Eco-innovation in Romanian SMES ROXANA VOICU-DOROBANTU Department of International Business and Economics Bucharest University of Economics Bd.
Dacia, 41, Bucharest ROMANIA rovodo@gmail. com http://www. rei. ase. ro DOREL MIHAI PARASCHIV Department of International Business and Economics Bucharest
University of Economics Bd. Dacia, 41, Bucharest ROMANIA paraschiv@inde. ro http://www. rei. ase. ro ANA MARIA MARINOIU Department of International Business and Economics Bucharest
University of Economics Bd. Dacia, 41, Bucharest ROMANIA anamarinoiu@yahoo. com http://www. rei. ase. ro Abstract:
-The paper presents the results of a qualitative research on the perception and implementation of ecoinnovation in Romanian SMES.
economic growth, social development and environmental protection. Its multilateralism leads thus to it being on the agenda of various international bodies,
Recent Researches in Applied Economics ISBN: 978-1-61804-009-1 186 2 Problem Formulation 2. 1 Eco-innovation Basic concepts Defined as the production, assimilation or exploitation of a product, production process,
as in Figure 1. The purpose of this taxonomy is to create an academic environment for modeling eco-innovation,
lack of information on the environment and its risks; lack of knowledge (mostly from the management part) regarding the environment, eco-innovation, lifecycle approach,
or any other method, model or measure that may reduce the impact of the company on the resources;
A taxonomy of Eco-innovations according to Andersen (2008) General purpose Macroorganizational Alternative Integrated Add-on Recent Researches in Applied Economics ISBN:
The exposure to international elements (requirements in public policy or demands from partners) determine a more focused reaction in companies,
which become more accountable than in the isolated environment in their own countries. -Eco-innovation is being implemented mostly as a requirement of European union demands,
rather than from an acknowledgment of the fact that it may be the way of the future,
as well as other emerging economies, allows the extrapolation of the results at an international level, in view of improving the quality of the integration of ecoinnovations into the normal activity of SMES.
Recent Researches in Applied Economics ISBN: 978-1-61804-009-1 188 References: 1 Abrahamson E.,Rosenkopf L. 1997), Social network Effects on the Extent of Innovation Diffusion:
Towards a Taxonomy and a Theory, Paper presented at the 25th celebration conference 2008 on Entrepreneurship and innovation-organizations, institutions, Systems and regions Copenhagen, CBS, Denmark, June 17-20,2008 8 Archibugi, D.;
What and How to Measure, in International Handbook on Environment and Technology Management (ETM), edited by David Annandale, John Phillimore and Dora Marinova, Edward Elgar, Cheltenham, forthcoming. 10 Balassa, B
A Framework for Innovation and Environmental Economics. ZEW Discussion Paper No. 03-01, Mannheim 14 Cantono S, Silverberg G (2008), A percolation model of eco-innovation diffusion:
the relationship between diffusion, learning economies and subsidies, at http://www. merit. unu. edu 15 Cojanu Valentin (Coord.
2000), How Should We Study the Relationship between Recent Researches in Applied Economics ISBN: 978-1-61804-009-1 189 Environmental Regulation and Innovation?
Effects of Business Groups on Innovation in Emerging Economies, Management Science, Vol. 50, No. 10.oct 2004), pp. 1348-1365 29 Newton JL, Freyfogle E (2005), Sustainability:
Rennings, K. 2000) Redefining Innovation-Eco-innovation Research and the Contribution from Ecological Economics, Ecological Economics, 32,319-322.36 Soete, L. 1987) The impact of technological innovation
Recent Researches in Applied Economics ISBN: 978-1-61804-009-1 190
Position Paper e-Regulation Ecommerce Europe's Proposal for Sustainable Growth of E-commerce in Europe www. ecommerce-europe. eu POSITION PAPER 3table of contents1 Introduction
Introductione-commerce has enabled consumers to access goods and services from all over Europe. As such, e-commerce has contributed significantly to the European economy in general and the success of the European Single Digital Market in particular.
But while e commerce has grown spectacularly over these past two decades, the EU has taken not yet full advantage of the benefits provided by the Single Market.
Seeks more self-regulation based on dialogue with consumer organisations and other relevant stakeholders. Wants consumer rights throughout Europe to be harmonised as much as possible
and an equal level of implementation of rules on distant sales and services and enforcement thereof in all Member States.
and market neutral VAT treatment of e-commerce related services across the EU. The European union should move towards the establishment of
and Modernising VAT in the Digital Single Market for E-commerce POSITION PAPER 5 Under the current VAT system purchases of digital services and products online may end up being subjected to double taxation
Many merchants, especially SMES, have little knowledge of the fiscal demands of extra-national and cross-border trade,
The cost of legal advice limits SMES'ability to access the single market. There is a reasonably good level of legal expertise at a national level,
on cross-border transport modes, delivery services and tracking services leads to inefficiencies and higher costs.
and recommendations of the Copenhagen Economics study into the Pricing Behaviour of postal operators. 4 Cross border parcel-delivery should be improved, without disproportionally affecting e-commerce businesses. 53.
and should aim to reduce costs for enterprises. Material rules should be easy to understand
The complexity of the material rules and the lack of certainty bring higher costs to enterprises in terms of legal advice and litigation.
