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21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program (2013)

Chapter: Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research

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Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Appendix A2

Fraunhofer-Gesellschaft: The German Model of Applied Research

The Fraunhofer-Gesellschaft (Fraunhofer Society) is a network of German institutes for applied research. The Fraunhofer’s primary mission is to perform contract research for German industry, particularly small and medium enterprises (SMEs), which translate basic research from universities and non-university research organizations into commercial products and industrial processes. The 60 Fraunhofer institutes in Germany, with an average staff of 400, perform research and test industrial processes on their premises which enjoy state of the art equipment and deep human competencies. Fraunhofer’s funding is derived from diverse sources, including federal, state, and European Union public funding, fees from contract research for industry and public organizations and foundations, and licensing fees for intellectual property. It has created roughly150 spin-off companies, with a very high rate of success.

Each Fraunhofer institute specializes in a particular technology or sector, and a Fraunhofer institute exists for virtually every sector of significance to a modern industrial economy, ranging from renewable energy, aerospace, automotive manufacturing, microelectronics and information technology. Each Fraunhofer institute is paired with a German university and can utilize the most promising students as part-time researchers, thereby giving students practical experience in commercially-oriented research and manufacturing environments. The institutes generate technology for commercial products and processes, enable companies to test equipment and industrial processes on pilot manufacturing lines, and foster a continual flow of trained engineers and technicians to the private sector.

The German model of innovation is widely credited as a major factor underlying Germany’s strong international competitive performance since the onset of the global financial crisis in 2008. German exports are at an all-time high and GDP growth outpaces the rest of the Euro zone and the United States. German competitive strength are often attributed to factors such as the country’s

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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highly-skilled work force; a longstanding “dual system” of education/apprenticeship, which marries academic learning and practical skills; the export prowess of Germany’s small and medium enterprise (Mittelstand), which dominates hundreds of world markets for niche technologies; a web of mutually-supporting networks of companies, associations, and research organizations that can address complex technological challenges and diffuse technology through collaboration; and the excellence of German engineering and manufacturing technology in companies of all sizes. The Fraunhofer plays a central role in supporting all of these aspects of German competitive strength.

Reflecting Germany’s international competitive performance, the Fraunhofer is probably the world’s most thoroughly studied applied research organization, with other countries examining the question of whether they could apply the “Fraunhofer model” wholly or partially and emulate Germany’s success. Of particular interest is Fraunhofer’s role in Germany’s abiding strength in “traditional” industries which have eroded in other developed economies, such as automobiles and machinery. Germany companies have remained competitive in these sectors through a continual process of incremental improvement in existing products and processes, an approach that may not yield technological breakthroughs but builds a competitive edge over a long timeframe. The Fraunhofer emphasizes performance of a large number of short-term research projects that have near-term commercial impact, an approach which reinforces the German method of incremental innovation. It continually diffuses competitively relevant innovation technology throughout the German economy and trains highly-skilled engineers, technicians and managers. Public funding of the Fraunhofer reflects a longstanding German national consensus that public investments must be made in research infrastructure that includes infrastructure for applied research with commercial relevance. 1

It is important, however, not to overrate the impact and the importance of Fraunhofer Gesellschaft for the German research and innovation system. While Fraunhofer Gesellschaft have contributed in significant ways to the recent success of German industry, this success has also rested on factors such as the high demand for capital goods/machinery by emerging economies and the match of this demand with Germany’s industry profile. Other factors supporting German competitiveness include a competitive currency, worker training programs, policies to subsidize the retention of skilled workers in economic downturns, and a dense network of supporting institutions, including localized banks with long-term relationships with Mittlestand firms.2

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1Dirk-Meints Polter, a former Fraunhofer deputy director, addressed this point in 1992, characterizing “subsidy,” as a misleading word: “we see ourselves as part of a scientific and technological infrastructure that is provided by the government, just as phones and roads are provided.” New Scientist. 1992. “German Innovation, British Imitation.” November 21.

2Additional instruments include innovation vouchers and Industrial Collective Research institutes. “In numerous Länder, including North Rhine-Westphalia, Baden-Württemberg and Bavaria,

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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INTRODUCTION

The Fraunhofer has an enviable reputation throughout Germany, Europe, and the world. A report by the U.K. House of Commons Science and Technology Committee commented in 2011 that “the name Fraunhofer resonates across the world and is widely associated with an impressive network of German technology and innovation centres.”3 In 2010, the United Kingdom’s Minister of State for Universities and Science, David Willetts, testified that the Fraunhofer Institutes “have been a key part of Germany’s success in advanced manufacturing and high grade engineering.4 In 2010, Fraunhofer was Germany’s second most popular employer for graduates in the natural sciences, fourth most popular for information and communications technology graduates, and seventh most popular for engineering graduates5. The amount of contract research business with industry—an accepted benchmark of Fraunhofer’s effectiveness in promoting industrial innovation—is at an all-time high and increased by 15 percent between 2010 and 2011.6

Recent German Economic Performance

A recent resurgence of interest in the Fraunhofer reflects the fact that Germany has weathered the financial crisis which began in 2008 far more

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innovation voucher programmes have been launched. Normally aimed at SMEs that conduct no R&D of their own, the programmes subsidise part of companies’ costs for consulting or external R&D services. The Federal Ministry of Economics and Technology (BMWi) launched a similar programme in 2010” <http://www.e-fi.de/fileadmin/EFI_2011_en_final.pdf>. The Industrielle Gemeinschaftsforschung, (IGF) is a “a mechanism enabling businesses to solve shared problems through shared projects. This kind of pre-competitive research closes the gap between basic research and industrial application. The results are available for everyone interested and the basis for individual adaptations within enterprises” <http://www.aif.de/en/collective-research.html>.

3House of Commons. 2011. Second Report: Technology and Innovation Centres. Committee on Science and Technology. February 9. p. 41.

4Ibid. pp. 7. German industrial leaders attribute their abiding success in export markets, in substantial part to Fraunhofer and other similar German research organizations. In 2008, Der Spiegel interviewed Ekkehard Shutz, the CEO of Germany’s biggest steel firm, ThyssenKrupp. Commenting on his firm’s success in a global market increasingly affected by low cost manufacturers based in Asia, he observed that despite Germany’s higher cost structure, it remained a “good place for production. You can tell by the fact that the lion’s share of our investment still flows into our German plants. We have exceedingly well-trained employees here, a good research environment, close cooperation with our customers and suppliers, our six partner universities, and non-university research institutions like the Fraunhofer Society and the Max Planck Institute.” Spiegel Online International. 2008. “We are not driving the Price Hike.” July 16.

5Reid, Benjamin et al. 2010. Technology Innovation Centres: Applying the Fraunhofer Model to Create an Effective Innovation Ecosystem in the U.K. Submission to the House of Commons Science and Technology Committee, December.

6Fraunhofer Magazine. 2012. “Boost in Earnings.” February.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
×

successfully than most industrialized nations.7 German manufacturing as a share of GDP stood at 20.7 percent, versus 12.7 percent for the United States and 11.5 percent for the U.K.8 “[D]espite despite the onset of the financial and economic crisis in 2008, German research-intensive industry was able to develop a leading position among the established economies. Sectors which particularly profited from this development include the manufacture of road vehicles, machinery, electrical machinery, and chemicals.”9

This performance poses the obvious question of how a wealthy, high-wage country with a strong currency could compete so successfully in a global market where the terms of competition are increasingly driven by low-cost Asian firms.10

German Model of Innovation

The German model of innovation applies science, technology, and engineering to drive incremental but constant improvements in processes and technologies and aims at niche areas where competition is less intense than in large commodity markets.11 Although Germany has a vast array of research organizations capable of supporting such a strategy, the Fraunhofer is the foremost, and is most often cited as the driver of German competitiveness in export markets. The perception of Fraunhofer as a success story underpinning German competitive achievements in global markets has led other countries to study its methods and structure to determine whether part or all of the

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7Spiegel Online. 2011. “Stronger than Expected Growth: German Economy Defies Crisis.” November 15. German GDP grew 3.6 percent in 2010, with the rest of the Euro zone growing at 1 percent or less and the United States at 2.9 percent. German exports in 2011 reached 1 trillion Euros, an 11.4 percent increase over 2010 and the largest volume in German history. Spiegel Online. 2012. “News of Germany’s Strong Growth isn’t Welcome Everywhere.” February 9.

8Manufacturers Alliance for Productivity and Innovation.

9DIW Economic Bulletin. 2011. “German Manufacturing Withstands Rise of Emerging Economies.” June. The Christian Science Monitor observed in 2011 that Germans have looked around lately to find they have the preeminent world-class export economy in Europe. No one else comes close. German precision tools are coveted in Asia and Russia like Fabergé eggs. Germany is building much of the Summer Olympic and World Cup facilities in Brazil. The next generation of Eurostar trains linking the Continent and Britain will be made by Siemens of Germany, not, as they traditionally have been, by Alstom of France—a blow to French pride. The Christian Science Monitor. 2011. “Germany—the new mini-superpower.” January 30.

10Xinhua. 2012. “What’s Behind the Success Story of German Manufacturing Industry?” February 23; Spiegel Online. 2012. “How the German Economy Became a Model.” March 21.

11“Mass production has never been the norm in [Germany] to the degree that it has been in the United States (and Japan)…as a consequence, Germany’s factory work force shows a much stronger element of craftsmanship…this is also the result of the basic education that apprentices get in addition to their on-the-job training.” Junne, Gerd. 1989. “Competitiveness and the Impact of Change: Applications of ‘High Technologies’.” In Katzenstein, Peter J. (ed.) Industry and Politics in West Germany: Toward the Third Republic. Ithaca: Cornell University Press. pp. 256.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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“Fraunhofer model” could be adopted domestically.12 The Fraunhofer model was extensively reviewed in 2010 and 2011 by the House of Commons Science and Technology Committee, and aspects of that model are now being adopted in the United Kingdom. 13 In the United States, the Fraunhofer was the subject of studies during the 1990s by the Council on Competitiveness and the Office of Technology Policy in the Department of Commerce.14 In 2005, French Research Minister Francois d’Aubert commented that his country needed to develop “Partnership research…on the model of the German Fraunhofer Institutes.”15 Other countries have demonstrated similar interest.16

Non-German observers tend to cite the Fraunhofer’s funding model as its strongest positive feature. That model, based on a formula of one-third core public funding, one third private contract research and one third publicly-funded contract research, ensures stable long-term funding. The model is particularly attractive to Anglo-American observers whose research institutions have suffered from erratic funding and a partisan political environment in which government support for science is controversial and uncertain. Fraunhofer staff acknowledge the success of the institute’s funding approach, but emphasize its relational aspects as the real basis for its success. Fraunhofer institutes operate in vast, multiple overlapping human and institutional networks embracing universities, companies, research organizations, trade associations, and foundations, organized by scientific field and areas of interest. Relevant units of these networks can be brought to bear on research projects, consortia, and development alliances to address specific tasks based on their particular competencies. Any private or public entity which enters into a research relationship with Fraunhofer gains entrée to these networks.

Fraunhofer is more than a networking organization. It possesses deep and broad organic competencies and institutional scientific memory, reflecting

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12In the run-up to the United Kingdom’s 1992 general election, each of Britain’s leading political parties vied to convince voters that their plan to apply the Fraunhofer model in the UK was the superior choice. Physics World. 1992. “Fraunhofer Fever Hits the UK.” March. New Scientist. 1992. “British Innovation, German Style.” March 21. New Scientist. 1992. “German Innovation, British Imitation.” November 21.

13Hauser, Hermann. The Current and Future Role of Technology and Innovation Centres in the U.K. Report for Lord Mandelson. The Daily Telegraph. 2011. “Follow the German Model and be Patient for Manufacturing to Thrive.” August 25. The Sunday Telegraph. 2010. “Welcome to Berlin, Peter. Is it the Future?” February 7.

14Mitchell, A. Duff. 1998. The Fraunhofer Society: A Unique German Contract Research Organization Comes to America. Burton, Daniel F. and Kathleen M. Hansen. 1993. German Technology Policy: Incentive for Industrial Innovation. Council on Competitiveness Occasional Paper, Challenge, January-February.

15Le Monde. 2005. “Research: The Key Points of the Law.” January 17.

16In 2008, the Dubai Institute of Technology (DIT) signed an agreement with Fraunhofer pursuant to which the institute agreed to help DIT develop a “comprehensive R&D and innovation model.” MENA Business Reports. 2008. “DIT, Fraunhofer Sign Agreement on Development of R&D Model.” September 22; Irish Times. “Bavaria or Bust.” June 8.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
×

its permanent staff of scientists, technicians, and managers. Its institutes are extremely well-equipped and most of them operate multiple pilot manufacturing lines and other demonstration facilities.17 The Fraunhofer is a beneficiary of the “power and generosity of the…German machine tool industry,” which permits its labs to be equipped with state-of-the-art machines loaned on generous terms.18 The institute holds a massive patent portfolio which can be deployed on behalf of clients seeking to license cutting-edge technology. It is relentlessly focused on practical applications of technology.

Supporting the Mittelstand

The Fraunhofer is frequently cited in connection with the export strength of Germany’s small and medium enterprises. The best of these firms, the so-called Mittelstand, are typically family-owned, highly specialized, based in small cities and towns, and “build products that dominate obscure industrial subsectors”. “There is no doubt that the German Mittelstand were one of the main factors that generated economic success and prosperity in Germany after World War II.”19 Observing the slogan, “don’t dance where the elephants play,” the Mittelstand pursue niche markets, particularly at the high end of the product spectrum, and make continuous incremental improvements in their products to maintain leadership over their competitors.20 “It might be that their products will not be the cheapest, but they definitely have the best quality.”21 A 2007 study

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17Typically the Fraunhofer Institute for Molecular Biology and Applied Ecology IME in Aachen states in its 2011/2012 Annual Report that “The R&D activities in the various IME business areas involve certain platform technologies that need sophisticated apparatus and infrastructure as well as highly trained staff…The services provided include sequencing, chip technologies, proteomics, metabolomics, recombinant protein production, protein purification, protection structural and functional analysis, antibody manufacturing, and high throughput imaging technologies and are available to the working groups within the IME as well as the external clients.” Fraunhofer IME. 2012, Jahresbericht/Annual Report: 2011-2012. p. 15.

18The director of the Automation Department at the Fraunhofer Institute for Production Systems and Mechanical Constructions Technologies IPK, Gerare Dulen, commented in 1987 that in his department, “There are DM 50 million of machine tools in place. Most of them have been lent to us by industrialists. But we do developmental work for their account. Often, they turn prototypes over to us even before commercializing them. We then complete the development and programming of these prototypes. Afterwards they leave the machines with us at no charge for several months. The advantage of this arrangement is that we always have the most modern machines.” Industries et Techniques. 1987. “Applied Research: The Fraunhofer Method.” October 20. JPRS-ELS-88-006.

19Hamburg, Christian. 1999. Structure and Dynamic of the German Mittelstand. Heidelberg and New York: Physica-Verlag. pp. 1. Volker Treier, chief economist of the German Chamber of Commerce, characterizes the Mittelstand as the backbone of the German economy. Treier, Volker. 2011. “The Engine of Growth. Wall Street Journal. June 26. “If a particular job can be best done by a machine, then the chances are that the machine in question was built in a small town in Germany.” The Economist. 2011. “German Business: A Machine Running Smoothly.” February 3.

20Software Magazine. 2011. “Finding Hidden Gems in the German Mittelstand.” October.

21Boeing, Phillip. 2012. “What’s Behind the Success Story of German Manufacturing Industry?” Xinhua. February 23.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
×

found that over 1,130 small and medium-sized German companies occupied the number one or two position in the world market for their products, or the number one position in the European market.22 According to one source, the Fraunhofer’s “main focus [is] on the Mittelstand companies,” and “the research facilities of Fraunhofer serve as external, very well equipped research departments of the Mittelstand companies.”23

The Skilled German Workforce

The Fraunhofer is cited in connection with another aspect of the German model, the country’s highly trained, technologically-adept work force, which has been a subject of foreign admiration and study for over a hundred years.24 To some extent this phenomenon is cultural—German blue collar workers draw on a tradition of craftsmanship with the attitude that “excellence on the shop floor is every bit as important as in the Nobel Prize caliber laboratory.”25 The pursuit of excellence in manufacturing is widely attributed to Germany’s longstanding “dual system” of vocational training, pursuant to which a course of academic study of a practical discipline is undertaken in parallel with apprenticeship at a company or a public vocational institute.26 The Fraunhofer applies the principle of the dual system at the highest educational levels, with masters and PhD candidates and postdocs simultaneously pursuing courses of study in science or engineering while performing work and acquiring practical experience in a Fraunhofer institute.27

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22The study was co-authored by Professor Bernd Venohr, a German management consultant generally regarded as one of the world’s leading experts on the Mittelstand and built on findings in earlier work by another expert, Hermann Simon, who coined the term “Hidden Champions” to describe the best of these companies. Venohr, Bernd and Klaus E. Meyer. 2007. The German Miracle Keeps Running: How Germany’s Hidden Champions Stay Ahead in the Global Economy. Berlin: Berlin School of Economics, May.

23Hamburg, Christian. 1999. Structure and Dynamic of the German Mittelstand. Heidelberg and New York: Physica-Verlag. pp. 58-59.

24 Thelen, Kathleen, 2004. How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States, and Japan. Cambridge: Cambridge University Press. pp. 39.

25“This has much to do with the fact that the pursuit of excellence in Germany has not been limited to university-trained elites, but has occurred within each layer of German society…One relevant consequence is that managers trained in engineering or the sciences often feel they should be able to prove the mettle of their own skills in front of workers who have high standards against which to measure performance.” Beyerchen, Alan D. 1990. “Trends in the Twentieth Century German Enterprise.” In The Academic Research Enterprise within the Industrialized Nations: Comparative Perspectives. Washington, DC: The National Academies Press. pp. 80.

26In 2008, roughly 58 percent of Germany’s upper-secondary school students were also enrolled in vocation or technical programs, and many students combine apprenticeships with the pursuit of graduate degrees, entering the work force in their mid-20s with highly developed practical skills. Helper, Susan, Timothy Krueger, and Howard Wial. 2012. “Why Does Manufacturing Matter? Which Manufacturing Matters? A Policy Framework.” Brookings. February. p. 27.

27There is increasing overlap between the demand by industry for workers trained in vocational schools and universities. Professor Kathleen Thelen of Northwestern University, who has

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Weaknesses of the German System

The German innovation system is by no means perfect. German innovation tends to build on established structures rather than creating entirely new ones; product and process improvements are slow, albeit continuous. “The resulting pattern of innovation is one that is more likely to generate improvements of existing products of existing firms and sectors than to give rise to new ones.”28 The postwar German system has not produced “radical, path-breaking innovations found, for example, in America.”29 Some observers believe that Germany’s “heavy concentration of R&D and innovation activities in the automotive sector…may lead to an unbalanced innovation system.”30 “Germany never came close to a computer industry that was able to compete with its U.S. counterpart.”31 Start-ups which become spectacular successes are rare, and would-be startups confront obstacles such as inadequate availability of venture and bank capital and legal and societal factors that punish market failure.32 As a

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extensively studied the German training system, notes that “firms (even small, medium-sized handicraft firms) are increasingly inclined to recruit new workers from among applicants holding university degrees…[there is] increasing competition between job applicants from the traditional vocational training track and those with technical college and university degrees. Thelen, Kathleen. 2004. How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States, and Japan. Cambridge: Cambridge University Press. pp. 274.

28Streeck, Wolfgang. 1995. “German Capitalism: Does it Exist? Can it Survive? In Colin Crouch and Wolfgang Streeck, eds. Modern Capitalism or Modern Capitalisms? London: Francis Pinter. p. 14.

29Harding, Rebecca. 2000. “Resilience in German Technology Policy: Innovation Through Institutional Symbiotic Tension.” Industry and Innovation. December. p. 223.

