Technology Transfer Systems in the United States and Germany: Lessons and Perspectives (1997)

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332 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY management and substantial autonomy of the institutes, which are prerequisites for flexible adaptation to the needs of the research market. Another element is the direct linkage of the level of institutional funding to success in contract re- search, which is a major incentive for market orientation and entrepreneurial behavior. Furthermore, the Fraunhofer model builds on a balanced mixture of the three sources of support: institutional funding, public projects, and private contracts. On the one hand, a higher share of institutional funding would imply a decreasing interest of the institutes in industrial contracts, and thus a diminished orientation toward industrial needs. On the other hand, a considerable decrease of public funding would reduce scientific competence and call the institutes’ transfer func- tion into question. The institutional linkage to universities is another vital ele- ment in maintaining a high standard of scientific competence. In the German debate on research policy, success with industrial contracts is often seen as the defining feature of the Fraunhofer model, and the close linkage to science is overlooked. Both elements, however, are important to guarantee effective technology transfer in the long run (see also Meyer-Krahmer, 1996). Therefore, managing the balance between scientific and technological compe- tence is a major challenge for the FhG, which is met by regular control of all elements of technology transfer for each institute. In the present situation of scarce public funds, major problems could arise from further reduction of institu- tional funds, and public projects. At the same time, other public or semipublic research institutions such as universities or national research centers might be urged to carry out more contract research, which could lead to a growing compe- tition for industrial funds. In such a situation, the FhG would not become obso- lete because of its high specific competencies in many areas of applied research, but its role in the German research landscape would be quite different. TECHNOLOGY TRANSFER BY INDUSTRIAL R&D CONSORTIA Federation of Industrial Research Associations STRUCTURE AND TASKS It is a long-standing tradition for German SMEs to be linked together in an industrial research association. Such an association functions as the backbone of a special industry, enabling its members to cooperate and coordinate joint inter- ests. Today, 106 research associations that represent around 50,000 companies and own 68 collective research institutes are joined under the umbrella organiza- tion of the AiF (Arbeitsgemeinschaft industrieller Forschungsvereinigungen “Otto von Guericke”). The AiF is a product of 1950s West Germany: a reemerg- ing landscape of research units at universities, independent institutions, and in- dustrial research associations, focusing on industrially applicable research. The 

TECHNOLOGY TRANSFER IN GERMANY 333 Ministry of Economics, which was very interested in efficient and applicable research, decided that a coordinating agency was needed. In 1954, private indus- try set up the AiF in order to fill this gap. The federal government was interested in channeling public funds through one efficient, mediating umbrella organization. Therefore, in 1954, the AiF ob- tained responsibility for 20 industrial research associations. Industrial coopera- tive research has always been the core competence of the AiF, but the federation has broadened its authority by obtaining jurisdiction over the administration of the funds of three of the most important government programs for the promotion of R&D in SMEs, which include contract R&D, R&D subsidies, and subsidies for R&D personnel. The major aims of the AiF are as follows (Geimer and Geimer, 1981): • to finance cooperative research projects originating in the member asso- ciations; • to coordinate research projects; • to promote personnel transfer between its members; • to support its member associations in obtaining public funds; • to advise on the establishment of new research associations in industry; • to represent the members’ general interests; and • to act as a link between the members and the public administration. AiF currently has 106 member associations that vary in size and structure. The AiF distinguishes three categories of members: type A comprises associa- tions with individual companies as members; type B unites industrial organiza- tions; and type A/B combines individual companies and industrial organizations. About 46 percent of member associations are type A; 41 percent are type B; and the remaining 13 percent are type A/B. The different industrial associations comprise a broad range of industries and extend from textiles to mining and energy. One example of a member association is presented in Table 3.22. ORGANIZATION OF COOPERATIVE RESEARCH About 90 percent of all member companies of the AiF are considered small or medium sized; just 10 percent of the firms operate on a large scale (i.e., with 1,000 or more employees). With this structure, a special approach to technology transfer is needed, as SMEs are considered to have certain deficits in their capac- ity to finance research activities. An appropriate solution is cooperative research activities (Gemeinschaftsforschung), which are collectively initiated by several companies in an industrial research association, but conducted by separate re- search institutes. In this report, the term “cooperative research” is used primarily in the context of industrial research associations. It should not be confused with 

