German companies, in particular small and medium-sized entities (SMEs), doing their research work exclusively in Germany have extended their activities to a much smaller extent than their US counterparts. This shows that German companies need more incentives by their domestic market in order to encrease their research activities, warns the Berlin based German Institute for Economic Research (DIW) in its weekly report 5/2007.
It is true that the increasing internationalization of research activities by multinational companies is strengthening Germany as a location for research. However, the problem lies in the fact that the research activities of small and medium-sized entities and of companies only operating in Germany are less dynamic. In both Germany and the USA expenditure on research and development increased by about fifty percent in the period from 1995 to 2003. Nevertheless, in both countries the increase is mainly owed to multinational companies which also engage in research and development abroad. 