Why German companies will die if they don't innovate

Abstract German industrial history tells us two reasons: First, there is no self-owned property rights and core competitiveness. There is no future because of imitation and low prices. Second, if you don't innovate, you will die. This is the lesson of the blood of Germany. To innovate this matter, we must be conscious, have an environment, and have institutional guarantees. This...
The German industrial history tells us two reasons: First, there is no self-owned property rights and core competitiveness. There is no future because of imitation and low prices. Second, if you don't innovate, you will die. This is the lesson of the blood of Germany. To innovate in this matter, we must be conscious, have an environment, and have institutional guarantees. These Germans are just as many.

A few days ago, Roland Berger, the German company's corporate strategy expert and founder of Roland Berger's strategic consulting company and chairman of the supervisory board, said that he was troubled by the status quo of China's manufacturing. Berg told me the story of Germany. From 1870 to the beginning of the 20th century, “Made in Germany” was low-quality and cheap. At that time, the gold-plated signboard of the global manufacturing industry was the United Kingdom. In order to draw a line with German manufacturing, the UK requires that all goods must be marked with the country of origin.

After that, the Germans spent decades studying "learning from the British", from simple copying to starting to try product development and improve product quality. At the beginning of the 20th century, "Made in Germany" has won a good reputation. Up to now, many people have not remembered that history.

"After that, the Japanese also took a similar path to the Germans. From copying, bargaining, and starting their own research and development, technology, products, in the 1970s and 1980s, they attacked many European and American companies. The impact of Japanese products and emerging markets, the German motorcycle, bicycle, camera, and textile industries are basically dead." Roland Berger said. There are also the remaining in these industries, which are basically antiques, not trendy goods.

Companies that have successfully confronted Japanese electronics and new technology and Southeast Asian textile manufacturing have become stronger and stronger. For example, engineering and chemical and automotive manufacturing in Germany. Made in China may occupy the whole world, but many Chinese-made products use German machinery and equipment.

Time has passed, the former British Foreign Secretary's adviser, Steward Wood, wrote in the British newspaper The Guardian, "whispered: learning well from Germany. Especially the model of the German social market economy is worth learning in the UK. Looking for us Germany can give us inspiration when answering the biggest challenge of the moment."

This is called a feng shui turn.

Mr. Berg's brief German industrial history tells me two reasons: First, there is no proprietary property and core competitiveness. There is no future just by imitation and low prices. Second, if you don't innovate, you will die. This is the lesson of the blood of Germany.

German SMEs are thriving, and the German federal government supports corporate innovation. To innovate in this matter, we must be conscious, have an environment, and have institutional guarantees. These Germans are just as many.

Germany billions of euros ç ¸ innovation

In the past 100 years, the Germans have invented many, from aspirin, contact lenses, car airbags, to MP3 and SIM cards. Many German companies still enjoy the dividends of these older generations of inventions. This kind of patent bonus that benefits generations is the "patent barrier" that many people in the Chinese business community hate most. It is a pity that this is the rules of the game in modern society.

In 2012, Germany's investment in new technology development and innovation reached 79.4 billion euros, 2.98% of GDP, with a target of 3%. The EU average is 1.97%, compared to 1.98% for the same period in China. The difference is that venture capital is not popular in Germany, angel investment funds are less common, so the investment in innovation between government and private companies is a big part.

“When we mentioned the figure of 3%, our federal government is also very proud. As more and more German companies increase their investment in R&D, they also see that the number itself is growing.” Former Chairman of the German Bosch Company, the current Supervisory Board Chairman Franz Fehrenbach told Sina Finance. Bosch in Germany is not a listed company. Their constant strategy for more than 100 years is to invest heavily in R&D: about 10% of total sales.

“Germany’s overall R&D investment is about 3% of GDP. But my point is that Germany must exceed 3%. Because Germany is a resource-poor country, the only resource is the wisdom of the Germans. To make Germany competitive. Only increase or decrease, it is necessary to increase investment in research and development." Feirunbach said in an exclusive interview with Sina Finance.

