WARN-Not a number in Unicode character name: upwards WARN-Not a number in Unicode character name: upwards WARN-Not a number in Unicode character name: upwards WARN-Not a number in Unicode character name: upwards WARN-Not a number in Unicode character name: upwards 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 C †Research and Innovation Unit C. 6 †Economic analysis and indicators E-mail: rtd-innovation-papers-studies@ec. europa. eu RTD-PUBLICATIONS@ec. europa. eu Contact: Johan Stierna European commission B-1049 Brussels EUROPEAN COMMISSION Directorate†General for Research and Innovation 2013 Authors of the study Johan Stierna and Gergana Rangelova European commission, DG Research and Innovation Unit C6. 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 Freephone number *00 800 6 7 8 9 10 11 *The information given is free, as are most calls (though some operators phone boxes or hotels may charge you LEGAL NOTICE Neither the European commission nor any person acting on behalf of the Commission may be held responsible for the use that may be made of the information contained in this publication The views expressed in this publication, as well as the information included in it, do not necessarily reflect the opinion or position of the European commission and in no way commit the institution More information on the European union is available on the Internet (http://europa. eu Cataloguing data can be found at the end of this publication Luxembourg: Publications Office of the European union, 2013 ISBN 978-92-79-31235-9 doi: 10.2777/29715  European union, 2013 Reproduction is authorised provided the source is acknowledged Images cover: earth, Â#2520287,2011. Source: Shutterstock. com bottom globe,  Paul Paladin#11389806,2012. Source: Fotolia. com TABLE OF CONTENTS Introduction...5 1. Europe†s position in the globalised knowledge economy...6 2. Technology profiles of the world†s major knowledge centres...12 3. Potential of European cooperation in converging technologies for emerging growth markets...17 Conclusions...23 References...24 5 Since the early 1980s, the production of goods has been organised increasingly into networked firms with delocalised production chains. 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 techno -logies. 1 Initially, the strategies concerned mainly the lower end of the value chain driven by cost-related factors However, over the last decade the internationalisation process has moved up the value chain to also cover the higher end of the value chain, including research and innovation activities. 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 value -added 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. Special emphasis is placed on the differences in technology profiles of the world†s major knowledge producers. 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 Schã n, 2009 INTRODUCTION 6 Europe†s compet it ive technology prof i le in the g lobal ised knowledge economy 1. Europe†s position in the globalised knowledge economy The total amount of knowledge produced every year grew remarkably in the first decade of the 21st century. Comparing total expenditure on R&d in PPS in 2010 with the same investments in 2000 shows a 77%increase in real terms The total number of PCT patent applications in the world in 2010 was 57%higher than in 2000 and the number of S&e graduates grew by 51%from 2 430 000 in 2000 to 3 679 000 in 2010. 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 Capacities to produce knowledge are increasingly distributed around the world Theâ EU is a major knowledge centre but is losing ground to Asia in technology development The process of a broader geographic distribution of knowledge creation in the world continues. Emerging powers in science, technology and innovation, in particular China, BRIS countries (Brazil, Russia, India, South africa) and other developed Asian countries, are challenging the triad of the US, EU and Japan. Today, 70%or more of knowledge creation takes place outside the EU, and around 50%of the world†s human resources for research and innovation live outside the triad. Figure 1 below illustrates that for science and engineering graduates, 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 change in the world share of PCT patents highlights in particular that both the EU and the US are losing ground to the more dynamic Asian technology powers. Overall the increasing geographical spread of world science and technology production has had a larger impact on the US and Japan than on the EU. The EU€ s world share of PCT patent applications has fallen by 16, %which is clearly a larger decrease than for the other dimensions of its R&i system. However, the US€ world share of patent applications has fallen even more, by 31%.