30Astrom, Tomas, Marie Louis Eriksson and Lars Niklasson. 2008. International Comparison of Five Institute Systems. Copenhagen: Forsknings-og Innovationsstyreisen. December 23. p. 108. Numerous Fraunhofer institutes pursuing research themes with little apparent nexus with the automotive sector are in fact active in that sector. The Fraunhofer Institute for Experimental Software Engineering IESE is working with Audi on the development of software for electric vehicles, with BMW on a model for estimating the cost of software projects, and with “companies from the automotive domain” on software testing techniques. Fraunhofer IESE, “Automotive and Transportation Systems.” <http://www.iese.fraunhofer.de/en/customers_industries/automotive/referenzprojekt_mbtech.html>. The Fraunhofer Institute for Communications Systems ESK has a large “Business Unit Automotive” working on automotive software engineering, external communications from motor vehicles, and internal transmission and processing of data in vehicles. <http://www.esk.Fraunhofer.de/en/automotive.html>. The Fraunhofer Institute for Chemical Technology ICT is collaborating with Faurecia to develop advanced industrial processes for composites for application in the automotive field. Fraunhofer ICT, “Faurecia Signs R&D Agreement with the Fraunhofer ICT for Advanced Industrial Processes in the Field of Composites.”
<http://www.ict.fraunhofer.de/en/press_media/pressemitteilungen/2012/release4.html>.

31Wieland, Thomas. 2006. “Innovation and Culture, Technology Policy and the Uses of History.” Munich Centre for the History of Science and Technology. p. 7.

32Uwe Waltz, a professor at the Center for Financial Studies at the University of Frankfurt observed in 2011 that “entrepreneurship is not valued in Germany as it is in the United States. On top of that, U.S. business men are likely to go on the market at the first opportunity, while Germans like to perfect the final technical details before going into business.” Deutsche Welle. 2011. “Germany’s Venture Capital Market Starts to Take Off.” June 1.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
×

result, with the notable exception of SAP, there is no German counterpart to Intel, Apple, Google, or Facebook. The former area of East Germany absorbs a substantial part of the federal research spending but generates comparatively little innovation.33

Dr. Stefan Kulhman, Director of the Fraunhofer Institute for Systems Innovation Research in Karlsruhe, told a National Academies symposium in 2007 that Germany’s education system, long considered quite strong, had declined to a point of crisis and required “and expensive restructuring.”34 The German university system is widely criticized and may prove incapable of supplying enough graduates with the skills required by German industry.35 In 2011, on any given month, Germany averaged 92,000 vacant engineering jobs. The director of the Köln Institute for Economic Research IW, Hans-Peter Kloes, commented that “if we cannot close the engineering gap, the continuing shortage of qualified employees will become a threat to the German business model.”36 Even the vaunted vocational training system is under strain; a 2010 study by Germany’s education ministry found that while there was an unmet need in German industry for 9-10,000 apprenticeships, one in five apprentices “did not stick out the apprenticeship,” the number of students entering apprenticeships was declining, and “businesses are facing a huge drop-off in apprentice numbers.”37

The Fraunhofer is implicated in at least some of these systemic weaknesses:

  • Because the Fraunhofer business model is based on demand for research from industries that already exist, it has little economic

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33“East Germany and Berlin together eat up nearly one-quarter of the… federal research budget while employing only 11 percent of the country’s R&D personnel and accounting for 6 percent of its patent production.” Kuhlman, Stefan. 2007. “The Record and Challenge in Germany.” In National Research Council. Innovation Policies for the 21st Century. Charles W. Wessner (ed.) Washington, DC: The National Press. p. 70.

34Ibid. p. 70.

35National Research Council, Rising to the Challenge: U.S. Innovation Policy for the Global Economy. Wessner, Charles W and Alan Wm Wolff (eds.). Washington, DC: The National Academies Press. 2012. pp. 274. The Economist. 2009. “On Shaky Foundations.” June 25. The Times Higher Education World University Rankings 2011-12 place four German universities in the top 100 institutions worldwide. The highest ranked German university was Ludwig Maximillian University in Munich. The Economist. 2011. “German Universities: Mediocre but at least They’re Free.” June 30.

36Spiegel Online. 2012. “VDI Study—Lack of Engineers Costs German Economy Billions.” April 26. Bernd Rau, one of the founders of the Mittelstand company Roth and Rau, commented in 2010 that his company’s search for skilled workers was becoming acute. “It is more and more difficult, especially for the IT people, and also in engineering and mechanical engineering.” Deutsche Welle. 2010. “Labor Bottleneck Squeezes Germany’s Solar Sector.” November 23.

37Deutsche Welle. 2010. “Germany faces Youth Employability Crisis, Says New Report.” April 28.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
×
  • incentive to incur the costs and risks associated with creating entirely new industries.

  • The Fraunhofer and other non-university research institutions compete with German universities for funding and personnel, and may have contributed to the erosion over time of university-based scientific research in Germany.
  • The Fraunhofer’s emphasis on research with relatively low risk, short time horizons, and early commercial payoff undermines its ability to support sectors such as biotechnology in which risks are substantial and the path to market is often many years long.

Although Fraunhofer centers have been established in the United States and other countries, they have not enjoyed the degree of success of their affiliates in Germany and it is questionable whether the Fraunhofer model is adaptable in its main aspects to a U.S. industrial innovation context:

  • The full extent to which the Fraunhofer relies on government funding is frequently not appreciated. A widespread misimpression exists that the Fraunhofer’s primary funding source is the private sector. In fact, one-third of Fraunhofer’s funding consists of “core” money provided by the German federal and state governments, roughly another third comes from research contracts with government entities, and one third is provided through research contracts with the private sector—which are frequently supported by government grants and other financial assistance. While Germany as a nation tends to regard such public expenditures as a necessary form of infrastructural investment, it is unclear that such a high-level of government spending on commercially-related research could be reconciled with U.S. economic ideology or fiscal realities.
  • A system of Fraunhofer-like research institutes could weaken U.S. university-based innovation. The U.S. Bayh-Dole Act of 1980 provided that U.S. universities conducting federally-funded research could own the patents for the technologies they developed, a policy shift that fostered an explosive growth of new companies commercializing university-based R&D. The Fraunhofer model interposes an intermediary organization between universities and industry, at that intermediary—not universities or companies—ends up as the owner of most of the intellectual property rights derived from government-funded research. While the Fraunhofer actively licenses its IP to industry, it is not clear that the German model is as dynamic as the current U.S. university-based system which—in contrast to the German—has given rise to entirely new technology-intensive industries. In addition, an intermediate research organization will
Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
×
  • inevitably compete with universities for public and private funding as well as personnel.38

  • The Fraunhofer model derives much of its strength from other elements of the German innovation system which are not present to the same degree in the U.S. The United States has no close parallels to the German system of stable government funding for commercially-relevant research; to the Mittelstand; to the “dual system” of vocational and training; or to the German tradition that competition should be subordinated to cooperative arrangements. These aspects of the German system reflect complex, multigenerational cultural and institutional evolution and cannot easily be replicated elsewhere. In this connection, an exchange which occurred in Britain’s House of Commons Science and Technology Committee in 2012 is worth noting. MP Sir Peter Williams commended the Fraunhofer model to his colleagues and urged that the country learn from it:

Williams: Down the decades everybody, from John Fairclough onwards, has said to the Government ‘Look at the Fraunhofer-Gesellschaft; there are lessons to be learned’. It is a fact that they do not have to debate the issues that we are debating today because they have been through the valley of death as a nation, as it were, and they prosper by valuing and backing engineering with their Lander, federal government, financial institutions, Mittelstand families, scientists, engineers, and business folk playing like a team, which is why they are going to win the European Championship as well…

MP Jim Dowd: So we could have all these benefits as well if all we did was change every single piece of our social structure.39

The Fraunhofer and the German innovation model are nevertheless of interest from an Anglo-American perspective because of Germany’s success in holding its leadership position in traditional manufacturing industries and in retaining a major manufacturing presence in Germany itself, with the implications which that holds for employment and regional economic development. Germany remains strong in industries like automobiles,

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38In the British Parliament’s recent deliberations over the establishment of intermediate research organization patterned on the Fraunhofer, concern was expressed by the Institute of Physics that the result “may well be to put further pressure on the universities which use research contracts as alternative sources of funding.” House of Commons Science and Technology Committee. Technology and Innovation Centres. Second Report of Session 2010-11. Volume I, Report, p. 27.

39House of Commons, Science and Technology Committee. “Bridging the Valley of Death: Improving the Commercialization of Research.” June 20 2012. Transcript of Oral Evidence.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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machinery, metals, and chemicals—industries that have eroded, shed jobs, and begun to move offshore in the United States and the United Kingdom. For this reason, the German innovation system warrants study.

THE INSTITUTIONAL SETTING

The German innovation system is complex, featuring multiple levels of governance and interlocking responsibilities between different ministries and between authorities at different levels of the political system.40 Significantly, “in contrast to many other countries, [in Germany], there is an implicit consensus at the federal and state levels that funding should, by and large, be geared towards bridging the gap between knowledge creation and application.”41 The system is characterized by dispersion of authority and funding responsibility.42

Federal Ministries

At the federal level, the main responsibility for science and technology policy lies with the Federal Ministry of Education and Research (BMBF). The BMBF co-funds with the Länder Germany’s non-university research organizations, including Fraunhofer, and is the principal source of the institute’s basic public funding. The BMBF provides funding for a broad array of research programs and projects, generally aiming at collaborative R&D between public sector research and the private sector. Many BMBF programs are managed by semi-autonomous program agencies, a mechanism that has been characterized as “industry friendly”. The Federal Ministry of Economics and Technology (BMWi) promotes innovation-and-transfer projects through public-private R&D collaboration in topical areas which include energy, information technology, media, and aerospace. It operates a number of programs to support small and medium enterprises and to promote start-ups.43

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40“In Germany, science and technology planning, policy making, and funding take place on such a wide variety of different levels, and there are so many institutional structures, that it is difficult to avoid over-simplification when one tries to draw a coherent map of the present system…not only do we have a wide variety of institutional actors, but within each institution, we also find quite diversified structures funded by a multiplicity of sources and consisting of many sub-systems.” Krull, W. and F. Meyer-Kramer. 1996. Science and Technology in Germany. London: Cornell University Press.

41Edler, Jakob and Stefan Kuhlmann. 2008. “Coordination within Fragmentation: Governance in Knowledge Policy in the German Federal System.” Science and Public Policy. pp. 267.

42Throughout the German research system, “no performing actor is totally dependent upon only one policy actor for its resources,” so that all players can turn to more than one funding source for support, an arrangement which protects the autonomy of research actors from external direction and pressure. Winnes, Markus and Uwe Schimack. 1999. National Report: Federal Republic of Germany. Institute for the Study of Societies. TSER Project No. SOE1-CT96-1036. May.

43Edler and Kuhlmann. 2008. “Coordination within Fragmentation.” Op Cit. p. 268.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Federal-state Arrangements

Since 1975, federal-state funding of scientific research has been governed by the “Framework Agreement on Research Promotion” (RV-Bo) pursuant to which funding ratios are assigned to the federal government for universities and non-university research organizations. Under this arrangement, the Fraunhofer receives 90 percent of its core funding from the federal government and 10 percent from the Länder. The 90:10 funding ratio has endured for decades; it is one of many “organizational arrangements” in the German innovation system which “are very rigid because they are the result of complicated power balances which nobody can disturb because of possible incalculable consequences.”44 The rigidity of the German research funding arrangements arise out of a concordat between the federal government and the Länder that was negotiated in the early 1970s.45

“Research Cartel”

“Fraunhofer institutes occupy a specific role in a very elaborate division of labour within the German system of research.”46 The German non-university scientific research arrangements are widely characterized as a research promotion cartel. The lines of demarcation with respect to the responsibilities of each organization have been clearly established for many years, and no significant new research actor has entered this universe for decades.47 Competition within the institutes between internal subunits is

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44Winnes and Schimank. 1999. Federal Republic of Germany. Op. Cit. pp. 14.

45The “Bund-Länder Commission for Educational Planning and Research” (BLK) is a standing committee comprised of representatives of the federal government and each German state with a mandate to coordinate federal-state planning in research policy, and functions as the central clearing house for the financial aspects of governmental support for research. Since 1975, when the BLK was established, major decisions concerning the organization, operation, and funding of government-supported research have required joint action by the Länder and the federal government within the complex decision making structure of the BLK. That fact has placed the public funding of university and non-university research on a stable permanent basis, shielding research organizations from short-term budget gyrations and political meddling. Moreover, because of the difficulties associated with building the necessary consensus within the BLK, selection of research themes and the allocation of funds has largely been left to the scientific community to avoid politicizing decision making. These beneficial aspects of the German federal research system are partially offset by the stasis associated with the vertical interlocking organizational structure. Changes to the status quo can be vetoed by negatively-affected Länder, forcing a constant pursuit of consensus which “often allows only decisions on the lowest common denominator.” Winnes and Schimank. 1999. Federal Republic of Germany. Op. Cit. pp. 45.

46Written Evidence Submitted by Manchester Institute of Innovation Research, Manchester Business School, University of Manchester. (TIC 09). House of Commons Science and Technology Committee. February 17, 2011.

47The presidents of the research organizations meet on a regular basis among themselves and with the federal research ministry to discuss science policy, meetings which are dubbed “the holy

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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TABLE APP-A2-1 Germany’s Key Research Organizations

Institution Focus
Max Planck Society Basic Research
Helmholtz Association Basic Research (“big science”)
Fraunhofer Society Applied Research
Leibnitz-Association Various

similarly constrained by the establishment of clear lines of demarcation between organizations and encouragement of collaboration when areas of overlap become apparent.48

The Max Planck organization, universities and public sector research organizations are responsible for basic research. The Helmholtz Association ensures infrastructure for large scale science projects of national importance.49 Fraunhofer and other institutes of applied research, such as the Steinbeis Foundation, are responsible for the transfer of technology from the science base to industrial end users.50 The Max-Planck and the Fraunhofer usually do not

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alliance”—a reference to the Nineteenth Century multilateral grouping of states that emerged from the Congress of Vienna and sought to preserve existing European frontiers and the balance of power. Winnes and Schimank. 1999. Federal Republic of Germany. Op. Cit. pp. 66.

48The German research minister reported in 1991 that “The increasing degree of overlapping of the acquisition fields of the individual Fraunhofer establishments, acting as profit-making centers, has triggered a process of debate in the FhG. It is conducted with the goal of supporting, by means of the proper organizational measures, the increasingly necessary processes of balance and demarcation between the individual institutes and facilities.” Thierbach, Dieter. 1991. Deutsche Einheit in Forschung und Technologie. Bonn: BMFT. Part. 2.6.

49The Helmholtz Society concentrates on long-term research which is either extremely costly or very risky and requires large research teams. Areas of focus have included high-energy physics, space technology, nuclear energy, medicine, environment technology, and biotechnology. Der Spiegel. 2008. “New Federal Funds. April 7. Wilhelm Leibniz (formerly known as the Blue List) is a designation for about 80 other large and medium-sized research organizations which engage in basic and applied research. Finally, 50 research institutes are directly organized under a federal ministry (Bundesforschungsinstitut) and similar organizations funded by the Länder.

50Harding. 2010. “German Technology Policy.” Op. cit. pp. 228. The Steinbeis Foundation operates technology transfer centers across Germany, and performs a networking function between basic research organizations and German industry. Unlike Fraunhofer, Steinbeis does not operate large-scale research infrastructure. Within the German research community, the research demand directed at Fraunhofer is usually regarded as less scientifically interesting than the demand directed at the basic-science oriented Max Planck institutes so that in Fraunhofer, “science curiosity is clearly subordinated to societal relevance.” Winnes and Shimank. 1999. Federal Republic of Germany. Op. Cit. pp. 211. At the same time, Fraunhofer scientists sometimes express a degree of disdain for basic research. One director in 1987 commented that “In the FRG we spend too much money on basic research. Currently everyone is concentrating on superconductors. That’s the problem of basic research. It is unable to escape the influence of what’s in vogue. Here, there is no such danger. We live on our results like a commercial firm…our job consists of demonstrating the feasibility and

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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compete for the same projects but will collaborate on specific projects that require the skill sets of both the basic and applied sciences.51

Federal High-Tech Strategy 2020

The German federal government is currently pursuing a “High-Tech Strategy 2020,” an effort to coordinate existing public support for research and innovation in a manner which improves the country’s international competitiveness and innovative capability. A target of this effort is to increase German R&D spending to 3 percent of GDP (it was about 2.8 percent in 2010). Reflecting the concern that German public funding of R&D is characterized as a “sprinkling can,” featuring large numbers of small grants for small projects, the High Tech Strategy seeks to concentrate public spending on targeted areas of cutting edge research. The strategy also targets perceived weaknesses in the German innovation system, including an inadequate market for venture capital and direct investment capital, inadequate participation by SME’s in R&D, and difficult conditions confronting technology-based start-ups and their financial backers.52

State Initiatives

Within the German federal system the Länder enjoy a degree of leeway for unilateral policy initiatives. They control the universities within their jurisdictions and can determine their funding level and strategic direction, and they can also provide non-university research organizations located in their territory with additional funding through research contracts and with a variety of other forms of support. Finally, they can use incentives to encourage new research institutes to choose them as sites and to attract research organizations and talented individuals from other Länder. Baden-Wurttemberg, North-Rhine-

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economic viability of technologies of the future.” Heuberger, Anton. 1988. “Applied Research the Fraunhofer Method.” Industries et Techniques. February 23. JPRS-ELS-88-006.

51Handelsblatt. 1991. “Joseph von Fraunhofer and Max Planck Can Feel Satisfied.” August 9. JPRS-EST-91-015. A recent example of Fraunhofer-Max Planck collaboration is a project involving the Fraunhofer Institute for Digital Media Technology, the Fraunhofer Institute for Integrated Circuits and the Max Planck Institute for Evolutionary Anthropology to develop a program that will recognize individual apes from photos, video, and audio footage, enabling biologists operating in the wild to track the number of individuals of a given species, to assess whether a given population is growing or declining, and to identify which factors affect the population. The Engineer. 2011. “Facial-Recognition Software Could Help to Save Great Apes.” August 1. Fraunhofer offers five-year, five million Euro research contracts to Max-Planck scientists who have ideas for applications for their basic research results. Comin, Trumbull, and Young. 2012. Fraunhofer: Innovation in Germany. Op. cit. p. 10.

52Federal Ministry of Education and Research. 2010. Ideas. Innovation. Prosperity. High Tech Strategy 2020 for Germany.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Westphalia and Bavaria have used such methods to develop technology-intensive economies.

THE FRAUNHOFER GESELLSCHAFT TODAY

The Fraunhofer Gesellschaft is comprised of 60 research institutes active in over 250 business fields and core competencies. Its institutes are widely dispersed across Germany. Its legal form is a registered association under private law (eingetragener verein). Its annual budget is about 1.8 billion Euros. It has 20,000 employees.53 Each Fraunhofer institute is linked with a German research university and the Directors of Fraunhofer institutes usually also serve on university faculties. The Fraunhofer has established seven institutes in the United States and research subsidiaries in Chile, Austria, Portugal, and Italy. In strictly legal terms, the Fraunhofer is under no obligation to execute research programs drawn up by government entities but in practice its research orientation is closely aligned with that of the German government and the European Union.54

The Fraunhofer Mission

The core purpose of the Fraunhofer is the pursuit of knowledge with which has practical utility. It manages an annual business volume of about a billion Euros, most of it involving contract research.55 Characterizing itself as a “bridge” linking German universities and industry, the Fraunhofer is a formidable research organization in its own right, and generally owns the patents which are derived from joint university/Fraunhofer/industry collaboration. Fraunhofer institutes do not so much transfer knowledge from universities to industry as “generate relevant application-oriented knowledge themselves on demand from their clients. While this may often be strongly linked to research in universities…it nevertheless constitutes a knowledge creation sub-system of its

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53The 20,000 headcount was reported in Fraunhofer Magazine in February 2012.