Nearly 50% of GDP in the EU's highest GDP economy is created by exports. In the past five years, even in the European debt crisis, investment in private sector and public R&D institutions in Germany increased by 15%.

The EU ranks global R&D investments every year. According to statistics for 2014, Volkswagen, Samsung [microblogging] and Microsoft [microblogging] are the three companies with the highest R&D investment in the world: Volkswagen invested 1.35 billion U.S. dollars in research and development last year, exceeding 100 billion yuan, compared to 2013. The growth rate is nearly 19%. In addition, five of the top ten companies in the list are US companies (Intel, Microsoft, Google, Merck & Johnson), two other European companies (Royce, Switzerland and Novartis), and Toyota in Japan.

These billion-scale predators have many big innovations. The chemical industry is looking for new energy alternatives to oil, and auto companies are looking for alternative energy sources such as hydrogen power and electricity. Germany's environmental regulatory policies have spawned a range of renewable energy, carbon dioxide emissions control, and technological innovations to improve energy efficiency. Innovative, German manufacturing has a lot of topics, but when it comes to daily production, it is an uninterrupted improvement in the production process and existing products.

"The so-called transformation is not to give up, nor to destroy. In fact, it is to pursue high quality and go to the value chain of the industry. In order to enhance competitiveness and return on investment. Therefore, we must continue to research and develop technology, and R&D can produce productivity." Feirunbach said frankly about Sina Finance.

Fehrenbach believes that the concept of “efficiency” is closely linked to innovation and can be obtained in two ways: one is to innovate new products, and the other is to improve technology and replace existing products.

“Some companies improve efficiency and competitiveness through innovative products, while others gain competitiveness by achieving operational perfection. If Bosch is used as an example, we can produce millions of parts at the same time, guarantee the same quality, no Hey." Feirunbach said to Sina Finance.

In the field of research and development, Bosch's investment is about 10% of sales. According to Fühnerbach's estimates, competitors' investment in R&D is about 3% to 6% of sales.

Hidden champions of over 1,000 SMEs

The super-aircraft carriers in Germany are almost indestructible, but they are not the ultimate reason for the strength of German tanks. In Germany, more than 99% of the companies belong to small and medium-sized enterprises. They are highly active in the industry and so prosperous that the German-small SME “Mittelstand” has become a proper term, representing the backbone of German industry.

German-born Harvard strategist Hermann Simon wrote a book on the "Mittelstand" of the motherland in 2009, called "Hidden Champions of the 21st Century." The so-called "invisible champion" is ranked in the top three in the world in a refined industrial field, or in the first place in its own region. Even so, their brands are less well known. Recently, Simon has updated his research data. Last year's statistics showed that Germany accounted for 1,307 seats (47%) of the 2,764 medium-sized global leaders in the world; these companies accounted for 1/4 of German exports. In contrast, there are 366 seats in the United States, 68 seats in China, and 67 seats in the United Kingdom.

Such a group of companies, their investment in research and development is twice as high as that of a general industrial company. Even compared with some large companies that are known for their patents, the average number of patents per employee is five times that of a large company, compared to the number of patents and employees. Taking into account the refinement of costs, their final input-output ratio is higher.

To give an example: Enercon, Germany's largest wind turbine manufacturer, has 30% of the global wind energy sector patents.

There are still many German companies that have never been heard before, and even the field of the partial door they are involved with has not heard of. Simon has discovered many such small-scale SME companies scattered around Germany. For example, Chemetall is the world's largest producer of rare metals and lithium; 3B Scientific is the leader in anatomy teaching aids. Uhlmann is the leader in pharmaceutical packaging systems, and Flexi is specialized in producing pet telescopic leashes. Do you imagine it? With just a small dog leash, they monopolize 70% of the global market.

When many companies are very keen on the concept of “outsourcing”, the “Mittestands” in Germany are absolutely opposed to the concept of “outsourcing”, especially when they are involved in their housekeeping expertise.