%The main expansion is found in Japan, China and other developed Asian economies 3 PCT: Patent Cooperation Treaty. †International†patent application seeking patent protection for an invention in several countries. A PCT application does not in itself result in the grant of a patent, since there is no such thing as an †international patentâ€. It must be followed by a standard national or regional patent application Source: DG Research and Innovation †Economic Analysis Unit Data: Eurostat, OECD, Unesco, Science Metrix/Scopus (Elsevier Notes 1) Tertiary graduates in science and engineering ii) Other Developed Asian Economies does not include SG and TW iii) BRIS does not include India and South africa i) Data is not available for China 2) GERD: Shares were calculated from values in current PPS 3)( i) Top 10%most cited publications †fractional counting method. Scientific publications 2008: citation window 2008-11 ii) Other Developed Asian Economies does not include SG and TW iii) BRIS does not include South africa 4) Patent applications under the PCT (Patent Cooperation Treaty), at international phase, designating the EPO by country of residence of the inventor (s 5) The coverage of the Rest of the World is not uniform for all indicators Estimates were used sometimes when compiling the data 36.1 28.8 33.1 31.8 26.6 22.9 21.9 23.0 28.3 28.8 39.8 25.5 41.1 32.3 38.6 29.8 25.7 21.4 15.2 13.2 10.6 22.0 6. 2 4. 2 14.2 10.7 12.9 9. 4 9. 7 5. 2 1. 5 8. 4 2. 6 10.7 3. 9 15.3 13.8 18.8 2. 2 5. 9 1. 1 2. 1 4. 3 6. 7 3. 6 6. 5 8. 6 5. 1 1. 4 2. 2 1. 6 3. 0 5. 5 7. 5 14.1 11.9 14.6 17.8 8. 4 7. 2 14.2 15.9 6. 9 7. 1 8. 0 9. 0 23.5 29.8 0%10%20%30%40%50%60%70%80%90%100 %2000 2010 2000 2008 2000 2011 2000 2011 2000 2011 EU-28 United states Japan China Other Developed Asian Economies (KR+SG+TW) BRIS (BR+RU+IN+ZA) Rest of the World (5 Researchers (FTE GERD (Gross Domestic Expenditure on R&d)( 2 High impact publications (3 Patent applications (4 Figure 1: World share of S&e graduates, researchers, GERD, high-impact publications and patent applications, 2000 and latest year Science and technology graduates from tertiary education (ISCED 5 and 6)( 1 Participation in global R&d â€%shares 7 The growth in total world production of knowledge and the geographically more distributed knowledge is only part of the picture. A third and related trend is the more fungible nature of capital. Foreign investment dynamics and the increased pattern of sourcing parts and components from dispersed Global Value Chains indicate the globalisation of technology and production driven by large multinational corporations. It is relevant to follow this evolution closely since it increases the competition between knowledge centres, triggering specialisation profiles. It can also be the base for complementarities and networked specialisation based on related variety and overcoming sub-criticality. 4 The globalisation of high value-added products and services can be measured by the composition and direction of overall foreign direct investment (FDI) flows as well as by international financial flows oriented predominantly towards R&d. 5 The EU remains the most attractive market for FDI, 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, representing 1/4 of FDI inflows worldwide, twice the level of the US or China However, the EU€ s share has been eroding in the past decade. At the same time, emerging economies such as China and India have increased their share of total world FDI inflows US firms are still the dominant foreign direct investors in the EU. However, 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, â 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. The most recent data 2011) is consistent with the overall finding of FDI data, namely of the EU€ s slightly falling but persisting world lead. However, China is rapidly increasing its global value chain income and is competitive at both the lower and the higher end of the value chains. Stehrer, in the upcoming Innovation Union Competitiveness report 2013 EU (1)( 2 China United states India Japan Data: OECD Source: DG Research and Innovation †Economic Analysis Unit Notes:( (1) Bulgaria and Romania are included not for 2004,2005 and 2007 Figure 2: World share of Foreign Direct Investment (FDI), 2004†11 Foreign Direct Investment (FDI) Inflows †World Share %0 %10 %20 %30 %40 %50 %2006 2007 2008 2009 2010 2011 2) EU does not include Special Purpose Entities (SPES) for Luxembourg, Hungary, The netherlands and Austria -10 %2004 2005 South korea 8 Europe†s compet it ive technology prof i le in the g lobal ised knowledge economy This signals a shift from the traditionally perceived position of emerging countries as capital-receivers to one of investors, a change that does not seem to be intuitive. Indeed, emerging nations have served developed markets through exports by building on their low-cost competitive advantages. Thus the motives for establishing themselves in the developed world should be sought elsewhere. Looking at the recent takeover deals such as Geely (China) and Volvo Sweden), Tata (India) and Corus (Netherlands/UK etc. an increasing interest from emerging economies is seen in investments in technology and knowledge -intensive 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, FDI of EU firms fell sharply. Since then, there has been a progressive increase in FDI outflows both within the EU and to countries outside the EU. In 2011, the decreasing trend was reversed with extra-EU FDI outflows