54Germany’s research ministry has periodically assigned Fraunhofer clearly-defined missions in major national areas such as new materials, information technology, and the establishment of a research infrastructure in the former East Germany. Thierbach, Dieter. 1991. Deutsche Einheit in Forschung und Technologie. Bonn: BMFT. Part. 2.6. Technologie-Nachrichten Programm-Informationen. 1991. “Interim Report by the Federal Ministry of Research and Technology on the Implementation of the Unification Treaty Dated 31 August 1990 in the Area of Research and Technology. March 5; BMFT. 1986. Materialforschung JPRS-EST-86-036. November; BMFT. 1986. Forschung und Technik zum Whole Der Menschen: Jahresbericht 1984. JPRS-WST-86-015. March; “The Fraunhofer pays close attention to the research and technology policy of the European Community.” Frankfurter Allgemeine Zeitung. 1985. “Expose Chips with X-Rays.” JPRS-WST-86-018. October 24.

55Fraunhofer. 2010. Annual Report. p. 15.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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own.”56 Because Fraunhofer is heavily dependent on revenue from contract research performed for industry, its research is closely correlated with the practical needs of companies. If a choice needs to be made between money from an industry project or the pursuit of cutting edge technology, the Fraunhofer institutes usually of necessity choose money.57 Although Fraunhofer R&D projects tend to be relatively small, short-term efforts seeking incremental improvements in products and processes, its institutes have achieved numerous noteworthy innovations.58

Governance

The Fraunhofer’s 60 research institutes in Germany are supervised by a headquarters organization based in Munich.59 Executive direction is provided by a President who is also Chairman of the Executive Board, comprised of three Senior Vice Presidents. The Executive Board manages the institutes’ business activities, develops science and research strategies, and negotiates with governmental organizations to raise funding. The Executive Board appoints the Directors of the individual Fraunhofer Institutes.60

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56Written Evidence Submitted by Manchester Institute of Innovation Research, Manchester Business School, University of Manchester. (TIC 09). House of Commons Science and Technology Committee. February 17, 2011. Dr. Hans Kunz, Director of the Fraunhofer Institute for Materials in Bremen, explained in the 1980s, that “we start where basic research stops. In the universities, research tries to produce a few micrograms of a new material. Here we try to scale this mark up to the level of the kilogram or the ton. Our idea is to offer industries a product together with its manufacturing process.” “Applied Research the Fraunhofer Method.” Industries et Techniques. February 23. JPRS-ELS-88-006.

57Interview with Fraunhofer Institute for Process Engineering and Packaging. Freising, Germany, June 13. 2012.

58Spiegel Online. 2009. “Solar Energy: German Research Strives to be a World Leader.” September 15; Spiegel Online. 2011. “A Stuttgart Lab’s Pioneering Effort to Cultivate Human Flesh.” April 15; Spiegel Online. 2007. “New Computer Program to Reassemble Shredded Stasi Files.” May 10; New York Times. 2005. “MP3 Developer Yields Royalty Riches.” March 10.

59Fraunhofer headquarters enjoys the organizational flexibility to redistribute resources among the research institutes. Prosperous institutes effectively cross-subsidize weak performers as long as the latter can be expected to prosper themselves in a reasonably foreseeable period of time. Fraunhofer headquarters is a service organization for the Fraunhofer institutes, and the institutes pay an annual service fee to headquarters.

60The Executive Board is supervised by a Senate comprised of roughly 30 eminent representatives of the fields of science, industry, and government. The Senate appoints the Executive Board, decides the Fraunhofer’s basic research policy, and makes decisions with respect to the establishment, merger, or dissolution of individual Fraunhofer institutes. The Senate is elected by the General Assembly, an entity which meets annually and is open to members of the Executive Board and Senate as well as individuals and legal entities interested in supporting the work of the institute. Fraunhofer. 2010 Statute of the Fraunhofer Gesellschaft. The Statue is not public legislation but a set of internally generated institutional by-laws. Fraunhofer. Structure and Organization of Fraunhofer-Gesellschaft: Scientific and Technical Council. Accessed at
<http://www.fraunhofer.de/en/about-fraunhofer/structure-organization/WTR.html>. The Executive Board is advised by the Scientific and Technical Council, an internal advisory organization. The Council is comprised of the Directors

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Each Fraunhofer research institute is managed by a Director and Steering Committee. The Fraunhofer seeks Directors who combine scientific achievement and entrepreneurialism, and the Directors typically serve on boards of directors of German companies. The individual Fraunhofer institutes enjoy a high degree of autonomy and are allowed to choose their research fields and topics, their projects and the handling of project results. Individual institutes are free to determine their own internal organizational structure, set up separate profit centers, and distribute basic funding. The institutes are responsible for balancing their own budgets. If an institute experiences an operating loss in a given year, the shortfall is made good with funds from headquarters. Institutes that incur losses for a number of consecutive years risk closure.61 Each institute is advised by an Advisory Board comprised of representatives from industry, the scientific community, and the public sector. Each institute must review its strategic plan every five years, and, at five year intervals are subject to external audits.62

Growth in Contract Revenue

The Fraunhofer benchmarks its performance on the demand for its services from industry, manifested in revenue from research contracts. During the period 2007-2011, its annual industrial contract revenue grew by 78 million Euros, an increase of over 23 percent, and in 2011 hit an all time high of 406 million euros. Total contract revenue (public and industrially funded research) has grown steadily and reached 1.515 million Euros in 2011.

Relationships with Universities

Each Fraunhofer institute is linked with a German university with a research capability in the sciences and/or engineering which addresses the institutes’ area of focus. The Director of each institute usually is also a member of the faculty, and typically identifies the most promising university students to

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and Senior Managers of the FhG institutes and an elected representative of the research staff from each institute. The Council advises the Executive Board with respect to research and human resources policy, the appointment of directors, and the establishment or closure of institutes.

61Five Fraunhofer institutes were closed or turned over to other organizations in 1983. In general such closures are rare. VDI Nachrichten. 1984. “Between Science and Economics: Fraunhofer Presents 1983 Financial Statement.” November 16. JPRS-WST-85-01.

62Interview with Fraunhofer Institute for Interfacial Engineering and Biotechnology IGB. 2012. Munich, Germany. Jun 15 2012. Establishment of new Fraunhofer institutes begins with a search for a university with a good reputation and strong capability in a given field. A Fraunhofer “project group” approaches the university about setting up a new institute in a collaboration. At present, a Fraunhofer project group is exploring the prospects for establishing a new institute in Mannheim in collaboration with medical schools in that city. If this project moves forward, a Fraunhofer medical institute will be operating with a staff of about 50 people within 5 years. Interview with Fraunhofer Institute for Production Technology and Automation IPA. 2012. Stuttgart, Germany. June 14.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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steer to positions at Fraunhofer.63 Most Directors spend the majority of their time at the institute rather than in teaching activities.

The relationship between one of Germany’s leading universities of technology, RWTH Aachen, and Fraunhofer, illustrates the close interrelationship the institute develops with universities. RWTH Aachen, Germany’s oldest technology-oriented university, is co-located with four Fraunhofer institutes in the Aachen area, Fraunhofers ILT (lasers), FIT (applied information technology), IPT (production technology), and the Fraunhofer Institute for Molecular Biology and Applied Ecology IME. Adapting ideas from Stanford and Silicon Valley, RWTH Aachen allows companies to locate on campus, participate in university activities (including teaching) and enroll employees in university courses. A total of 18 chairs and institutes at RWTH Aachen and two Fraunhofer institutes (ILT and IPT) have established a “Cluster of Excellence…Integrative Production Technology for High Wage Countries,” the purpose of which is “to engage process engineers and materials scientists to develop new concepts and technologies for sustainable manufacturing.”64

Another example of the close Fraunhofer-university collaboration is the Dresden Innovation Center Energy Efficiency (DIZEEFF) which involves the Technical University of Dresden and the Fraunhofer-Gesellschaft. This involves a total of 13 collaborations between 8 university institutes and four Fraunhofer institutes in the area of energy efficiency. This effort “tightly connects basic research at [the University] with Fraunhofer’s competencies to transfer technologies and innovations to industry.”65

Funding

It is commonly said that one third of Fraunhofer’s revenues are contributed by the federal and Länder governments, one-third derived from

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63One Fraunhofer scientist who also serves on a university faculty observes that “my marketing effort is my lecture. I convince students to work [at Fraunhofer] 15-20 hours per week. I’m positioned to find the best. They can stay until they get their PhD (5-8 years), and use our excellent network to find jobs. We don’t pay a lot but the experience is good.” Interview with Fraunhofer Institute for Production Technology and Automation IPA. 2012. Stuttgart Germany. June 14.

64Fraunhofer ILT. 2010. Annual Report. pp. 33-34. Fraunhofer ILT, which specializes in laser technology, works closely with three RWTH Aachen University Chairs: Laser Technology (LLT), Technology of Optical Systems (TOS), and Nonlinear Dynamics of Laser Processing (NLD). The Fraunhofer ILTs’ “knowledge of current industrial and scientific requirements in the optical technologies flows directly into the planning of the curriculum.” Undergraduates and postgraduates “can put their theoretical knowledge into practice through project work at the three chairs and at the Fraunhofer ILT.” University courses are jointly dawn up by the university and the ILT institute. In addition to these collaborations, Professor Thomas Taubner, who oversees a working group at Fraunhofer ILT studying new nano-optic concepts using lasers, also holds a junior professorship at RWTH Aachen for “Nano-optics and Metamaterials,” where he supervises research by students in physics involving new imaging techniques with nanometric spatial resolution.

65Fraunhofer Institute for Material and Beam Technology. 2011. Annual report 2011. pp. 110.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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industrial contracts, and one-third from public research contracts. This Drittelsung (literally, “third solution”) model has won extensive praise from foreign observers. “The Fraunhofers are quite safe in their funding, longer term, with those three separate pots of money to take.”66 While Fraunhofer spokesmen emphasize the revenue derived from contract research, the sine qua non of the Fraunhofer model is a major and sustained investment of “core” public funds at the national and state level.67 In Germany, the “Fraunhofer, for a long period, across different governments, have maintained a very significant chunk of public money in the structure,” a reflection of the relative stability of the German political system.68

The Fraunhofer’s one-third, one-third, one-third model is not, as sometimes believed, an indicator that the private sector accounts for two-thirds or even one third of the institute’s revenue. Governments substantially outspend private industry with respect to the contract research which the Fraunhofer institutes perform, accounting for over 45 percent of the total, versus 39 percent for private industry. Moreover, a substantial part of “industry” funds are comprised of government grants and other funding raised by companies and paid to Fraunhofer for contract research.69 Table APP-A2-2 depicts the Fraunhofer’s revenues by source for the year 2010, the most recent year for which such information is publicly available. The figures indicate that federal and state spending accounted for 1,080 million Euros out of total revenue of 1,727 million Euros, or 62.5 percent of the total revenues.70 Private industry contributes about 26.3 percent of total Fraunhofer revenues. Even these figures

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66Ridgway, Keith. 2010. Testimony to the House of Commons, Committee on Science and Technology. December 20.

67“The overriding lesson from Germany is that such centers must be funded consistently and at a significant scale over time if they are to deliver the economic impact of which they are capable.” Written Evidence Submitted by Rolls Royce (TIC 82). House of Commons Science and Technology Committee. January 12, 2011.

68Andrew Miller, the Chairman of the Science and Technology Committee commented with respect to the Fraunhofer’s funding model: “The other part of the Fraunhofer is, of course, longevity. Because the German political system doesn’t fluctuate like our system does, that is perhaps one of the reasons why there has been long-term continuity. Miller, Andrew. 2011. Formal Minutes. House of Commons, Ev. 28. January 12.

69In 1992, Rudolf Simon, the research director of Meissuer and Wurst, a Stuttgart-based producer of water and air filtration systems, commented on a contract research project performed by the Fraunhofer for his firm. “The Fraunhofer helped us—this is a very important point—to get the funding for our research activity from the government. Without this funding, I must say we would have been very reluctant to give subcontracts to the institute.” New Scientist. 1992. “German Innovation, British Imitation.” November 21. In the 1980s, the federal research ministry provided grants to small and medium companies to participate in contract research projects at Fraunhofer institutes to develop applications for hybrid integrated circuits in sensor systems. “Technologie Nachrichten—Management Informationen. 1987. “BMFT Subsidizes Thin Film Technology Research.” JPRS-ELS-87-015. March 2.

70A 2011 PowerPoint presentation by Anke Hellwig, a Fraunhofer Headquarters executive, the figure for 2010 for federal and Länder funding was 406 million Euros. Hellwig, Anke. 2011. “Fraunhofer: A Non-Profit Organization with Entrepreneurial Spirit.”

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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TABLE APP-A2-2 Fraunhofer Gesellschaft Revenue by Source
2010 (Millions of Euros)
Basic (Core) Funding
Federal Government 490
Lander Government 63
Revenue from FhG Activities
Federal Government
Project Funding 323
Contracts 11
Lander Government
Project Funding 190
Contracts 3
Revenue from the Private Sector 454
Research Funding Organizations/Other 111
Increase in work in progress 36
Other operating income 39
Interest and other income 1
Total 1,727
SOURCE: Fraunhofer Gesellschaft Annual Report 2010.

probably understate the amount and proportion of public funding because they do not break out funding from the European Union programs as a separate line item.71

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71EU funding may be included in “research funding organizations and other funding sources”, it may be reflected in “revenue from the private sector, or both. One Fraunhofer Institute, Fraunhofer IGB in Stuttgart, reported in 2011-12 that 4.8 percent of its revenue from contract research are derived from the EU. However, FhG IGB staff indicate that other EU funding is provided to SMEs which use it to fund contract research at FhG IGB and it is counted under revenue from “industry and trade associations.” Interview with FhG IGB. 2012. Stuttgart, Germany. July 14. A 2011 Fraunhofer presentation set the EU contribution to the institutes’ revenues at 65 million Euros in 2010. Hellwig, Anke. 2011. “Fraunhofer: A Non-Profit Organization with Entrepreneurial Spirit.”

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Basic or core funding is provided by the federal and Länder governments in the form of grants which are not tied to any particular activity or expenditure on a 90/10 federal/state ratio. The Fraunhofer headquarters allocates nearly two-thirds of its basic funding to individual FhG institutes pursuant to a formula which creates an incentive for institutes to raise additional funding from the EU and from industry—e.g. the more external funding raised by the individual institute, the more basic funding it will receive from headquarters. Another ten percent of the basic funding is awarded to institutes on the basis of competitive bids for proposals to enter new research fields. 10 percent of the basic fund is used to purchase new equipment.72 The remaining 15 percent is retained by the FhG Executive Board for use for special projects and the opening of new institutes.73 In recent years, the Fraunhofer has been able to establish new research units with public economic stimulus funds from the federal government and the Länder, as well as the European Regional Development Fund (ERDF).74 The Fraunhofer also derives income from donations, which are tax-deductible like charitable contributions.75

Infrastructure capital outlays are reported separately from Fraunhofer’s operating budget, which reports 143 million Euros in “current capital outlays.” This figure reflects investments in equipment and other fixed assets to maintain the operations of existing Fraunhofer units. Total capital outlays in 2011 were 379 million Euros (infrastructure capital outlays plus current capital outlays).

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72The Fraunhofer expenses its acquisitions at the time of purchase, so its books do not reflect depreciation expense.

73This funding formula was established by a former FhG director, Alexander Imbusch, in the 1970s. Comin, Diego, Gunnar Trumbull, and Kerry Young. 2012. Fraunhofer: Innovation in Germany. Harvard Business School Monograph 9-711-022. January 6. The basic funds are a powerful tool for attracting private money because partners benefit “from the investment capital which precedes work on any particular application.” Duff, Michael A. 1998. The Fraunhofer Society: A Unique German Contract Research Organization Comes to America. Office of Technology Policy, U.S. Department of Commerce. Washington, DC: U.S. Department of Commerce. October. pp. 23.

74The ERDF is a fund administered by the European Union which is intended to address regional disparities in Europe. Most of the ERDF funds allocated to Fraunhofer infrastructure projects in 2010 targeted at projects in the former East Germany. The German government portion of this funding is divided 50/50 between the federal and Länder governments. Major outlays have recently been made for a new research center in Dresden developing 3-D wafer level semiconductor packaging and interconnected technologies, expansion of the Fraunhofer Institute for Applied Polymer Research IAP’s Application Center Polymer Nanotechnologies in Potsdam-Golm, and expansion of the Fraunhofer Center for Silicon Photovoltaics CSP in Halle. The Fraunhofer IAP’s Application Center supports innovations such as flexible displays based on organic light-emitting diodes (OLEDs). The Application Center can support about 100 employees and has a usable floor space of 2600 square meters. Fraunhofer-Gesellschaft Annual Report 2011, pp. 19-20.

75Interview with Fraunhofer Institute for Process Engineering and Packaging IVV. 2012. Friesing, Germany. June 13.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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FIGURE APP-A2-1 Major infrastructure capital expenditure and funding sources 2007-2011.
SOURCE: Fraunhofer Annual Report 2011, p. 20.

Contract Research for Industry

German and foreign firms contract with Fraunhofer institutes for research on specific themes. The standard form of collaboration is a one-off bilateral contract between a company and a Fraunhofer institute to achieve an agreed technological objective. The research is governed by signed contracts covering research activity and the ownership of intellectual property rights.76

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76Dr. Stefan Noken, an executive at Hilti AG, a German construction company and a Fraunhofer alumnus, offers some criticism of the institute’s contract procedures. “Sometimes it can take months to get a contract signed. I understand that Fraunhofer needs to stake out its claims and ensure it retains rights to the results of its work but it is also important to understand that companies want to

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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These projects frequently involve more than one Fraunhofer institute. Fraunhofer prices these contracts on the basis of the cost of running the project, plus a markup of about 15 percent, but the price does not include the historic costs incurred by the institutes to develop the knowledge used in the project. The price an individual institute charges for a working hour varies from institute to institute based on each organization’s cost structure, including infrastructure costs. The price is independent of the success or the failure of the final project. The Fraunhofer institutes are engaged in 6-8,000 industry contract research projects in any given year. The Fraunhofer institutes sign confidentiality agreements with its industry partners to protect their proprietary information.77 Some of these projects evolve into long-term strategic relationships between a company and a Fraunhofer institute, involving multi-stage collaborations over many years.

The Fraunhofer engages in collaborations with industry that extend beyond one-off contract research. Some technological challenges are sufficiently complex that they require multiple partners, and may engage numerous companies and Fraunhofer institutes. In some cases, Fraunhofer institutes perform contract research for industry associations.78 The Fraunhofer invests in and supports off-site R&D centers located on companies’ premises.79 It creates pilot manufacturing lines to permit the development and testing of processes in industry-relevant settings, reducing the risks associated with scaling-up of production.80 It forms joint ventures with companies.81 Pursuant to “special

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ring-fence a certain degree of exclusivity for themselves…[S]pending months honing the contractual agreements is neither in our interests, or indeed in Fraunhofer’s interests, so I would like to see a more pragmatic approach in that area.” “Pass Me the Hilti.” Fraunhofer website.
<http://www.fraunhofer.de/en/range-of-services/reference.html>.

77Comin, Diego, Gunnar Trumbull, and Kerry Young. 2012. Fraunhofer: Innovation in Germany. Harvard Business School Monograph 9-711-022. January 6. p. 10-11.

78In contract R&D for associations, the government contributes funding to the association, and companies that want to get access to the technology being developed must pay to join the association. Interview with Fraunhofer Institute for Process Engineering and Packaging IVV. Friesing, Germany, June 13, 2012.