The Common European Sales Law could potentially lead to competition distortions. Foreign companies will benefit from the optional Sales Law
Any ADR or ODR scheme must maintain a balance between the interests of all the stakeholders;
therefore, Ecommerce Europe supports a multi-stakeholder approach to ADR and ODR. 8 4. 1. 2 Checks and balances Include the core principles for ADR in a binding instrument,
For this reason, Ecommerce Europe calls on the EU, national authorities, operators and consumers to further reflect with relevant stakeholders (i e. data controllers
It allows web merchants to provide customers with relevant information. To limit the negative effects of Directive 2009/136/EC (the‘Cookie Directive')on both consumers and merchants
The proposed sanctions-which can run up to 2%of an enterprise's annual worldwide turnover-are disproportionate. 5. 1. 6 Data subject rights and consent Where possible,
Ecommerce Europe thinks that the creation of such a right will discourage companies from implementing innovative services
which would be useful for age-dependent services such as online gambling or certain product markets (e g. alcohol, tobacco and medication).
Reaping the benefits of ICT Europe's productivity challenge A report from the Economist Intelligence Unit sponsored by Microsoft The Economist Intelligence Unit 2004 1 Reaping the benefits of ICT Europe's productivity challenge Acknowledgements
Survey results 34 Contents 2 The Economist Intelligence Unit 2004 The Economist Intelligence Unit 2004 3 Reaping the benefits of ICT Europe's productivity challenge Reaping the benefits of ICT:
Europe's productivity challenge is an Economist Intelligence Unit white paper, sponsored by Microsoft. The Economist Intelligence Unit bears sole editorial responsibility for the content of the report.
The findings and views expressed in this white paper do not necessarily reflect the views of the sponsor.
We conducted empirical research to investigate the strength of ICT's impact on economic growth, based on a cross-section model of 60 countries.
Laza Kekic of the Economist Intelligence Unit produced the crosssection model that underpins some of the key findings in this report.
April 2004 Acknowledgements 4 The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe's productivity challenge Once again Europe finds itself at a technology crossroads.
whether Europe can turn its substantial investment in information and communication technology (ICT) into greater economic gain.
Despite high spending and the widespread adoption of sophisticated ICT infrastructure, European countries continue to lag behind on key measures of economic growth and productivity.
First, why hasn't heavy investment in ICT delivered the economic growth and acceleration in productivity experienced in the US?
however, and most European countries have yet to see ICT investment translated into faster growth and productivity.
the Economist Intelligence Unit conducted empirical research to investigate the strength of ICT's impact on economic growth, based on a cross-section model of 60 countries.
The report also makes extensive use of the Economist Intelligence Unit's international business environment rankings.
The link between ICT and growth is developed strong in economies. The Economist Intelligence Unit's cross-section analysis of 60 countries confirms the general view that ICT is linked strongly to economic growth in developed countries.
At the same time, the impact of ICT is weak in emerging markets and our analysis suggests this may be
and use will begin to affect economic growth only after an adjustment period. Executive Summary The Economist Intelligence Unit 2004 5 Reaping the benefits of ICT Europe's productivity challenge ICT accounts for much of Europe's lag behind the US in growth performance in recent years.
The crosssection analysis indicates that ICT accounted for as much as 0. 4 percentage points of the 0. 52-point difference between GDP per head growth rates in the US and the euro zone big three (Germany, France, Italy
unless significant progress is made in areas such as skills, innovation and competition. The Nordic countries and Ireland are the most ICTSAVVY.
and a favourable business environment are grounds for optimism about the future. The performance of other European economies is mixed,
with The netherlands and Austria performing well in some areas, while the south European countries fare worst.
Skills, innovation and competition are crucial to making technology work. The productivity growth gap between the US and Europe is partly down to differences in effectiveness of ICT use.
Most European countries have paid insufficient attention to a number of key ICT enablers the complementary factors that allow enterprises to use technology to the fullest.
and the lack of an innovation culture, hamstring European enterprises in their attempts to put ICT to productive use.
Europe's weaknesses are most acute among small and medium-sized enterprises (SMES. SMES fare poorly compared with large firms in access to capital, the fruits of research and development (R&d), high quality networks and information technology (IT) systems,
as well as management skills training. SMES account for over 95%of firms in most European countries; success in encouraging innovation and effective ICT use in this sector will
therefore have a large impact on the economy's ability to reap greater economic growth and productivity gains.
and changes to educational 6 The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe's productivity challenge curricula.
Competition. Governments must maintain the assault on barriers to competition, particularly in telecommunications markets. This is particularly critical for the growth of broadband access.
Moreover, the benefits of enhanced telecoms competition must be extended to businesses and consumers in the EU accession countries.
ICT in the public sector. The executives we interviewed and surveyed believe the best thing governments can do to promote effective ICT use is to practise what they preach.
In particular, they can do much to stimulate demand for (and demonstrate the benefits of) ICT through initiatives to bring public services online.
and reward innovative behaviour among firms by choosing suppliers that use ICT to deliver improved services and better value for money.
and channelling the fruits of university and public R&d to enterprises. Progress in each of the above areas will create a more conducive environment for innovation in Europe.
It will not be easy particularly for organisations with an ingrained aversion to risk and change.
The Economist Intelligence Unit 2004 7 Reaping the benefits of ICT Europe's productivity challenge In March 2000,
European union leaders signed up to an economic reforms strategy that seeks no less than to transform the EU into the world's most competitive and dynamic knowledge-based economy.
liberalisation, entrepreneurship, employment and (this being Europe) social inclusion as well as sustainable development. Yet the backdrop to this initiative was the growing recognition on the part of policymakers
and economists that the EU as a whole was falling behind the United states in key measures of economic growth, most crucially that of labour productivity growth.
even after the intervening economic downturn experienced on both sides of the Atlantic. Why does the US outpace Europe in productivity growth?
The EU sank nearly €1. 9 trillion into ICT capital in 1995-2001, an average growth rate of over 19%per year.