reaching â 365 billion. Although the level is far below the peak of 2007, outward direct investments have returned to their pre-crisis values. The intra-EU FDI outflows have been following a similar trend, however with a lag of one year, with the biggest decrease felt in 2009 Figure 3: Foreign Direct Investments in Europe by firms from other continents â 250 Africa South Americanorth Americacentral Americaasia â 200 â 150 â 100 â 50 â 0 â-50 20 04 20 06 20 08 20 10 20 04 20 06 20 08 20 10 20 04 20 06 20 08 20 10 20 04 20 06 20 08 20 10 20 04 20 06 20 08 20 10 EU-27 inward flows by partner bn E U R Data: OECD, Eurostat Source: DG Research and Innovation †Economic Analysis Unit Figure 4: Foreign Direct Investments of European firms outside the EU Extra-EU FDI Outflows Data: OECD, Eurostat Source: DG Research and Innovation †Economic Analysis Unit â 0 â 100 â 200 â 300 â 400 â 500 â 600 2004 2005 2006 2007 2008 2009 2010 2011 9 Traditionally, intra-EU FDI flows have been higher than extra-EU FDI outflows. This could easily be explained by the integration process amongst the EU countries and thus the reduced costs of access to markets, increased economies of scale and agglomeration benefits. However a closer look at the share of intra versus extra-EU outward FDI flows reveals a gradual increase in the importance of extra-EU FDI outflows. For the first time in 2009, total extra-EU FDI was on par with total intra-EU FDI outflows This is clearly a reflection of the very strong internationalisation strategies of many EU firms, driven by the greater dynamics of markets outside Europe. Althoughwarn-Not a number in Unicode character name: upwards the rising importance of certain developing nations as FDI destinations for European investors could be noticed even before the start of the crisis, the latter seems to have accelerated this trend and led to an increased importance of these countries as FDI destinations 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. In 2010, the EU invested over â 50 billion in professional, scientific and technical activities in extra-EU countries, which represented 17%of all extra-EU FDI that year 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. Figure 7 below illustrates these relationships for the manufacturing sector of the EU, the US, Japan China and Switzerland. The service sector is excluded due to missing data. The size of the pie chart for each country indicates the total amount of R&d expenditure of foreign-owned firms in this country, while the pie slices represent the R&d expenditures of foreign-owned firms from one particular country. The data presented illustrates the pre-crisis period. 6 As for the investments in research and innovation, the figure below reveals the extreme importance of the relationship between the US and the EU. R&d expenditure of US firms in the EU and of EU firms in the US taken together account for 2/3 of R&d expenditure of foreign -owned firms in manufacturing worldwide. 7 The US is also the largest investing country in the majority of the EU Member States. EU firms account for more than 65%of the total manufacturing R&d expenditure of foreign-owned firms in the US, or more than 90%once other European countries which are not members of the European union (mainly Switzerland and Norway) are added. However, the figure also shows a deficit in the EU€ s R&d investment flows to the US Figure 5: Foreign Direct Investments inside the EU compared to extra-EU FDI outflows Intra-vs. Extra-FDI Outflows Data: OECD, Eurostat Source: DG Research and Innovation †Economic Analysis Unit 2004 2005 2006 2007 2008 2009 2010 2011 20 %40 %60 %80 %100 %0 %6 †Internationalisation of business investments in R&d and analysis of their economic impactâ€, Innovation Union Competitiveness paper 1/2012 http://ec. europa. eu/research/innovation-union/index en. cfm? pg=other-studies 7 The European union is considered as one entity, and intra-EU relationships (for example, R&d of German firms in France) are taken not into account 10 Europe†s compet it ive technology prof i le in the g lobal ised knowledge economy While EU firms invested â 13.2 billion in the US, the US firms invested only â 9. 5 billion in the EU. Such a deficit of almost 40%is a sign that the US is more attractive for R&d than the EU The EU remains an attractive place to perform R&d but Asia is rising and gaining ground In recent years, China has emerged as a new location for R&d of foreign-owned firms. However, Chinese data is incomplete and has some methodological issues, which makes a comparison with data from OECD countries difficult The R&d expenditure of wholly foreign-owned companies in China was â 2. 4 billion in 2007. A breakdown of this amount into different countries of origin is not available In absolute terms, overseas R&d expenditure of US firms in the EU more than doubled between 1994 and 2008. However the Asian countries†rise as R&d locations for US firms is leading to a shift in the distribution of US overseas R&d expenditure. The EU€ s share of US overseas R&d expenditure decreased from around 75%in 1994 to around 60%in 2008 with corresponding increases for Asian countries and non -European countries. Much of the decrease in the EU share occurred during the 1990s. From the early 2000s up until the crisis, the EU share has remained stable at around 60 %Source: DG Research and Innovation †Economic Analysis Unit Data: OECD, Eurostat, National statistical offices, DG RTD study calculations Notes: 1) Firms from the European union spent â 774 million on R&d in Switzerland in 2007; Swiss firms spent â 2. 