State Government in Partnership with Business

According to Bavarian State Minister Erwin Huber, Bavaria's successful development can be attributed in part to its political stability, resulting from over 40 years of consecutive rule of the Christian Social Union party. The aspiration to turn Bavaria into Germany's high-tech capital was formulated during the 1950s, when Bavaria was still a largely agricultural and impoverished state. Since then, long- term strategies for the region have been consistently implemented, and the Bavarian government has acted as the initial spark for many initiatives that today constitute key success factors of Bavaria's high-tech environment.

Consistent State Government Commitment to Developing High Tech ” "Laptops and Lederhosen"

Between 1994 and 2004, the Bavarian state will have invested approximately $1.5 billion alone into the development of its high-tech environment as a part of the state-wide High-Tech Offensive Bayern ^[15] initiative. After Germany's reunification in 1990, incentives offered by the Bavarian government convinced the two leading national research organizations, Max Planck Society and the Fraunhofer Institut, to refrain from moving their headquarters from Munich to Berlin, the new national capital. This is generally considered to have been a crucial move to ensure Bavaria's continued high-tech attractiveness. In terms of developing the environment for high tech and entrepreneurship in Bavaria, Mr. Huber explains that the government's key role has been to create a climate for innovation by giving important impulses that have led to regional development.

Bavaria was one of the few states in Germany that didn't use the funds generated by the privatization of its energy utilities to reduce its budget deficit. Instead, the money was reinvested into various high-tech clusters around Munich and throughout Bavaria. These government investments helped the high-tech region reach critical mass, eventually enabling it to attract new companies like a magnet .

The Bavarian government's approach to investing these funds has been quite entrepreneurial, and has helped Munich become the city with the highest venture capital density in the world after Silicon Valley. With a mission to invest in young Bavarian technology companies exclusively in partnership with locally based private venture capital companies, Bayern Kapital ^[16] was founded by the Bavarian government to promote venture financing in the region. Through Bayern Kapital, the Bavarian government has been investing in high-tech ventures , as long as its initial investment is matched by private venture capital funds. This has helped to reduce the private venture capitalists' risk exposure and has attracted large amounts of foreign capital to the region.

The Bavarian government has always been criticized for using public funds for risky venture investments, and indeed there may have been projects that weren't exactly worth the investment. However, Richard Roy, VP EMEA region corporate strategy, at Microsoft Germany ^[17] still feels that the government's innovative approach has been successful: "Where markets are developing, you need to follow the 80/20 rule." Mr. Roy furthermore explains that the investments that may not have been profitable in a strictly financial sense, have still initiated important multiplier effects that have benefited the entire region. Companies such as Microsoft, using Munich as a base for their German operations, seem content with the support received from the Bavarian state government, which has enabled an American company such as Microsoft to feel at home within the region.

Pampering the "Lighthouse Companies"

The increasing number of American high-tech companies that were locating their German headquarters in Munich implied new challenges for the Bavarian government's administrative environment. In order to leverage the region's full potential, the administration would need to be capable of accommodating emerging, fast-moving businesses, driven by the convergence of different and new technologies. By first attracting and then by retaining certain brand- name , or "lighthouse companies" as Microsoft's Mr. Roy refers to them, Munich has succeeded in attracting many more global players as well as a diverse array of supplying and partner companies. Taking on a very pro-business stance toward its lighthouse companies has been a key strategy of the Bavarian government. For example, the entrepreneurial freedom to place a headquarters practically anywhere a company wants to has been an important feature of "defanging the bureaucracy."

Mr. Roy explains that in 1998, Microsoft Germany decided that its facilities were inadequate to handle future expansion. The company decided to move to a new location custom-built especially for Microsoft and some of its partners . Even though the lot that Microsoft wished to move to was already designated commercial land, a considerable administrative process needed to be navigated, since some of it belonged to the municipality and some of it belonged to private investors. Permissions needed to be obtained, the land needed to be purchased, and an entire infrastructure of roads needed to be built in order to enable sufficient access to the property. With the help of the Bavarian government, the entire process was handled and the building completed in two-and-a-half years. According to Mr. Roy, this would have been absolutely impossible in many other German and European cities because of the bureaucratic complications that are usually required.

By clearing the way for the fast localization of office space around the city, Munich has encouraged the formation of several "cluster satellites" around the city's center. Today, these satellites , which were initialized by the Bavarian government, constitute a key advantage of the region.