Research and Innovation Innovation Union Competitiveness papers Issue 2013/3 Europe's competitive technology profile in the globalised knowledge economy EUROPEAN COMMISSION Directorate-General for Research and Innovation Directorate
Economic Analysis and Indicators Europe's competitive technology profile in the globalised knowledge economy Innovation Union Competitiveness papers Issue 2013/3 Europe Direct is a service to help you find answers to your questions about the European union.
5 1. Europe's position in the globalised knowledge economy...6 2. Technology profiles of the world's major knowledge centres...
These new business models have grown as a response to falling productivity growth in the 1970s and the new opportunities presented by information and communication technologies. 1 Initially,
the strategies concerned mainly the lower end of the value chain driven by cost-related factors.
International competition for goods and services in the upper parts of the value chain is increasingly tougher.
This process of networked production coupled with complementary services is backed by increasingly fungible capital. Foreign direct investments are growing
and are pushing countries to compete in terms of attractiveness and specialisation profile. With the economic crisis in Europe and the US, activities for incremental innovation are located increasingly close to the more dynamic Asian markets.
In the medium-term, what is at stake is productivity growth, which relies on a larger part of the economy producing knowledge-intensive and high valueadded goods and services.
Porter, 1990) This paper presents an overview of technology development in Europe in this context of a global knowledge economy.
It presents the latest data on the process of global technology development and future prospects based on strategic knowledge assets.
The underlying hypothesis is that periods of deep economic crisis have accelerated historically technological change, at the same time transforming the broader economy. 2 An evidence-based approach is important for going beyond simplistic concepts,
and the results indeed show a more multifaceted picture of Europe. 1 Castells, 1996; Expert group to the European commission, 1997.2 Schön, 2009.
Introduction 6 Europe's compet it ive technology prof i l e in the global ised knowledge economy 1. Europe's position in the globalised knowledge economy The total
Comparing total expenditure on R&d in PPS in 2010 with the same investments in 2000 shows a 77%increase in real terms.
This opens the door to new opportunities of international cooperation and to world progress in research and innovation addressing societal challenges.
In economic terms, it also means stronger rationale for Open Innovation strategies in increased competition for knowledge-based and high value-added goods and services.
the largest increase of the world share has been among the BRIS countries and in other knowledge-growth countries in the world, possibly the first significant signs of the rising importance of these countries in the global knowledge economy.
The worrying trends for Europe are more in R&d investments and PCT patents 3 as illustrated in the graph below.
%The main expansion is found in Japan, China and other developed Asian economies. 3 PCT:
ii) Other Developed Asian Economies does not include SG and TW;(iii) BRIS does not include India and South africa.
ii) Other Developed Asian Economies does not include SG and TW;(iii) BRIS does not include South africa.
-28 United states Japan China Other Developed Asian Economies (KR+SG+TW) BRIS (BR+RU+IN+ZA) Rest of the World (5) Researchers (FTE
Foreign investment dynamics and the increased pattern of sourcing parts and components from dispersed Global Value Chains indicate the globalisation of technology
since it increases the competition between knowledge centres, triggering specialisation profiles. It can also be the base for complementarities
and services can be measured by the composition and direction of overall foreign direct investment (FDI) flows,
although investments have fallen with the current economic downturn Concerning FDI, the data shows that the EU is still the main destination in the world,
At the same time, emerging economies such as China and India have increased their share of total world FDI inflows.
firms from emerging economies are increasingly acting as FDI investors Even though non-EU firms increasingly consider comparative advantages for investment in geographical areas other than the EU, the EU remains the major destination for foreign direct investments of US firms.
In 2011 € 242 billion of foreign direct investments were made in the EU from non-EU firms.
With the exception of the peak in 2007, this represents a recovery to the pre-crisis situation.
Investment flows coming from North america to the EU have been by far the largest. Although investments coming from emerging markets are still low in absolute terms,
a gradual increase could be seen specifically from Asian and Central american investors, with investments from the former amounting to 19%of total FDI investment flows to the EU. 4 Expert group to the European commission,
2008.5 The globalisation of production can also be measured by input-output tables on trade, indicating income generated from the global value chains.