47 billion on R&d in the EU-27 in 2007 2) Swiss data also includes the service sector; data for China is estimated based on national sources and US and Japanese outward data Figure 7: Overseas business R&d expenditure in manufacturing between the EU, the US Japan, China and Switzerland, 2007 (in million euro European union 27 European union 27 China Japan â 110 â 2. 958 â 2. 496 â 2. 470 â 774 â 226 â 11 â 79 â 729 United states of america United states Japan Rest of the World Switzerland Switzerland â 3. 717 â 13.242 â 465 â 4. 489 â 1. 009 â 1. 262 13â â 65 â 1. 444 â 856 â Figure 6: Breakdown of Foreign Direct Investments by sector %of all extra-EU NACE sectors Data: OECD, Eurostat Source: DG Research and Innovation †Economic Analysis Unit 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, impacting mainly the most knowledge-intensive Member States Overall, businesses in the EU increased their expenditure on R&d as a share of GDP from 2007 (1. 18%)to 2011 1. 27%.%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. 8 When a country has several large multinational corporations investing in R&d worldwide in the country and abroad), these investments can be larger than the sum of R&d investments financed by the businesses registered in the country (BERD data The values for the country in Figure 8 are in this case larger than 100. Given the methodological differences Figure 8: 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) 63.5 (33) 70.3 (40) 65.1 (39) 62.3 (40):(39):(34 CZ 1. 7 (2) 5. 2 (4) 7. 8 (4) 2. 1 (1) 3. 0 (2) 8. 8 (3) 6 . 3 (2 dk 72.0 (37):(38) 82.8 (42) 84.5 (47) 85.9 (46) 93.3 (45) 73.8 (35 de 108.1 (167) 107.6 (167) 105.6 (189) 106.8 (209) 105.6 (206) 110.2 (206) 88.0 (235 IE 34.6 (12) 39.0 (12) 37.2 (11) 42.7 (12) 100.0 (16) 156.6 (17) 208.3 (14 EL 17.8 (6):(3) 20.5 (5):(4):(5):(5):(1 Es 26.8 (22) 25.9 (23) 23.9 (21) 24.1 (21) 50.5 (27) 62.5 (25):(22 fr 117.3 (112) 120.9 (114) 128.0 (113) 127.5 (125) 113.5 (116) 111.9 (125):(126 IT 76.6 (40) 75.1 (48) 73.7 (51) 77.4 (57) 77.6 (53) 80:1 (54):(50 Lu 81.9 (6):(5) 128.5 (6:(WARN-Not a number in Unicode character name: upwards 10) 138.7 (8) 225.9 (9) 175.7 (13 NL 207.6 (44):(50) 199.0 (49):(53) 242.3 (52):(54):(52 AT:( (28) 18.3 (31) 18.6 (30):(32) 22.5 (31):(29):(27 PL 5. 1 (2) 7. 4 (2) 12.1 (4):(6) 12.7 (5) 18.1 (7) 1. 7 (2 PT 3. 6 (2). 6 (1) 7. 6 (3) 12.5 (4) 33.2 (8) 27.1 (6):(6 si 19.4 (1) 21.4 (2) 23.9 (2) 24.7 (2) 26.3 (2) 24.5 (2) 19.2 (2 fi 148.7 (70) 136.5 (67) 164.4 (60) 145.5 (58) 143.0 (56) 140.5 (52) 136.1 (46 se 103.2 (81):(75) 107.6 (78):(70) 107.7 (76):(74) 121.5 (85 uk 170.5 (327) 160.9 (321) 134.5 (289) 141.3 (247) 162.2 (246) 171.3 (244) 189.8 (247 Is 30.5 (1) 25.3 (1) 20.2 (1) 29.9 (1) 37.5 (1):(1):(1 NO 25.3 (5) 30.3 (7) 34.2 (8) 32.8 (9) 44.0 (11) 42.8 (9):(9 CH:( (37):(39):(42) 255.7 (38):(38):(40):(40 Tr 9. 0 (1) 11.3 (2) 8. 1 (3) 13.8 (2) 22.1 (3) 15.6 (4):(5 Source: DG Research and Innovation †Economic Analysis Unit Data: Eurostat, OECD, EU R&d industrial scoreboard notes:( (1) EU average does not include Croatia 8 For a more extensive methodological note, explaining the differences between BERD and Industrial Scoreboard datasets, see Azagra-Caro, J and Grablowitz, A.,2008 12 Europe†s compet it ive technology prof i le in the g lobal ised knowledge economy between the two data sets, these shares are only proxies of the extent to which a country is affected by the internationalisation of business R&d investments. The number of firms in each country is indicated in brackets Figure 8 shows that it is mainly knowledge -intensive countries which are affected most by the internationalisation of business R&d. Switzerland has the highest ratio, followed by The netherlands, Ireland the United kingdom, Finland and Sweden. Germany and France are affected also, 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. The table seems to indicate that British businesses do indeed invest considerably in R&d 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. The EU has maintained broadly its dynamics in technology production, even surpassing the US following the economic crisis. Technology production in the US when measured in PCT patent applications, was more heavily affected by the economic crisis, although there has also been a clear recovery trend since 2010 Even though both the EU and the US have increased their PCT patent applications, the main change over the last decade has been in Asia, with the continued rise of Japan and South korea and the acceleration of China†s growth from 2009 onwards. Figure 9 shows this evolution by thematic sectors. World technology production is divided into the three major blocks of countries: the