The optimists believe that this heavy investment in ICT will soon pay off in higher productivity and economic growth.
unless it overcomes a number of serious deficiencies in its policy and business environment. This report has three purposes:
to identify the ICT enablers the complementary factors such as skills development, innovation policy and business environment in which Europe most seriously underperforms the US;
For the purposes of the report, ICT is defined as IT hardware, software and services, and telecommunications equipment and services.
Part I of the report assesses the economic impact of ICT, and is primarily based on empirical research conducted by the Economist Intelligence Unit.
It includes the results of a cross-section examination of 60 countries, covering the 1995-2002 period,
The conclusions draw on findings from the Economist Intelligence Unit's survey of 100 senior business executives,
Introduction 8 The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe's productivity challenge Part
I The economic impact of ICT The question of technology's impact on economic growth and productivity has fascinated and perplexed governments,
The millennial bubble bursts and subsequent slowdown in ICT investment may have tempered wilder claims about the economic benefits of ICT,
The role of technology in the economy is now a subject of government policy across the globe,
Those that believe ICT has a key role to play in economic growth look to the example of the United states. America's formidable growth
*Most economists believe this productivity surge can be traced in part to the benefits of ICT production and use.
Some go further, claiming ICT has delivered fundamental and lasting change in the US economy, leading to a permanent improvement in its growth prospects.
Some economists believe the traditional growth-accounting studies that paint ICT in such a positive light are flawed.
and productivity A new empirical study conducted by the Economist Intelligence Unit takes a different approach to the traditional growth-accounting models referred to above,
and the quality of the business environment. To investigate these issues, we estimated a crosssection growth model for 60 countries including 26 developed countries and 34 less-developed countries, covering the 1995-2002 period.
Second, it allowed us to investigate interaction effects, for example the relationship between ICT and the business environment,
Finally, the model takes into account ICT use as well as infrastructure development, in contrast to traditional models that focus primarily on ICT investment indicators.
Using this model, together with a variety of indices such as the Economist Intelligence Unit's business environment rankings
In other words, ICT penetration and usage needs to attain critical mass before it will make a significant positive impact on a country's economy.
the four Nordic countries, the UK, Netherlands and Switzerland also score highest in the Economist Intelligence Unit's index of ICT enablers (see p. 11,
which has yet to demonstrate the explosive broadband and mobile communications growth of the Nordic countries;
The Economist Intelligence Unit 2004 9 Reaping the benefits of ICT Europe's productivity challenge Labour productivity growth and ICT Aggregate labour productivity growth and ICT contribution
OECD Along with Ireland, the US recorded the biggest increases in ICT contribution to labour productivity growth in the 1996-2002 period. 10 The Economist Intelligence Unit 2004 Reaping the benefits of ICT
This is consistent with the view that there is a considerable time-lag between ICT investment and returns, representing the time it takes for organisations to assimilate
*ICT accounts for most of the gap in GDP per head growth between the US and euro zone big three In addition to reinforcing the link between ICT and increased productivity and growth in developed economies such as Europe
The Economist Intelligence Unit's forecasts of GDP growth indicate that Europe is unlikely to close this gap
Education and the business environment are crucial to making technology work ICT development is only one of the important factors affecting growth.
The cross-section model indicates that the quality of a country's business environment as well as its attention to specific ICT enablers such as education, significantly affect its ability to harness the full benefits of technology.
At a firm level, the survey and interviews also highlighted the importance of ICT enablers such as skills, R&d and access to venture capital.
together with a strong performance in most of the ICT enablers, tend to deliver faster economic growth.
European effectiveness in harnessing ICT The Economist Intelligence Unit's research confirms that most European countries lag significantly behind the US in key measures of ICT investment
whereas Sweden, Denmark and Finland actually outperform*OECD, 2003 The Economist Intelligence Unit 2004 11 Reaping the benefits of ICT Europe's productivity challenge it.
However, several economists believe the UK is on the cusp of an acceleration in productivity growth on the strength of its effective use of ICT.
The netherlands, for example, with a very well-developed ICT infrastructure, competitive markets and a positive business environment, is burdened by a relatively poor performance (by EU standards) in skills training and education.
Economist Intelligence Unit The ICT infrastructure index used here combines six connectivity variables penetration of traditional fixed lines, broadband access lines, mobile phones, PCS, Internet users and Internet servers
The ICT enablers index takes into account affordability of Internet access, telecoms market competition, security of the Internet infrastructure, government support for ICT development,
laws governing the Internet, ICT skills of the workforce and quality of ICT supporting services.
Continued on page 14 12 The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe's productivity challenge Three ways ICT can boost the economy 1. ICT investment.
Investing in ICT goods and services leads to capital deepening which in turn leads to increases in labour productivity.
Economists believe ICT capital investment has made a sizeable contribution to GDP growth in many developed countries in the past decade,
Across the OECD, the share of ICT investment in total investment has expanded over the past decade, especially in the US, Australia, Canada and the Nordic countries.
Other European countries are also investing large amounts of capital in ICT goods and services. 2 ICT gross fixed capital formation in the EU totalled nearly €1. 9 trillion in 1995-2001,
and expanded at an average rate of 19.5%over the period. However, Europe continues to lag behind in terms of the share of ICT investment in GDP:
in the EU in 2001 it accounted for 2. 6%of GDP compared with 4. 2%in the US.
Will the high levels of ICT investment that have produced this effect be sustained in the future? Despite a dip since 2000, many economists see ICT investment growth in both the US
and Europe remaining buoyant in the medium term a view our survey supports, with 70%of companies saying they plan to increase investment in the next two years.
One notable sceptic is Robert Gordon, an economist who argues that the 1990s boom owed much to transitory factors
and that the drivers of demand for ICT goods will be weaker over the next half-decade3.
