Which sector of industry is the most innovative in Germany? A very comprehensive answer to this question has been provided in the report entitled “Innovation in the German Economy” issued by the Center for European Economic Research (Zentrum für Europäische Wirtschaftsforschung GmbH, ZEW). The current issue rewards automotive manufacturing, among others, with a good score. According to the report, the automotive industry has the highest amount of innovation in its production (48.3%). Innovation is fundamental to the automotive industry’s economic success. Additionally, the industry’s “innovation expenditure” identified by the ZEW is increasing. In 2016, this was valued at 47 billion euros and, according to estimates; it should increase to nearly 55 billion euros by the end of this year.

Reducing Costs Through Innovation

An interesting detail in the ZEW report shows that the buzzword “innovation” does not exclusively refer to product designs such as revolutionary assistance systems or cost-effective gear designs: At 25 percent, the share of “cost-reducing process innovations” in the automotive industry is fairly high. This value is less than 10 percent in the entire German economy.

This brings us back to the machinery industry—after all this industry is one of the essential ”enablers” of specific cost reductions in production (to only address this aspect). It does not come as a surprise that machinery manufacturers spent well over 5.6 billion euros on in-house research and development in 2016, as the German Engineering Federation VDMA recently announced. The inventiveness of German engineers is also impressive, as more than a third of the patents granted in the field of machine construction and toolmaking in Europe originated in Germany.

“Digitalization”— A Major Trend in Innovation

One of the most interesting areas of innovation in both the automotive and machinery industries can be summed up with the keyword “digitalization”. Behind this concept is a massive amount of innovation in the automotive industry that will change our everyday lives. They span, for example, from networking technologies to optimize the search for parking spaces and thus reduce emissions, all the way to self-driving (electric) vehicles. Incidentally, most people may not be aware of the fact that a study by the Ifo Institute for Economic Research has shown that one out of three patents in the field of electric mobility and hybrid drives comes from Germany—yet another impressive testament to the country’s efforts in innovation.

Industry 4.0 is Advancing Quickly

All discussions regarding digitalization in the machinery industry are mostly categorized as “Industry 4.0.” The fact that this term alludes to a “fourth industrial revolution” is suggested in its name. With this technology, ideally, machines in a smart factory would form a holistic network that can optimize itself and will be centrally controlled. These changes are being experienced quickly! According to a survey conducted by PwC in 2016, the average degree of digitization worldwide is expected to increase from 33 percent to 72 percent (!) by 2020.