OREANDA-NEWS. January 14, 2013. The positive economic outlook gives reason to hope that innovative activity in SMEs, which experienced a slump over the past five years, will pick up steam again. If the economy turns around as expected in the next months, it is particularly the share of innovators of imitation products - companies that renew or expand their offers with products already on the market - that is likely to increase. This is the result of a recent analysis by KfW Bankengruppe based on data collected from 2002 through 2011 for the KfW SME Panel.

The reason: increasing demand is the most important factor for the market success of imitation innovation. Moreover, imitations of innovative products require the shortest development periods and correspondingly can be the first to be marketed when the economy improves. In contrast, truly new products usually emerge independently of the economic situation. In this case, due to the often large innovation efforts and long development periods, longer-term market developments and technological possibilities play a more important role.

Correspondingly, the preceding financial and economic crisis has had a negative impact particularly on the market introduction of imitations of innovative products. The share of SMEs that introduced such innovations in the past three years dropped from 31 to 18% (-42%) between 2006 and 2009. The innovator rate overall, in other words the share of companies with new products or processes, declined by a third from its peak of 43% (2006) to 29% (2009). Following a brief recovery on the heals of the 2008/2009 crisis, the rate now remains nearly unchanged at 30%.

The share of the "real" innovators, in other words those companies that introduce products to the market that are not yet offered by competitors, declined by nearly half from 8% (2002) to 5% (2011). In particular, enterprises in the area of knowledge-intensive services reported strongly reducing their R&D activities in the past ten years due to increasing costs.

Small and medium-sized enterprises are an important component of the German innovation system. They currently incur a good fourth of innovation expenditures in the business sector. Thus, the almost continuous reduction in the development of new products and the increasing concentration of research and development activity in the manufacturing industry give reason for concern. This could lead to a loss of important technological knowhow and over the medium term endanger the future viability of Germany as a business location.

"Innovation secures tomorrow's growth. It is a sign of flexibility and customer orientation, thus maintaining international competitiveness and securing jobs", said Dr Jorg Zeuner, Chief Economist of KfW Bankengruppe. "As a result of the improved mood in companies we expect more innovations in the current year as well. KfW stands ready as a financing partner to achieve the innovation recovery."

Small and medium enterprises most frequently complain of financing problems, bureaucracy and shortages of qualified staff as barriers to innovation. "These can be addressed through economic policies and measures", Zeuner explained. "It is essential to maintain financial incentives for innovation, critically review legal rules and administrative procedures, and adopt measures for further qualification and training. The specific barriers to innovation affect precisely those SMEs the most that generate the greatest innovative impulses."