Thursday 20 June 2013

R&D in Germany

DAX as representation for larger German companies

In one of my energy posts I touched a little on a theme that is actually very strongly connected to me and my life here in Germany which concerns Governmental funding of Research and Development.
The start of this post has been hanging around in the draft folder for a long time but today the spark for writing it got re-ignited via an article that I read in Bloomberg.

Here in Germany a similar thing is happening to as it is in the US. The German government are highly supportive of very risky research to promote the development of future products. Maybe they should go more the American way and support more long term "infrastructure" important developments.
I heard some figure last year which indicated that the German industry and especially the big ones are receiving 1500 M€ per year in research subsidy. For the fun of it I looked through all the DAX30 companies to check how much they claimed to spend on research and the value I got out was 20679 M€ per annum. This means that the German government are practically giving the DAX30 companies, that perform research & development, a 7.25% deduction on their total research costs. Not bad for them!

Two things have however happened lately that are very interesting:

1. For institutes & Universities in Germany to get governmental extra funding they have to team up with small companies today to even be allowed to apply for money. This is in my opinion a clever way of the German government to try to support the small companies that the banks refuse to borrow money to and that are actually already performing a large part of high risk, interesting and for the future important research & development.
2. The people handing out the money have become extremely cooperative and are very helpful when you come to them with an interesting project. Before they did not want to give out money and today they almost beg you to take it. Fascinating how a change of policy and regulations can swap things around quickly.

There are a couple of downsides with what is currently happening... The Frauenhofer institute is having a crazy benefit because they have so many spin-off companies which means they can now even easier get funding. This is not fair and especially since they have 400% "overhead" costs things get seriously out of proportion. The small companies might not be able to market the products that are developed and even worse they might build up a dependency on living on governmental money instead of selling real products and services. I do however think that the worst thing of all is that when it comes to almost all the projects they are being pushed by the institutes and the universities. They write the project or have the idea and then they run out and try to find companies that would fit. This creates the classical approach for how to reach a fully functional but none sales worthy product and is the classical start-up company problem... You could develop the product and it works just as it should but there just is not any customer for it and the fantasies that institute and university researchers have of problems that needs to be solved with research is far, far from the real problems that exist. Largely due to that companies have no interest in telling the world which their real problems are.

There are of course also some subsidy money that are devoted to companies. The problem there is... as a small company you can not afford to put one or two people for one month to write a project proposal. A big company have entire organisations of people only doing that which is why they get the 1500 M€ per year and the small companies today also get something (which is great!) but it is crumbles from the team up with the institutes that leads to product and research with no value to the small companies.

Governments have two ways to push and pull the industries that are active in their countries and in my opinion they must use both:

1. Giving subsidies to make sure that interesting research happens (pulling)
2. Make regulations to force industries to become better and more competitive (pushing)

The best would probably be to go out with a specific pull in an area of interest and at the same time state a push that will take place in five years. With crazy enough push the pull proposals could be extremely interesting and innovative.

Sorry for the long and probably without any sense or reason post.

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