Germany’s chemical and pharmaceutical industry is betting on innovation to break out of the crisis — but an increasingly uncompetitive domestic environment is pushing research investment abroad.
The industry invested nearly €16 billion in research and development (R&D) in 2025, with three-quarters of companies developing new products and processes and reinvesting around 7 percent of their revenues in R&D, according to figures released by the German Chemical Industry Association (VCI).
But the momentum is increasingly shifting away from Germany.
For the current year, 29 percent of chemical and pharmaceutical companies expect their R&D spending in Germany to fall, while only around one in five plans to increase investment at domestic sites. By contrast, 41 percent expect to raise R&D budgets at international operations.
Thomas Wessel, Chairman of the VCI Committee for Research, Science and Education, makes it clear: “The chemical and pharmaceutical industry wants to innovate its way out of the crisis. The problem is not the will, but the location of Germany.”
The warning comes as Germany’s position in the global innovation race continues to weaken.
While companies maintain strong research commitments, other countries are rapidly expanding their R&D capabilities. The German chemical and pharmaceutical industry's share of global R&D spending is expected to fall from 6.5 percent in 2010 to just 4.2 percent in 2025, according to the VCI.
The association says the competitive gap is widening because leading economies increasingly treat research, development, production and industrial location as one interconnected strategy. That approach is making the global race for investment, talent and production capacity more strategic — and more intense.
China stands out.
Beijing has pursued a targeted, industry-driven innovation strategy, helping propel the country's share of global chemical and pharmaceutical patent applications to almost four times its 2010 level by 2024. China now ranks second globally behind the United States, ahead of Japan, South Korea and Germany.
"The transfer of knowledge from research to market readiness is ensured through multiple channels. This entire process is accompanied by a proactive agenda for the protection of intellectual property," explains Wessel, describing China's trend.
The VCI is calling for Germany to move faster — not simply to support research, but to turn research into commercially successful products and competitive industrial production.
"Competition knows no grace period," emphasizes Wessel, adding: "All of companies' efforts must be met with a future-proof political framework. This isn't about minor adjustments, but about a fundamental decision for Germany as a hub of innovation and the will to undertake basic reforms. It's about taking a bold step. Germany must have the courage and the will to be a country that enables, accelerates, and welcomes innovation."
Wessel views the federal government's reform package as a first step, but says contradictory policies are undermining the country's industrial ambitions. He specifically points to the healthcare austerity package, which he says is weakening Germany's pharmaceutical sector.
The VCI is also pressing for Germany's chemical and high-tech agenda, national biotechnology platform, and future pharmaceutical and medical technology strategy to be brought together under a single, coherent innovation strategy.
At the heart of that approach is the Chemical Agenda 2045, which the association says should create the industrial-policy framework needed to turn Germany's strengths in chemicals, pharmaceuticals and biotechnology into competitive value creation and domestic production.
"We need cross-departmental management, reliable financing, integration into social and economic reforms, and predictable policies," Wessel emphasizes.
The message from Germany's chemical and pharmaceutical industry is blunt: the appetite for innovation remains strong, but unless policy and investment conditions improve, an increasing share of that innovation may happen elsewhere.