On this view, ICT investment growth should still continue, but at a much more moderate pace than in the second half of the 1990s.
What are your plans for investment in ICT in the next 2 years?(%%respondents) Over 100%increase in investment 6 50-100%increase in investment 11 25-50%increase in investment 10 10-25%increase in investment 21
Up to 10%increase in investment 22 Same level of investment 25 Up to 10%decrease in investment 3 10-25%decrease in investment 2 25
-50%decrease in investment 0 50-100%decrease in investment 0 ICT investment in the European union, 1995-2001 (Gross fixed capital formation in 14 EU
countries in constant 1995 prices, billions of Euros) Source: Marcel Timmer, Gerard Ypma and Bart van Ark, IT in the European union:
Driving Productivity Divergence? Groningen Growth and Development Centre, 2003.0 100 200 300 400 1995 1996 1997 1998 1999 2000 2001 Software Communication equipment IT equipment The Economist
Intelligence Unit 2004 13 Reaping the benefits of ICT Europe's productivity challenge 2. The impact of ICT production.
production of ICT manufactured goods and services has made a large contribution to GDP growth, according to most studies.
ICT-producing firms are believed to provide additional impetus to productivity growth in other sectors through the transfer of knowledge to customers and suppliers,
Despite this, few economists or policymakers believe governments should intervene to create or boost an ICT-producing sector artificially.
Dirk Pilat, an economist at the OECD, argues that only a few firms can compete in this area5.
Contribution of ICT-using services to aggregate labour productivity growth-0 50-0. 25 0. 00 0. 25 0. 50 0. 75 1
Ultimately, the biggest payoff from ICT is a sustainable boost to productivity growth throughout the rest of the economy in the ICT-using sectors.
Economists studying TFP growth in Europe's ICT-using industries have seen little (if any) sign of an acceleration here.
Many economists conclude that this is because of the time-lag between the point where countries invest heavily in ICT
Bartelsman and Hinloopen, 2002 3gordon, 2002 and 2003 4van Ark et al, 2002 5pilat and Wölfl, 2004 6oecd, 2003 14 The Economist Intelligence Unit 2004 Reaping the benefits
of ICT Europe's productivity challenge largest and richest economies inevitably lead the way in harnessing ICT.
Ireland's success in creating an environment fostering technologyindustry expansion is a major factor in its remarkable growth story.
The Economist Intelligence Unit's forecasts suggest that on current trend, most European countries show no sign of closing the gap in growth with the US.
software has attracted the largest share of ICT investment since the technology boom began in the early 1990s.
By 2000, it accounted for about 14%of total nonresidential capital investment in the US,
and nearly 40%of overall ICT investment growth1. ICT investment in the EU as a whole has been weighted more heavily towards IT and communications infrastructure,
where price declines have been steepest. Software nonetheless accounted for onethird or more of ICT investment in the UK
France and The netherlands in 2000, and substantially more in the Nordic countries2. Software investment tends to lag purchases of hardware.
This may explain the more rapid growth of software investment relative to total investment in the US,
where firms made an early start in deploying IT and networking infrastructure. Assuming that Europe is playing catch up to the US in overall ICT investment
and has invested heavily in hardware since the late 1990s, software vendors can probably look to good times ahead in their European markets.
Ahmad, et al, 2004 2ahmad, et al, 2004 The Economist Intelligence Unit 2004 15 Reaping the benefits of ICT Europe's productivity challenge To reap the benefits of ICT we must invest in the parallel areas of organisational capital
Erkki Liikanen, EU commissioner for enterprise and the information society. The empirical studies suggest that ICT has played a central part in the United states'extraordinary productivity growth since the mid-1990s.
But it is equally clear that high levels of ICT investment and adoption do not, in themselves, guarantee faster growth and productivity.
ICT investment has grown impressively on both sides of the Atlantic, yet most of the EU countries continue to be outpaced by the US economy.
The rewards of ICT depend on a complex interaction between technology and a range of other complementary factors relating to the business environment.
To help identify and understand which of these factors are most important, the Economist Intelligence Unit conducted a survey of 100 senior business executives,
as well as in depth interviews with a range of European policymakers and business leaders. Inevitably our research highlighted a wide range of factors that influence a country's ability to benefit from ICT.
spurs to innovation such as access to venture capital; and, more contentiously, the creation of open and competitive markets.
and the Nordics have been more successful in creating an environment where innovation can flourish and where the benefits of ICT can be realised fully.
a breakthrough that enabled the growth of the region's highly competitive mobile services and equipment industry.
although patchily implemented, has encouraged also competition and made voice, Internet and data communications more affordable to many businesses and households.
take risks and embark on new ventures. According to Tarek Ghouri, director of government practice for Nokia Enterprise Solutions, the technology is available today to create compelling solutions that grow productivity;
the main ingredient lacking is imagination at the enterprise level. That European business suffers from an entrepreneurial deficit
and ingrained risk aversion compared to the US is a relatively noncontroversial view, accepted by virtually all the studies we have reviewed for this report,
16 The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe's productivity challenge Commission shows that only 4%of Europeans have set up a business in the past three years,
and that almost three times as many Americans are involved in entrepreneurial ventures. The Commission, OECD and others also worry that new European ventures grow too slowly.
Innovation often stems from entrepreneurship and a willingness to take risks. Empirical research indicates that new firms tend to be the most innovative in their markets,
and often prod incumbents towards more innovative behaviour as well. However even Europe's more innovative countries tend to be risk-averse.
The European commission has been concerned sufficiently by this issue to launch a number of initiatives in an attempt to boost entrepreneurship.
