Why does Siemens apply for 6 times more patents than all of Spain? On the innovation gulf in Europe.

The European crisis has us firmly in its grip. And yet in the search for the cause, politicians and the media remain fixated on the tip of the iceberg, especially national debt. They all seem to be secretly hoping that the problems will go away of their own accord if we just wait long enough.

But the deeper causes of the crisis are glossed over, and the vast differences between the EU countries are not sufficiently addressed and communicated. Politicians get into trouble if they start scratching below the surface. The truth is unpopular, at least in the countries most affected.

General suspicions probably point in the right direction, but not many hard figures are brought to light – with the possible exception of the extremely high unemployment rates in many European countries. As a result, the true extent of the discrepancies remains hidden. In my diagnosis I will focus on one aspect only: innovativeness in the European Union.

Innovativeness is the most important strength of a company (and a country) in the medium and long term. A country may be competitive today, but if it does not respond to changes and continue to break new ground, it will fall behind in five or ten years’ time.

I will use only one indicator to illustrate and discuss innovativeness: the number of patents. This indicator does not cover all aspects of innovativeness, but my point is to reveal divergences and send out a clear message. This works best with one-dimensional figures. I believe that the following simple analysis comes close to the truth.

Here are the facts: the European Patent Office granted 62,112 patents in 2011 (see chart). Of those, 13,382 were to applicants in the US and 11,649 to applicants in Japan. Europe accounted for 32,582 patents, of which 13,583 went to Germany, 2,531 to Switzerland and 1,491 to Sweden. How many patents were granted to Greece? 29! And Portugal? 26! And Spain, a country with 46 million inhabitants? 381!

Siemens, Europe’s patent champion, applied for around six times more patents than the whole of Spain. Of course it is unfair to compare absolute numbers of patents without considering the size of the population.

European patents granted in 2011 | Infographics

If we look at the number of patents per million inhabitants, Switzerland emerges as the clear leader. Per head of the population, the Swiss apply for 128 times more patents than the Greeks, and 39 times as many as the Spaniards. However limited the validity of my simple analysis might be, the message could not be clearer.

The German-speaking countries and Scandinavia are the innovation powerhouse of Europe. The other large countries are innovation weaklings. Taking a per capita index for patents issued with Germany at 100, France achieves an index rating of 44, Italy 23 and the UK 19.

“European Innovation Index” | Infographics

Central and eastern Europe are the weakest of all, but this is perhaps understandable. After all, 20 years is not a long time to become an innovative force at the international level, especially because most of the companies in these “new” countries used to be an extended workbench and had no competitive advantages other than low costs.

Innovativeness takes time to cultivate. And yet Spain, which entered the European Union as a market economy back in 1986, has not managed to build up an innovative, competitive industrial sector since then. Huge investments flowed into the Iberian peninsula when it joined the EU, especially into the automotive industry. Then came the building boom.

But today Spain’s industry is close to collapsing. The diagnosis could not be clearer: an innovation gulf between northern and southern Europe. Weak innovation is the true root of the crisis – past, present and future. Nothing has changed for years.

Taking 2004 as an example, we see that the numbers of patents were almost the same as today: 13,621 in Germany, 2,111 in Switzerland, 1,497 in Sweden, 28 in Greece, 20 in Portugal and 373 in Spain.

The picture will be the same in ten years’ time, if not worse.

A country cannot become innovative merely by snapping its fingers or injecting large amounts of cash. What does this mean for the future? The discrepancies will widen. Europe’s industrial strength will continue to move northward. The South will become poorer.

These shifts will speed up as more and more young, qualified workers move from the South to the North. I can only hope that the euro will survive – although the real problem is not the euro, but far deeper competencies. Or should we say incompetencies?

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About the author

Hermann Simon

Hermann Simon is chairman of Simon-Kucher & Partners Strategy & Marketing Consultants and an expert in strategy, marketing and pricing. In the German language area he was voted the most influential management thinker after the late Peter Drucker. Before committing himself entirely to management consulting, Simon was a professor of business administration and marketing at the Universities of Mainz (1989-1995) and Bielefeld (1979-1989). He was also a visiting professor at Harvard Business School, Stanford, London Business School, INSEAD, Keio University in Tokyo and the Massachusetts Institute of Technology. From 1995 to 2009 he was CEO of Simon-Kucher & Partners. Professor Simon has published over 30 books in 25 languages, including the worldwide bestsellers "Hidden Champions", and "Power Pricing", as well as "Manage for Profit, Not for Market Share". His book "Hidden Champions of the 21st Century, Success Strategies of Unknown World Market Leaders" (2009, also in French) investigates the strategies of little known market leaders. "Beat the Crisis" (2010) provides companies with practical advice against the crisis and for a quick recovery. He just published a new book: "Hidden Champions: Aufbruch nach Globalia".

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