The Changing Role of SMEs in Innovation Activities in Germany–The Example of the Automobile Value-Added Chain

Abstract

In the past, small and medium-sized Enterprises (SMEs) mostly have had a rather passive role in innovation processes of the automobile value chain. Although SMEs are involved in different sections of the value chain (mostly in positions that are further away from the Original Equipment Manufacturers), they mostly contribute to incremental improvements of the final product. We scrutinize the effects of the present challenges that the automobile industry in Germany faces (like increasing international competition or technological change) with a focus on the role of SMEs. In our analysis we find that the changes SMEs face in their environment can pose threats to their position in the value chain. One example is the growing importance of electric vehicles that jeopardizes the business strategies of SMEs that produce parts for the power train. However, we also find that these challenges induce firms to pursue a more active role in innovation processes that may benefit the long-term competitiveness of the industry. We display this development by looking at the massive forging industry that is an important SME dominated part of the automobile value chain.