In this paper, the role of the government in the German entrepreneurship ecosystem was investigated. More specifically, specific policy components, their influence on the science-based innovation process, and their support of the transition from invention to innovation were analyzed. Following our systematic analysis, it is possible to derive certain conclusions and recommendations.
By establishing one-stop agencies acting as mediators to the authorities, introducing the
entrepreneurial company with limited liability and reducing the time for discharge of residual debt
q, Germany has taken important steps in reforming the regulatory environment for entrepreneurs. Also, Germany ranks high in judicial efficiency and bankruptcy resilience
r (IESE-VCI
2013; World Bank
2002). Still, studies have shown that the comparatively high costs associated with certain bureaucratic rules can result in negative effects on company foundation. Furthermore, it is necessary to ensure more flexibility in the labor market, in order to allow young companies to react quickly to changing market conditions.
To sum up, Germany is already positioned to become the birthplace of new technology-based, fast-growing, and globally acting companies. The government recognizes the importance of entrepreneurship and acts on many levels to build a sustainable ecosystem. The crucial question is if Germany will also succeed to ignite the entrepreneurial spirit in its universities and among its citizen overall to transform itself from a ‘land of ideas’ into a ‘land of entrepreneurs.’
Endnotes
aList of assessment frameworks for entrepreneurship ecosystems
1.
Babson College - Babson Entrepreneurship Ecosystem Project
2.
Council on Competitiveness - Asset mapping roadmap
3.
George Mason University - Global Entrepreneurship and Development Index
4.
Hwang, V.H. - Innovation Rainforest Blueprint
5.
Koltai and Company - Six + Six
6.
GSM Association (GSMA) - Information and Communication Technology Entrepreneurship
7.
Organisation Economic Co-operation and Development - Entrepreneurship Measurement Framework
8.
World Bank - Doing Business
9.
World Economic Forum (WEF) - Entrepreneurship Ecosystem
bThe word ‘start-up’ is regularly being misused. There are various definitions and not even the majority of them mean basically the same. Due to this mismatch, we want to point out that this paper follows the definitions of Steve Blank (2012): ‘Start-ups are temporary organizations that are designed to evolve into large companies. Blank distinguished between two Start-ups: a) early stage start-ups that are designed to search for product/market fit under conditions of extreme uncertainty. B) late stage start-ups that are designed to search for a repeatable and scalable business model and then scale into large companies designed to execute under conditions of high certainty.’ As explained later on, we focus particularly on science-based technology start-ups that build their business around a new technology or invention with the aim to commercialize it.
cExample: Each technology that makes the iPhone ‘smart’ - such as the Internet, GPS, the touch screen display and, more recently, SIRI - was financially supported by the state.
dSchramm (
2008) defines innovation as ‘
the design, invention, development and/or implantation of new or altered products, services, processes, systems, organizational structures, or business models for the purpose of creating new value for customers and financial returns for the firm.’ (Schramm (
2008): January 2008 report of The Advisory Committee on Measuring Innovation in the 21st Century Economy, Innovation Measurement: Tracking the State of Innovation in the American Economy)
eMeasured in inflation-adjusted dollars, according to data from the Bureau of Economic Analysis (www.bea.gov/briefrm/tables/ebr1.htm, in Auerswald P.E., Branscomb L.M. (
2003))
fIn the USA, it was the Bayh-Dole Act (1980) that regulated the rights of the use of research results in a new way and thus set the stage for increased commercialization of new technologies. This law allowed universities and small non-profit companies the economic use of patents which have been developed by government subsidiaries. The aim was to increase the rate of utilization of patents, which was in the single digits before this act was passed. Before this law was passed, universities had to individually negotiate with federal research agencies to agree on terms of access to patent rights arising from federally sponsored research. According to a report by the OECD, as a result of this act, about 20,000 patent applications were filed at universities, with some universities earning several million dollars in royalties. It has also led to the formation of about 3,000 new businesses. The effects of this law are still being felt today, as the innovation performance and number of spin-offs at American institutions of higher education was significantly boosted
gAgencies like Hannover Impulse are partly funded by the state government and through self-generated profit. These institutions are local contact point for EU funding and ‘support networking across different industries to generate synergies and perhaps enable new collaborations among existing businesses or the establishing of new business,’ as one respondent explains.