334 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY TABLE 3.22 Structure of the Food and Beverages Sector and its Member Research Associations Number of Companies Association (type) (SMEa/LEb) Research Institute(s) Brewing (type A) 332 / 9 Experimental and Academic School of Brewing, at the Institute for Fermentation Industry and Biotechnology, Berlin. Breweries (type B) 994 / 6 No special research institute; cooperation with universities teaching brewing. Food-producing industry 3,836 / 313 Six research institutes of its own; cooperation (type A/B) with federal research institutes as well as with institutes at universities and polytechnical schools. Yeast-producing industry 10 / 0 Research institute for baking yeast at the (type A) Institute for Fermentation Industry and Biotechnology, Berlin. Plant growing (type A) 60 / 0 No special research institute. Manufacturing of spirits 461 / 0 Experimental and Academic School of the (type A) Fabrication of Spirits, at the Institute for Fermentation Industry and Biotechnology, Berlin. aSME = companies with fewer than 1,000 employees. bLE = large-scale enterprises (1,000 or more employees). SOURCE: Arbeitsgemeinschaft industrieller Forschungsvereinigungen (1991). “collaborative research,” in which different institutions collectively perform re- search within the context of joint projects. Obviously, several SMEs competing in the same market will not want to work together on research applicable to their competitive position. Therefore, cooperative research projects are “strictly precompetitive” (Schiele, 1993) and the results that come out of such research leave room for individual companies to adapt the findings to their special needs. Typical areas of cooperative research are setting technical rules for safety purposes and standardization to reduce pro- duction costs. A variety of projects concern environmental problems, such as the elaboration of ecologically optimized products and processes. As all research topics are initiated by the companies, the former often emerge from daily busi- ness on the companies’ shop floors; these are so-called bottom-up problems (Schiele, 1993). In this sense, industrial cooperative research is complementary to the top-down approach of research institutions like the MPG and of many programs of the BMBF. Cooperative research is usually initiated by the SMEs themselves without 

TECHNOLOGY TRANSFER IN GERMANY 335 any outside influence (Schiele, 1993). Next, the firms inform their research asso- ciation of their particular research problem. The advisory board of the associa- tion discusses whether the problem is interesting for other members of the corre- sponding branch and whether it will be possible to define a suitable research project. In this first step of evaluation, about 50 percent of proposed research ideas are rejected. This first phase of project definition at the research association level must be viewed as crucial, since it is a collective, interactive process for determining common problems. The definition of appropriate problems is a ma- jor prerequisite for the success of the related research projects. In this regard, the projects of the industrial research associations are truly cooperative. When a project is approved, an expert group plans its contents and its costs in detail and chooses an appropriate institute to implement it. In 1990, about 53 per- cent of the 1,102 projects were performed in one of the 68 institutes belonging to the research associations themselves; 43 percent were carried out by university institutes; and the remaining 6 percent were done by other public or private re- search institutions. Since then, the percentage undertaken by other institutions, primarily independent research institutes, has increased considerably, reaching 24 percent. The individual research associations have to decide whether a project can be carried out exclusively with internal funds, or whether it requires public support. Getting public funding can be a rather difficult and time-consuming procedure. Only if the research association decides to seek public support will the AiF be involved. In this case, the member association submits an application to the AiF, where the project is again evaluated by an expert group. There are currently 8 groups with 140 experts from science and industry involved in this evaluation procedure. In this second evaluation, another 26 percent of the submitted appli- cations are rejected. Next, the Authorizing Committee (Bewilligungsausschuß) of the AiF decides whether or not the accepted projects should be recommended to the German Ministry of Economics for public support. The whole evaluation procedure is illustrated in Figure 3.28. If the project is recommended to the German Ministry of Economics, it gets complete financing from the ministry. The public funds are allocated to the AiF, which administers them. To receive public support, the particular research asso- ciation must match the support it receives from the government by investing at least the same amount of its own resources in other cooperative research projects. During past years, funding by AiF member associations on average amounted to about twice as much as the public support. To sum up, cooperative research projects can be financed either by industry, at the level of industrial research associations, or publicly, by the Federal Minis- try of Economics. When a project is publicly funded, the AiF plays a decisive role in the evaluation of project proposals and in project administration. In this context, it has to be emphasized that the AiF is completely financed by its mem- ber associations and not by public funds. 

