| Young companies represent change, growth and innovation – and this makes them a central pillar in the future of a country’s economy. However, entrepreneurial dynamics in Germany have slowed for years. At the same time, start-ups and young businesses are facing growing challenges: from a shortage of skilled professionals to high cost pressure and regulatory hurdles. What is needed to unleash untapped entrepreneurial potential?
In the current ZEW Monthly edition on the topic “Young Companies” we consider this question and look closely at the multi-faceted start-up activity. The number of new businesses has been steadily declining for years, especially in research-intensive industries and key sectors like the ICT sector. ZEW researchers analyse the consequences of this development and show what potential remains untapped, for example in public procurement.
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 | | | RESEARCH ON YOUNG COMPANIES |
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↗ BUREAUCRACY IS A HEAVY BURDEN ON YOUNG COMPANIES IN GERMANY
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| The IAB/ZEW Start-up Panel 2025 reveals that young companies face significant challenges because of the administrative burdens placed on them. According to the panel, excessive documentation requirements prevent many start-ups from scaling up and innovating; especially companies that focus on research and development report increasing negative effects from bureaucratic burdens. At the same time, the Start-up Panel underscores the importance of strategies to secure qualified employees in order to counteract the shortage of skilled workers. “The high bureaucratic requirements reduce the time that founders can use productively for innovation,” explains ZEW economist Sandra Gottschalk.
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↗ ONLY SLIGHT REBOUND IN START-UPS IN NON-RESEARCH-INTENSIVE SECTORS
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| Despite a slight increase of 1.3 per cent in 2023 compared to the previous year, the number of start-ups in Germany remains low. These are the findings of a recent ZEW study based on the Mannheim Enterprise Panel (MUP). High energy costs, a shortage of skilled labour and increasing bureaucratic hurdles are putting the brakes on entrepreneurial spirit, even in research and technology-intensive sectors in Germany. The study shows that fewer and fewer companies are being founded, particularly in research-intensive industries such as mechanical engineering, electrical engineering and chemicals.
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↗ “PUBLIC CONTRACTS: AN OPPORTUNITY FOR YOUNG COMPANIES?”
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| Public procurement is a pillar of the German economy. Amounting to around 500 billion euros annually, it accounts for approximately 15 per cent of gross domestic product. Government procurement also offers young companies enormous potential, as it ensures a stable demand market and functions as a gateway to new customer groups. In view of the future investments planned by the German government, this potential is becoming even more significant. Public contracts are thus becoming an even more important lever for economic transformation. Together with fellow researchers, ZEW economist Bastian Krieger has examined under what conditions young companies participate in public tenders and succeed.
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| | ↗ UNEXPECTED RECORD LOW NUMBER OF NEW ICT BUSINESSES
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| The number of new businesses in the information and communication technologies (ICT) sector has fallen to an unexpected all-time low. At the same time, the number of self-employed workers and employees liable to social security contributions has climbed to a record high of just under 1.5 million. These are the findings of the 2024 ICT Sector Profile, a ZEW study conducted on behalf of the Federal Ministry for Economic Affairs and Climate Action. The study analyses indicators for innovation and business formation activities as well as the economic development in the sector. Depending on the indicator, the observation period extends to 2022 or 2023.
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↗ COOPERATION WITH SCIENTIFIC INSTITUTIONS DRIVES CORPORATE TOP INNOVATIONS
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| According to a recent ZEW study, companies that cooperate with research institutions have a significantly better chance of successfully introducing new ideas to their market and worldwide. Cooperation between companies and scientific institutions is therefore a key driver of innovation in Germany. In addition, these companies generate higher shares of sales with innovative products. However, the results of the study led by ZEW economist Bastian Krieger also show that bureaucratic hurdles and a lack of public funding often pose significant obstacles that complicate or even prevent cooperation.
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↗ GERMANY’S ENERGY POLICY NEEDS A EUROPEAN PERSPECTIVE
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| The new European Bidding Zone Review report published by the European Network of Transmission System Operators for Electricity concludes that a split of the current German-Luxembourg bidding zone into several bidding zones would significantly enhance the efficiency of the European electricity market. The report recommends a split into five zones. This would mean that in times of regional electricity shortages due to a lack of transmission capacity, up to five different local electricity prices could emerge in Germany. ZEW President Achim Wambach and ZEW economist Marion Ott comment on this topic.
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↗ ZEW EXPERTISE ADDED TO THE BOARD OF CHINA INSTITUTE FRANKFURT
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| Philipp Böing, senior researcher in ZEW’s Research Unit “Economics of Innovation and Industrial Dynamics” and Professor of Empirical Innovation Research with Focus on China at Goethe University Frankfurt, has been elected into the board of the university’s China Institute. Since 1925, the institute has served as an interface between academia and the general public interested in China. It focuses on the fields of culture, politics, economics and law.
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The ZEW Annual Report 2024, centred on the theme “STRENGTH”, is now available. Marked by a stagnating economy, political disruptions and global conflicts, the year 2024 presented enormous challenges for actors in politics, business and civil society. Against this backdrop, ZEW’s evidence-based research and policy recommendations provided insights that help to navigate these complexities and reinforce stability.
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| More about the ZEW Annual Report
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Extreme weather events are on the rise and the risks to properties are increasing. Nevertheless, only around 54 per cent of residential buildings in Germany are comprehensively insured against natural hazards – often due to a lack of risk awareness or high premiums. A new concept aims to make insurance cover in high-risk areas affordable through state-supported premium caps and a risk pool. In a guest article for WirtschaftsWoche, Clemens Muth (consultant, former Ergo board member) and ZEW President Achim Wambach explain how such a solution can be effective – and what should be the state's future role in managing natural hazards.
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| Read the full opinion piece
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| | | | → CONTACT FOR QUESTIONS OR SUGGESTIONS ON THE CONTENT | |
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