Public Tenders Make Firms Less Innovative // The Competitiveness of Firms

The Competitiveness of Firms

Rigid requirements can make it difficult for firms to realise innovative ideas or introduce new technologies.

The innovative capability of firms decreases if they win public tenders that include no incentives to innovate. By winning a public contract without additional award criteria, firms focus more on established products and services and lose innovative strength in terms of both their products and their processes. In the long term, this has the potential to jeopardise their competitiveness. These are the findings of researchers from ZEW Mannheim and KU Leuven based on data from the Mannheim Innovation Panel (MIP), the Tender Electronic Daily (TED) and the EPO Worldwide Patent Statistical Database (PATSTAT).

"Public tenders play an important role in the German innovation dynamic. Currently, many non-innovative tenders in the public sector contribute to a business environment that is harmful to innovation," explains Bastian Krieger, head of the Junior Research Group "Co-Creation" in ZEW's "Economics of Innovation and Industrial Dynamics" Unit. "By using criteria that go beyond mere price, public clients could reward innovation and incentivise firms to develop innovative solutions."