336 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY FIGURE 3.28 Evaluation steps for publicly funded projects involving industrial coop- erative research. SOURCE: Schiele (1993). BUDGET AND ORIENTATION The history of the AiF until 1961 was marked by the financial aid of the European Recovery Program. From the time AiF was established, it was evident that the financing of cooperative research should be shared by the government, the participating companies, and the member associations. During the early years of the AiF, public funding exceeded contributions by AiF members, but a con- stant increase in membership brought in new financial resources. Public funding today serves as an incentive and allows the development of “riskier” research 

TECHNOLOGY TRANSFER IN GERMANY 337 projects. In 1975, a remarkable decision enabled member associations to apply on behalf of single companies, even small firms without the required capital, in order to obtain research funds. This decision has resulted in the promotion of many small companies that otherwise have almost no chance of receiving public funds. The financial strength of their association not only serves as a guarantee but also contributes to the monetary support. Figure 3.29 shows the development of public and private industrial funds for cooperative research. The striking increase of public support in 1991 and 1992 was due to a special effort made for SMEs in the former East Germany. At the same time, industrial funds increased as well, so that in 1993, they were again about twice as plentiful as public funds, just as was true in the 1980s. In 1991, public and private expenditures for cooperative research amounted to DM 470 million, or about 1 percent of total R&D spending in industry. This share seems to be quite modest. However, one should bear in mind that about 60 percent of industrial R&D is performed by very large companies with more than 10,000 employees. Only about 17 percent is carried out by SMEs, and SMEs are the target group of cooperative research (see SV-Wissenschaftsstatistik, 1994, 1996). About 6 percent of research conducted in SMEs is cooperative research within research associations. The situation in different industrial sectors varies considerably. In the textile sector, the share of cooperative research represents about 42 percent of the total R&D expenditure of industry, whereas in electrical engineering it is only 0.1 per- cent (Table 3.23). Cooperative research is in general more important for indus- 250 Pubic support Industrial fund 200 Million 1980 DM 150 100 50 0 86 87 88 89 90 91 92 93 yea FIGURE 3.29 Public and industrial funds for cooperative research, 1986–1993, in con- stant 1980 DM. SOURCE: AiF-Verwaltung (1995). 

338 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY TABLE 3.23 Importance of Cooperative Research in Different Industry Sectors in Germany, 1989 Sector’s Percent Share of R&D Sector’s Total Expenditures Percent Turnover R&D Expenditure on Industrial Represented by as Percent Cooperative Sector’s 10 Largest Sector of Turnover Research Companies Aeronautics, aerospace 30.9 0.0 95 Electrical engineering 9.3 0.1 30 Chemical industry 6.3 0.1 30 Vehicle industry 4.1 0.0 74 Mechanical industry 3.6 1.4 12 Materials for construction 2.0 5.0 52 Wood, paper, printing 1.2 8.3 33 Textiles 1.0 42.2 12 Nutrition 0.7 7.0 11 Iron manufacturing 0.6 22.0 75 SOURCE: Schiele (1993). trial sectors with a low R&D intensity. Sectors with a low level of concentration (indicated in Figure 3.30 by the share of turnover, or sales, of the 10 biggest companies) and thus a high share of SMEs also often rely to a great extent on cooperative research. However, in the highly concentrated sector of iron manu- facturing, the impact of cooperative research is significant. All in all, cooperative research is focused primarily on traditional sectors, whereas in research-intensive areas like chemistry, electrical engineering, and aeronautics, its role is negligible. The distribution of public and private funds in different industrial sectors is shown in Figure 3.30. As to the focal areas of this study, production and manufacturing are broadly represented in the activities of different research associations. For these kinds of industries, cooperative research seems to be a quite appropriate means of technol- ogy transfer. Biotechnology is not only an area of cooperative research unto itself but plays an increasing role in projects of the food industry. Cooperative research among microelectronics and software firms is rare, as the electrotechnical sector has traditionally not established relevant research associations. Coopera- tive projects in the two fields do occur, however, in the context of process and production automation. An examination of research reports resulting from cooperative projects (e.g., Arbeitsgemeinschaft industrieller Forschungsvereinigungen, 1992, 1994), reveals that most such projects are highly application oriented. The project “Shortening of the Ripening Period for Hard Cheese” is a typical example. Conducted at a 

