Innovation Report 2024: Acceleration Through Localization

Based on a survey conducted among German Chamber members, the Innovation Report 2024 shows that German companies continue to localize research and development functions to strengthen product competitiveness and reach more customers in China. At the same time, they increasingly utilize China as an innovation hub for global markets.

Key Findings:

• Localization trend continues: 63% of respondents say they conduct research in China (+6 p.p. compared to 2022) and 69% say they do development in China (+ 4% p.p. compared to 2022), indicating a trend towards localizing R&D. Most respondents (64%) name product competitiveness as the main advantage of innovating in China, followed by access to existing or new markets (62%) and increased brand recognition (52%).
• Research going global:  29% of German companies conduct research in China for global markets, compared to 25% two years ago, indicating China’s rise as a global innovation hub.
• Trailing behind in time to market: 56% of respondents say that their weakest point compared to local competitors is time to market – only 13% think they are faster than their local competitors. 37% of German companies say their biggest advantage over local competitors is understanding customer needs, while only 20% think that Chinese companies have the upper hand.
• Cost-conscious consumers drive innovation: Price-sensitive customers have been reported as the main driver behind innovating in China (85%), followed by increasing innovation capabilities of competitors (82%) and labor cost (72%).
• Focus on the essentials: German companies prioritize product innovation (65%) over other areas of innovation such as process and service innovation (43% and 40% respectively, and they rely primarily on strategic partnerships (69%) and cross-functional innovation teams (68%) to achieve their innovation goals.