European managers struggle to turn technology investment into gains in productivity or revenue. The implication is that it is not enough to deploy new enterprise software or a
What proportion of your ICT projects meet their business objectives?(%%respondents) Less than 25%12 25-50%26 50-75%40 100%1 75-99%21 What are the biggest internal barriers to maximising the benefits of ICT?(%
or implementation 23 Lack of ICT skills in workforce 22 Employee resistance to change 22 Other 3 The Economist Intelligence Unit 2004 17 Reaping the benefits of ICT Europe
The gap is felt not so much in technical expertise as in managers'ability to capitalise on ICT investments for commercial benefit.
the more likely that it will benefit from How important are the following aspects of the business environment in enabling your company to benefit from ICT?(%
and new ventures 32 35 25 5 3 4. Robust legal framework and law enforcement to protect online trade 39 24 27 6 4 5
. Effective laws to protect intellectual property 34 27 23 9 6 18 The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe's productivity challenge ICT
and their likelihood of generating productivity gains from ICT investments. Reorganising the workplace to adapt to new technology can involve anything from automating manual processes to overhauling product design, production or logistics systems.
For some managers, ICT investments trigger a decision to spin off a new entity, or to leave
unfettered competition Our cross-section analysis of 60 countries appeared to confirm a strong link in developed economies between the quality of the business environment and the economic impact of ICT.
and stable the business environment, the more likely that ICT use will make a contribution to growth.
In addition, competition in ICT-producing markets drives advances in technology and also pushes prices down,
Strong competition in the economy as a whole encourages other companies to use technology to innovate with their products,
services, work processes and organisational structures. A clear example of the benefits of open competition can be seen in Europe's liberalisation of its telecoms markets
initiated in the late 1990s across the EU and later in the accession countries. Operating under European commission guidelines,
%respondents could provide a maximum of three answers) Initiatives to encourage technology transfer from universities 29 Government leading the way in innovative use of ICT 35 Encouragement of foreign direct investment in ICT
sector 23 Policies to promote competition in the ICT sector 35 Schemes to promote access to higher bandwidth services 34 Promotion of common technology standards 36 Availability of good
and secondary schools 33 Availability of specialist high tech qualifications in further and higher education 10 Policies to redress under-representation of women in ICT jobs 2 Financing schemes for ICT-related investment
and Internet 41 Development of e-democracy 15 Government innovation in providing online services to citizens 44 Policies to promote competition in the ICT sector 34 Regulation to protect consumer interests
19 Schemes to promote access to higher bandwidth services 36 Promotion of common technology standards 32 Availability of good ICT education in primary and secondary schools 43 Other
these actions have resulted usually in significantly lower costs of telephony and data services for end-users,
The Economist Intelligence Unit 2004 19 Reaping the benefits of ICT Europe's productivity challenge Restrictive product-market regulation is another area where innovation can be stifled.
Erkki Liikanen, EU commissioner for enterprise and the information society, believes that it is critical for member governments to review their product-market regimes
and reduce administrative burdens on product competition. Bart van Ark, an economist from the University of Gröningen, believes restrictive product markets discourage innovation and ultimately the effective use of ICT.
Although Mr Van Ark is sceptical about catch-all solutions, he argues that some industry-specific measures would bring clear benefits.
and harmonising zoning laws would encourage competition and innovative behaviour in this intensive ICT-using sector.
The current variation of competition and other regulations in different member states are often counterproductive, claims Mr Weyns,
Many economists argue that Europe's labour market regulations are too restrictive and that they deter companies from reorganising the workplace.
Policymakers and economists diverge however, on the link between labour regulations and productivity growth, and on the desirability of policy initiatives to effect change.
A commitment to open markets and unfettered competition is clearly a factor in encouraging successful innovation,
Innovative ventures need venture capital In the US, venture capital provides a valuable catalyst for the emergence of new, innovative businesses.
By contrast, Europe's venture-capital industry remains small and underdeveloped. Although overall private equity investment levels in Europe approach those across the Atlantic,
the amount channelled into earlystage financing is substantially less in Europe than in the US (in 2002,10. 6%in Europe compared with 21.1%in the US, according to Pwc).
The lack of venture capital is a strong disincentive to innovation and enterprise. Germany, for example, boasts some of Europe's more prolific R&d programmes with close ties to business (see below),
but limited access to venture capital can make it difficult for technology start-ups to find funding. Eike Röhling, director-general of technology policy in the federal Ministry of Economics and Labour, cites the shortage of venture capital as one of the key barriers to innovation in his country.
Funding for university and research institute spinoffs is another area where Europe compares*For example Van Ark and O'Mahony, 2003 20 The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe's productivity challenge unfavourably with the US.
The UK, Ireland and The netherlands are more likely to nurture such equity funding channels: the European Venture capital Association ranks the UK and Ireland as boasting the most conducive tax and legal system for private equity funding in Europe,
whereas Germany, Denmark and Austria fall at the bottom of the list. In most of Europe, would-be innovators usually have to seek financial support elsewhere.
The amount of equity capital available for new and early-stage ventures in Europe is beginning to increase and, according to the European Venture capital Association,
Still, fundraising for venture capital remains difficult in Europe. Industry veterans point out that European venture-capital firms are extremely selective in their investments
partly because they had burnt their fingers in the dot com crash, but also because they have limited confidence in entrepreneurs'business models
and management teams (back to the skills gap). Reinvigorating R&d The other major part of the innovation equation for ICT-producing
Bridging the R&d gap The Economist Intelligence Unit 2004 21 Reaping the benefits of ICT Europe's productivity challenge attempting to extend the benefits
enforced standards of network security as well as trust in payment systems, digital identities and digital contracts is vital to encourage more business leaders to offer ICT-enabled services,
suppliers and customers) the confidence to use them. Elie Simon, president EMEA of Sun microsystems, believes regulators must seek to develop unified security standards to protect Europe's network infrastructure.