TECHNOLOGY TRANSFER IN GERMANY 339 Energy Public funds (in Mining Industrial funds ( Stones, earth Chemistry, oil Plastics Ferrous, nonferrous metals Civil engineering Steel, mechanical engineering Wood, paper, printing Electrical engineering, optics Food Textiles, clothing Other 0 5 10 15 20 25 30 35 million D FIGURE 3.30 Volume of public funds and industrial funds spent on cooperative re- search. SOURCE: Böttger (1993). research laboratory in the former East Germany, financed by the Ministry of Eco- nomics, and initiated by the Research Circle of the Food Industry (Forschungs- kreis der Ernährungsindustrie e.V., Bonn), the project yielded the finding that adding cell-free extracts of lactobacillus to milk accelerates substantially pro- teolysis and therefore reduces the period needed to ripen cheese. This reduces the requirements for energy and space, and since adding the extracts actually im- proves the flavor of the cheese, it increases the quality of cheese. Another example from the food and beverage industry is a project initiated by the Science Promotion of the German Breweries (Wissenschaftsförderung der deutschen Brauwirtschaft e.V., Bonn) and carried out at the Institute for Brewery Technology at the Technical University of Munich. Funded by public sources, “Research on the Production of Volatile Aroma Essences for the Aging of Bottled Beer and the Possibilities of Technological Influence” resulted in techniques for the optimization of the brewing process. The development of an objective sen- sory evaluation technique made it possible to establish criteria for the stability of flavorings. TECHNOLOGY TRANSFER In the framework of industrial cooperative research, we have to distinguish between two different target groups for technology transfer. The first group con- sists of the enterprises that initiate projects and are directly involved in their defi- nition and application. These firms are also closely involved in supervising the project’s implementation, so that an intensive process of technology transfer takes place. The phase of project definition, especially, implies detailed consideration 

340 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY of the research problem, interaction with other companies, and discussions with research institutions; the submission of a qualified proposal usually requires an effort of several months (Arbeitsgemeinschaft industrieller Forschungsvereini- gungen, 1992). Since the involved SMEs define the projects according to their special needs, they are interested in applying the research results. With regard to this target group, cooperative research is demand driven, a situation that is favor- able for successful technology transfer. The second target group is composed of other member companies of a re- search association that are not directly involved in the application and execution of a research project. According to the general rules of cooperative research, the research association has to make the results of its projects available to all of its members. The major means of disseminating information is the documentation of research results in regular journals of the association and research reports. In addition, meetings, seminars, demonstrations in companies, exhibitions, and simi- lar transfer activities are organized. In many cases, the research results lead to the introduction or change of norms and standards (Arbeitsgemeinschaft industrieller Forschungsvereinigungen, 1992). The technology transfer to this second group is, of course, less efficient than it is to the first group. Companies have to become aware of the existence of the research results and must determine whether or not these results may be useful for their purposes. In the case of large associations, the activities of the member companies often vary considerably, so that the re- sults of a research project are useful for only a limited group of members. According to a recent study by Lageman et al. (1995), about 20 percent of member companies actively use the results of cooperative research. Of the com- panies that are involved in committees of their research association, almost 90 per- cent use the results of cooperative research. This latter subset of companies is largely equivalent to the first target group described above. Furthermore, the type of membership in the research association is important for the efficiency of technology transfer. If the companies are direct members, they frequently use the research results. If they have only indirect membership through an industrial organization (research association type B, see description above), about 75 per- cent never use research results and one-third do not even know that the possibility of cooperative research exists. To sum up, technology transfer is very efficient for the group of companies that are directly involved in the definition and execution of projects. As to the rest, the research associations and the AiF undertake various activities to support technology transfer, but the effect is limited. Lageman et al. (1995) suggested a variety of measures for improving technology transfer to this second target group, such as establishing on-line databases and preparing more user-friendly docu- mentation of research results. Probably the most important step for facilitating effective technology transfer is for associations to identify contact persons within their member companies to establish regular and stable communication struc- tures. Despite all these improvements, the effect on the second target group will