Germany led Europe in research and development spending last year, according to a new study obtained by Handelsblatt.
For the fifth year in a row, global companies increased their research and development spending, reaching a record level of $680 billion (€618 billion), according to the study of 1,000 publicly traded companies by consulting firm Strategy&, a subsidiary of PricewaterhouseCoopers.
The 46 German companies included in the study spent a total of $59.6 billion, more than the combined net profits last year of the 30 companies listed on the country’s leading DAX index. Spending on research and development grew by 8.1 percent in Germany, double the rate in the rest of Europe.
More than half of Germany’s spending on research and development was in the automobile industry, for which Germany is well known. Volkswagen outspent the rest of the world, investing $15.3 billion in innovation, a growth of 13 percent. The firm reportedly has 10,000 employees working on autonomous driving technology and networking cars with smartphones.
Volkswagen doesn’t plan to cut its research spending in the aftermath of the diesel emissions scandal, which will cost the automaker billions. Research into hybrid, electric and hydrogen drive systems will only grow in importance, according to sources at the company. It will release details about its 2016 R&D budget at the end of November.
“We need a Silicon Valley in Germany and more startups, particularly in the tech area, more talent and more investors. European industry should take advantage of digitalization and become leaders in industry 4.0.”
Daimler had the second largest R&D budget in Germany. The automaker, which makes Mercedes cars, spent $7.6 billion last year and came in 12th place worldwide. BMW and the autoparts supplier Continental also made the German top ten.
While Germany spent heavily in the automobile industry, the rest of the world increasingly views Internet and computer technology as the future. The IT sector increased its spending on R&D by more than a quarter last year, more than any other branch in the world.
In Germany, the two most well-known tech companies disappointed. SAP increased its spending by just 2.2 percent to $3.1 billion. Deutsche Telekom cut its investment in research by a whopping 14 percent, spending just $1.2 billion last year.
This deficit could come back to hurt Germany in automobile innovation as tech companies begin to make inroads. Google is working on self-driving cars, and there are rumors that Apple is developing an electric-powered automobile called Titan.
“Germany runs the danger that tech giants like Apple and Google will sever the classic, research-intensive industries,” Klaus-Peter Gushurst, with PricewaterhouseCoopers, told Handelsblatt.
While Germany is Europe’s R&D leader, the continent as a whole has slipped compared to Asia and North America. Some 35 percent of global R&D spending from the 200 top companies, a total of $166 billion, went to Asia. North America came in second with $157 billion, while Europe trailed in third with $133 billion.
Since 2007, German companies have increased their R&D spending in foreign countries by 75 percent for a total of $35 billion. At the same time, foreign companies have decreased their research spending in Germany by 7 percent. It now amounts to $16 billion.
“We need a Silicon Valley in Germany and more startups, particularly in the tech area, more talent and more investors,” Peter Gassmann, Strategy&’s managing director for the German-speaking countries, told Handelsblatt. “European industry should take advantage of digitalization and become leaders in Industry 4.0 [the German government’s policy to help automate factories].”
Ulf Sommer reports for Handelsblatt on companies and financial markets. To contact the author: firstname.lastname@example.org