547 48 45

38

1712

24

5,32,9 1,95,2

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Shares without banking/insurances. Values preliminary. All information projected on the popula-tion in the New Länder in Germany.

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Turnover shares without banking/insurances. Values preliminary. All information projected on thepopulation in the New Länder in Germany.

Sha

re in

Per

cent


Service Sector in total

under them:

Trade andTransport

Services w/o Trade and Transport

Conclusions for

Innovation Policy

In general, innovation activities in Ger-man services are developing in a stablemanner, but amidst individual servicebranches serious differences become apparent.

Some very good evidence can be madeout regarding innovation activities of mo-dern, growing service branches (banks/in-surance companies, data processing andtechnical services, consultants and other[predominantly company-oriented] servi-ces). All important indicators are showingpositive signs:� The share of innovative service compa-nies (not including trade and transportservices), showing an increasing number,in 1997 corresponds to manufacturing

industry and mining at a figure of 66%,and is clearly higher than it was the pre-vious year.� For years, innovation expenditure hasbeen steadily increased by 15% annuallyand is now at a level of 26 billion DM. Eventhe share of innovation expenditure to turn-over is continually on the upward trend.

� The share of turnover with new and sig-nificantly improved services (not includingbanks/insurance companies) lies clearlyabove the average of the whole service sector. Among data processing and tech-nical services they are comparable to those of manufacturing industries and mining.


Share of Innovation Expenditures

of Turnover in the New Länder

1995-97

4,64,7

5,2

2,3 2,62,8 3,6

2,22,2

2,3

1995 1996 19970

1

2

3

4

5

6

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Turnover shares not including banking/insurances. Values preliminary. All informationprojected on the population in the New Länder inGermany.

Inno

vati

on In

tens

ity

in

Perc

ent o

f Tur

nove

r

Manufacturing Sector

Services: under them:

Services Services w/o Trade and Transportin total Trade and Transport

Innovation Indicators for the Service Sector - New Länder


Firms in the Service Sector 81,021 100 79,397 100 78,894 100amongst those:


under them:– Trade and Transport 55,896 100 51,640 100 49,763 100


– Services w/o Trade and Transport 25,152 100 27,757 100 29,221 100amongst those:


Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Turnover Shares not including banking/insurances. Values preliminary. All information projectedon the population in the New Länder in Germany.

Service under them: Services w/oSector Trade/ Trade/

Information for 1997, in % in total Transport Transport

Share of Turnover 24.5 21.8 30.9with Product Innovations

Firms with Cost Reductions 16.7 12.3 24.4Share of Reduced Costs 2.9 1.9 5.2

Source: ZEW (1999): Mannheim Innovation Panel-Services.Comments: Turnover Shares not including banking/insurances. Values preliminary. Distinction in current in-novation expenditures and investment for innovation projects surveyed in 1997 for the first time. All informati-on projected on the population in the New Länder in Germany.


Service Sector in total (in Bill. DM) 5.9 6.1 6.7Share of turnover in % 2.2 2.3 2.6under them:

Current Innovation Expenditures 3.1 47Investment for innovation Projects 3.5 53under them:

– Trade and Transport 3.9 4.0 4.0Share of turnover in % 2.2 2.2 2.3under them:Current Innovation Expenditures 1.6 40Investment for innovation Projects 2.4 60

– Services w/o Trade and 2.1 2.1 2.7TransportShare of turnover in % 2.2 2.8 3.6under them:Current Innovation Expenditures 1.6 58Investment for innovation Projects 1.1 42

Source: ZEW (1999): Mannheim Innovation Panel-Services. Comments: Values not surveyed for 1995, values preliminary. All information projected on the population inthe New Länder in Germany.

� The share of reduced costs throughprocess innovations lies above the aver-age of the entire service sector as well, butstill clearly below the corresponding valueof the manufacturing industry.

Traditional service branches, i.e. tradeand transport, offer up a completely diffe-rent picture. There are reasons for seriousconcern:� The share of innovators among tradeand transport services is falling continu-ously, to only 56% in 1997 and decreasesby 5 % points within one year.� For a total drop in company numbers,the number of innovative companies isdropping back both in absolute and rela-tive terms. Companies which were innova-tive up till now either stop their innovationactivities or discontinue their economicactivities at all.� In spite of a general drop-off in sharesof innovators, the proportion of processinnovators increases within one year byabout 10 percentage points.� Innovation expenditure decreases backboth absolutely and in relation to turn-over.� Innovation success, measured as shareof turnover with product innovations andas share of reduced costs through processinnovations, is comparatively small.

In a knowledge-oriented society, inno-vations as well as the qualification of work-force represent the decisive motor for

growth and activity. International competi-tion, which is gaining in strength as a result of deregulation measures and pro-gress in information and communicationtechnology, together with the pressure ofpersonnel costs and additional costs rela-ted to personnel, forces companies to cuttheir innovation budgets. However, increas-ing international competition can only bemet through continual efforts to innovate.In the medium-term, the cutbacks damagethe competitive position of the companies.

The situation of the service sector inthe new Länder is running instable. Someinnovation indictors give way to a picturewhich is mostly welcome:� Innovation expenditure in the new Län-der is steadily increasing both absolutelyand in relation to turnover.� The share of innovation expenditure toturnover made up by innovation expendi-ture is even higher than in the old Länder.� The share of turnover with new or signi-ficantly improved services surpasses thecorresponding values of the old Länder.� The realised share of reduced coststhrough process innovations is likewiseclearly higher in the new Länder than inthe old ones – at least in modern servicebranches.

Without doubt, though, throughout allof the service branches – so also amongmodern services – there is cause for con-cern despite these rays of hope:

� The number of innovative companies inthe new Länder is declining, both in tradeand transport and in the remaining servi-ces, although at least in modern servicesthe number of companies is increasing.

In the new Länder therefore – even inmodern, actually growing service bran-ches – quite a lot of innovative companiesare discontinuing with innovation projectsor are withdrawing from economic activity.Innovations are always tainted with risks.The economic framework in the new Län-der is obviously not good enough to pro-vide the companies with necessary stay-ing-power. It can therefore be asked in thenew Länder in particular, what effects canbe expected on the employment market.

For both problem areas explained here,trade and transport as well as servicecompanies from the new Länder, it is truethat the economic problems can definitelynot be resolved through innovation policyalone. There is now an urgent necessity toimprove the economic framework condi-tions, which has become evident particular-ly in the pressures on the companies, dueto personnel costs and their additionalcosts as well as taxes. This frameworkmust be improved in order to make it pos-sible for innovative companies in particu-lar to continue their innovation activity; to allow them to survive, and with thatstrengthen the security and creation ofjobs.


The Mannheim Innovation Panel - Service Sector

On behalf of the federal ministry of education and research (Bundesministerium für Bildung und Forschung, bmb+f), since 1995 the ZEW in collaboration with infas and FhG-ISI has been conducting annual surveys on innovation behaviour in the German Service Sector.Project management: Dr. Norbert Janz, Dr. Georg Licht . Project assistance: Günther Ebling, Sandra Gottschalk, Hiltrud NiggemannProgramming: Thorsten Doherr . Project team ISI: Dr. Knut Bild . Project team infas: Menno Smid (manager), Doris HessContact: Dr. Norbert Janz . Zentrum für Europäische Wirtschaftsforschung (ZEW)

Research Department Industrial Economics and International ManagementL 7, 1 . D-68161 Mannheim . Tel.: +49/621/1235-171; Fax: +49/621/1235-170; E-Mail: [email protected]. Internet: www.zew.deI

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