79An example is Roth and Rau’s R&D center at the company’s headquarters in Hohenstein-Emsttal, Germany, an 11-million Euros project to develop products and processes to support more efficient solar cells. Fraunhofer-Gesellschaft contributed 3 million Euros to this project to equip the center with technology for research projects to be performed jointly by Roth & Rau and Fraunhofer institutes in Saxony. PVTech. 2009. “Roth & Rau Opens New R&D Centre to Boost Solar Cell Efficiencies.” May 11. “Fraunhofer research scientists and engineers are often to be found at this cutting-edge research facility.” Dr. Sylvia Roth, Roth and Rau Executive at <http://www.fraunhofer.de/en/range-of-services/reference.html>.

80The Fraunhofer Institute for Electron Beam and Plasma Technology FEP developed pilot lines to permit Biofilm SA to develop vacuum roll-to-roll production processes for polypropylene food packaging films. This project was co-funded by BMBF and the Saxon State Ministry for Economic Affairs, Labor, and Transport. Also involved in the project were Applied Materials (coating equipment), Vacuum Technologies Dresden (hollow cathode sources for plasma activation) and ISA GmbH (power supply system). Fraunhofer FEP, “Plasma Technology of the Fraunhofer FEP Becoming Established in the American Packaging Market.” Press release, April 20, 2012.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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cooperation contracts,” companies can be given “guest” status at Fraunhofer institutes and operate their own laboratories and offices on the institutes’ premises.82 In 2005, the Fraunhofer entered into a public-private partnership with the U.S. semiconductor producer Advanced Micro Devices (AMD) and Germany’s semiconductor maker Infineon to open the Center for Nanoelectric Technology (CNT) near Dresden, with the two companies assuming responsibility for operating the site.83 The Fraunhofer Institute for Cell Therapy and Immunology IZI manufactures cell-based therapeutic products for pharmaceutical companies such as Northwest Biotherapeutics and Cognate BioServices Inc.84

Fraunhofer institutes are organized in parallel structures of thematic “research units” and “business units.” Contacts with industry are made by the business units, which are the point of entry into the Fraunhofer system. The business units’ expertise tends to lie in the area of potential applications and market potential of the technologies in which they specialize. When a company asks a business unit for technical help, the unit assesses the potential cost of the project, its business feasibility, and the terms under which the parities will work. The business units draw up a list of Fraunhofer research units from which assistance will be required, e.g. materials, software, packaging, equipment, and other specialties. While the business unit maintains relations with the industrial client, the research units are the point of contact for the project with university faculty, students, and laboratories.85

Small and Medium Enterprises

The Fraunhofer’s core mission is to enable small and medium enterprises (SMEs) to gain timely access to scientific and technological innovation. Such companies typically have little or no internal research capability and must rely on external sources for such support. The Fraunhofer

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81In 2012 the Fraunhofer Institute for Ceramic Technologies and Systems IKTS and FuelCell Energy Inc., a manufacturer of fuel cell power plants announced an MOU to form a joint venture to develop the European market for Direct Fuel Cell stationary power plants. FuelCell Energy has established a legal entity in Germany for the joint venture and will be the majority owner. Fraunhofer IKTS will contribute research and development resources and use local resources and relationships to develop the market. FuelCell Energy, “FuelCell Energy Announces Cooperation with Fraunhofer IKTS to Develop the European Market for Stationary FuelCell Power Plants.” Press release, February 22, 2012.

82Fraunhofer ILT. 2010. Annual Report. pp. 20.

83Deutsch Press-Agentur. 2005. “Germany Opens Nanoelectrics Centre in Dresden.” May 31.

84Fraunhofer IZI, “Fraunhofer IZI Received Manufacturing Authorization for DCVax®-L Brain.” Press release, July 25, 2012; “Fraunhofer IZI Received Manufacturing Authorization for Tumor Vaccine CVacTM.” Press release, October 28, 2011.

85Interview with Fraunhofer Institute for Process Engineering and Packaging IVV. Freising Germany. June 13, 2012.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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FIGURE APP-A2-2 Organization of Fraunhofer Institutes.

institutes accept contract research and develop technological solutions for problems that SMEs cannot resolve themselves. The Fraunhofer also assists SMEs by bringing them into contact with broader research and financial communities that can support their development efforts. In 2008, Fraunhofer contract R&D projects involving firms with less than 1,000 employees accounted for 43 percent of the total. Nevertheless, some studies have observed that Fraunhofer institutes “tend to pursue longer-term R&D for larger corporations and have often had a difficult time reaching and serving SMEs”.86 The Fraunhofer’s figures for 2008 indicate that over two-thirds of its contract R&D for industry is conducted for firms of 250 or more employees.

The term Mittelstand is sometimes used to refer to all German SMEs, but it more accurately describes a subset of German SMEs “characterized by

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86Shapira, Philip and Stuart Rosenfeld. 1996. An Overview of Technology Diffusion Policies and Programs to Enhance the Technological Capabilities of Small and Medium Enterprises. August. “[T]he fact that small and medium-sized companies represent only 10 percent of total Fraunhofer earnings suggests that in an era of shrinking public funding, the organization will be more inclined to go to greater lengths to satisfy the clients that represent over half their earnings—large industry and public bodies.” Mitchell. 1998. Fraunhofer Society. Op. Cit. pp. 33. The establishment of a system of pre-competitive research sharing for SMEs through the Industrial Research Associations (AiF) occurred in part “to counterbalance the large company financial bias of Fraunhofer and Max-Planck Institutes.” Harding, Rebecca. 2000. “Reliance in German Technology: Innovation Through Institutional Symbiotic Tension,” Industry and Innovation. December. pp. 233.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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TABLE APP-A2-3 Fraunhofer Contract R&D by Company Size (2008)
Number of Employees Percent of FhG Contract R&D
1-250 32.5
251-500 6.1
501-1000 4.4
1001-10,000 18.0
10,001-100,000 24.4
1000,000+ 14.6
SOURCE: Hellwig, Anke, “Fraunhofer: A Non-Profit Organization with Entrepreneurial Spirit,” 2011.

certain convictions and attitudes in the context of socio-economic and political processes.”87 These firms are typically family-owned businesses which have been doing business for many years, in some cases for five or six generations.88 Their leadership has a strong sense of social obligation and a close and paternalistic relationship with employees. They are deeply rooted in small towns and rural areas and less likely to engage in outsourcing or to move offshore.89 They tend to plan for the very long term based on the recognition that the enterprise was founded by family members and will be passed on to future generations. They commonly specialize in very specific niche product areas and in many cases have become globally dominant in those niches through a process of constant incremental improvements in their products and production methods.90

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87Meyer-Stamer, Jorg and Frank Waeltring. 2000. Behind the Myth of the Mittelstand Economy -The Institutional Environment Supporting Small and Medium-Sized Enterprises in Germany. Institute for Development and Peace at the Gerhard-Mercator- University Duisburg. Report 46.

88“About 95 percent of German businesses have a family at their helm.” Deutsche Welle, 2011. “Germany’s Family Businesses Reach Out to Global Markets.” May 6. Mittelstand “prefer to keep a distance from the stock markets and they are not that strongly affected by international trends of the capital markets.” They derive much of their capital from Germany’s 50 public savings banks and 1,200 credit cooperatives, originally set up to help small firms adjust to industrialization, which have proven less susceptible to the financial crisis than the country’s big banks. Christian Science Monitor. 2009. “Many Small Businesses in Germany Thrive During Downturn.” April 10.

89While some German machine builders have moved production overseas to take advantage of lower labor costs, many others view outsourcing with skepticism. Mittelstand producer BueMi in Gevelsberg near Wuppertal, manufactures precision parts for machine tools and supplies companies like Thyssen Krupp, Siemens, and Bombardier. Its Managing Director, Frank Mittag, commented in 2010 that with outsourcing there is a “risk of important know-how seeping out.” Medium-sized German companies which have established operations in China have seen their operations “quickly replicated by companies next door.” In addition, cost advantages associated with lower labor costs abroad are often offset by the costs of quality assurance programs, production downtimes, and marketing. Deutsche Welle. 2010. “German Machine Builders Leery of Outsourcing.” September 17.

90Oliver Wack and Phillip Boring quoted in, Xinhua. 2012. “What’s Behind the Success Story of German Manufacturing Industry?” February 23; Meyer-Stamer, Jorg and Frank Waeltring. 2000. Myth of the Mittelstand. Op. Cit. pp. 9.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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The Fraunhofer is widely viewed as an important element underlying the competitiveness of the Mittelstand.91 The actual proportion of Fraunhofer R&D that is directed toward projects involving Mittelstand is difficult to quantify, not only because the term “Mittelstand” is not well defined but also because these firms “are private and relish their obscurity,” and little information about specific Fraunhofer projects and the Mittelstand participants is made public.92 However, anecdotal information about individual companies indicates that the Fraunhofer can play an important role in sustaining their international competitiveness. Moreover, the innovation support provided by the Fraunhofer organization helps SMEs in the capital markets, enabling financial institutions to take a longer-term view of such companies.93

Roth & Rau, located near Dresden, is an “archetypical” family-owned Mittelstand company. It employs about 1,100 workers and specializes in niche products and technology in photovoltaics, such as production machinery and coatings which are a requisite for solar panels. Roth & Rau’s management made a strategic decision that the company would not sell coated solar wafers as an end product. “What the company sells are the machines that make the coating process, and, equally important, the know-how to make the machines work.” A major market for the company is China and the management understands that the machines will be copied. “[The company] can't do anything about it. But they also know duplicating the precision-coating process isn't easy, and this has given them an estimated five-year jump on Chinese capability.” The key to “keeping the gap”, as a company executive explains, is innovation and continuous advances in the efficiency of production.94 To achieve this, Roth & Rau is “working closely with various Fraunhofer institutes.”95

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91Hans Dieterle, an official at BDI, the federation of German industries, said in 1992 that “Especially for the Mittelstand, the Fraunhofers are very attractive. They find new equipment and can figure out what they never could on their own. In comparison with universities and all the other institutes, firms are much more satisfied with the Fraunhofer.” New Scientist. 1992. “German Innovation, British Imitation.” November 21. The Mittelstand are “very important in the context of the Fraunhofer model as these are the companies that are very commonly the funders, customers and economic beneficiaries of the work of each of the Fraunhofer Institutes, alongside the smaller number of industrial giants.” Written evidence submitted by the University of Bristol (TIC 43), House of Commons. December 2, 2010.

92Venohr, Bernd and Klaus E. Meyer. 2007. The German Miracle Keeps Running: How Germany’s Hidden Champions Stay Ahead in the Global Economy. Berlin: Berlin School of Economics, May. Pp. 5.

93Member of Parliament Gavin Barwell, citing interviews with the Federal Ministry of Education and Research in House of Commons: Science and Technology Committee. Formal Minutes: January 12, 2011.

94Marquand, Robert. 2011. “Germany—the new mini-superpower” Christian Science Monitor. January 30.

95“Using Plasma to Enhance Solar Cell Efficiency.” Fraunhofer Website. The CEO of Roth & Rau, Dr. Dietmar Roth, is a member of the Board of Trustees of the Fraunhofer Institute for Solar Energy Systems ISE in Freiburg. Renewable Energy World. 2011. “Meyer Burger Acquires Roth & Rau Shares, Extends Photovoltaic Equipment Reach.” April 11.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Roth & Rau employs over 100 research personnel, most of whom are based in its technology center in Hohenstein-Emstthal. “Fraunhofer’s research scientists and engineers are often to be found at this cutting-edge R&D facility,” reflecting the fact that the company “carries out joint projects with a variety of Fraunhofer institutes in a number of technical fields.”96 One example is a pilot line for processing and characterizing silicon wafer-based solar cells that operate in the company’s technology center in a collaboration with the Fraunhofer institute for Ceramic Technologies and Systems IKTS. The purpose of this project is to develop new generations of processing equipment, to enhance crystalline standard cell technology and develop manufacturing technologies for high-efficiency cells.97 Roth & Rau also supplies industrial machinery to Fraunhofer itself.98

Large Companies

Germany is home not only to the Mittelstand but to numerous globally-competitive large vertically integrated enterprises with strong ties to Germany’s major banks.99 While the Fraunhofer’s core mission is the provision of applied research support for small and medium enterprises, it derives a larger proportion of its contract research revenues from large companies. A 1987 French survey of the Fraunhofer observed that “the big industrialists do not hesitate to entrust [Fraunhofer] with very high level projects. Siemens, Daimler-Benz, VW are omnipresent in their labs.”100

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96Marquand, Robert. 2011. “Germany—the New Mini-Superpower” Christian Science Monitor. January 30.

97“Using Plasma to Enhance Solar Cell Efficiency.” Fraunhofer Website.

98TendersInfo. “Roth & Rau Microsystems GmBH Wins the Contract for Supplying Industrial Machinery.” January 17. In 2009, Roth & Rau decided to enter the thin-film photovoltaics market, based on the recognition that thin-film PV cells are less costly to manufacture than silicon wafer-based cells. The company engaged the Fraunhofer Institute for Electron Beam and Plasma Technology FEB in a project funded by the Saxon State Ministry for Science and the Arts. The Fraunhofer FEP team worked with the company to build a complete pilot manufacturing line at the institute to produce thin film cells with the highest possible efficiency, with a target completion date of 2015. Four Roth & Rau employees work directly on the pilot line at the institute in order to facilitate continuous knowledge transfer to the company.

99Die Computer Zeitung. 1986. “Siemens, Fraunhofer Automate Masking for X-Ray Lithography. JPRS-WST-86-005. January 31. Spiegel Online International. 2008. “We Are Not Driving the Price Hike”, July 16. “Research Product by ThyssenKrupp VDM, RWE Power and Fraunhofer Institute Significantly Reduces Development Time for “New Materials.”” ThyssenKruppAG Press Release. 2008. May 29.

100Industries et Techniques. 1987. “Applied Research: The Fraunhofer Method.” October 20. JPRS-ELS-88-006. Dr. Anton Heuberger, Director of the Fraunhofer institute of Microstructural Techniques in Berlin commented in 1987 on a massive semiconductor lithography collaboration involving Siemens, Telefunken, Philips, and Eurosil that “Fifteen researchers from Siemens are working with us on a full time basis. We’re actually at risk of becoming a sort of subsidiary. But we are careful to protect our autonomy.”

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Box APP-A2-1

Mittelstand Niche Strategy

CleanDieselCeramics GmbH is a medium-sized German maker of particulate filters for Diesel engines based in Grossrohrsdorf in Saxony. Stricter emissions standards which came into effect in 2011 will require retrofitting of existing Diesel engines. CleanDieselCeramics and the Fraunhofer Institute of Ceramic Technologies IKTS observed that the market for automobile particulate filters was a huge mass market involving millions of vehicles but that the market for certain specialized vehicles like construction machinery might be as small as 3000 units. Fraunhofer and CleanDieselCeramics concluded that there was “a gap in the market which basically involved developing a cost-effective manufacturing process that also works for small and medium scale quantities.” The company and the institute used a material patented at the Fraunhofer IKTS, a porous silicon carbide ceramic, and developed highly efficient ceramic diesel particulate filters for non-road applications. The parties also developed and refined a manufacturing process for the filters which was tested and perfected on a pilot production line at Fraunhofer IKTS. The company hired staff for its own production facility in Grossrohrsdorf who worked on the pilot line at the institute for six months, enabling them to bring their know-how to the company’s commercial production line.

Publicly-funded Contract Research

The Fraunhofer receives public revenues for contract research which is linked to specific projects being undertaken for the federal government and the Länder. In some cases, these funds are augmented by EU funding. The Fraunhofer is prohibited from signing full confidentiality agreements with respect to these contracts, which may in some cases deter participation by the private sector. Publicly funded contract research undertaken by the Fraunhofer generally has commercial potential while serving broader public goals, such as public health, safety, and environmental protection.101

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101Examples of a number of publicly funded projects were reported in the Fraunhofer Institute for Interfacial Engineering’s Annual Report for 2011-12: (1) Differentiation of mesenchymal stem cells. This project, funded by the BMFB, studies mesenchymal stem cells which can differentiate into bone, fat, cartilage, and other forms of tissue, and seeks to identify the external stimuli that lead to this differentiation. (2) Detection of human fungal pathogens. This project, funded by the BMFB, seeks to develop early-detection techniques utilizing a lab-on-a-chip device for deadly yeast and mold fungi that infect humans, particularly those with compromised immune systems. (3) Rotating disk filter for anaerobic wastewater treatment. This project, funded by BMWi, seeks to develop a

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Box APP-A2-2

Fraunhofer and Volkswagen

Fraunhofer has been involved with many of Germany’s leading companies in multiple projects of many years’ duration, which commonly lead into follow-on collaborations. The Fraunhofer has been working with Volkswagen, for example, on factory automation projects for decades.a Volkswagen established a subsidiary in Saxony, Volkswagen Sachsen GmbH in the early 1990s in the wake of German reunification. Fraunhofer concurrently established the Fraunhofer Institute for Machine Tools and Forming Technology IWU in Dresden and Chemnitz. Since then Volkswagen and Fraunhofer IWU have worked on a “whole series of joint research and development projects in the field of production engineering.” The Fraunhofer IWU Advisory Board has always included Volkswagen executives and the Advisory Board has been chaired by Professor Hochem Heizmann of Volkswagen since 2007.b In 2008, Volkswagen concluded an agreement with Fraunhofer-Gesellschaft to establish a joint “Center of Excellence for Automotive Production” in Chemnitz which would develop and test flexible resource-efficient production methods for automobiles.c The center has become an “integral part” of the Research Factory for Resource Efficient Production, a project jointly operated by Fraunhofer IWU, Volkswagen, and Audi. In 2002, the Land government of Saxony, Fraunhofer IWU and Volkswagen launched the Mechanical Engineering and Automotive Initiative (MAINE), which established an association comprised of Volkswagen plants in Saxony and about 20 automobile parts suppliers and engineering companies.d

 

 

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aThe Fraunhofer IPK developed Volkswagen’s robotized windshield-bonding system in the 1980s and a similar system for Audi. Industries et Techniques. 1987. “Applied Research: The Fraunhofer Method.” October 20. JPRS-ELS-88-006.

b“Mobility Made in Germany.” Fraunhofer Website.

cVolkswagen and the Fraunhofer Institute for Machines Tools and Forming Technology IWU reported in 2009 that they had developed a new method for punching holes in the press-hardened steel body work based on electromagnetic pulse technology (EMPT) which can perform an operation in one-seventh the time taken by a mechanical puncher with lower energy consumption. Fraunhofer Research News. 2009. “Electromagnetic Fields as Cutting Tools.” December 1.

dMAINE was designed to develop and test new manufacturing and information technologies associated with automobile engine and body manufacturing. Fraunhofer IWU supervises and

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rotating disk filter unit which will make the purification of urban and industrial wastewater cost-effective. (4) Multifunctional PEGs. This project, co-funded by the Baden-Wurttemberg Ministry of Science, Research, and the Arts and the Peter and Traudl Engelhorn Foundation, seeks to develop new forms of biocompatible materials utilizing polyethylene glycol (PEG), a substance with broad application in tissue engineering, pharmaceuticals, and cosmetics. Fraunhofer IGB Annual Report 2011-12.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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coordinates this project, which has involved themes such as residue-free engine manufacturing, fully automated laser welded car body manufacturing, development of lightweight construction components for the car body and powertrain, development of new techniques for manufacturing crank shafts and B-pillars, and machine system design and process development. Presentation of Mattis Potz. 2006. Fraunhofer Gesellschaft. Piacenza. July 7. Current MAINE projects involve the development of innovative cutting and joining techniques for high strength steel, and incorporation of newly-developed techniques into mass production lines. “Mobility Made in Germany.” Fraunhofer Website. Op. Cit.