World share of Foreign Direct Investment (FDI), 2004 11 Foreign Direct Investment (FDI) Inflows World Share(%)0%10%20%30%40
-10%2004 2005 South korea 8 Europe's compet it ive technology prof i l e in the global ised knowledge economy This signals a shift from the traditionally perceived position
etc. an increasing interest from emerging economies is seen in investments in technology and knowledgeintensive fields.
With the economic crisis, outward foreign direct investment flows of European firms have reached the level of FDI flows inside the European union In 2008,
outward direct investments have returned to their pre-crisis values. The intra-EU FDI outflows have been following a similar trend
Foreign Direct Investments in Europe by firms from other continents € 250 Africa Asia Central america North america South america € 200 € 150 € 100
Foreign Direct Investments of European firms outside the EU Extra-EU FDI Outflows Data: OECD, Eurostat.
Investments in science and technology represent a very significant part of the foreign direct investments of EU firms Investments in manufacturing activities for petroleum
chemical, pharmaceutical, rubber and plastic products still have the highest share of the EU outward investment flows.
However, these are followed closely by investments in professional, scientific and technical activities (financial services are taken not into account).
The internationalisation of the economy has moved to cover the higher end of the value chain,
where the investment flows between the EU and US dominate Globally, the internationalisation of business R&d is the result of relations between a small number of countries.
The data presented illustrates the pre-crisis period. 6 As for the investments in research and innovation,
However, the figure also shows a deficit in the EU's R&d investment flows to the US.
Foreign Direct Investments inside the EU compared to extra-EU FDI outflows Intra-vs. Extra-FDI Outflows Data:
%6‘Internationalisation of business investments in R&d and analysis of their economic impact',Innovation Union Competitiveness paper 1/2012 http://ec. europa. eu/research/innovation
i l e in the global ised knowledge economy While EU firms invested € 13.2 billion in the US,
Breakdown of Foreign Direct Investments by sector%of all extra-EU NACE sectors Data: OECD, Eurostat.
Other manufacturing (C15, C23, C27, C31, C32, C33) 12%13%15%15%17%23%Telecommunications Information and communication Manufacture of chemicals and chemical
products Professional, scientific and technical activities Manufacture of petroleum, chemical, pharmaceutical, rubber and plastic 11 EU firms expect to further expand their worldwide R&d investments,
%This is in part due to sustained R&d investment by European firms, which expect their worldwide investments in R&d to grow further by an average of 4%annually over the period 2012 14.
Figure 8 below shows that this evolution affects mainly the knowledge-intensive Member States. The figure depicts the investments of R&d-intensive firms in absolute numbers as a share of total national R&d investments financed by businesses in absolute numbers.
The numerator is based on firm-level data by headquarter and the denominator on national data (firms operating in the country independently of the location of their headquarter).
these investments can be larger than the sum of R&d investments financed by the businesses registered in the country (BERD data).
Share(%)of Firm R&d investments in R&d financed by businesses (in brackets, number of firms in the population) shares of top companies'r&d investments compared to berd 2005 2006 2007 2008 2009 2010 2011 Eu (1) 108.5 (1
000) 106.9 (1 000) 105.5 (1 000) 104.4 (1 000) 106.9 (1 000) 110.7 (1 000):(1 000) be 58.6 (37
and Industrial Scoreboard datasets, see Azagra-Caro, J. and Grablowitz, A.,2008.12 Europe's compet it ive technology prof i l e in the global ised knowledge economy between the two data sets,
which a country is affected by the internationalisation of business R&d investments. The number of firms in each country is indicated in brackets.
but in these countries, business R&d investments in the country seem to have grown more than French
and German firms'worldwide R&d investments. The data for the United kingdom is particularly interesting, since the overall R&d intensity in the country is much lower than in other EU Member States.
but on a worldwide scale. 2. Technology profiles of the world's major knowledge centres With the globalisation of investment in research and innovation,
different locations compete to attract investments but also to develop new and innovative products and services for the global market.