EU, North america (including the US and Canada) and Asia (including Japan, China and South Korea). ) The table breaks down PCT applications by sector in terms of world share, absolute numbers and change over time (2008 is the latest available year for full counting of sector-specific PCT data Technology-intensive countries in North America and Asia are more strategic than the EU, focusing on key enabling technologies and transformative technologies linked to societal challenges Figure 9 presents a very tight and even distribution of strengths in several technology areas, following the clear rise of Asia in all of them. Consistent with the findings from Figure 1, it has been mainly North america that has lost its share and Asia that has gained. The EU has in broad terms kept its world technology share in most areas However, the table below also shows clear differences in technology profiles between the three major blocks of countries. Countries in North america and Asia seem to be more strategic and selective in their approach focusing technology development on key enabling technologies and transformative technologies linked to societal challenges. This is particularly true when considering the potential of converging technologies a necessary step in addressing more comprehensive societal challenges. North america, headed by the US stands out in technologies for health, biotechnology energy, nanotechnology and security; Asia is taking the lead in ICT (partly linked to FDI) and has reached a technology position on par with the Western blocks in green energy, environmental technologies, materials and space. For the EU€ s transformative capacity, the only clear exception is environmental technologies green energy and materials, where the EU was the world leader in 2008. This could be explained by the fact that Europe, in comparison to the US and certain countries in Asia, has less traditional energy resources and has focused thus on developing alternatives. As highlighted by Porter, the developments in the industry could be attributed to the existing factor conditions and focused policies These sectors, coupled with the EU€ s lead in construction technologies, provide a strong foothold for converging technologies for sustainable buildings and cities (see more in section 4). However, Asia is catching up rapidly in these fields as well as in automobiles and other transport technologies. The EU presents a broader but less specialised technology profile, keeping its strengths in more traditional and established industry sectors (transport, construction, food and agriculture However, with the rise of Asia, the EU is also losing world share in these sectors 13 Figure 9: pct applications, world share; absolute numbers in major world regions world leaders in bold Eu-27 North america Asia 2000 2008 2000 2008 2000 2008 Health 32.7 %6 015 30.9 %7 207 49.4 %9 068 47.9 %11 172 14.5 %2 661 17.3 %4 035 biotechnology 28.0 %2 787 32.0 %2 415 49.0 %4 885 44.4 %3 346 20.7 %2 068 20.8 %1 566 ICT 37.7 %8 354 25.8 %9 960 40.0 %8 864 35.0 %13 486 20.5 %4 552 37.9 %14 613 Energy 29.8 %1 624 31.6 %1 744 48.2 %2 467 46.9 %2 591 19.7 %1 007 19.2 %1 059 Green energy 32.7 %3 196 33.3 %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 %4 839 42.0 %4 815 31.8 %4 456 20.8 %2 386 31.1 %4 363 Nanotechnology 31.5 %256 34.1 %478 45.6 %371 37.0 %552 19.8 %161 26.5 %389 Materials 41.7 %7 091 35.5 %8 070 34.4 %5 850 29.4 %6 691 21.0 %3 566 32.1 %7 296 New Prod. techn. 36.0 %4 978 36.8 %5 664 45.1 %6 236 36.33 %5 596 15.8 %2 185 23.8 %3 670 security 38.7 %2 200 34.8 %2 934 45.5 %2 585 37.6 %3 171 12.6 %717 24.9 %2 098 Automobiles 60.0 %1 642 50.2 %2 213 24.5 %670 17.3 %763 14.3 %391 31.2 %1 378 Other Transport 58.0 %449 47.5 %625 25.6 %198 22.3 %294 9. 8 %76 24.2 %318 Aeronautics 42.8 %112 65.7 %460 50.0 %131 26.7 %187 5. 0 %13 6. 1 %43 space 27.7 %28 35.4 %28 50.5 %51 34.2 %27 18.8 %19 30.4 %24 Construction 54.8 %1 532 44.2 %2 183 28.2 %787 35.6 %1 757 11.0 %307 15.4 %759 food, Agriculture, fishery 43.4 %1 641 36.8 %1 902 36.0 %1 362 37.7 %1 949 15.4 %582 21.1 %1 091 Source: DG Research and Innovation †Economic Analysis Unit Data: WIPO PCT applications; data processed by the University of Bocconi, Italy 14 Europe†s compet it ive technology prof i le in the g lobal ised knowledge economy Economic transformation addressing societal challenges may come from Asia Figures 1warn-Not a number in Unicode character name: upwards WARN-Not a number in Unicode character name: upwards 0 and 11 below highlight the accelerating progress of Asia in transformative technologies linked to major societal challenges and expanding world markets 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 Figure 12 presents a further step in disaggregation, in this case in the field of energy. It focuses on sub-sectors in the field of renewable energy. The trend of an increasing world technology share of Asian economies is also clear at this level. Already in 2008, Asia took the world lead in technology development for energy efficiency and it also had a very comparable level of technology production in solar energy The strengths of