EU-funded Research

The Fraunhofer Institutes derive a portion of their funding from European Union programs supporting R&D:

  • Framework Program Seven (FP7): This program, the EU’s principal vehicle for funding research in Europe, provides grants for technological development and demonstration projects with “European value-added.”102 Grants extended under the Seventh Framework typically involve participants from other European Countries.103
  • Competitiveness and Innovation Framework Program (CIP): This program is designed to enhance competitiveness of small and medium enterprises through support of innovative activities.
  • Eurostars: The EUREKA Eurostars Program supports R&D by small and medium enterprises to develop new products, processes, and services.

Although most EU funding for the Fraunhofer is linked to specific projects, one EU fund functions as a form of core funding which is used like federal/Land core funding to support research infrastructure. The European Regional Development Fund (ERDF is a structural fund promoting investments in areas which have experienced economic decline which has supported Fraunhofer R&D projects in the former East Germany and economically

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102Peplaser, a 3-year EU Seventh Framework R&D project launched in 2009 established a consortium comprised of 11 research groups in four European countries, including Bulgaria and Poland. The project sought to develop production processes and equipment for the solid-phase synthesis of peptides. The Fraunhofer-Gesellschaft zur Foerdunug der Angewandted was a participant. 3 million euros of the projects 4 million euros was provided from EU seventh framework funds. Warsaw Voice. 2009. “Polish Firms in EU Biotechnology Project R&D.” October 28.

103The EU is providing grant funding under the Seventh Framework to the Fraunhofer Institute for Interfacial Engineering and Biotechnology IGB for a project to develop fertilizer pellets for organic farming that also repel insect pests. Project partners include agricultural associations from Germany, Norway, Spain, Lithuania; SMEs from the United Kingdom, Germany, and Norway; Nor-Tek, a Norwegian research organization; and the University of West Hungary in Mosonmagyarovar, Hungary. Fraunhofer IGB Annual Report 2011-12. pp. 100-101.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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disadvantaged areas in Western Germany.104 In 2010, the ERDF allocated 57.2 million Euros for Fraunhofer research infrastructure investments. Fraunhofer maintains an office in Brussels and it is regarded as a formidable force in lobbying for EU funding.105

Internally-funded Research

Fraunhofer “blue sky” research projects are entirely funded internally. The Fraunhofer-Zukunftsstifung (Fraunhofer Future Foundation) is a foundation which the institute established to use the large operating surplus that was generated from the success of the mp3 project. The foundation invests these funds in research projects that may not bring in revenues over the short run. These funds are allocated to individual FhG institutes through a competitive bidding process.106

Staffing and Training

The Fraunhofer’s workforce has been growing substantially, a direct reflection of the growing number of research projects and contract volumes.

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104The Fraunhofer Institute for Machine Tools and Forming Technology IWU joined with ThyssenKrupp Engineering in a recent project to develop technology for advanced production in the aircraft industry. This project was funded by the European Regional Development Fund and the Free State of Saxony. One British academic commented before the House of Commons that, “the Fraunhofer have tapped into European Regional Development Funds [and] last year [2010], they drew tens of millions of Euros to establish new capital facilities.” Aerospace Manufacturing. 2012. “The Refinement of Alignment.” January.

105“[T]he lobbying power of the Fraunhofer Institutes at the European level should not be underestimated and should be a force to be reckoned with if similar institutions wish to influence or benefit from European initiatives in Research and Development.” House of Commons, Science and Technology Committee. 2011. Technology and Innovation Centres. Second Report of Session 2010-2011. February 17. pp. 29. During the period 2007-2011 fully 10 percent of all EU funding in the field of photonics went to the Fraunhofer Heinrich Hertz Institute HHI in Berlin, notwithstanding intense competition. Fraunhofer HHI, “EU Funds Photonics R&D in Berlin.” Press release, 2012. The EU funding process is highly complex and potentially prohibitive for small and medium enterprises. Accordingly, the Fraunhofer Institutes’ business development departments work with German SMEs to explain how the system works and how to negotiate with the EU for funding. One Fraunhofer institute operating in the life sciences sector indicates that for an average program involving the institute supported by EU funding, it takes nine months to set up a project involving a novel idea or concept, about one year to decision. The approval process is reportedly gradually getting shorter. Interview with Fraunhofer Institute for Interfacial Engineering and Biotechnology IGB. Munich, Germany. June 15, 2012.

106As of mid-2012 roughly a dozen research projects funded by the foundation were under way. One such project, “RIBOLUTION,” involves the potential use of a class of molecules known as non-(protein)-coding ribonucleic acids (ncRNAs) to identify novel diagnostic indicators for diseases such as prostate cancer and chronic obstructive pulmonary disease. This project involves five Fraunhofer institutes as well as the company GlaxoSmithKline and the Universities of Dresden, Leipzig, and Charite Berlin. Fraunhofer IGB. 2012. Fraunhofer IGB Annual Report 2011-2012. pp. 62-63. Interview with FhG IGB. 2012. Stuttgart, Germany. June 14.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Box APP-A2-3

Market-Oriented Strategic Preliminary Research

In addition, Fraunhofer Gesellschaft allocates “headquarters money” to projects that are estimated to be 2-3 years away from market application. This program, designated “Market-Oriented Strategic Preliminary Research (MAVO)”, draws on 10 percent of the institutes’ core public funding. The money is allocated from a “central pot” but individual institutes sometimes contribute some of their own funds. These projects, which may involve multiple institutes, are not expected to pay for themselves within a two year time frame, are seen as a way to induce FhG institutes to compete with each other in the development of new ideas with future potential as well as a mechanism for encouraging different FhG institutes to interact.a

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aA current example of a MAVO project is “ProLignocell,” a project to develop new sustainable processes for the utilization and material development from lignocellulose, a cellulosic substance which protects plants from decay caused by microorganisms or enzymes. The project involves collaboration between four Fraunhofer research institutes. Fraunhofer IGB. 2012. Fraunhofer IGB Annual Report 2011-2012. pp. 86-87; Interview with FhG IGB. 2012. Stuttgart, Germany. June 14.

Headcount grew by 5,978 between 2007 and 2011, an increase of over 41 percent.

Fraunhofer Institutes are each staffed with an average of 300-400 people. There are exceptions to this pattern—the Fraunhofer Institute for Solar Energy Systems (ISE), for example, reported a headcount of 1139 staff members in 2011.107 The institute’s permanent staff is a minority of the total workforce averaging 20-40 percent with most employees operating under various temporary employment contracts.108 The majority of the institute researchers are PhD students and post-docs who commit to work half-time at a Fraunhofer institute. While a few of these individuals become part of the institute’s core staff, most leave for positions in industry after 3-6 years, a turnover rate that

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107Fraunhofer ISE. 2011. Annual Report. pp. 11.

108An institute does not need approval from headquarters to hire temporary employees, and some “temporary” workers have remained at institutes for many years pursuant to successively-renewed 2 and 3-year contacts. Some of these “temporary” workers rise to senior management positions. Interview with Fraunhofer Institute for Process Engineering and Packaging. Friesing, Germany, June 13, 2012.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Image

FIGURE APP-A2-3 Growth in the Fraunhofer-Gesellschaft’s workforce, 2007-2011.
SOURCE: Fraunhofer Annual Report 2011, p. 30.
NOTE: New basis for calculation: workforce also includes personnel on temporary employment contracts with terms of less than 18 months. Figures for previous years have been amended accordingly.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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some German business partnering with the institute see as a negative.109 But on the positive side, Fraunhofer institutes function as large scale training centers for highly skilled industrial managers and workers:

As an employer, the Fraunhofer Gesellschaft offers a platform that enables its staff to develop the necessary professional and personal skills that will enable them to assume positions of responsibility within their institute, in industry and in other scientific domains.110

Networks

The Fraunhofer emphasizes the importance of networks in virtually all aspects of its operations, reflecting its view that competitive innovation increasingly requires collaborative efforts by numerous actors with specialized competencies acting in concert to achieve a common objective.111 German

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109Rudolf Smion, research director of Meissner and Wurst, a firm that contracted with the Fraunhofer for research on designing clean rooms for semiconductor production commented in 1992 that “you do not work with the institute but with the people in it. But often the researchers are with the institute for only three or four years. The people leave and then all the promises are gone.” New Scientist. 1992. “German Innovation, British Imitation.” November 21. A Fraunhofer executive conceded in 2012 that “it is difficult for us to survive the blood loss. It’s usually the best people that go out.” Interview with Fraunhofer Institute for Production Technology and Automation IPA. Stuttgart, Germany, June 14, 2012.

110Written Evidence Submitted by Advanced Manufacturing Research Centre (AMRC). University of Sheffield (TIC 35). House of Commons Science and Technology Committee. January 12, 2011. Fraunhofer is a publicly funded research organization and as such is subject to rules which limit salaries to levels that are lower than the compensation for comparable jobs in the private sector. Comin, Trumbell and Young. 2012. Fraunhofer: Innovation in Germany. Op. Cit. pp. 12. Fraunhofer permanent staff salaries are 50-70 percent of comparable jobs in the private sector. PhD candidates are paid at about half the level of full-time Fraunhofer scientists. Interview with Fraunhofer Institute for Process Engineering and Packaging. Freising, Germany. June 13 2012. “The institutes’ extensive use of students bears some resemblance to the practice of medical interns in hospitals— long hours, low pay—while delivering all of the services expected of a fully-licensed and much more expensive doctor. The benefit to the Fraunhofer Institute is that they obtain access to leading-edge expertise at less than commercial rates.” Mitchell. 1998. Fraunhofer Society. Op. cit. pp. 25. Students are paid one-half the amount paid to full-time workers. Interview with Fraunhofer Institute for Process Engineering and Packaging IVV. Friesing, Germany, June 13, 2012. The long-run benefits to students, however, are also substantial. By the time they leave the institute for careers in industry, they have acquired cutting-edge technological skills, business skills, and a broad network of business contacts. According to one estimate a five-year investment by students in Fraunhofer training enables them to double the income they could otherwise expect by entering industry with a PhD only.

111A German executive whose company works extensively with Fraunhofer comments that “[S]uccessful innovations nowadays tend to emerge from networks. Today’s new products and services are developed at ever shorter intervals, which means that the window of time in which you can maintain an innovation’s competitive edge is far briefer than it was in the past. But at the same time the product solutions are much more technically challenging. For example, our hammer drills are not simply mechanical products any longer, but rather they are intelligent devices with electronic, mechatronic and software technology components and functions. The only way to keep

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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scientific disciplines in general are highly networked, and scientists are trained to cooperate and apply jointly for funding. A Fraunhofer scientist observes that it takes a major effort to set up collaboration networks, but once they are established they are a huge competitive advantage. He comments that “our experience of the U.S. is that there is a lot less collaboration by laboratories with each other and industry.”112 Companies that engage Fraunhofer for research tap into a rich university research network.113

The Fraunhofer institutes also form networks with each other, with the recognition that “coordinated competencies allow quick and flexible arrangements of research work on the requirements of different fields of application to answer actual and future challenges.”114

Fraunhofer has 23 “Fraunhofer alliances,” which are combinations of Fraunhofer institutes with expertise relevant to topical themes such as cloud computing, adaptronics, embedded systems, high-performance ceramics, and optic surfaces.115 The Fraunhofer plays a prominent role in international networks formed to address specific technological themes.116

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pace with this increasingly dynamic business environment is by working within innovation networks which we can draw upon as needed. We see the Fraunhofer-Gesellschaft as a solid component of our network and we collaborate with a great number of institutes on a whole host of different projects.” Noken, Stefan. “Pass me the Hilti” <http://www.fraunhofer.de/en/range-of-services/references/reference-hilti.html>.

112Interview with Fraunhofer Institute for Manufacturing Engineering. Stuttgart, Germany. June 14, 2012.

113Hansjorg Lerchenmuller, CEO of Concentrix solar GmbH, a maker of solar concentration modules, indicates that the Fraunhofer institutes “have great links to the University. Through Fraunhofer we can get people investigating and evaluating interesting topics in the form of dissertations and theses.”
<http://www.fraunhofer.de/en/range-of-services/reference.html>.

114Fraunhofer Institute for Material and Beam Technology IWS. 2011. Annual Report. pp. 120. For example, six Fraunhofer institutes form the “Fraunhofer Group Lights & Surfaces,” which draws on skills in lasers, surface coating, photonics, nanotechnology, materials technology, microassembly, ultra precision engineering and carbon technology. The institutes are Fraunhofer FEP (electron beam/plasma), ILT (lasers), IOF (applied optics), IPM (physical measurement), IWS (material and beam technology), and IST (surface engineering and thin films).

115Within the alliances, common points of contact provide advice and coordinate the development of solutions involving one or more institutes. The Fraunhofer Battery Alliance, for example, has a designated spokesman from the Fraunhofer Institute from the Fraunhofer Institute for Chemical Technology ICT and is comprised of 19 Fraunhofer institutes.

116The Fraunhofer is a member of the Heterogeneous Technology Alliance (HTA), a group of leading European research organizations which has agreed to become interdependent, sharing technology and coordinating investments in the fields of micro and nano technologies. In 2011, the “European Association for Biometrics” was formed, comprised of 14 institutions from 10 countries. The EAB is chaired by Alexander Novak of the Fraunhofer Institute for Computer Graphics Research IGD. The EAB is a non-profit organization based in the Netherlands tasked with advancing the “proper and beneficial use of biometrics in Europe and abroad.” Plant Biometrics. 2011. “European Association for Biometrics Founded.” December 2.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Box APP-A2-4
Fraunhofer Networking—A Case Study

An academic study published in 2000 by the University of Manchester offered a case study of Fraunhofer networking in the process of developing a contract research project with a Germany company. In this case Fraunhofer ISI was working with a large engineering company to develop new, competitive industrial products over a 10-year time horizon. The first phase of discussions focused on establishing the needs of the client and its customers on the basis of interviews, a workshop, and ISI’s own research. This phase produced 21 product ideas, ranging from incremental improvements in existing products to radical innovations. The second phase, another workshop was to be a forum for winnowing these ideas down to a manageable number. However, “a second purpose of the workshop was to create networks and partnerships between the client and other Fraunhofer institutes.” Accordingly, representatives from four Fraunhofer institutes were present at the workshop. One institute concentrated on microelectronics themes; another addressed electrical and mechanical engineering; another emphasized its “whole systems” approach to engineering issues; while Fraunhofer ISI retained a coordinating role and a perspective on the strengths of each institute that could be deployed in the project.

What is interesting in the context of this chapter is the appearance of four, normally competitive institutes focusing their discussion on one issue. The rivalry between IEG, IPA and IPK was highly developed; IEG as an institute evolved from IPA structures and all three competed aggressively for similar client projects. Thus while the three normally came into contact through ‘market-based’ activities, they were here cooperating as experts on a development project…The ‘hidden agenda of the day was to create an ideal collaborative partnership between the participants, which would lead to profitable product development in the third and final phase.a

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aHarding, Rebecca and William E. Paterson (eds.) 2000. The Future of the German Economy: An End to the Miracle?” Manchester: Manchester University Press. pp. 98-99.

Intellectual Property

The Fraunhofer has a large patent portfolio, reflecting its policy toward intellectual property. It registered 673 new inventions in 2011 for a total of

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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6,131 patents and registrations as of the end of that year.117 While the treatment of intellectual property rights is subject to negotiation when a research contract is concluded, it is the normal practice for Fraunhofer to retain patent and other intellectual property rights upon conclusion of a research project.118 Royalties and other income from IPR go to Fraunhofer headquarters, not individual institutes. Individual scientists responsible for developing patented technology receive 30 percent of the patent revenue.119 The industry partner or partners may receive an exclusive license, but only for the particular application that was the subject of the project. Fraunhofer remains free to license the technology to other companies for different applications. Future customers have access to Fraunhofer’s large patent portfolio which enhances the value of collaborations for companies and produces licensing revenues for the institutes.120 In recent years, Fraunhofer has placed a higher emphasis on intellectual property protection and exploitation, concentrated in areas of anticipated high revenues.121

Spin-offs

Fraunhofer began promoting the systematic formation of spin-off companies in 1999 as a direct way to deliver technology developed internally to the marketplace.122 Currently, the Fraunhofer encourages the start-up of new companies from within its own institutes and continues to support these entities once they are launched.123 The Fraunhofer transfers some of its know-how to

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117Fraunhofer Magazine. 2012. “Boost in Earnings.” February.

118In some cases, however, “if it is invented at the University, it is owned by the University.” Interview with Fraunhofer Institute for Manufacturing Engineering. Stuttgart, Germany. June 14, 2012.

119Interview with Fraunhofer Institute for Process Engineering and Packaging IVV. Friesing, Germany. June 13, 2012.

120Duff, Michael A. 1998. The Fraunhofer Society: A Unique German Contract Research Organization Comes to America. Office of Technology Policy, U.S. Department of Commerce. Washington, DC: U.S. Department of Commerce. October. pp. 65. Interview with FhG IGB. 2012. Stuttgart, Germany. June 14.

121This assessment is based on the perception of a technology’s market potential and the comparative competitive strength of proprietary clusters of patents. In 2008 over half the institutes’ total revenues from licensing were derived from patents generated by two Fraunhofer Institutes, the Fraunhofer Institute for Integrated Circuits (IIS-Erlangen) and the Institute for Digital Media in Technology (Ilmenau) from research in the field of audio coding (including MP3). Miha, Andren, David Connell, and Alan Hughes. 2009. “Models of Technology Development in Intermediate Research Organizations.” Centre for Business Research Working Paper 346Q. December. pp. 14.

122Gijsbers, Rosebaum and Vullings. Benchmarking Contract Research Organizations. Op, Cit. p. 47.

123Fraunhofer spinoffs are 90 percent funded by venture capital, with the remaining 10 percent split evenly between angel and bank financing. In about half of its spinoffs, Fraunhofer takes an equity stake of up to 25 percent, which becomes diluted with successive rounds of venture capital. Fraunhofer Ventures currently has shareholdings in 51 spin-off companies. Spin-offs are managed by an internal division, Fraunhofer Ventures. This entity maintains a network of contacts with certified public accountants, attorneys, business consultants, and public and private venture capital

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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these companies in return for a minority equity stake. It provides technical, managerial and operational support for the spin-offs through its program, “FFM—Fraunhofer Fosters Management.” Over half of the spin-offs have been in information technologies, microelectronics, and photonics.

Most spinoffs are small-scale efforts involving one or two Fraunhofer employees.124 Fraunhofer spinoffs enjoy a high degree of success to the extent that success is defined as survival over the long run. Depending on the source, the success rate is somewhere between 65 and 90 percent.125 Whatever the actual figure, it is extraordinary in international terms. The failure rate for startups in the United States in the early 2000s was 90 percent.126 However, the high success rate may be an indicator that only spin-offs with a high probability of success are undertaken, suggesting an aversion to high risk endeavors.127

International Operations

In the early 1990s the Fraunhofer-Gesellschaft began making a concerted effort to establish foreign operations, a recognition that 85 percent of the global market for the most advanced technologies was located outside of Germany. While Germany was a global leader in a number of industries, such as chemicals and machinery, it trailed other countries in emerging technological areas such as information technology and biotechnology. Establishment of

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firms which can provide the start-up with support in its early phases. Fraunhofer Ventures emphasizes reviewing and improving business plans, securing capital, drafting partnership agreements between the spin-off and associated institutes and arranging direct support from the Fraunhofer. Astrom, Eriksson, and Eriksson. 2008. International Comparison of Five Institutes. Op Cit. pp. 122.

124Comin, Trumbell and Young. 2012. Fraunhofer: Innovation in Germany. Op. Cit. pp. 11.

125This purported success rate may be exaggerated. Fraunhofer IGB in Stuttgart reports 8 spinoffs in the past 12 years, of which 2 have survived. Interview with Fraunhofer IGB, Stuttgart, Germany, June 14, 2012.

