Munich s Unleveraged Potential - Symptoms of a Young High-Tech Region

Munich's Unleveraged Potential ” Symptoms of a Young High-Tech Region

Given the large R&D potential within and around Munich, it is remarkable that many of the large American high-tech companies use the region merely as a base for their sales and marketing activities (see Figure 10-3). With the critical mass the cluster has achieved as well as its strategic geographic location, Munich is positioned to potentially become a major European high-tech hub. Still, even though most foreign high-tech companies have placed their German headquarters within the Munich region, they have located their European headquarters outside of Germany.

Figure 10-3. Employee functions in the Munich region.

Source: Bain & Company, 2001.

This may be due to Munich being a newly emergent high-tech region and the fact that the successful development of such regions seems to be an accelerating process. Munich has not been covered by the international press with many high-tech success stories. This may be one of the reasons why companies have been slow to invest in R&D and production facilities in the region. In fact, from 1996 to 2000, Munich has received considerably less press coverage in Red Herring and the Economist than have Cambridge or Tel Aviv. ^[7]

The lack of local success stories has been measured by Bain & Company Inc., Germany, by comparing the market capitalization of locally based high-tech companies in Munich with those based in other leading high-tech regions around the world. The figures indicate that Munich is far behind, explaining the lack of global media coverage and indicating a lack of awareness of the region's potential.

Nonetheless, Munich is beginning to build awareness for itself as a magnet for global capital and high-tech knowledge workers. According to Dr. Lutz Weber, CEO of the biotech company Morphochem, ^[8] even though 25% of Munich's work force come from other countries , considered high for German standards, the expertise to internationalize its companies is still missing. Mr. Weber, who employs individuals from 17 countries, suggests that an important first step to global awareness of Munich has been the repatriation of German scientists, who had been successful in the United States. This brought a lot of international know-how back to the Munich region.

To transform Morphochem into a truly international company, Mr. Weber pioneered a concept foreign to Munich biotech companies at the time. In addition to local capital available in the Munich area, Morphochem sought capital in the U.S.

Lutz Weber

Morphochem “ Why a Munich biotech company went to Silicon Valley to look for an investor

As we prepared for Morphochem's second round of financing, we began speaking to a venture capitalist in San Francisco who was very experienced and had been one of the first investors in Genentech. But our German executives were apprehensive: "Do we even want to have this guy as a shareholder?" With a U.S. investor of his caliber on the board, we knew that Morphochem would need to begin operating with global-quality standards. We knew that the VC would never say, "This is a Bavarian company, so we have to be a little bit more careful." I immediately recognized that if I succeeded at winning the Californian as an investor, Morphochem would have more demanding, global-minded shareholders, which was exactly what the company needed.

It was the Californian venture firm's first investment in Germany and it has made them considerably more aware of the potential within the Munich region. Other Munich biotech companies have begun to follow our example and have increasingly started looking for capital abroad. Two days after you do something successful, it becomes a standard. This was a key moment for putting Munich's biotech companies on a tougher path toward global awareness and quality standards.

In order to increase the international exposure and accessibility of Bavaria's high-tech regions, the Bavarian government recently founded gotoBavaria, ^[9] a marketing and communications agency aimed at attracting high-tech investments to the area. gotoBavaria has since opened an office in Silicon Valley and Bangalore, India. In April 2001, gotoBavaria conducted a conference in Nuremberg, which was transmitted live to 200 U.S.-based investors whom they invited for breakfast at gotoBavaria's Silicon Valley office. Through a roundtable-type discussion, local executives, entrepreneurs, and politicians described the high-tech attractiveness of Bavaria from an international business perspective.