Geography Reference
In-Depth Information
At the same time, the high degree of vertical integration is one factor that has hin-
dered the development of new, more challenging, markets in the knowledge-intensive
services sectors (BMBF, 2006; Strambach, 1997, 2002a). The development of software
in Germany mainly takes place in the secondary industry branches, such as mechanical
engineering, vehicle construction or telecommunications, and is oriented towards the
customers of these industries (Friedewald et al., 2001). It is assumed that 80 per cent
of German software engineers are employed in the secondary software sector (Broy et
al. 2006). The long-established, above-average ability of industrial i rms in Germany to
practise mainly intra-i rm software development has delayed the formation of a clearly
competitive and specialized software branch like those in other countries (Casper et al.,
1999; Lehrer, 2000, 2006).
Demand
The high demand of the industrial i rms of the core industrial sectors and the
large SME sector — often called the 'Mittelstand' — for individually adapted software
solutions for their production and business processes, has contributed to the dominance
of customized business software development. The production of
customized business
software
is disadvantageous, because its use is limited to a particular enterprise, and the
ability to re-use parts of software developed for earlier customers is very small (Holl et
al., 2006). The production of software primarily for individual customers and the result-
ing lack of uniform standards impede the development of economies of scale in the soft-
ware industry. Further, these factors have helped to orient the business services sector
towards the domestic market that increasingly faces pressure from foreign competitors
(BITKOM, 2007). In addition, the negotiation-oriented organization of industrial i rms
does not allow the services i rms to position themselves rapidly in the market and to
reorganize in a l exible way.
Labour market
The regulated labour market and the labour market institutions that
characterize the German innovation system support knowledge accumulation and the
competence building within i rms. Similarly, it is evident that the lack of l exible labour
market institutions, like those typical of LMEs such as the USA and the UK, is a major
competitive disadvantage for the software industry with its industry-specii c institutions.
The labour market institutions focusing on long-term employment prevent i rms from
adapting quickly and make the transfer of experience-based and applied knowledge
dii cult. However, this mainly tacit knowledge bound up in employees and networks is
particularly valuable for the project-based software industry and its innovation proc-
esses. In international comparisons especially, the rigid regulated working hours and the
regulations relating to hiring and i ring of employees are considered to be a major factor
accounting for the lack of l exibility of the software i rms (BITKOM, 2007; Djankov et
al., 2006).
Additionally, the legal requirement that employees must be represented in the decision-
making negotiations, and their co-determination there, make these processes very time
consuming. Organizational change and the introduction of organizational innovations
that are decisive for fast adaptation to the dynamic changing markets of the software
industry are hampered (Strambach, 2002b). Casper and Vitols (2006) provide empiri-
cal evidence that the institutional arrangements of the German coordinated market
economy are inappropriate for supporting the competence building of project-based