126Comin, Trumbell and Young. 2012. Fraunhofer: Innovation in Germany. Op. Cit. pp. 11.

127Some spin-offs appear to continue essentially as extensions of the Fraunhofer itself. MEMS Foundry Itzehoe GmBH (MFI), a semiconductor foundry business spun off from the Fraunhofer Institute for Silicon Technology ISIT in 2009, specializes in the fabrication of micro-electromechanical systems (MEMS). Since its inception, MFI has continued to work closely with Fraunhofer ISIT in “converting the results of research projects between Fraunhofer ISIT and industrial partners into a commercial volume manufacturing environment.” “X-Fab and MFI Combine MEMS Foundry Offerings.” 2011. XFAB press release. February 3. In 2012 the Fraunhofer Institute for Algorithms and Scientific Computing SAI spun off SIDACT GmbH to market software programs for simulation data analysis and compression technology developed at Fraunhofer SAI. SIDACT and Fraunhofer SAI will continue to collaborate pursuant to a cooperation agreement. Fraunhofer SAI, “Fraunhofer Spin-Off Develops Data Compression Techniques.” Press release, October 8, 2012.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Box APP-A2-5

Regional Innovation Clusters

Regional innovation clusters: A major element of the German federal government’s high tech strategy is the creation of regional innovation clusters, and a number of Länder governments are pursuing their own cluster initiatives.a Pursuant to the “Pact for Research and Innovation,” the Fraunhofer assumed responsibility for conceptualizing and establishing innovation clusters. It is currently pursuing nineteen cluster initiatives in various parts of Germany. These typically involve one or more Fraunhofer Institutes, a local university, and a number of large and small industrial partners.b

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aIn 2007, Baden-Wurttemburg’s Minister of Economic Affairs, Ernst Pfister, defined “cluster” as a “geographic concentration of companies linked to each other, specialized suppliers, service providers, companies in related sectors, and supporting organizations like universities and research institutes, other scientific and educational institutions, chambers, associations, and the like.” Business Baden-Wurttemburg. 2007. “The Culture of Cooperation.” September.

bThe Mechatronic Machine Systems cluster, located in Chemnitz, Saxony, is developing manufacturing tools based on mechatronics to enable companies to design processes and produce products to very high standards. The cluster combines disciplines from computer science, mechanical engineering, and electrical engineering. The research partners are the Fraunhofer Institute for Machine Tools and Forming Technology IWU and the Institute for Machine Tools and Production Processes at Chemnitz University. There are eight industrial partners including Volkswagen AG and SIEMENS VDO Automotive AG.

overseas institutes was seen as a way to bolster Germany’s position in those areas and to acquire technologies that would flow back to the parent institutes for application for the benefit of German industry.128 In 1994, Fraunhofer USA, Inc. was established in Rhode Island to manage a network of U.S. research centers, which has grown to six centers at present.129 In 2012, Fraunhofer

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128Mitchell. 1998. Fraunhofer Society. op. cit. pp. 39-41. The Fraunhofer Institute for Laser Technology (IGT) states in its 2010 Annual Report (p. 20) that the objective of its international collaborations is “to recognize new trends and current developments and to acquire further know-how.” The Fraunhofer Institute for Material and Beam Technology IWS, based in Dresden, maintains a close working relationship with the U.S.-based Fraunhofer Center for Coatings and Laser Applications in Plymouth, Michigan. Fraunhofer IWS indicates that the advantage of this relationship is the ability to identify trends in the United States and the fact that “the research and development work performed in the United States generates additional know-how and competencies, which benefit the project acquisition in German and European markets.” Fraunhofer IWS. 2011. Annual Report. pp. 117.

129Fraunhofer’s U.S. operations are small in comparison to those in Germany, reporting $40 million in total revenues in 2010. The strongest-performing U.S. center is the Fraunhofer Center for Molecular Biology (CMB) in Delaware, with 2010 revenues of $20 million. CMB is engaged in the development of vaccines, protein therapeutics, industrial enzymes, and agricultural biotechnology.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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unveiled plans to establish a Fraunhofer Center for Applied Photonics in strategic collaboration with the University of Strathclyde in the United Kingdom.130

THE FRAUNHOFER IN CONTEXT

Most foreign observers who have studied the Fraunhofer in detail emphasize that it cannot be understood outside of the context in which it operates—that is, “the culture, history, and innovation infrastructures of Germany”—and that “an indiscriminate attempt to apply the model wholesale would be inadvisable even if it were practically possible and fiscally affordable.”131 Significantly in this regard, a number of Fraunhofer institutes have been established outside of Germany but “these have not achieved the success of the institutes in Germany.”132

In Germany the Fraunhofer-Gesellschaft exists in a dense, knowledge-intensive, highly interconnected ecosystem of universities, institutes of applied research, technology intensive companies, and sophisticated trade and industrial associations. The roots of this system can be traced back for centuries, and reflect longstanding German traditions of craftsmanship, the relentless pursuit of academic excellence in the sciences and engineering, and systematic application of scientific knowledge in the commercial realm. Germany pioneered many of the practices which underpin today’s knowledge-based global economy, and until the early Twentieth Century was the acknowledged world leader in science and the translation of scientific knowledge into commercial products. Despite the massive discontinuity of the period 1914-50, the basic elements of the German scientific industrial system which emerged in the late Nineteenth and early Twentieth Century are still observable in Germany today. “Despite the

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Fraunhofer-Gesellschaft. 2010. Annual Report. One Fraunhofer Center in the United States was not successful. The Fraunhofer Centre for Manufacturing and Advanced Materials, located in Delaware, closed its doors in 2004 and transferred its proprietary technology for metal forming to a U.S. company, Alubright of America. According to evidence submitted by Fraunhofer to the British Parliament in 2010, the Delaware center apparently did “not find its contract research market as planned.” Written Evidence Submitted by Fraunhofer-Gesellschaft (TIC 71). House of Commons: Science and Technology Committee. December 3, 2010.

130Pharmabiz.com 2012. “Europe’s Largest Contract Research Organization, Fraunhofer-Gesellschaft to Set Up UK Headquarters. June 1.

131Written Evidence Submitted by CBI. (TIC 34). House of Commons Science and Technology Committee. January 12, 2011. “The role and rationale [of technology integration centers] is…context dependent, which includes the presence and nature of other academic or business centres of excellence; the balance of business sectors; and the importance attached by the public and private sector to innovation within a particular nation.” Written Evidence Submitted by British Private Equity and Venture Capital Association (BVCA) (TIC 54). House of Commons Science and Technology Committee. January 12, 2011.

132Written Evidence Submitted by the Association of Independent Research and Technology Organizations. (TIC 12). House of Commons Science and Technology Committee. January 12, 2011.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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political regime breaks in 1933 and 1945 and the Second World War, the German [public research system] showed a high degree of institutional continuity.”133

The key elements of the German innovation system are a dual system of education and training which marries the development of academic and practical competencies; layered and decentralized governmental structures which support scientific research over long time horizons; an industrial tradition featuring the systematic application of science to the development and constant improvement of products and processes; and industrial and science organizations which promote rationalization, constrain competition in favor of collaboration, and facilitate the broad diffusion of technology. These elements of the German innovation system were in place long before the Fraunhofer first opened its doors in 1949, and the place which applied research institutes like Fraunhofer were expected to occupy within the system were well understood throughout German society by the time Fraunhofer was founded. Today, many well-educated Germans understand what Fraunhofer is, what it does, and where it fits in the German economic system. Foreign assessments of the German innovation system sometimes conclude that while German successes are admirable, German methods cannot readily be transplanted because of the singular character of the German system.134

Scientific and Technical Education

German universities emerged as centers for “serious research and scholarship in science and technology long before their British and American counterparts.”135 In 1820, Justus von Liebig, a chemistry professor at the

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133Winnes and Schimank. 1999. Federal Republic of Germany. Op. Cit. pp. 22. The current German innovation system is “embedded…within the historical development of German political economy.” Harding. 2000. “German Technology Policy.” Op. cit. pp. 225.

134The British economist David Soskice, who has studied the German innovation system, commented in a 1996 article that “attractive though the German system is, it is not the intention of this article to advocate its being copied in Anglo-Saxon economies such as the United Kingdom and the United States. This is because their institutional frameworks are fundamentally different.” Soskice, David. 1996. “German Technology Policy, Innovation and National Institutional Framework.” Discussion Paper ISSN Nr. 1011-9523. Berlin. September. Pp. 1. A recent Australian examination of German economic success concluded that Australia had no real counterpart to the German Mittelstand. Australia had large companies and numerous “micro-entrepreneurs” with a high failure rate. “Compared to Germany we do not seem to be able to sustain large numbers of medium-sized firms.” The Conversation. 2012. “The Missing Middle: What Could Australia learn from Germany?” May 19.

135Chandler, Jr., Alfred. 1990. Scale and Scope: The Dynamics of Industrial Capitalism. Cambridge, MA and London: Belknap Press of Harvard University. pp. 475. Von Humboldt’s reforms “marked a clear break from the prior practice of universities as mere teaching colleges as well as from the French model of specialized higher education where each school trained students only for a particular industry or profession.” Siebert, Horst and Michael Stople. 2001. Technology and

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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University of Giessen, developed a teaching method based on a professor-supervised laboratory staffed by graduate students “which in many ways served as a model for laboratories ever since.”136 By the end of the Nineteenth Century, German universities were “providing the best technical and scientific training in the world.”137 German universities led in the development of systematic methods for acquiring and transferring scientific learning for practical applications in the medical and industrial spheres. In addition to the universities, Germany established numerous polytechnic universities, Technische Hochschulen, to train students for the specific purpose of employment by Germany industry.138

In the mid 19th, century, the states of southwestern Germany, notably Baden and Wurttemberg, concerned about the geographic dispersion of their large number of small, craft-oriented businesses in the face of industrialization, established decentralized networks of “formal, educationally-oriented, self-help institutions to disseminate information, technology and skill, thereby compensating local producers for the economic disadvantages of their regional social geography.”139 Baden was the first German state to implement a “Dual System” of vocational training with the establishment of a network of trade schools where education in utilitarian subjects such as algebra, geometry, free drawing, mechanics, and bookkeeping, taught by “instructors with practical experience in the trades they taught,” was paired with workplace apprenticeship. The institutions were linked to Baden’s institutions of higher learning, and in the latter Nineteenth Century, evolved into specialist schools (Fachschulen) designed to provide mid-level instruction in specific disciplines such as metalworking, engineering, and woodcutting.140 The speed and extent to which these schools improved the quality of local production “astounded” visiting German officials and led to “general acclaim” for Black Forest wood products at

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Economic Performance in the German Economy. Liebniz-Informationszentrum Wirtschaft. Kiel Working Papers No. 1055. April.

136Woodrow Wilson School. 1992. “Justus von Liebig: An Educational Paradox.” Accessed at <http://www.woodrow.org/teachers/ci/1992/Liebig.html>.

137Chandler Jr. Scale and Scope. Op. Cit. p. 425.

138Chandler Jr. Scale and Scope. Ibid.

139Hansen, Hal. “Rethinking the Role of Artisans in Modern German Development. 2009. Central European History. p. 36. In Baden, local artisanal businesses included the manufacture of wooden clocks, textiles, leatherworking, and woodworking.

140Baden supported two of Germany’s oldest universities, Freiburg and Heidelburg. It opened a polytechnic in Karlsruhe in 1825 for the training of engineers and skilled tradesmen. Ferdinand Rudtenbacher, known as the father of German mechanical engineering, joined the faculty of the polytechnic in 1841 and in subsequent decades, “he trained large numbers of machine builders and tirelessly promoted a scientific approach to the subject.” The polytechnic encouraged its faculty to serve local businesses, in return for which companies made expensive equipment and workspace available for experimentation and technical research. “Instructors and employers traded information, discussed technical plans, exchanged advice, and took active roles in Karlsruhe’s industrial association. By 1860, the polytechnic had established a national reputation in machine building.” Hansen, Hal. 2009. “Rethinking the Role of Artisans in Modern German Development.” p. 48.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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the Chicago’s World Fair in 1893.141 Instead of disappearing as Germany industrialized, as was the case elsewhere, the region’s small artisanal businesses adopted modern production methods, developed products of extremely high quality and as their social status rose, began referring to themselves as “middle class” (Mittelstand).”142 By the early Twentieth Century the states of southwestern Germany had established networks of training schools that astonished visitors from abroad.143 In 1897 the Handiwork Protection Law was enacted in the German Empire, extending the institutional practices developed in Baden and Wurttemberg to the Empire as a whole, and creating the “cornerstone” of the German vocational training system.144

The foundation of the German Empire in 1871 accelerated industrialization and urbanization and gave rise to increased demand for scientific knowledge. Because within the Empire the states jealously defended their control over the universities, the central government concentrated on establishing non-university research facilities and projects including a number of

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141Hansen, Hal. 2009. “Rethinking the Role” Op. Cit. “Over time, Baden built educational institutions for virtually every level of society, from bureaucrats, managers, and engineers to weavers of straw, cotton and silk. In comparison with the rest of Germany, however, what most distinguished the southwest was the number and quality of the educational resources it made available to its middling and laboring classes.” pp. 47-48.

142Reichaw, Christopher. 2011. “An Artisan Mittelstand, How German Artisans Tried to Preserve their Identity by Identifying with the Mittelstand.”

143In 1911, a commission from Wisconsin visited Wurttemberg to develop recommendations for industrial training. The visitors found Wurttemberg a relatively small, poor, hilly state had “besides its splendid system of elementary and secondary schools, about 250 industrial schools in its towns and villages, 1 knitting school, 3 weaving schools, 2 industrial shops for actual practice in weaving, 2 technical schools for textiles and mechanical work, a large state university, a technical university, a royal building trade school (a trade school for building purposes), a great commercial college, several commercial improvement schools, a great agricultural school, many farming schools similar to our country agricultural schools here, an art trade school for industrial art, a pure art school, and many miscellaneous schools of all kinds for workmen of various grades, evening schools, continuation schools, etc. including schools in domestic economy for women. The tremendous investment by this little province is beyond anything of which we, in our prosperity, have thought.” Report of the Commission Upon the Plans for the Extension of Industrial and Agricultural Training. 1911. Madison: Democrat Printing Company. Cited in Hansen, Hal. 2009. “Rethinking the Role” Op. Cit.

144Under this law compulsory “handicraft” (Handwerk) chambers were established and vested with extensive powers to regulate the content and quality of craft apprenticeship. The chambers closely monitored and supervised the training of apprentices in German companies. The Handiwork legislation was strongly promoted by “industrial associations” (Gewerbevereine), comprised of small manufacturing and handicraft firms that “sought to enhance their members’ individual competitiveness through mutual support and the systematic promotion of technical and commercial education. The Handiwork Protection Law created a system under which chamber-supervised small business provided high-quality skills training to apprentices and journeymen which was frequently linked to mandatory school attendance, The system, which produced a flow of skilled workers into German industry from the artisanal sector, established “some of the scaffolding on which Germany’s system of vocational education and training would ultimately be built.” Thelen, Kathleen. 2004. How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States, and Japan. Cambridge: Cambridge University Press. p. 46.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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significant mission-oriented research organizations.145 By 1900 Prussia and Saxony alone had over 300 technical institutes.146

In 1911 the Kaiser-Wilhelm-Gesellschaft (KWG) was formed to promote research in the natural sciences. Established as a private association, the KWG derived most of its funding from private sources but the Prussian government contributed building, land and salaries for the directors of the institutes.147 Between its founding in 1911 and 1948, the KWG supported the establishment of 35 research organizations, which included some of the most important and prestigious academic institutes in the world.148 The Institutes were a source of trained scientific and engineering talent, but also a source of scientific and technical knowledge for German industry, a linkage which “was much closer in Germany than in Britain, where it rarely existed at all, and even in the United States, where at the turn of the century, the process was just beginning.”149

Education and Industrialization

Fredrich List, a native of Wurttemburg, was a German economist who developed and espoused a series of proposals to enable Germany to overtake England in industrial development. His 1841 book, The National System of Political Economy, is widely regarded as the first articulation of the concept of national systems of innovation.150 He advocated protection of infant industries and a broad array of economic development policies, most of which “were concerned with learning about new technology and applying it.” Due to List’s advocacy as well as that of other economists, “Germany developed the best technical education and training systems in the world [which was] one of the

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145In 1887, the first national government laboratory was established, the Imperial Institute for Physics and Technology, with the mission of developing precision mechanics, conducting “physical investigations and measurements,” and solving scientific problems requiring specialized research facilities. Winnes and Schimank. 1999. Federal Republic of Germany. Op. Cit. pp. 20-21. Kaiser Wilhelm himself was a strong believer in the establishment of technical institutes, which had as their purpose “to secure for science footholds in the workshop.” Comin, Trumbull, and Young. 2012. Innovation in Germany. Op Cit. pp. 3. These entities emphasized close collaboration between science, industry, and the state and were public-private partnerships jointly supported by governments and industry. The institutes exempted their scientists from teaching responsibilities, featured well-equipped laboratories, and allowed scientists greater freedom to pursue their research interests.

146Comin, Trumbull, and Young. 2012. Innovation in Germany. Op Cit. p. 3.

147Winnes and Schimank. 1999. Federal Republic of Germany. Op. Cit. p. 21.

148Seidelman, William E. 2001. “Science and Inhumanity: The Kaiser-Wilhelm/Max Planck Society,” If Not Now- an e-journal.

149Chandler Jr, 1990. Scale and Scope. Op. Cit. p. 426.

150List, Freidrich. 1991. The National System of Political Economy. New Jersey: Augustus M. Kelly; Freeman, Chris 1995. “The National System of Innovation in Historical Perspective,” Cambridge Journal of Economics. p. 5; Levi-Faur, David. 1997. “Freidrich List and the Political Economy of the Nation-State,” Review of International Political Economy. Spring.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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main factors in Germany overtaking Britain in the latter half of the Nineteenth Century and to this day is the foundation for the superior skills and higher productivity of the German labour force.”151

In 1800, Germany was still a disaggregated array of over 300 states, principalities, free cities and other jurisdictions, many of them entirely independent. Although Germany was unified in 1871, individual states (now known as Länder) have retained considerable power under a succession of federal governments down to the present day. The concept of states’ rights remains “more deeply imprinted upon German life than upon American.” The legacy of political fragmentation “underlies the intricate federal-state relationship that regulates and nurtures the veritable forest of research institutions that dot the German landscape.”152

In addition to Baden and Wurttemburg, other state governments played a key role in fostering German industrialization. Prussia, the largest German state, implemented a series of sweeping economic, administrative and social reforms in the wake of its defeat by Napoleon in 1806. One of the officials who was instrumental in Prussian reforms, G.J.C. Kunth, presided over a number of government bodies promoting manufacturing technology, including the acquisition of information about foreign machines.153 Kunth’s legacy was carried forward by his principal assistant, Peter Beuth, who became the head of Prussia’s Department of Trade of the Ministry of the Interior, a post which he held from 1818 until 1845.154 Beuth’s entire career was dedicated to the modernization of Prussian industry. During Beuth’s tenure, with extensive

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151Freeman, Chris 1995. “The National System of Innovation in Historical Perspective,” Cambridge Journal of Economics. p. 6, citing Hobsbawm, E. 1968. Industry and Empire. London: Weidenfeld and Nicolson. Burnett, Corelli. 1988. The Audit of War. Cambridge: Cambridge University Press. Landes, M. 1970. The Unbound Prometheus: Technological and Industrial Development in Western Europe from 1750 to the Present. Cambridge: Cambridge University Press.

152Beyerchen, Alan. 1990. “Trends in the Twentieth Century German Research Enterprise,” in National Academy of Sciences, The Academic Research Enterprise within the Industrialized Nations: Comparative Perspectives. Washington, DC: National Academy Press. p. 79.