There is a medium-sized company in Germany called Wanzl, which mainly produces shopping carts and self-propelled luggage trolleys at the airport. Their trolleys are sold all over the world, including Narita International Airport in Tokyo, Japan.

Airport trolley? It seems that there is no technical content and the quality is very high. All the parts of the company are produced by their own factories, because they believe that they can guarantee the quality standards they set.

This does not understand the difficulties that Chinese companies want to make when they launch acquisitions for many small German companies.

Among the current German companies, many of the most sought-after inventions come from some SMEs. To give a small example, only a small area of ​​3D printing technology has gathered a number of small and medium-sized technology companies in the United States and Germany, so many Chinese entrepreneurs have come to Germany to acquire small companies with independent intellectual property rights in 3D printing. As a result, these seemingly affluent SMEs are simply not willing to sell.

According to Wharton professor Christian Terwiesch, the embarrassment of German-style innovation is that technical expertise in a very small professional field is very good, so even in a small sector can become a market leader.

Many Chinese companies are happy to acquire such small companies and the success of the acquisition.

German-style "technical handling agency"

In the field of innovation, both German super-carriers and SMEs look very good: they have long sleeves and dances.

But the dynamic atmosphere of innovation is not just the credit of the companies. The entire market system in Germany seems to be tailored to encourage innovation, and Americans are envious of hatred.

The problem that must be explained in advance for innovation is that the term R&D has been said for many years, and no one knows about doing business. Why do you have reservations about investing in innovation? Because some industries need to take a decade or two to make breakthroughs after research and development, this is especially true in the pharmaceutical industry. The machinery industry doesn't take that long, but it won't be immediate.

Enterprises invest in research and development, and ready-made technologies cannot find a market. This information asymmetry exists in many countries.

Germany has a special "intermediary", or "incubator", that bridges the gap between technology and the market.

There are hundreds of research institutions in Germany, and the Max Planck Institute (Morgan-Planck Institute, MPI) in Munich is a famous one. They specialize in funding and launching life and asset science research projects.

The Fraunhofer-Gesellschaft is the largest applied scientific research institution in Germany and Europe, with a history of nearly 66 years. They have 67 semi-autonomous research institutes, just like the porters of scientific research and development, moving some mature research results to corporate and government management.

These scientific research intermediary organizations are an important part of the German innovation ecosystem. Without them, innovation in many industrial fields in Germany may not reach the terminal at all.

Take the Fraunhofer Institute for Applied Research Promotion as an example. Their annual R&D budget is 2 billion euros, 30% of which comes from the government, and 70% from some public budget-supported projects and their contracts with companies. Their responsibility is to bring technological innovation to the market smoothly, almost across all industry sectors, most concerned with the strengths of the Germans, from health care to energy. The Fraunhofer Institute for Applied Research Promotion contributes to the technological incubation of SMEs.

These research projects will not only stay at the level of academic journals, but will be rapidly commercialized, not just a company, but may benefit the entire industry.

What is more worth mentioning is that German companies, from large enterprises to small and medium-sized enterprises, are fiercely competitive in terms of innovation and product quality improvement, but they do not have to squeeze each other with price wars. German companies have close links and exchanges. They call this close communication the Clusters, sharing the dividends of innovation and technology. Especially in Germany's most competitive chemical, automotive and electronic equipment and engineering fields. They will not dismantle each other, but work together.

“German goods have been transformed for decades and can be made in China. As for when 'Made in China' can be raised, I think it is 10 years. It takes about 20 to 30 years to stay at the forefront of technology.” Mr. Berg's optimistic estimate of Chinese manufacturing has a premise: "The premise is that China's manufacturing industry must come out of the imitation stage and start to innovate its own production processes, technologies and products. The world today is transparent, one end of the world. With a new technology, the other end will know in a matter of seconds. So the learning process must be accelerated."

Berg said that "the Germans have never given up on manufacturing because they know that the power of manufacturing is crucial to a financially independent country."

(The author of this article: Sina Finance Europe stationmaster. Work for more than ten years, from social news to financial news, from Shanghai to London, from the first financial daily to Sina Finance.)

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