Innovation among SMEs continues to fade

Frankfurt am Main (ots) -

- Share of innovative companies falls to just 28%
- Weak economic activity in the eurozone and intense price
competition hamper progress
- Sales and employment opportunities remain unexploited

The innovation activity of German SMEs has contracted for the
third year in succession. Only 28% of small and medium-sized
companies recently invested in innovative products or processes, as
confirmed by the new KfW SME Innovation Report. The share of SME
innovators is therefore currently lower than in the 2007-2009 period
affected so heavily by the financial crisis. The KfW Innovation
Report covers innovation activity between 2011 and 2013 - these are
the most up-to-date representative figures available. Product
innovations have fallen particularly sharply, while process
innovations have dipped only slightly.

By foregoing innovations, small and medium-sized enterprises also
pass up on the opportunity to exert a positive impact on their
business success. According to the KfW study, sales revenues and
employment numbers grow roughly two-fifths more quickly in innovative
SMEs than in companies which do not aim to achieve any product or
process innovations at all. Their return on sales has risen by 7% in
two years compared to that of non-innovative small and medium-sized
enterprises.

"The current KfW Innovation Report confirms that the sales
revenues of innovative SMEs increase more quickly, they generate
higher yields and they create more jobs. If small and medium-sized
enterprises become less innovative, this spells bad news for the
international competitiveness of the German economy and also for
Germany as a business location", commented Dr Jörg Zeuner, Chief
Economist at KfW.

According to the KfW analysis there are now only about 1.01
million innovative small and medium-sized businesses in Germany at
present. 51,000 companies have stopped innovating compared to the
previous period reviewed (2010-2012), and there are various reasons
for this decline. One of the main triggers is the ongoing economic
stagnation in Europe. The main types of company abandoning innovation
are otherwise highly innovative SMEs in the manufacturing industry
(e.g. those conducting intensive research and development in
mechanical engineering, electrical engineering or the pharmaceutical
industry) as well as large and international SMEs because the
macroeconomic climate is hindering the market placement of their
innovations. Even if the economic prospects for 2015 leave no hope of
a swift return for these businesses to innovation, they are expected
to become innovative again when the economy picks up.

Taking a longer-term perspective, it is not so much the highly
innovative companies that are losing their innovative capacity. What
is worrying is the development among small firms as well as in
sectors where little research is conducted. Since the middle of the
2000s, the innovation output of small companies with fewer than 5
employees has fallen by 39%, and by 38% and 43% respectively for
businesses in construction and the services sector. Pricing
competition is growing in all industries. The little leeway there was
for investment in innovative products and processes is therefore
quickly disappearing in sectors with a low research intensity.

"A continued withdrawal of SMEs from innovative activities must be
prevented. The stronger the pricing competition, the less room to
manoeuvre there is. Difficulties with financing constitute a further
obstacle for innovation. This is where economic policy has to stay on
the ball", said Zeuner.

The latest KfW SME Innovation Report as well as other media
materials can be downloaded from www.kfw.de/innovationsbericht.

Contact:
KfW, Palmengartenstr. 5 - 9, 60325 Frankfurt
Kommunikation (KOM) Christine Volk
Tel. +49 (0)69 7431 3867, Fax: +49 (0)69 7431 3266,
E-Mail: Christine.Volk@kfw.de, Internet: www.kfw.de