153Kunth was Director of the Prussian Department of Manufactures and Commerce, a member of the Factory and Commerce section of the General Directory (Generaldirektorem), and the leader of a committee of experts advising both of the foregoing bodies, Teknische Deputation. During the Napoleonic Wars, when Allied armies occupied Belgium and the Rhineland, he arranged for technical studies of manufacturing technologies in those regions. Kunth was also the draftsman of an 1817 memorandum which led to the abolition of internal customs duties in Prussia the following year. Henderson, W.O. 1955. “Peter Beuth and the Rise of Prussian Industry, 1810-45,” Economic History Review. Vol. 8, No. 2. p. 223.

154Beuth reorganized and headed the advisory body, which oversaw the Prussian patent law. He established the Association for the Promotion of Industrial Knowledge in Prussia in 1821, and in the same year, persuaded the government to establish an Industrial Institute in Berlin to train engineers. Beuth extensively toured the most sophisticated factories in the world, which at that time were in Great Britain, Belgium, France, and the Rhineland, and dispatched government officials and faculty and students of the Prussian Industrial Institute to foreign countries to examine manufacturing machinery and processes. Henderson. 1955. Peter Beuth. op. cit. p. 226.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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government support, Prussia acquired what one scholar characterized as the “Alpha and the Omega of modern machine-building,” British machine tool technology developed in the first decades of the Nineteenth Century, which enabled the design and construction of metal-working precision machinery for all other industries.” “The transfer of [machine tool] technology promoted and coordinated by the Prussian state was highly successful,” and this “set Prussia (later Imperial Germany) well on the road to overtaking Britain.”155

Germany’s principal technology-based industries, chemicals, machinery automobiles and electrical engineering were all established in the late Nineteenth and early Twentieth Centuries. The modern chemical industry was created by three German firms, Hoechst, Bayer, and BASF, “one of the most impressive achievements in the annals of industrial history.”156 In the latter decades of the Nineteenth Century, these firms created the world's first large scale industrial laboratories dedicated to systematic research to develop new products and industrial processes. The industrial labs established close ties with leading research organizations. The laboratories transferred technology to the chemical firms’ industrial complexes. The industrial labs recruited managerial talent including a general staff headed by doctoral level chemists:

In this way, they were the pioneers not only in the chemical and pharmaceutical industries but also in shaping the management organization of modern high technology enterprises.157

In the 1880s, these firms revolutionized the pharmaceutical industry by developing a wide range of medicines from coal-tar feed-stocks, dyestuffs, and intermediates, including synthetic sedatives, painkillers, fever depressants, vaccines, and serums.158 The in-house R&D laboratory “also emerged in other industries which had the same need to access the results of basic research from

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155Freeman, Chris 1995. “The National System of Innovation in Historical Perspective,” Cambridge Journal of Economics. p. 6-7, citing “Der Technologietransfer fur die Metallbearbeitung und die Preussische Gewerbeforderung 1820-50, in Blaich, F. (ed.). 1982. Die Rolle des Staates fur die Wirtschaftliche Entwicklung. Berlin: Blaich. British engineers pioneered in the critical innovation in machine tool technology in the early Nineteenth Century. Considerable efforts were made to keep the technology secret, and British government banned export of the machines. The Prussian government ensured that its Technical Training Institutes received British machine tools for reverse engineering and training of craftsmen who disseminated the technology through German industry. Freeman, Chris 1995. “The National System of Innovation in Historical Perspective,” Cambridge Journal of Economics. p. 7.

156Chandler, Alfred D. 2005. Shaping the Industrial Century: The Remarkable Story of the Evolution of the Modern Chemical and Pharmaceutical Industries. p. 115.

157Chandler, Alfred D. 2005. Ibid.

158Ibid. p. 116.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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universities and other research institutes and to develop their own new products.”159

Networks

As Germany industrialized, companies forged vast networks of interfirm ties, leading to the characterization “organized capitalism.” Industrial sectors were linked by professionally staffed and well-financed associations:

a tight weave of branch and regional associations crisscrossed the entire country, bringing together at the national level producers of similar goods and linking at the regional level producers of various goods who operated within the same geographical area. Furthermore, a plethora of special purpose business associations provided still additional links between the components of big business.160

Imperial Germany had no laissez faire tradition and its commercial culture differed sharply from that of the North Atlantic world dominated by English legal and economic traditions and philosophy161. Contracts restraining trade were enforceable in German courts, and German industrial leaders believed that it was not only their right, but their social obligation, to combine to

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159Freeman. 1995. National System of Innovation. Op. cit. pp. 8-9. Commenting on the proliferation of industrial research laboratories in the latter 1800s, a leading physicist said that the greatest invention of the Nineteenth Century was the method of the invention itself. Ibid. p. 9.

160Turner Jr., Henry Ashby, 1985. German Big Business and the Rise of Hitler. New York and Oxford: Oxford University Press. P. xix. In southern Germany, industrial associations of Mittelstand emerged as powerful advocates for technical and trade schooling, established clearinghouses for exchange of technical information, and engaged in a variety of technology diffusion activities, such as trade shows, technical courses, and instruction on emerging technologies and industries. The associations operated as “semi-official intermediaries between the Mittelstand and state governments with respect to the formation and operation of vocational and technical schools “since these functioned effectively only insofar as they reflected the ongoing developments in the communities of practice for which they trained. Hansen, Hal. 2009. “Rethinking the Role of Artisans” Op. Cit. pp. 59-60.

161German Chancellor Otto van Bismarck stated that the Germans in having once believed in Free Trade, had been the “dupes of an honest conviction worthy of the honorable capacity for dreaming in the German race,” but the dream of free trade, “must not mislead a country placed between three strong states—Russia, Austria, and France—all of whom were moving, or preparing to move, away from it. The German Empire must not take its policy from Manchester.” Clapham, J.H. 1928. The Economic Development of France and Germany, 1815-1914. Cambridge: Cambridge University Press. The long domination of non-capitalistic economic forms imbued the German peoples with settled habits of thought, codes of ethics, and underlying value systems which have never been brought into complete harmony with laissez-faire doctrines. Brady, Robert Alexander. 1974. The Rationalization Movement in German Industry: A Study in the Evolution of Economic Planning. New York: H. Fertig. p. 53.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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restrain destructive competition.162 By the early Twentieth Century every major German industrial sector was organized into one or more Kartells (cartels), which were integral to German industrial organization. Despite an effort by the Allied occupation to break up the web of cartels and associations after World War II, many aspects of the “organized capitalism” of Wilhelmine Germany have been carried forward into the modern federal republic.163

War and Occupation

It is difficult to overstate the damage which occurred to Germany’s science-industrial base between the onset of World War I and the end of the Allied occupation at the end of World War II. World War I severed Germany from overseas sources of oil and saw the expropriation of German petroleum assets, effectively ending efforts to build a world class oil and petrochemical industry.164 The Treaty of Versailles imposed restrictions on German scientific research, reflecting the role played by German science in the First World War in the development of chemical weapons and other technologies supporting the war effort. The hyperinflation of the 1920s destroyed the endowments of the KWG and similar research organizations. Economic dislocation and the burden of war reparations deprived German industry of the levels of equity capital needed to commercialize new technologies on a mass basis. The rise of Hitler to power saw a massive increase in public investment in infrastructure and industry and under the leadership of the Reich Research Council, founded in 1937, academic research was mobilized to support the war effort, and yielded dramatic new technologies, including jet aircraft, nerve gas, stealth technology, hardened armor, ballistic missiles, radar, and synthetic materials such as nylon and synthetic fuels. However, the Nazi regime’s anti-Semitic policies led to an exodus of Jewish scientists, decimating the faculties of German universities and research institutes. German science was deeply involved in horrific crimes committed by the regime, tarnishing its reputation for decades afterward.165

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162U.S. Federal Trade Commission. 1916. Report on Cooperation in American Export Trade. Part I. June 30. p. 107.

163Der Spiegel. 1991. “Cartel Germany: Competition in Our Ranks is Being Curbed.” August 26. Wolfgang Streeck, Director of a Max Planck Research Institute in Cologne, observed in 1995 that “widespread organized cooperation among competitors and bargaining between organized groups, conducted through publicly enabled associations is probably the most distinctive feature of the German political economy. Governance is delegated either to the individual associations or to the collective negotiations between them with the state often awarding its outcome legally binding status.” Streeck, Wolfgang. 1995. “German Capitalism: Does it Exist? Can it Survive? In Colin Crouch and Wolfgang Streeck, eds. Modren Capitalism or Modern Capitalisms? London: Francis Pinter.

164Siebert and Stople. 2001. Technology and Economic Performance. op. cit. p. 23. Chandler. 1990. Scale and Scope. op. cit. p. 519.

165Associated Press. 2001. “German Science Elite Apologizes for Nazi Medical Experiments.” June 16. Science. 2000. “Reopening the Darkest Chapter in German Science,” June.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Anglo-American bombing severely damaged German industry, although by no means destroyed it.

The Allied Occupation of Germany at the end of World War II inflicted further harm on Germany’s science-industrial infrastructure. Research bans were placed on sectors such as aviation and rocket propulsion in which German science enjoyed a strong position, setting back the country’s long run prospects in these fields. The U.S.-led “Project Paperclip” identified thousands of the most talented German scientists and removed them to the United States, while the Soviets forcibly relocated German scientists found in their occupation zone.166 Berlin, the traditional center of German science, was divided between Allied occupation zones and marooned in what would become a Soviet puppet state, the German Democratic Republic. German factories in the Russian Zone were dismantled and shipped to the East, along with management and staff.167 Between 1947 and 1950, the British pursued a similar program of industrial dismantlement in the Ruhr 168. The American authorities mounted a “de-cartelization” effort which broke up industrial combinations and trade associations in an effort aimed at “rooting out German-style organized capitalism and replacing it with the idealized version of the American free-market system envisioned by Thomas Jefferson” 169. German industrialists were aghast at deconcentration measures that “dismantled hundreds of viable plants, disrupted supply networks, and broke many of the links between the agricultural and industrial sectors.” “Many Germans saw the Allied controls as even more oppressive than the Nazis,” and those measures contributed to the subsequent German “atmosphere in which enthusiasm for state intervention was quite limited.”170

Despite the massive discontinuities of the period 1914-50, the German innovation system reestablished itself in the immediate aftermath of World War II with a remarkable degree of continuity with respect to pre-1914 institutions

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166BBC News. 2005. “Project Paperclip: Dark Side of the Moon.” Quote from Major General Hugh Knerr, November 21.

167 The Russians dismantled and relocated 92 percent of the Carl Zeiss optical works in Jena. “Carl Zeiss—A History of a Most Respected Name in Optics,” Company 7. <http://www.company7.com/zeiss/history.html>.

168“[S]ome 700 million Deutschmarks worth of plant were unbolted, disassembled, cut apart with blow torches and carted away.” Gillingham, John. 1991. Coal, Steel, and the Rebirth of Europe 1945-1955: The Germans and French from Ruhr Conflict to Economic Community. Cambridge: Cambridge University Press. p. 206.

169Gillingham, John. 1991. Coal, Steel, and the Rebirth of Europe 1945-1955: The Germans and French from Ruhr Conflict to Economic Community. Cambridge: Cambridge University Press. p. 109.

170Allen, Christopher S. 1989. “The Underdevelopment of Keynesianism in the Federal Republic of Germany,” in Peter Hull (ed.), The Political Power of Economic Ideas: Keynesianism Across Nations. Princeton: Princeton University Press. p. 266.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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and norms.171 The KWG research institutes were reformed under the designation Max-Planck Society. The dual system of education/apprenticeship reemerged more as by habit than by central direction.172 German training institutions, “turned out to be incredibly resilient in the face of huge exogenous shocks of the sort we might expect to disrupt previous patterns and prompt dramatic institutional innovation.”173 German industry regrouped in networks of associations, “cartel-like arrangements,” and industrial combinations linked by a maze of interlocking directorates and cross-shareholdings involving banks and insurance companies.174

Emergence of the Fraunhofer-Gesellschaft

The creation of the Fraunhofer Gesellschaft was part of a post-war effort by the state of Bavaria to capitalize on the Allied dismemberment of Prussia and to “lure research and engineering talent from Prussia’s main agglomeration of science and technology activities which was in Berlin.”175 Bavarian politics in the half century after the end of World War II were dominated by the Christian Socialist Union (CSU), a party that was deeply conservative yet committed to the promotion of science, education, and technologically-advanced industries. The Bavarian government invested heavily

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171Kathleen Thelen, an academic who has studied German labor relations, vocational training and education, observed in 2004 that “one of the striking features of the system is the resiliency of core elements even in the face of enormous disruptions over the twentieth century, which of course in Germany include several regime changes, the incorporation of the working class, defeat in not one but two world wars, occupation, and transitions in and out of fascism. Although changes certainly occurred at these junctures, what is remarkable and in need of explanation are some striking continuities in key features of this system despite these disjunctures.” Thelen, Kathleen. 2004. How Institutions Evolve. Op. Cit. p. 7.

172Plant-based apprenticeship “more or less spontaneously re-surfaced after the war recommencing most quickly and thoroughly in the craft sector as early as 1945.” By the time of the founding of the federal republic in 1949, “the enterprise-based part of the dual system had been re-established on the basis of employer self-governance with distant supporting roles assigned to both the state and unions.” One academic terms these developments a “re-anchoring of traditional training structures.” Thelen, Kathleen. 2004. How Institutions Evolve. Op. Cit. pp. 244-251, citing Gunter Patzold (ed.) 1991. Quellen und Dokumeate zur Betrieblichen Berufsbildung. Koln: Bohlau Verlag. .

173Thelen, Kathleen. 2004. How Institutions Evolve. Op. Cit. pp. xiii.

174Der Spiegel. 1991. “Cartel Germany: Competition in our Ranks is Being Curbed.” August 26. Katzenstein, Peter. 1987. Policy and Politics in West Germany: the Growth of a Semisovereign State. Philadelphia: Temple University Press. p. 88. Grant, Wyn, William Patersan and Colin Whitston. 1988. Government and the Chemical Industry: A Comparative Study of Britain and West Germany. Oxford: Clarendon Press. p. 90.

175Siebert and Stolpe. 2001. Technology and Economic Performance. op. cit. p. 20. The Sunday Times. 2011. “Wiped from the Map—The Compelling Story of East Prussia and its Erasure by a Brutal Post-War Past.” London. June 5. The Soviet blockade of Berlin in 1948 induced a number of German companies to relocate their headquarters from Berlin to Bavaria. Milosch, Mark S. 2006. Modernizing Bavaria: The Politics of Franz Joseph Strauss and the CSU, 1949-1969. Monographs in German History. V.S.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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in its universities and technical schools “but what set…Bavaria apart was its concentration of non-teaching research facilities,” principally the Max-Planck Institute and the Fraunhofer Gesellschaft.176 Bavaria methodically lured eminent scientists and technology-intensive industries to the Munich region. The Max Planck Institute moved from Berlin to Munich in 1949.177 By the 1960s, such efforts had “created the synergy to transform Munich into a Mecca of German science.”178

The Fraunhofer Gesellschaft was established in Munich in March 1949 as a non-profit organization tasked with raising funds from governmental bodies to support industrial research projects.179 It was created under the leadership of the Bavarian Minister of Economic Affairs Hugo Geiger, who wanted to promote applied research in the state.180 At a 1948 meeting convened by the Bavarian Ministry of Economic Affairs comprised of local leaders in science and research, the notion of a broad applied research organization was agreed, with a mission of identifying research topics in various subject areas, mediating between university research and industry, and securing and managing research funding. The Fraunhofer-Gesellschaft was formally launched at a March 26, 1949 meeting hosted by the Ministry of Economic Affairs which convened over 200 eminent Bavarian scientists, economists and political leaders.181

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176The Irish Times. 2009. “Bavaria or Bust.” June 8.

177Handelsblatt. 1991. “Joseph von Fraunhofer and Max Planck Can Feel Satisfied.” August 9. JPRS-EST-91-015.

178Adolf Buenandt, the foremost biochemist in Germany, moved to Munich in the 1950s after Bavaria decided to offer “whatever it took” to get him, which included construction of a new building for his institute and a “private house with a garden.” Warner Heisenberg, one of the foremost German scientists of the postwar era, moved his Max-Planck Institute for Physics to Munich in the 1950s when Bavaria committed to construct Germany’s first atomic reactor. Milosch. 2006. Modernizing Bavaria. Op. cit. pp. 38-39.

179The Fraunhofer-Gesellschaft was named after Joseph Fraunhofer (1787-1826) a Bavarian optician who was a scientists, inventor, and entrepreneur, embodying the virtues which the new institute sought to promote and integrate. He developed optical instruments which enabled Bavaria to overtake England as the world center of the precision optics industry.

180“Die Grundig der Fraunhofer Gesellschaft,”
<http://www.uni-protokolle.de>.
<http://www.uni-protokolle.de/nachrichten/id/48304/>. The original idea underlying the formation of Fraunhofer was to promote geological research to identify untapped mineral resources in Bavaria which could be “seeds for increased industrial development,” a concept strongly supported by the American occupation authorities. Deutinger, Stephan. 2001. Vom Agarland zum High-Tech-Staat: Zur Feschichte des Forschungsstandarts Bayern 1945-1980. p. 180, 185.

181Egger, Christine. 2010. “Nachdenken im Auftrag: Eine Geschichte der Fraunhofer Gesellschaft.” Aventinus Bavaria. October 22. The Fraunhofer’s first president, Nobel Prize winner Walther Gerlach, established a pattern that still characterizes Fraunhofer institutes, retaining a university position while simultaneously serving as head of the research institute. Gerlach, a nuclear physicist, was an important player in Hitler’s efforts to develop an atomic bomb. After the war, he led a movement advocating renunciation of nuclear weapons by the Federal Republic, He held a faculty position at Ludwig Maximiliens University in Munich. Vican, Jacob. 2009. “Tot, Schuldig oder Geflohen.” Badische Zeitung. May 23.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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The Fraunhofer struggled in its early years. Initially, Fraunhofer’s main functions were administrative—it raised funds from government organizations, donors and association members for distribution to research projects relevant to industry. The German Federal Ministry of Economics formally recognized it in 1952 as the “third pillar in the German research infrastructure” alongside the Max-Planck-Gesellschaft and the Deutsche Forschungsgemeinschaft (DFG, the German Research Council), but it met with resistance and competition from established research organizations.182 Originally largely limited to geological surveys, it was ridiculed as “the Bavarian Research Association for Mining.” The organization’s first president, Gerlach, was a basic scientist who disdained applied research, and as a result, was pressured into resignation by the Fraunhofer Senate in 1951.183

The Fraunhofer survived its shaky beginning largely as a result of public support. In 1951, it successfully applied to the German federal government for Marshall Plan funding pursuant to the European Recovery Program.184 With the institute on the brink of liquidation in 1954, the Land government of Bavaria, which had theretofore provided “more ideological than material support,” began direct funding to Fraunhofer, although the initial amount was characterized as “enough to prevent death, but not enough to sustain life.”185 In 1954, however, Fraunhofer received additional support from the Land government of Baden-Wurttemburg to establish what was to become the institute’s first contract research organization, the Fraunhofer Institute for Applied Microscopy, Photography, and Cinematography (IMPIC).186 Finally, in 1956, Fraunhofer began to receive contract research funding from the newly-created Ministry of Defense, which for historical reasons preferred to outsource

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182Fraunhofer. 60 Year History of Fraunhofer Gesellschaft. pp. 8-9.

183A further shock was the 1953 establishment of a laboratory in Frankfurt by the U.S. contract research organization the Battelle Memorial Institute, which was viewed by the Fraunhofer as a direct competitive threat. Battelle is an Ohio-based nonprofit science and technology development company. It was created out of the estate of Gordon Battelle, a steel industry executive who was interested in the application of science to the metallurgical industries. Egger. 2010. “Nachdenken im Auftrag.” op. cit.