The competitive position of Europe depends in this context not only on its accumulated knowledge assets overall but also on its relative technology profile being relevant for emerging world growth markets.
even surpassing the US following the economic crisis. Technology production in the US, when measured in PCT patent applications,
was affected more heavily by the economic crisis, although there has also been a clear recovery trend since 2010.
%3 806 43.6%4 258 32.5%3 687 21.2%2 075 31.7%3 624 Environment 34.7%3 970 34.5%4
i l e in the global ised knowledge economy Economic transformation addressing societal challenges may come from Asia Figures 10 and 11 below highlight the accelerating progress of Asia in transformative technologies linked to major societal
Contrasting with the slow move from the traditional technology leaders of the US and the EU, the figures below outline a major geographic strategic shift in the world's knowledge economy in the decade to come.
The trend of an increasing world technology share of Asian economies is also clear at this level.
while Asia has achieved already revealed technological advantage in ICT, nanotechnologies, materials, energy and environment technologies.
%79 25.0%32 29.8%85 Environment 34.7%3 970 34.5%4 839 42.0%4 815 31.8%4 456 19.8%2
PCT patent applications addressing societal challenges Environment Environment-related technologies PCT patent applications (1) per billion GDP (PPS€), 2000-14 (2) 0. 2
16 Europe's compet it ive technology prof i l e in the global ised knowledge economy The EU is not focusing on these transformative technologies.
The lower and decreasing specialisation in energy, environment and materials may in the medium term endanger the EU's world technology lead in these areas,
. 94 1. 20 0. 71 ICT 0. 84 1. 04 1. 29 Energy 1. 15 0. 74 1. 22 Environment
A more strategic focus of supply measures for technology relevant for growth markets has strong potential to foster high-growth innovative enterprises
if this supply is combined with demand-side measures and more general framework conditions for firm growth and entrepreneurship.
home demand, firm strategies, competition, related industries, and their interaction. Advanced and sophisticated home demand is emphasised by Porter as an important factor for raising the national competitive advantage. 11 The existence of‘sophisticated'home consumers ultimately drives demand-side innovation as companies are forced to satisfy their needs to remain competitive.
In 2005, a high-level European expert group revisited and extended Porter's concept of lead markets.
climate change and resource scarcity. 14 This evolution is forecast to raise global demand in more sustainable cities.
and services in sustainable construction has large potential for high-growth innovative enterprises in Europe.
pushed by demand-side measures such as standards, regulation for energy efficiency, impact on the environment, water and health, public procurement of construction and market mechanisms. 15 On the supply side,
initiatives at the EU level include the public private partnership on energyefficient buildings, the SET plan for renewable energy and smart grids,
Construction technologies can be integrated with S&t strengths in green energy, the environment, ICT, materials and nanotechnologies.
Countries with the right mix of science and technology strengths are positioned better to take up the market opportunities in sustainable construction fostering high-growth innovative enterprises;
and services have a clear value added to be integrated in specialised knowledge flows and value chains.
'18 Europe's compet it ive technology prof i l e in the global ised knowledge economy Figure 14:
Germany has a leading potential to converge technologies for construction, green energy, the environment and materials.
such as the European green cars public private partnership, are combined with demand-side measures such as stricter EU regulations on passenger cars'CO2 emissions.
Clean transport strengths (share of S&t in ERA), 2000 11 20 Europe's compet it ive technology prof i l e in the global ised knowledge economy
Building upon the technological profiles of countries in the EU opens the door to opportunities for network specialisation.
Figure 17 reveals that there are large opportunities for networked technology collaboration with Norway, combining specialisation in both green energy and other transport technologies.
and demand with networked specialisation The demographic evolution in developed economies is leading to an ageing population, with public health systems under increasing cost pressure.
