Gerhard Schröder is in a hurry. He waves, shakes hands, gives a short speech, praises. Then the limousine whisks him off to the helicopter. The next appointment is waiting. Again, he shakes hands, talks, moves on. Waiblingen, Tübingen, Munich, Leipzig – the chancellor is touring Germany. He opens a research centre, visits a development centre, celebrates the anniversary of a major high-tech group of companies, speaks to sponsors and scientists. The topic this summer, again and again, is innovation.

Germany, says the chancellor, must again show more enthusiasm for science and technology, more curiosity, more creativity. Gerhard Schröder is promoting what he calls a new innovation culture and has made it his personal top-priority cause: together, he says, politics, business and science can get the innovation offensive rolling.

The chancellor’s appointment in Waiblingen – opening the Stihl Group’s new research centre – fits in well with this campaign. Stihl is a household name in this city of 52,000 inhabitants. At least one person in almost every family here “works at” Stihl. Using the best of archetypal Swabian qualities (thrift, enterprise, far-sightedness, inventiveness), the Stihls have worked their way up over several generations from a two-man company to the world leader in the power-saw market.

Stihl’s power saws, lawn mowers, cut-off machines and drills are often the first choice in 160 countries. The group’s annual turnover is more than 1.5 billion euros. In the new research centre, almost 400 highly qualified engineers will now have the job of writing the next chapter in this success story.

“Research and product development will remain concentrated in our home town in the future, even though the Stihl group now earns 87 per cent of its income abroad. After all, we have well-trained engineers and qualified, creative specialists here in the region,” reports Klaus-Peter Stihl, chairman of the Advisory Council and Supervisory Board to 600 attentive guests. A commitment to Germany worth 40 million euros. Just the kind of thing the chancellor wants to hear.

The next day in Munich, the federal chancellor is visiting Linde AG, also a company with a tradition of innovation. The technology group is celebrating its 125th anniversary. Even in the early days, Carl von Linde, the founder of what is now a global player, sought to bridge the gap between business and science. In May of this year, the global group opened the Carl von Linde Academy at Munich Technical University. It is conceived as a place where technical knowledge and business thinking will be linked more closely in the future.

Linde’s CEO, Wolfgang Reitzle, who was a top manager in the automotive industry (BMW, Ford) before getting involved in refrigeration, says self-confidently: “We will generate new growth with a wave of innovation.”

This is precisely Schröder’s objective. He has declared 2004 to be Innovation Year. Within the framework of the Agenda 2010 he wants to boost investment in research, education and training – for a future in which knowledge, as a raw material, will increasingly become a crucial asset. The Federal Government has raised the research budget by more than 20 per cent since 1998, and the target is an increase in its share of the gross national product from 2.5 per cent to three per cent by 2010.

A venture-capital fund has been launched, a top-notch panel of experts created; these “partners for innovation” have been meeting regularly in Berlin since the beginning of this year. Together, these leading personalities from politics, business and science want to identify the all-decisive markets of the future.

The word is also getting around abroad that something is stirring in Germany. A survey conducted in the spring of this year of over 500 international companies by the independent accountancy firm Ernst & Young ranked Germany third among the best business locations in the world – behind the United States and China.

Germany is number one in Europe. Forty per cent of the companies questioned want to invest in Germany soon; 30 per cent said that Germany would become even more attractive in the future. Good grades for Germany as a business location. Stern magazine even put the story on its front page under the heading “Germany – Your Strengths” and came to the following conclusion: ideal infrastructure, excellent qualifications in the workforce, large domestic market, high productivity and efficient research and development – these are the decisive factors for foreign companies.

Positive image, potential innovation, potent investors

And they appreciate these advantages. About 22,000 international companies, including the 500 biggest in the world, are already doing business in Germany. They employ more than 2.7 million people and invested over 11 billion euros in Germany last year alone, according to calculations by Germany’s central bank, the Bundesbank. Headline-grabbing billion-euro investments – like the ones by the US chip manufacturer AMD in Dresden (“Silicon Saxony”) or the American chemistry giant Dow – are only the tip of the iceberg when it comes to investment by foreign companies.

But these news items also reflect a trend: it’s not labour-intensive, but knowledge-intensive industries that Germany is increasingly attracting into the country. The country seems to have found a new position in the highly networked international division of labour: as a competence centre of the world economy. Investment is increasingly flowing into high-tech sectors, as well as research and development.

IBM alone invested US$220 million last year in its German development centre in Böblingen near Stuttgart, the biggest outside the US. And the American technology group General Electric (GE) has just opened its first European research centre just outside Munich. One hundred and fifty international scientists will be studying the technologies of the future in the $50-million complex.