hThis assessment relates to the status quo and does not deny that various measures have been implemented to reduce bureaucracy in recent years, without which the status quo may be different in nature. However, noticeable cost for the founding companies associated with certain bureaucratic rules - as it is the case in Germany - can result in negative effects of company foundation. For instance, notarized documentation of elementary company information (shareholders' agreement, legitimization of directors, etc.) currently costs 1,014 Euros (=$1,314) and lasts 1 day and the entry in the commercial register lasts for 10 days and costs 403.5 Euros (=$523).
iIn Germany and other EU countries, the so-called single point of contact was introduced by the end of 2009 associated with the implementation of the EU Services Directive 2006/123/EC.22.
jEU Services Directive 2006/123/EC.22.
kEntrepreneurship education, as a cross-sectional topic across disciplines, is a main element in developing an entrepreneurial culture at a university. Due to communicative barriers and different theoretical approaches across those disciplines, the integration of entrepreneurial elements is often difficult. They have to be intertwined closely with the other existing cultures of research, professorship, and administration. Whether those prevalent cultures will be willing to adopt entrepreneurial principles and practices or not will be decisive for a more thorough penetration of an entrepreneurial culture in higher education institutions.
lVogel G (
2006): A German Ivy League Takes Shape, American Association for the Advancement of Science (
http://news.sciencemag.org/education/2006/10/german-ivy-league-takes-shape). Eventually 22 universities of the country's 120 publicly funded universities receive extra funding, either for new graduate school programs (€1 million, or $1.25 million, a year each) or for the so-called excellence clusters (worth €6.5 million, or $9.75 million, per year) designed to bring together top researchers from several disciplines.
mHistorically, the US government mainly funded large-scale fundamental research, resulting in strong government-university ties. Business was reluctant to invest in this area because results are highly uncertain and technical and business risk partly not manageable. ‘
It is an essential role of the United States federal government — in the interest of tomorrow's prosperity — to invest and engage in scientific and technological discovery. After rising steadily for decades, federal financing for research and development peaked in 2009, at $165.5 billion. It has since sunk, falling to $133.7 billion this fiscal year’ (Tritch T (
2014) America's underappreciated entrepreneur: the federal government, New York Times, Opinion Page, 24th of March 2014).
nMost of the respondents mentioned the KFW Mittelstandsbank - the largest business development bank in the world - as an important institution of Germany's start-up support. In 2012, it supported entrepreneurs and the German Mittelstand with about 17 billion Euros of subsidized loans. There are also various banks at a federal state level (Landesbanken) that offer funding similar to the KFW.
oHow important entrepreneurship in Germany is can be observed by looking at the performance of SMEs in general. According to calculations by IfM Bonn, they account for 99.7% of all VAT-registered businesses, 60.8% of all jobs that are subject to social insurance contributions, and 83.2% of all apprenticeship training positions. Source: Federal Ministry for Economic Affairs and Energy (2012): GründerZeiten: Existenzgründungen in Deutschland, Bundesministerium für Wirtschaft und Technologie.
pActing as a facilitator for these start-ups to find investors is not the only reason why this bridge to the USA is so important, explained one respondent: ‘In the area of marketing is a very big difference between Germany and USA. […] Often they are very good at talking about the technology and go into too much detail of the technology and they don't answer the question “Why should I invest?” […] In the US it is really about making your science - or whatever business you're doing - accessible and comprehensible to a normal audience and not just to other “techies”. […] that is one of the things that the accelerators need to do – help them and train them to get to that level.’
qThe time for discharge of residual debt was reduced to 3 years with the obligation to repay at least 35% of your debts - a lower percentage was not possible due to creditor protection.
rAlso, according to the World Bank Doing Business Report (
2014), Germany ranked better than the average of OECD countries in time, costs of insolvencies, as well as a higher than average recovery rate and low total bankruptcy rate.