Mark Macgann, chairman of the European Information, Communications and Consumer Electronics Technology Industry Association (EICTA), underscores the importance of industry and government adhering to international,
The latter will not only improve managers'ability to achieve technology integration at the enterprise level, but more importantly it will maximise end-users'access to the benefits of the information society.
and too many 22 The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe's productivity challenge standards-related initiatives stop at national borders.
Along with other aspects of a country's legal system, reliable IP protection forms an important component of a positive business environment,
The Economist Intelligence Unit 2004 23 Reaping the benefits of ICT Europe's productivity challenge Europe's challenge is to create a business environment where innovation can thrive
and where the benefits of ICT are readily available at all levels of the economy. Creating that environment
and ultimately delivering increased productivity growth requires coordinated action on the part of policymakers and business leaders.
The eeurope 2005 plan (the part of the Lisbon agenda concerned with creating a knowledge-based economy in Europe)
which most economists believe is too restrictive in most of Europe. Despite this, many policymakers (as well as executives judging from our survey) do not see labour market reform as a priority.
risks and Part III Unleashing the enablers of growth 24 The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe's productivity challenge commercial impact of new technology.
that their managers are fully aware of the potential benefits of an ICT investment, as well as the specific workplace factors that may complicate it,
Vendors must make every effort to ensure that customers are not only aware of the benefits of a newly deployed technology,
It is to be hoped that business managers will increasingly demand this behaviour from their suppliers. 2. Stimulating innovation and enterprise.
Policymakers are aware that restraints on entrepreneurship sap innovation and constrain productivity growth. Progress in meeting the goals of the European commission's entrepreneurship plans would be a good step towards enhancing innovation and productivity growth.
The following areas in particular merit attention. Ensuring a greater flow of funding to SMES. The EU and national governments should work with the financial sector to support the expansion of Europe's venture-capital industry.
But it is up to business leaders to take advantage of this more supportive environment to encourage risk-taking and innovation in their organisations.
of course, but there are numerous tools that managers can use to create a more positive environment for innovation.
and exploit technology's potential to the full. 3. Redouble the assault on barriers to competition. We've highlighted the benefits that telecoms market liberalisation has brought to European businesses and consumers in the form of reduced costs and better services.
Connectivity is no longer a major barrier to effective ICT use, at least in Western europe. But policymakers must continue to promote competition in the telecoms industry
for two main reasons. First, to prevent the rebuilding of virtual monopolies in broadband access markets.
Fortunately, most have used this dominance to aggressively roll out digital subscriber line (DSL) The Economist Intelligence Unit 2004 25 Reaping the benefits of ICT Europe's productivity challenge broadband networks and services,
In the longer term, competition in the provision of broadband services must become entrenched to ensure that businesses
the benefits of competition must be extended to the EU's new members. Csaba Csapodi, director-general in Hungary's Ministry of Informatics, stresses that connectivity and cost of IT systems as well as telecoms services remain barriers to productive ICT use in accession countries.
Liberalisation, and later local loop unbundling (LLU), helped to kick-start broadband adoption in the EU. With the possible exception of Estonia,
Pressure on incumbents coupled with incentives for competition will provide a catalyst for broadband adoption. 4. Practise what you preach.
favouring those suppliers that use ICT to offer innovative services and better value for money.
By dint of its sheer weight in the economy, this type of government procurement can help to aggregate demand for new products and services.
Patrick de Smedt, chairman of Microsoft EMEA, puts leading by example at the top of his prescriptions for policymakers.
for example by offering e-health services, can do much to build awareness of ICT benefits among SMES and the broader public.
and many EU governments including a few accession countries have made considerable progress in bringing services online.
Integrating this and its various other services on one platform, in March 2003 the government launched the Citizen's IT Centre,
a portal designed to provide a onestop shop for existing and new services. The portal allows individuals
e-government from the East 26 The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe's productivity challenge online,
Such projects help bring together important ingredients in the innovation mix including venture capital, secure networks and skills training in powerful demonstrations of the role that ICT can play in business and society.
It is hoped that the results of their efforts will be a much more positive environment for the efficient use of ICT.
The Economist Intelligence Unit 2004 27 Reaping the benefits of ICT Europe's productivity challenge The Economist Intelligence Unit conducted a crosssection empirical analysis of 60 countries covering the years 1995-2002.
with the use and production of ICT goods and services. The year 1995 is also significant as the approximate time
A cross-section framework offers the opportunity of controlling for other factors that affect growth (and thereby helps avoid the risk of confusing the role of ICT with other variables).
The Economist Intelligence Unit's approach also has advantages over existing cross-section studies, in that most of these have focused on ICT investment across countries.
Despite the considerable work that has gone into making the ICT investment measures comparable across countries,
a number of question marks about the comparability of these investment figures remain. We used instead a"physical"indicator of ICT endowments (use and infrastructure), based on a composite index of various ICT indicators.
The EIU model allows us to estimate the impact of ICT on growth differences between countries for example between the US
In addition, the EIU's business environment model enables us to investigate the role of various policy
and business environment variables (measured by a synthetic index covering labour, product and financial markets) and their possible interaction with ICT.
The Economist Intelligence Unit's model is wellbehaved in that in the full 60-country sample all the standard determinants of growth
background and explanation 28 The Economist Intelligence Unit 2004 Appendix A: Empirical analysis: background and explanation Reaping the benefits of ICT Europe's productivity challenge the role of ICT.