the EU are in recycling and waste, wind energy, geothermal energy, solar energy development and more broadly in environmental technologies (although Asia has taken most probably the lead in this field considering the evolution illustrated in Figure 11. The US holds the lead in technology development for biofuels The US and Asia are specialised in transformative and pervasive technologies while the EU€ s technology development is specialised in its established industries The previous analysis of the EU€ s scientific production revealed a mismatch between the specialisation and the quality and relative world strength. The major technological areas of specialisation and de -specialisation of Europe can be illustrated by the Revealed Technological Advantage, which compares the relative importance of a given technological area in all patent production in Europe9 to the relative importance of this technological area in all patent production worldwide. 10 Figure 13 below provides an overview of the technology specialisation (RTA index) of the EU, the US and the major Asian technology powers. The arrows indicate the trend over the period 2000†10 and the green colours technology areas of specialisation The broad diversification of the EU€ s technology profile contrasts with the highly specialised technology profile of the Asian countries. The US is in an intermediate position The EU is characterised by its technology specialisation in established industries, such as aeronautics, automobiles 9 EU and Associated Countries 10 Four patent systems are considered: EPO patent applications, USPTO grants, PCT patent applications and triadic patents Data Eurostat, DG ECFIN, OECD Source: DG Research and Innovation †Economic Analysis Unit Notes 1) Patent applications under the PCT (Patent Cooperation Treaty), at international phase, designating the EPO by country of residence of the inventor (s 2) The estimation for the period 2011-14 is based on the annual average growth rate calculated for the period 2005-10 Figure 10: PCT patent applications addressing societal challenges †Health Health related technologies †PCT patent applications (1) per billion GDP (PPSÂ), 2000-14 (2 0. 2 0. 4 0. 6 0. 8 1. 0 1. 2 1. 4 1. 6 2004 2006 2008 2010 2012 2014 0. 0 2000 2002 2005 2007 2009 2011 2013 2001 2003 EU-28 China United states Japan South korea India 15 other transport technologies and construction technologies. The specialisation profile in the US and even more so Asia is quite the opposite. They have a much clearer specialisation profile in transformative and pervasive technologies. The US is positioning itself in health, biotechnology and nanotechnologies, while Asia has achieved already revealed technological advantage in ICT, nanotechnologies, materials, energy and environment technologies. Overall, Asia is expanding its relative specialisation in all technology areas Figure 12: Renewable energy in world regions (world share of pct patents; absolute numbers Eu-27 North america Asia 2000 2008 2000 2008 2000 2008 biofuels 27.1 %1 809 29.3 %1 111 50.1 %3 344 42.7 %1 621 20.7 %1 379 26.3 %997 recycling & Waste 45.7 %966 40.0 %1 336 33.2 %711 30.4 %1 015 19.3 %414 27.3 %912 Energy eï ciency 46.8 %553 32.6 %960 28.8 %340 24.3 %715 21.2 %251 40.1 %1 179 solar energy 44.2 %303 33.0 %816 28.1 %193 33.0 %814 24.8 %170 30.2 %745 Wind energy 62.0 %124 52.1 %399 21.5 %43 21.7 %166 6. 5 %13 21.2 %162 Geothermal energy 38.3 %49 36.8 %105 30.5 %39 27.7 %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 %2 386 26.5 %4 363 Source: DG Research and Innovation †Economic Analysis Unit Data: WIPO PCT applications; data processed by the University of Bocconi, Italy Data Eurostat, DG ECFIN, OECD Source: DG Research and Innovation †Economic Analysis Unit Notes 1) Patent applications under the PCT (Patent Cooperation Treaty), at international phase, designating the EPO by country of residence of the inventor (s 2) The estimation for the period 2011-14 is based on the annual average growth rate calculated for the period 2005-10 Figure 11: PCT patent applications addressing societal challenges †Environment Environment-related technologies †PCT patent applications (1) per billion GDP (PPSÂ), 2000-14 (2 0. 2 0. 4 0. 6 0. 8 1. 0 1. 2 1. 4 1. 6 1. 8 2004 2006 2008 2010 2012 2014 0. 0 2000 2002 2005 2007 2009 2011 2013 2001 2003 EU-28 China United states Japan South korea India 16 Europe†s compet it ive technology prof i le in the g lobal ised knowledge economy The EU is not focusing on these transformative technologies. The trend of the EU is to reinforce technologies in its established transport and production sectors while it loses ground in all areas of transformative and pervasive technologies, including technologies addressing societal challenges, which have a potential for transformative structural change The EU€ s technology specialisation is well matched with its technology strengths Comparing the EU€ s specialisation profile with its technology strengths at the world level, there is higher matching than for its scientific production profile. The specialisation in transport and construction reflects the technology areas where the EU has the largest world share of PCT patent applications. At the other end of the scale, the lower and falling world technology shares in health and ICT match the low and decreasing RTA index for these areas. Only in a few technology areas does the EU present a mismatch between its world position and its specialisation efforts. 