Europe is experiencing this growing demand particularly strongly, and therefore has large potential for‘lead users'reflecting increasing global market demand. 19 Figures 18 and 19 illustrate the strengths
Innovation medicine relevant specialisation of European countries 22 Europe's compet it ive technology prof i l e in the global ised knowledge economy cancer, immune-mediated
This article sets out to assess the technology profile of Europe in the context of increasingly tough international competition and fungible R&d investment moving from one country to another, depending on market opportunities and specific
and services and this knowledge is becoming more widely distributed geographically. FDI flows and production organised around global value chains establish knowledge centres in relation to each other for collaboration in related fields,
but also for competition in terms of attractiveness and specialisation profile. In this context, Europe is maintaining its strengths as a world centre of knowledge production.
However, Asian economies are growing very swiftly and have already overtaken the technology lead of Europe and the US in certain sectors.
while Asian economies have taken the lead in ICT and reached a technology position on par with the Western block in green energy, environmental technologies, materials and space.
while the Asian economies are specialised in ICT, energy and the environment. However, Europe has the potential to strengthen its competitive position in these converging technologies relevant for societal challenges and emerging growth markets.
Conclusions 24 Europe's compet it ive technology prof i l e in the global ised knowledge economy Azagra-Caro, J. and Grablowitz, A. 2008)‘ Exploring data on business R&d:
Economy, Society and Culture',Volume I: The Rise of the Network Society, Blackwell Publishers Ltd, Oxford, UK Expert group report to the European commission,
'report of the taskforce on sustainable construction, in preparation of the EC Communication‘A Lead Market Initiative for Europe,
Press, New york Schön, L. 2009)‘ Technological Waves and Economic growth Sweden in an International Perspective 1850-2005',paper 2009/06, Circle, Lund University Stehrer, R
-and demand-side measures to stimulate business investments in new technologies and innovative products','paper presented at the European commission Mutual Learning seminar 2012 References European commission Europe's competitive technology profile in the globalised knowledge economy Luxembourg:
Publications Office of the European union 2013 24 pp. 17,6 x 25 cm ISBN 978-92-79-31235-9 doi:
10.2777/29715 This article analyses Europe's competitive technology profile in the context of a globalised knowledge economy and increasingly tougher world competition for the upper end of the global value chains.
More geographically distributed world knowledge coupled with increasing international flows of foreign direct investment is pushing countries to think more strategically about their technology profiles.
which must be matched with a parallel development of advanced home demand. The article presents Europe's competitive position in the globalisation of knowledge
and investment flows as background to a more detailed analysis of Europe's technology profile.
For decades Silicon valley has been perceived as a seedbed of enterprise where digital technology and creative ability combine to deliver hugely successful products and services to world markets.
Inspired by a plethora of Californian business success stories, and with the rapid provision of digital infrastructure and talent pools around the world, a network of creative, digital,
IT--facilitated clusters is emerging that could bring significant economic growth and wealth to sector participants.
identifies cluster stakeholders, describes factors that influence cluster success, and proposes a programme of research to guide future policy-making in the creative,
business owners and large corporates need to address with coherent strategies in order to capitalise on potential business development opportunities fermented by cluster formations.
with attention to the ecosystems of small enterprise creation and development. Specific aims of this paper are to:
and stakeholder interests and influence Determine factors that stimulate enterprise start-up, growth and success Evaluate the need for short--term
and longitudinal digital cluster research Propose the leadership and management challenges that lie ahead for successful cluster growth
the significant contribution that this hybrid sector delivers to an economy as a whole can be recognised. 1 Chair of Tech City UK 2 Economist, 21st Sept 2013,
Convergent enterprises the hallmark of cluster members where businesses integrate various disciplines to execute their vision are most often found in urban high--density groupings which bring together dynamic start-ups, fast growing SMES and various
types of incubators and other informal co--working spaces from cafes to maker--spaces. We want to understand how clustering manifests itself in cities and towns across the UK.