The explanatory variables in the initial specification of a standard"neoclassical model"(equation 1 in table 1) include initial income levels, investment shares, demographic variables (rate of growth of total
a measure of the openness of economies, a measure of real exchange-rate variability and our composite index of the quality of the business environment and microeconomic policies.
ICT and the quality of the business environment are interrelated, though no evidence is found for any explicit interaction effect between ICT and policy variables or ICT with skill levels.
Economist Intelligence Unit 1 0. 50-0. 5-1o 5 10 This chart relates ICT development to growth in GDP per head,
Above a certain level of ICT development the upward-sloping part of the curve), network effects from a minimum mass of ICT in the economy and the experience derived from earlier ICT development mean that the benefits of increasing ICT
The Economist Intelligence Unit 2004 29 Appendix A: Empirical analysis: background and explanation Reaping the benefits of ICT Europe's productivity challenge Table 1 Equation 1 Equation 2 Equation 3 Coefficients t Stat Coefficients t
INV average share of fixed investment in GDP (at current prices) in 1996-2002. POPG 15-65 average annual rate of growth of population aged 15-65.
a country is rated as an open economy according to the following four criteria:(1) average tariff rates below 40%;(
BUSENV an index constructed by the Economist Intelligence Unit of the business environment (on a 1-10 scale) based on indicators grouped in the following categories:
policy toward private enterprise, financing conditions, the tax regime, the macroeconomic environment and labour markets. The overall index is a simple average of the five category subindexes.
The composite ICT infrastructure/use index, on a 1-10 scale, is a simple average of the 4 component indexes. 30 The Economist Intelligence Unit 2004 Appendix A:
The growth advantage that the euro zone economies had in terms of lower initial GDP per head (the catch up potential) and higher investment rates is cancelled roughly out by the effects of the US's superior business environment and schooling.
Forecasting We can also use our framework to generate mediumterm forecasts (using equation 3 of table 3). To do this we use the EIU's forecasts of investment shares in GDP in 2004-08
0. 909 0. 945 N 26 26 26 The Economist Intelligence Unit 2004 31 Appendix A:
background and explanation Reaping the benefits of ICT Europe's productivity challenge average quality of the policy and business environment in 2004-08 from the EIU's business environment rankings model.
as of national income A qualitative indicator of competition in the telecoms market. A qualitative indicator of the security of the Internet infrastructure.
A measure of the quality of ICT supporting services. Forecasts of average annual growth in GDP per head for 2004-08 are presented in Table 5. Forecast average EU-15
major euro zone economies is again attributable to ICT. Although the forecast EU average in 2004-08 is exactly equal to the 1995-2002 actual figure,
there will be greater variability in individual EU economies'performance with some countries accelerating their growth, which in part is related to ICT developments. 32 The Economist Intelligence Unit 2004 Appendix A:
Empirical analysis: background and explanation Reaping the benefits of ICT Europe's productivity challenge Table 5 Growth rates of real GDP per, annual average 2004-08,%Actual Forecast 1995-2002
UK 2. 41 2. 45 US 2. 14 2. 12 EU-15 2. 07 2. 07 The Economist Intelligence Unit 2004
33 Reaping the benefits of ICT Europe's productivity challenge Ahmad, Nadim, Paul Schreyer and Anita Wölfl, 2004, ICT Investment in OECD Countries and Its Economic Impacts, Chapter
Investment in ICT and Economic growth, mimeo. Bartelsman, Eric, Andrea Bassanini, John Haltiwanger, Ron Jarmin, Stefano Scarpetta and Thorsten Schank, 2002, The Spread of ICT and Productivity Growth Is Europe Really Lagging Behind in the New Economy?
Fondazione Rodolfo Debenedetti, mimeo. Basu, Susanto, John Fernald, Nicholas Oulton and Sylaja Srinivasan, 2003, The Case of the Missing Productivity Growth:
Colecchia, Alessandra and Paul Schreyer, 2002, The Contribution of Information and Communication Technologies to Economic growth in Nine OECD Countries, OECD Economic Studies, No. 34.
European commission, 2003, European Competitiveness Report 2003, Commission Staff Working Document Gordon, Robert, 2003, Five Puzzles in the Behavior of Productivity, Investment and Innovation, Global
Does Supply Create Its Own Demand? Global Competitiveness Report 2002-2003, World Economic Forum. Gust, Christopher and Jaime Marquez, 2002, International Comparisons of Productivity Growth:
Jorgenson, Dale, Mun Ho and Kevin Stiroh, Lessons for Europe from the U s. Growth Resurgence, CESIFO Economics Studies, Vol. 49,1/2003, pp 27-47.
OECD, 2003, ICT and Economic growth: Evidence from OECD Countries, Industries and Firms, Paris: OECD. Oulton, Nick, 2001, ICT and Productivity Growth in the United kingdom, Bank of england Working Paper, No. 140.
The Contribution of ICT Investment to Economic growth and Labor Productivity in Poland 1995-2000, Warsaw:
IT and Multifactor Productivity in U s. Service industries, Paper Prepared for the Texas A&m Conference, The New Economy:
Can Europe Resume the Catching Up Process, European commission, Directorate General Enterprise. Van Ark, Bart, 2003, The Productivity Problem of the Dutch Economy:
Implications for Economic and Social policies and Business Strategy, Research Memorandum GD-66, Groningen: Groningen Growth and Development Centre.
Productivity, ICT and Services: Europe and the United states, Research Memorandum GD-60, Groningen: Groningen Growth and Development Centre.