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, if not already (the latest patent statistics are only up to 2008. This would also create a mismatch between the EU€ s scientific strengths in these areas and its technology position Figure 13: RTA index, wipo by applicants, 2000†10 Thematic priority Eu-27 us Asia Health 0. 9 •1. 25 •0. 61 †¢biotechnology 0. 94 •1. 20 •0. 71 †¢ICT 0. 84 •1. 04 •1. 29 †¢Energy 1. 15 •0. 74 •1. 22 †¢Environment 1. 04 •0. 88 •1. 15 †¢Nanotechnologies 0. 83 •1. 16 •1. 07 †¢Materials 1. 05 •0. 86 •1. 16 †¢New Production techn. 1. 02 •1. 10 •0. 78 †¢security 0. 97 •1. 09 •0. 81 †¢Automobiles 1. 59 •0. 54 •0. 96 †¢Other Transport techn. 1. 45 •0. 70 •0. 69 †¢Aeronautics 1. 52 •1. 03 •0. 21 †¢space 1. 02 •1. 25 •0. 64 †¢Construction technologies 1. 40 •0. 82 •0. 53 †¢food and Agriculture 1. 12 •0. 91 •0. 81 †¢Source: DG Research and Innovation †Economic Analysis Unit Data: WIPO PCT applications; data processed by the University of Bocconi, Italy 17 3. Potential of European cooperation in converging technologies for emerging growth markets Technology development is an important part of the supply side of innovation potential. 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 Innovative firms operating in emerging growth markets benefit from first-mover advantages and growth potential as advanced followers or adapters The competitive advantage of a country depends in the end on the strengths and interaction of knowledge supply, 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. The geographical focus of sophisticated home markets was extended to the potential of the European single market and oriented towards a thematic approach identifying emerging global markets. The plea was for a bolder innovation policy combining supply and demand measures in growing business areas combining a large share of GDP with direct impact on the daily life of citizens. 12 The combination of supply -and demand-side measures in a single intervention can be more effective than one-sided policy measures as it ensures early technology adoption with large export potential. However there is little empirical evidence of such initiatives in EU Member States, as market interventions are more risky and complex for policy makers. 13 The following analysis of the technology supply illustrates some areas possibly linked to emerging growth markets sustainable construction, clean transport and innovative medicine. The purpose of the analysis is to assess strengths in converging technologies inside Europe and the potential of using intra-European collaboration in networked specialisation benefitting from related variety Foresight studies have pointed at accelerating urbanisation climate change and resource scarcity. 14 This evolution is forecast to raise global demand in more sustainable cities. A simultaneous and coordinated push of supply-and demand-side measures for innovative goods and services in sustainable construction has large potential for high-growth innovative enterprises in Europe. The construction sector is one of the largest manufacturing sectors in Europe and it has managed to update its R&d intensity over the last decade Sustainable construction is the development of new solutions addressing the design and management of buildings for innovative use of resources (energy, materials, water and land use) and renewable energy for heating and cooling integrated in ICT-based management systems. Residential, non -residential and infrastructure construction are to be upgraded 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 energy -efficient buildings, the SET plan for renewable energy and smart grids, and funding to secure clean and efficient energy and to support climate action in Horizon 2020 Figure 9 and the previous analysis reveal that the EU has a strong world position in several technologies relevant for sustainable construction. The maps below (Figures 14 and 15) provide an overview of the strengths and specialisation of individual European countries in technology and science relevant for integrated solutions for sustainable construction 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; countries with a specialisation in one or several key areas complementing the design of innovative goods and services have a clear value added to be integrated in specialised knowledge flows and value chains. The European Research Area and the knowledge dimension of the single market can facilitate this integration in networked specialisation strategies, therefore avoiding sub-criticality. 