These international companies are placing their money in the excellent research landscape and attractive market in Germany. “We capture a market by developing innovations,” says chief executive Jeffrey Immelt.

Good ideas, successful inventions, favourable location

Germany really does have an excellent research environment, coupled with a highly innovative economy. Patents are a good gauge of inventive creativity. With 127 triad patents (ie successful patent applications in Europe, the US and Japan) per million inhabitants, Germany comes a close second worldwide to Japan. Germany is also second in the world – behind the US – in high-technology products with a 10.6 per cent share of world trade in this field. Mechanical engineering, Germany’s biggest industry, is the world champion as far as patents are concerned.

“Germany is the lead market in automotive engineering,” says Professor Hariolf Grupp of the Fraunhofer Institute for Systems Engineering and Innovation Research in Karlsruhe. “Everything that happens in terms of technology in this field happens in Germany.” The other major sectors are also above average when it comes to innovation. Eighty per cent of chemical and electrical companies launch innovative products every year.

The real eager beavers in this field are the German small and medium-sized companies – the “hidden champions” of the world economy. Which takes us back to Waiblingen, to the likes of companies such as Stihl. Here, in the Baden-Württemberg provinces, is where the “secret winners” live and work. The Swabian inventive spirit is legendary – and Artur Fischer is the uncrowned king of the Swabian innovative elite.

With 5,842 granted patents, the 85 year-old holds a lonely world record – ahead of Thomas Edison. (While we’re on the subject, the US patent list is also headed by a German – Reiner Kraft. This native of Giessen in the services of “Mother Blue” IBM recently celebrated his 3,415th patent, as the German business magazine Wirtschaftswoche reported.)

In 1958, one of Fischer’s inventions came onto the market that was perfect for the German “economic miracle” of that time and guaranteed permanent fame for the inventor and entrepreneur: the grey S-plug, a DIY wall plug made of nylon. Even in old age, Fischer is still promoting creativity:

“Germany should be granting licences, not buying them.” Today, the international Fischer group (3,400 employees), headed by the founder’s son Klaus, holds 3,285 industrial property rights in the fixing-systems division alone.

Interesting labour market, intensive exchange of knowledge, international milieu

For 130 years, small and medium-sized medical-technology companies have been drawn to Tuttlingen, a rather unspectacular town of 35,000 inhabitants high up on the hills of the Swabian Alb. The little town can justifiably call itself the “world capital of medical technology”, because this model region is home to the highest density of medical-technology companies anywhere. A study by the University of Stuttgart recently counted 560 such companies here and encountered all the advantages of a successful cluster: highly specific labour markets, an intensive exchange of knowledge among the participants, a creative environment. In other words, firms that work in a cluster-network have their noses in front.

The new world of genes, the diversity of the nanocosmos, biotechnology – these are the challenges that the key industries of tomorrow will be concerned with. And here, too, German companies are right up there in the premier league. There are 600 companies active in biotechnology, 360 of them in the field of biomedicine – a top international position. “Biotechnology is an absolute key technology,” says Sebastian Meyer-Stork, managing director of the textile-finishing company Windel, whose cotton will soon be processed by bacteria – biology is replacing chemistry.

Experts meanwhile have great hopes in medicine. “We want to use antibodies to discover and fight tumours at an early stage, tumours that are too small to detect even using computer tomography,” says Rainer Fischer, director of the Fraunhofer Institute for Molecular Biology and Applied Ecology (IME) in Aachen.

Germany is a top country in nanotechnology, too – number one in Europe and number two in the world behind the US. Four hundred companies between Kiel and Berchtesgaden (half the nanotech firms in the whole of Europe) are working in this new cosmos. Nanotechnology engineers structures that are just a millionth of a millimetre across, and these can have very special physical, chemical or biological properties.

The economic potential is impossible to estimate, especially since there has been little in the way of concrete results to show for some pretty brash PR claims. Even so, the world of the nanometre promises ever-smaller data memories with ever-larger capacity, ultra-light motors, and hardly visible particles to aid early diagnosis in medicine.

In Hamburg, for example, scientists with the firm Nanosolutions are working on forgery-proof documents that have fluorescent nanoparticles mixed in with the printing ink.

The chemicals company Beiersdorf (producer of “Nivea”) is already improving the UV protection given by sun creams by adding minute pigment particles measured in nanometres.

Market researchers from the US firm BBC Research estimate the current market for nanomaterials alone at $7 billion. This figure is expected to triple within the next four years. These examples show that no market success can be expected without top research in key technologies.

Strengthening the education chain, this is the core of the Federal Government’s innovation offensive: selectively promoting research, providing venture capital and improving start-up opportunities for innovative companies.