The authors have been observing these clusters for some time including direct involvement and interaction with cluster stakeholders and enterprises themselves.
not--for--profit, research--led, or a combination of these,--in close physical proximity that are competing
, capital and, crucially, the density of activity. An ever--increasing number of co--working spaces contribute to this increase in density5.
and evolving trends in environments for working that are emerging around the world. The term‘smart space'is used typically to 4 Brewer, S and Rees, D‘Bournemouth Digital Pier,
refer to environments that have been designed and then used in a manner that enables flexible, efficient and productive usage.
here, is in why and how individual enterprises in the creative, digital sector come together in well-defined geographical boundaries.
Thus, the search is for explanations that reveal mutual benefits to cluster members and their broader stakeholders.
for the purposes of our discussions we are considering groups of enterprises producing a critical mass of business activity that have significant impact on the local economy through investment, employment, infrastructure and profitability.
what we see today 15,620 enterprises commencing in a 12--month period leading up to March 20148 alone,
one which is the result of strategic leadership from private sector investment, central government initiative, local authority economic stimulation,
Here, the protagonist can see how the development of a digital local economy could respond to addressing a problem,
or exploiting an opportunity. We could see, for example, how a local university may wish to provide enterprise opportunities for graduates emerging from a degree course that has nurtured creative talent suitable for the digital sector.
Or perhaps there are willing investors who decide that a certain geographical location has commercial advantages such as transport infrastructure
and often anchored by one or a small number of key stakeholders. A good example to consider is the recent re--generation project in Salford, Greater manchester.
digital enterprises within a defined location has evolved to a point where growth is no longer possible
economy and ecosystems, and is our third case history at Appendix‘A'.University--Based Technology Enterprise Centres/Parks/Incubators Centres of academic excellence usually universities
and other higher education establishments have come to understand how their intellectual property can yield value through market channels.
It is the last of these that brings us to include such enterprise centres or parks in our discussions of creative clusters.
and realised, the creative digital enterprise gets off the ground, and the business owners retain a special
and acceleration to progress as a mature enterprise. This can become a two-way street where a corporate academy
or internal R&d centre can support a new creative digital enterprise, incubate and accelerate its growth,
and then monetise financial or resource investment. Mike Lynch (founder of the company, Autonomy) says:
The government has realised that the economy could be benefit from connecting the two booming clusters.
Economist, 21st Sept 2013, p30) Figure Four, below, models this type of cluster. Multiple Clusters Many clusters develop a strong identity with a specific industry educational technology in Birmingham, Marketing and Advertising in Bournemouth,
Multiple Clusters Pru Ashby, Director at Tech City Investments, articulated the competitive advantage that London enjoys as a leading global creative cluster comprised of these‘hotspots'.
This refers to the attractiveness of the work and social environment in which the enterprise is located
and reflects the atmosphere, culture and sociability of the ecosystem.§§Infrastructure. Transportation facilities (rail, motorways, airports), broadband, schools, leisure and culture facilities are high priorities for would-be entrepreneurs.§
§Investment. Finance, incentives and speed of response are strong attractors.§§Business Climate. Optimism, excitement, peer group membership, association with success, public and industry profile, recognition all factors influencing where entrepreneurs
Enterprise owners value the physical closeness and availability of services from other companies. Stakeholder Interests and Influence With recognition of the potential economic value that creative, digital clusters can bring to local,
regional and national economies there is a discernible interest by various stakeholders to engineer the development of viable and sustainable enterprise ecosystems.
We identify these stakeholders who may hold an interest and influence in the development of a successful, sustainable creative, digital cluster.
Policy makers national government, industry leaders, EU, WTO Local authorities implementing national policy, developing local policy, infrastructure and utility provision
work/living and socially integrative environments Government agencies regional, regulators, industry coordinators, cross--sector collaboration Sector bodies trade and industry reps, grant/funding organisations,
cross--sector partnering, physical environment, and positioning (location) Entrepreneurs/owner--managers initiating, growing and managing the enterprise Investors commercial, private, local authorities, foreign investment Financial service providers banks, providers of credit, insurers Talent developers/universities interdisciplinary talent,
demand for integrated/convergent entrepreneurial graduates and skilled employees Networking/partnering organisations networking competencies, partnership broking,
Suppliers/enterprise partners aligning to client/partner needs (capacity, resources, culture, systems) Media organisations investigating
and reporting on sector developments Architects/urban and rural planners--creative workplace and business environment design Industry--specific partnerships identifying partners, implementing partnerships Themes,
Issues and Challenges Our investigations suggest that the UK and other governments recognise the potential economic and societal benefits that a successful digital industry can bring,
local enterprise partnerships and private sector investors towards the development of viable, successful and dynamic businesses.