Zhen-Wei Qiang, Christine, Alexander Pitt and Seth Ayers, 2003, Contribution of Information Communication Technologies to Growth, Washington, D c.:
Bibliography 34 The Economist Intelligence Unit 2004 Reaping the benefits of ICT Europe's productivity challenge Appendix C:
Survey results What role does information and communication technology (ICT) play in improving corporate productivity?
How do European countries compare with other global markets in providing an attractive environment for ICT investment and innovation?
which is by the Economist Intelligence Unit and sponsored by Microsoft, seeks to answer these crucial questions.
%respondents) Public sector 18 Private sector 82 The Economist Intelligence Unit 2004 35 Appendix C: Survey results Reaping the benefits of ICT Europe's productivity challenge 4. Please tell us what industry
%respondents) Financial services 16 Telecoms, software and computer services 14 Professional services 12 Construction and real estate 8 Healthcare, pharmaceuticals and biotechnology 8 Automotive 4
%respondents) $500m-$1bn 19 $1bn-$3bn 5 $3bn-$8bn 5 $8bn or more 11 Not applicable 3 $500m or less 57 36 The Economist Intelligence Unit
Survey results Reaping the benefits of ICT Europe's productivity challenge The business environment How would you rate the overall sophistication of ICT infrastructure in the following countries?(%
China 12 33 55 The Economist Intelligence Unit 2004 37 Appendix C: Survey results Reaping the benefits of ICT Europe's productivity challenge Which of the following countries have the highest levels of ICT literacy as an average across the whole population?(%
China 10 34 56 38 The Economist Intelligence Unit 2004 Appendix C: Survey results Reaping the benefits of ICT Europe's productivity challenge How important are the following aspects of the business environment in enabling your company to benefit from ICT?(%
%respondents) 1 2 3 4 5 Extremely Unimportant important 1. A deregulated and competitive telecoms sector 37 33 19 8 3 2. Government policies to promote diffusion of technology among consumers 29 33 26 10 2 3
and new ventures 32 35 25 5 3 4. Robust legal framework and law enforcement to protect online trade 39 24 27 6 4 5
which technologies become obsolete 21 Poor after-sales services from ICT vendors 16 Lack of incentives to foster innovation
and ICT investment 14 Restrictive working practices 14 Publicity ramifications of automating jobs 5 Other 2 The Economist Intelligence Unit 2004 39 Appendix C:
%respondents) Promotion of common technology standards 36 Policies to promote competition in the ICT sector 35 Government leading the way in innovative use of ICT 35 Schemes to promote access to higher
bandwidth services 34 Availability of good ICT education in primary and secondary schools 33 Initiatives to encourage technology transfer from universities 29 Encouragement of foreign direct investment in ICT sector 23 Financing schemes for ICT-related investment 22
Availability of specialist high tech qualifications in further and higher education 10 Policies to attract ICT skilled immigrants 10 Policies to promote labour mobility 9 Policies to redress under-representation of women in ICT jobs 2 Other 1
and Internet 41 Schemes to promote access to higher bandwidth services 36 Policies to promote competition in the ICT sector 34 Promotion of common technology standards 32 Development of e
-democracy 15 Regulation to protect consumer interests 19 Other 0 40 The Economist Intelligence Unit 2004 Appendix C:
What are your plans for investment in ICT in the next 2 years?(%%respondents) Over 100%increase in investment 6 50-100%increase in investment 11 25-50%increase in investment 10 10-25%increase in investment 21
Up to 10%increase in investment 22 Same level of investment 25 Up to 10%decrease in investment 3 10-25%decrease in investment 2 25
-50%decrease in investment 0 50-100%decrease in investment 0 Harnessing ICT in business
What proportion of your organisation's overall budget did you invest in ICT in the last 12 months?(%
%1 Above 50%0 The Economist Intelligence Unit 2004 41 Appendix C: Survey results Reaping the benefits of ICT Europe's productivity challenge What proportion of the following business processes are automated in your company?(%
or services are sold online?(%%respondents) 10-25%12 26-50%13 51-75%2 More than 75%4 Less than 10%69 42 The Economist Intelligence Unit 2004 Appendix C:
Survey results Reaping the benefits of ICT Europe's productivity challenge Which of the following are important in your selection of solutions providers for ICT?(%
%respondents) Improved management information 51 Communication and collaboration between employees 48 Customer relationship management 33 Integration of existing data/technologies 33 Remote/mobile working 23
Enterprise resource planning 21 Technologies for knowledge capture and dissemination 21 Outsourcing of IT services 20 Supply chain integration 19 Online sales and marketing channels 14 What proportion of your ICT
%respondents) Less than 25%12 25-50%26 50-75%40 100%1 75-99%21 The Economist Intelligence Unit 2004 43 Appendix C:
Survey results Reaping the benefits of ICT Europe's productivity challenge Which of the following offer the greatest opportunity for productivity gains in the next 3 years?(%
%respondents) Improved management information 47 Customer relationship management 41 Communication and collaboration between employees 32 Supply chain integration 31 Integration of existing data/technologies 29
and marketing channels 21 Enterprise resource planning 16 Outsourcing of IT services 14 On average how long does it take your company to achieve return on investment from ICT projects?(%
and metrics to measure return on investment from ICT initiatives 40 We measure total cost of ownership for our key technology platforms 32 We formally review our ICT suppliers on a regular basis 29 We offer incentives to encourage innovation at all levels of the business 26
%respondents) Impact on productivity 55 Impact on profitability 40 Return on investment models 32 Impact on customer retention 23 Speed to market 21 We don't use measures to evaluate ICT benefits 15
44 The Economist Intelligence Unit 2004 Whilst every effort has been taken to verify the accuracy of this information,
neither The Economist Intelligence Unit Ltd. nor the sponsors of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information,
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