184Walter Hirsch, an official in the Federal Ministry of Economics persuaded U.S. authorities that 41 million deutschemarks should be allocated to support applied industrial research projects of a non-military character. The Fraunhofer and the DFR applied for and were awarded these funds. The United States aid was conditioned on its ability “to stimulate the German economy.” The research institutes complied by restricting their spending to German-made scientific instruments—no foreign equipment could be procured. Krige, John. 2006. American Hegemony and the Postwar Reconstruction of Science in Europe. Cambridge, MA: The MIT Press. p. 36.

185Deutinger, Stephan. 2001. Vom Agarland zum High-Tech-Staat: Zur Feschichte des Forschungsstandarts Bayern 1945-1980. p. 182.

186Baden-Wurttemburg had competed with other Länder to become the site of the Battelle laboratory. When it lost out to Frankfurt in 1953, it began looking for other ways to establish its own research facilities. Egger. 2010. “Nachdenken im Auftrag.” op. cit.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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its defense-related R&D.187 For many years afterward, “military funding accounted for more than half of the Fraunhofer-Gesellschaft’s total research budget.”188 The defense research work was critical in the development of Fraunhofer not only because of the revenue it generated but because it enabled the institute to develop the research infrastructure and resources to “develop promising ideas and lines of research to a level where they could be converted into innovative products and processes and offered to firms.”189

In 1965, the German Science Council, an influential advisory body to the federal and Länder governments, recommended a broad expansion of non-academic research organizations in general and the Fraunhofer Gesellschaft in particular as the umbrella organization for applied research.190 The recommendation was conditioned on the implementation of structural reforms and the creation of a substantial development program for the institutes. In 1967, a recommendation by the Science Council “paved the way for incorporation of the Fraunhofer Society in the institutional funding of the BMwF and a Science Council commission studying the Fraunhofer concluded that “promotion of applied research with public means” was necessary for “ensuring the technological development in the FRG.”191 The Fraunhofer grew explosively after it began receiving federal institutional funding. The number of Fraunhofer institutes doubled in the decade 1965-1975. Its budgets grew steadily, enabling it to establish new institutes and modernize existing ones.192

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187In 1955, Germany joined NATO and the occupation was formally terminated. Germany began rearming. The Ministry of Defense recognized the need for defense-related research, but in light of the recent Nazi past, did not want to establish an internal isolated military research department. It chose instead to draw upon university and industrial research, frequently using Fraunhofer as the intermediary. Egger. 2010. “Nachdenken im Auftrag.” op. cit. The Bavarian politician Franz Joseph Strauss who was Defense Minister at the time, “set-up the Defense Ministry as a patron of the Fraunhofer Foundation.” Five Fraunhofer institutes were opened at the instigation of the Ministry and by 1959, the Fraunhofer had four institutes working exclusively for the ministry and six others working part time. Milosch, Mark S. 2006. Modernizing Bavaria: The Politics of Franz Joseph Strauss and the CSU, 1949-1969. New York and Oxford: Berhahn Books. pp. 114.

188Fraunhofer, 60 Year History. op. cit. p. 8-9. Fraunhofer Vice President Albert Maucher warned in 1960 that if the military work kept growing, at some point, “we are no longer FhG but the Army Ordinance Department. Egger. 2010. “Nachdenken im Auftrag.” op. cit.

189Winnes and Schimank. 1999. Federal Republic of Germany. Op. Cit.

190The German Science Council (Wissenschaftsrat) makes recommendations on the development of higher education institutions, science and research, and the establishment of new universities.

191Winnes and Schimank. 1999. Federal Republic of Germany. Op. Cit. pp. 37.

192One key to the institutes’ growth was a formula introduced into its funding model by the federal research ministry, “variable success-dependent institutional funding” (erfolgsabhangige Grundfinanzierung). Under the arrangement, Fraunhofer received for each Mark acquired through industry research contracts an equal amount from the federal and state governments, creating a powerful incentive to orient research toward industry needs and to pursue industry funding. There was no ceiling on government matching funds, and from Fraunhofer’s perspective the arrangement worked so well that in the 1980s the federal and Land governments curtailed the funding model to limit the growth in government grants to the institute. Winnes and Schimank. 1999. Federal Republic of Germany. Op. Cit. pp. 69.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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As the German “economic miracle” (Wirtschaftswunder) began to accelerate, Fraunhofer succeeded in attracting significant funding from industry for contract research.193 Hermann von Siemens, CEO of Siemens AG, assumed the presidency of the Fraunhofer in 1955, a post which he held for nearly a decade. Thereafter Fraunhofer added 1-2 new institutes per year, gradually extending a network of research organizations across West Germany. In 1973, Fraunhofer received the status of a federal research organization and began receiving funding from the BMFT, now the BMBF.194 Beginning in the early 1970s the Fraunhfer made a phased shift in emphasis away from military R&D toward civilian applications.195

The Fraunhofer has grown not only by opening greenfield institutes but by absorbing institutes affiliated with other research organizations. In 1970 it took over an organization originally formed in 1930 as the Prussian Institute for Wood Research, which was rebranded as the Fraunhofer Institute for Wood Research WKI.196 In 1971, it acquired the Max-Planck Institute for Silicate Research in Wurtzburg, which became the Fraunhofer Institute for Silicate Research ISC.197 In 1991, in the wake of German reunification, numerous research organizations based in former East Germany were absorbed into Fraunhofer.198 In 2001, Fraunhofer acquired 8 research institutes of the German National Research Center for Information Technology (GMD) a move that was backed by the German research ministry but bitterly resisted by the GMD’s management and staff, who believed (correctly) that integration with Fraunhofer would orient GMD away from basic research and towards applied research.199

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193In 1955, the Institute received 600 million marks from German industry for contract research. Fraunhofer, 60 Year History. op. cit. pp. 8-9.

194National Academy of Engineering, Technology Transfer Systems in the United States and Germany, Washington, DC: National Academy Press, 1997, p. 321.

195VDI Nachrichten. 1991. “Research Institutes Seek Civilian Customers.” JPRS-EST-91-003. February 2.

196Fraunhofer WKI, “History of Our Institute.”
<http://www.wki.fraunhofer.de/en/wki-profile/wki-history.html>.

197Fraunhofer Institue for Silicate Research. ISC Website.

198A booklet written by then-Minister of Research and Technology Dieter Thierbach in 1991 stated that “Nineteen new establishments, nine institutes and 10 branch facilities will be operated by the Fraunhofer Society in the new Länder. Eight independent Fraunhofer facilities are planned—and an institute section of the Duisburg Fraunhofer Institute for Microelectronic Circuits and Systems (IMS)—with a total of 700 employees and 10 branch facilities of existing Fraunhofer institutes with 250 employees.” Thierbach, Dieter. 1991. Deutsche Einheit in Forschung und Technologie. Bonn: BMFT. Part. 2.6.

199Spiegel Online 2000.”Faule Fusion. October 12. Spiegel Online 2000. “Stillstand be; Verhandlongen.” April 19. Spiegel Online 2011. “Gelahmte Fusion.” February 2.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Box APP-A2-6

Promoting Factory Automation

Beginning in the 1980s, the German research ministry implemented a succession of large-scale, long range programs to promote factory automation.a By the early 1990s, BMFT was spending nearly 300 DM per year on projects to promote innovation in manufacturing.b Ten Fraunhofer institutes with over 1,000 employees were supporting this effort, exploring themes such as robotics, micromechanics, sensors, computer-aided design and manufacturing (CAD/CAM), machine tools, software for factory controls, and factory systems.c In 1986, the Technical University of Berlin and the Fraunhofer Institute for Production Facilities and Mechanical Construction Technology IPK entered into a “marriage” to develop “the structures of the factory of the future,” which the Director of the Institute, Dr. Günter Spur said “will be a mechanized organism that, coalesced from individual production cells, is capable of using programmed intelligence to automatically produce goods.” Numerous German companies donated equipment to this project and the Fritz Werner mechanical engineering company shifted part of its own production operation to the 3,200 square meter joint project facility, setting up two complete processing centers. Reflecting such initiatives, in the 1980s “West Germany adopted computer integrated manufacturing more rapidly than most other countries.”d

aTechnologie Nachrichten—Programm-Informationen. 1988. “Report on 1988-1992 BMFT Research Program on Manufacturing and Engineering.” JPRS-EST-88-04. July. In 1984 BMFT made available DM 441 million for investments in CAD/CAM, robots and handling systems. “There was a flood of applications” from German industry and 1,285 applications for CAD/CAM grants were approved. Produktion. 1986. “Firms, Funds up to Fall 1985 in FRG Process Technology.” JPRS-WST-86-006. February 12. Suddeutsche Zeitung. 1983. “FRG 1984-87 Plan for Computer Aided Design, Manufacturing.” November 18.

bTechnologie-Nachrichten Programm-Informationen. 1994. “Strategies for Production in the 21st Century. September 16. JPRS-EST-94-023.

cUtlands Rupport. 1985. JPRS-WST-85-002. January 17; Technische Rundschau. 1985. “Funding Sources, Organization of CAD/CAM Research in FRG.” JPRS-WST-85-012. April 10; VDI Nachrichten. 1984. “Micromechanics Yields Innovative Sensors.” JPRS-WST-84-051; Bild der Wissenschaft. 1987. “Research for Factory of the Future.” JPRS-ELS-87-028.

dSiebert and Stolpe. 2001. Technology and Economic Performance. Op. Cit. pp. 9. Bild der Wissenschaft. 1987. “Research for the Factory of the Future.” JPRS-ELS-87-025. May 6.

CONCLUDING PERSPECTIVE

In the Nineteenth Century, German companies generated spectacular innovations that established many of the technological foundations of the

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Box APP-A2-7

Bavaria—From Rural Backwater to Germany’s Silicon Valley

Today Bavaria’s heavy and sustained investments in science, education, and industrial promotion—prominent among which was support for the Fraunhofer—appear prescient. By the first decade of the Twenty-First Century, Bavaria had become one of the pre-eminent high technology regions in the world, and was widely characterized as “Germany’s Silicon Valley.”a The German company with the most patents, Siemens, was headquartered in Munich and virtually all of Germany’s top 20 patentees were either based in Munich (Infineon, BMW), operated research institutes in the city, or were involved in research collaborations with one of Munich’s research institutes. The greater Munich region was the site of 10 Fraunhofer institutes, 11 Max-Planck institutes, 11 universities, and 17 polytechnics. Bavaria’s Fraunhofer institutes include one of the largest, the Fraunhofer Institute for Integrated Circuits, with 450 employees operating at sites in Nuremburg, Furth, and Erlangen.b High tech manufacturing accounted for over half of the employment and nearly two-thirds of the revenues generated by the Bavarian manufacturing sector. In 2005, Bavaria had the highest number of start-ups in Germany, accounting for one-fifth of the total in 2005.c “Even though the Czech border is just 300 km from Munich, companies stay in the high-cost Bavarian capital because of their dependence on the highly-trained staff and world class facilities.”d

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aThe Guardian. 2011. “How Bavaria Became European Silicon Valley.” March 14. See also Technologie-Nachrichten Programm-Informationen. 1991, “Report by the Federal Ministry of Research and Technology on the Implementation of the Unification Treaty Dated August 31, 1990 in the Area of Research and Technology.” June 20. JPRS-EST-91-012.

bThe Bavarian Land government invested more than 140 million Euros, or their equivalent in Deutschmarks between 1984 and 2005, to establish and expand the Erlangen facility Pressbot. 2005. “Beakstein: Fraunhofer Institute Leisten Wichtigen Betrag zum Ausbau des Technlogie-Standortes Bayern.” June 30.

cVan Winden, William, Leo Van Den, Luis Carvalho, and Erwin Van Tuijil. 2011. Manufacturing in the New Urban Economy. Abington and New York: Routledge. Pp. 93, 95-96.

dThe Irish Times. 2009. “Bavaria or Bust.” June 8.

modern world. These include the designs and thinking of Werner von Siemens in electric power generation (which included the very idea that electricity could be a power source); the Diesel and Otto cycle internal combustion engines; and the discovery of aspirin and other pharmaceutical substances in the world’s first

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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large-scale industrial laboratories200. Although the modern day Federal Republic can cite many economic and technological achievements, it has generated no obvious innovations comparable to the revolutionary achievements of Germany’s industrial and scientific heyday. Instead the German innovation system has built on the strong position it achieved over a century ago with continuous incremental improvement of products and process in the automobile, engineering, machinery, electric power, chemical, and pharmaceutical industries. It remains highly competitive in all of those sectors today, in contrast to a number of other industrialized countries.

The German innovation model in general, and the Fraunhofer’s approach, in particular, do not offer the prospect of radical, paradigm-shattering technologies. They do, however, demonstrate that a high cost, high wage country can compete effectively in global markets in established industries through the systematic and continuous application of knowledge—without necessarily moving production processes offshore. The Fraunhofer represents a vast knowledge system which a company of any size can commission to perform commercially-relevant research at below-market cost, with a high degree of assurance in the quality of the research and the associated business counseling. Fraunhofer projects appear to involve less bureaucracy, faster time-to-market, and greater probability of success than pursuit of government research grants by individual companies. Participation in Fraunhofer research projects exposes companies to highly qualified and motivated students and employees who can be recruited. The Fraunhofer makes its technology and business networks available to its industrial partners, a benefit small companies, in particular, usually cannot replicate on their own.

The Fraunhofer spins off new companies and assists other start-ups, but it is unclear whether on a net basis it fosters or inhibits the kind of start-ups that grow into world class companies in the United States. A prominent German academic commented in 2012 that Fraunhofer “kills start-ups. It offers services that should be provided by private companies. It thwarts individual activities.”201 While the Fraunhofer itself would undoubtedly dispute the assertion, it performs tasks in Germany that might be undertaken by entrepreneurs in some other economies. In most collaborations the Fraunhofer—a large parapublic institution—owns the intellectual property, rather than a small business or university, arguably acting as an inhibition on innovation, particularly that of a paradigm-breaking variety.

The Fraunhofer is an important member in the group of parapublic non-university research organizations that has gradually been displacing German universities as sites for scientific research. German universities are suffering

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200Deutsche Welle. 2011. “The Automobile at 125: From Humble Birth to Global Dominance.” January 25.

201Interview with Professor at Ludwig Maximilians University. Munich. June 13, 2012.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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from numerous problems including shortages of funds, overcrowding, and a reputation for mediocrity—and as The Economist noted in 2009, the universities “would do better if research at non-university institutes like the Max-Planck Society were brought into academia, adding teaching to research.”202 Organizations representing the interests of German universities have urged restraint in the establishment of non-university research organizations for many years based on the “concern that universities will fall back in the resource competition with non-university institutions.”203 Non-university research organizations like Fraunhofer exert a gravitational pull on individuals who might otherwise become or remain members of university faculties because they offer relief from teaching obligations and the need to pursue grant funding independently, superior equipment and research infrastructure, and the chance to make money on innovations which they originate. Recognizing the risk of a wholesale “emigration of research” from universities to non-university research organizations, the German Science Council has sought to encourage close collaborations between universities and non-university research institutions—a phenomenon which has been developed to a very high level in the Fraunhofer.

Finally, the Fraunhofer model might not work in the United States because the industrial and scientific milieu is substantially different than Germany. Systematic application of new technology in factories may prove more difficult in situations where the work force has not undergone a long apprenticeship process, has a more fragile allegiance to a particular company, and may be demoralized as a result of falling wages and benefits, downsizing, offshoring, and labor-management strife. While the United States has many innovative small and medium businesses, the proportion that possesses the peculiar structure, traditions, discipline, and values of the Mittelstand is probably relatively small. Competition at every level of the U.S. innovation system is more intense and destabilizing than is the case in Germany, and complicates efforts at network-building and collaborations. Perhaps most importantly, the ability and willingness of federal and state governments to provide a stable source of long-term public funding to non-university institutes of applied research is highly questionable.

Whatever the obstacles to a literal implementation of the Fraunhofer model in the United States, the United States has adopted and adapted other German institutional innovations ranging from Kindergarten to the modern university research laboratory system, and it would appear that limited aspects of the German system could be adopted in this country. While the United States will not replicate Germany’s Dual System of vocational education, the enlightened expression of that system at the high end of the educational ladder in the Fraunhofer institutes, featuring concurrent academic study and applied

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202The Economist. 2009. “Germany’s Mediocre Universities: On Shaky Foundations.”

203Winnes and Schmank.1999. Federal Republic of Germany. Op. Cit. p. 37.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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industrial research, could be more broadly incorporated in university curricula in collaboration with local industry. The Fraunhofer funding model, which locks in public funding on a virtually permanent basis is an obvious factor underlying the institute’s achievements, could be put in place for a U.S. system of institutes of applied public research, although this may seem improbable in the current impasse over government spending. The Fraunhofer has refined technology networking to what it regards as a higher level than U.S. counterparts, and the adoption of the institutes’ techniques should be studied by U.S. research organizations.

From an American perspective, the German experience is also of interest because like the United States, Germany is a federal system. Some aspects of German federalism would never be considered attractive in the United States such as the interlocking of state-federal responsibilities in a manner which limits the ability of each to act independently of the other. However, in Germany, the Länder have often functioned as laboratories in which institutional innovations have been implemented which, when demonstrated to be successful, have been adopted at the national level. The states of southwestern Germany pioneered the Dual System of education and practical training which was embraced nationally with the enactment of the Handicraft Protection Law of 1897. The Prussian initiative which established the first Kaiser Wilhelm institute eventually led to the creation of a nationwide network of parapublic research organizations. A similar initiative by Bavaria and Baden-Wurttemburg in the 1950s culminated in the creation of the nationwide network of Fraunhofer institutes. The successful postwar efforts by Bavaria and Baden-Wurttemburg to promote education and research and attract technology-intensive industries finds a current expression at the federal level in the form of initiatives to create innovation clusters on a nationwide basis. There is no readily apparent reason why the U.S. federal system could not be used to explore institutional innovations in applied research at the state level with potential for national policy.

From the broadest U.S. perspective, the Fraunhofer system represents a major public investment by Germany in applied research with short-run commercial relevance. The positive effects of that investment over the long run, as manifested in the international competitive performance of German industry, are undeniable. In the U.S. government investments in commercially-oriented research are commonly controversial in the short run and politically unsustainable over the long run. But against the background of an economic environment which has seen the erosion and offshoring of traditional industries in the face of global competition, some elements of the German innovation system merit consideration by U.S. policymakers.

Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Suggested Citation:"Appendix A2: Fraunhofer-Gesellschaft: The German Model of Applied Research." National Research Council. 2013. 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program. Washington, DC: The National Academies Press. doi: 10.17226/18448.
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Next: Appendix A3: Taiwan's Industrial Technology Research Institute: A Cradle of Future Industries »
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The Manufacturing Extension Partnership (MEP) - a program of the U.S. Department of Commerce's National Institute of Standards and Technology - has sought for more than two decades to strengthen American manufacturing. It is a national network of affiliated manufacturing extension centers and field offices located throughout all fifty states and Puerto Rico. Funding for MEP Centers comes from a combination of federal, state, local and private resources. Centers work directly with manufacturing firms in their state or sub-state region. MEP Centers provide expertise, services and assistance directed toward improving growth, supply chain positioning, leveraging emerging technologies, improving manufacturing processes, work force training, and the application and implementation of information in client companies through direct assistance provided by Center staff and from partner organizations and third party consultants.

21st Century Manufacturing seeks to generate a better understanding of the operation, achievements, and challenges of the MEP program in its mission to support, strengthen, and grow U.S. manufacturing. This report identifies and reviews similar national programs from abroad in order to draw on foreign practices, funding levels, and accomplishments as a point of reference and discusses current needs and initiatives in light of the global focus on advanced manufacturing,

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