Strategic interventions by public authorities to stimulate enterprise growth are increasing through a variety of mechanisms.
A particular strategy that we have observed is to replace deteriorating performance in traditional industry sectors with investments to promote
and buildings in to new enterprise space are gaining pace. Infrastructure development and urban design initiatives are crucial to facilitate digital sector growth and sustainability.
Enterprise structures and cultures within the digital sector are changing dramatically. Contrary to a line of popular argument that people will elect to work more from home our research is revealing something quite different.
Studies we have referred to in this paper indicate a strong desire among the new creative entrepreneurs to engage socially with their peers in both virtual and face-to-face environments.
Employees look forward to interacting with colleagues, customers and partners in the physical workplace. Business owners have to be careful to ensure that the free,
taking advantage of the opportunity to learn from their fast--moving and dynamic suppliers/partners.
the fledgling enterprise will require cross disciplinary talent and universities may consider how they best respond to this need.
Business schools can certainly offer a great deal in providing executive education programmes to the stakeholders identified above
Investors are becoming aware of the value of this sector on a long-term basis. Investment decisions need to be based on a full understanding of the culture of the sector,
what may account for enterprise success and failure, and how enterprises look for guidance from experienced investors.
Conclusions Our paper aimed to raise awareness of the role that clusters have in exploiting the creative
and interventions should avoid disturbing the natural habitats and cultures of urban environments. There is still a lot to be learned about the intricate nature of creative clusters how different attraction factors rank
how the case for public and private investment can be more persuasive; how talent flows in to the industry can be broadened and managed;
and track performance of both individual enterprise and the whole cluster itself. This will require a major programme of research that is best conducted through a partnership of academic, practitioner, consulting, private--sector and governmental participants..
Whatever stakeholder position the reader adopts, the development of successful creative, digital clusters represents a major strategic leadership challenge to ensure that the opportunities for high--value employment,
green economic growth and impressive returns in investment are lost not. The authors are keen to discuss with readers how the research agenda can be progressed.
Recommendations Depending which side of the‘disruptive innovation'fence you may be sitting on, the leadership challenges could be perceived as either threats or opportunities.
The authors are quite clear where they stand this is an opportunity for all stakeholders to take advantage of the benefits that these clusters Bring to help leaders develop successful businesses
and successful clusters an exemplar framework that can model cluster characteristics, behaviours and performance has to be proposed.
Second, we strongly emphasise the need for research that can uncover the secrets of individual enterprise success why do some cluster members succeed (and,
or not have on enterprise performance. An expected outcome would be to propose approaches to enterprise design its architecture, culture and leadership.
Third, it is imperative that we establish why clusters grow at the speed we have observed
and what impact they have on local and national economies. Various credible sources have offered data and insights as we have referred to in this paper
Fourth, a programme of training, development and business support has to be in place to capitalize on the opportunities of clusters and their membership.
Business schools are placed ideally to deliver these services that could include workshops, simulations, think-tanks, experiential learning, discussion forums, presentations, research and networks.
with Tracy Emin at the vanguard, moved in during the economic downturn of the early 1990s.
Engine Shed is supported by Bristol City council, the University of Bristol and the West of England Local Enterprise Partnership and also acts as a home for Bristol's component of the regional SETSQUARED Partnership.
Editors, lab services, games testing services and digital--workflow facilities are connected all across the top five floors and connected vertically by high-speed links.
and create their own opportunities and, mirroring that, a trend for older professionals to relocate
Primary References Economist, 21st Sept 2013, p 30 Tech Nation‘Powering the Digital economy'www. TECHCITYUK. COM https//www. gov. uk/government/news
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