16 11 Porter, 1990 12 †Creating an innovative Europeâ€, report of an independent expert group chaired by Mr Esko Aho 13 Tsipouri, L. Paper presented at the European commission Mutual Learning seminar, 2012 14 Expert group report to the European commission, 2009, †Le monde en 2025. La montã e en puissance de l†Asie et la transition socio-à cologique†15 Expert group report to the European commission, 2007, report of the taskforce on sustainable construction 16 Expert group report to the European commission, 2008, †Challenging Europe†s Research: Rationales for the European Research Area (ERA) †18 Europe†s compet it ive technology prof i le in the g lobal ised knowledge economy Figure 14: Sustainable construction †strengths (share of S&t in ERA), 2000†11 Figure 15: Sustainable construction †relevant specialisation of European countries 19 Figure 14 depicts a distribution of Europe†s capacity for innovation in sustainable construction. Germany has a leading potential to converge technologies for construction, green energy, the environment and materials. Important technology potential can also be found in smaller countries, such as The netherlands Denmark, Switzerland, Sweden and Israel, all countries where the technology strengths are backed by strengths in the relevant science areas Figure 15 reveals potential for technology network links with Spain and Norway and scientific cooperation with Estonia, Lithuania, Slovenia, Greece, Portugal, Romania and Latvia. The Czech republic presents a particularly relevant and broad science and technology profile covering a large range of technologies backed by focused scientific specialisation Another related growth market inside the overall solution for sustainable cities is clean transport. The EU produces around 20 million vehicles a year, employing more than 12 million Europeans directly or indirectly. The industry invests around 4%of its revenues in R&d. 17 The cars Europeans drive are also responsible for 12%of the EU€ s collective carbon footprint, and between 1990 and 2004 the CO2 emissions from road transport increased by 26 %Supply-side measures for R&d, 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 Figure 16 illustrates the science and technology strengths in areas related to clean transport, in particular combining capacities in automobiles, trucks and other transport technologies with strengths in green energy (electric and hybrid engines as well as second -generation biofuels. ICT as an enabling technology is also important for smart electricity grids and intelligent vehicle charging systems. 18 The aeronautic sector is also included, given the EU Joint Technology Initiative on Clean Sky aviation. However, in this field it is important to remember that many components in the value chain of airplanes are categorised under other transport technologies 17 According to the European Automobile Manufacturers†Association (ACEA 18 European commission, Green Cars Initiative, http://ec. europa. eu/research/transport/road/green cars/index en. htm Figure 16: Clean transport †strengths (share of S&t in ERA), 2000†11 20 Europe†s compet it ive technology prof i le in the g lobal ised knowledge economy Building upon the technological profiles of countries in WARN-Not a number in Unicode character name: upwards WARN-Not a number in Unicode character name: upwards the EU opens the door to opportunities for network specialisation. Figure 16 shows that major centres for innovative combinations can be found in Germany, France and Sweden, where automobile and transport sectors are present together with capacity in green technology development and ICT. Switzerland, the United kingdom and Denmark are also potential supply leaders for this emerging growth market since they combine technology capacity with a strong science base relevant for clean transport. Spain and Italy have technology profiles with large absorptive capacity converging transport and green energy technologies, and in the case of Spain this is also clearly reflected in their specialisation profile Figure 17 reveals that there are large opportunities for networked technology collaboration with Norway combining specialisation in both green energy and other transport technologies. Scientific networking can also benefit from closer links with Lithuania, Slovenia and Greece, all with a parallel scientific specialisation in several fields relevant for clean transport. Estonia, with its clear specialisation in green energy, has potential to link into networked collaboration with the clean transport technology centres in Scandinavian countries and Germany. Germany notably has a lower level of specialisation in areas related to clean energy, while other European countries can complement efforts to further develop the joint objective inside the European Research Area While the US leads in most technologies relevant for health, Europe has potential to couple the determined matching of supply 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 and specialisation profiles of European countries in technology and science relevant for the challenge of innovative medicine Innovative medicine addresses key areas, including Figure 17: Clean transport †relevant specialisation of European countries, 2000†11 19 See the report of the independent expert group on R&d and Innovation chaired by Mr Esko Aho, †Creating an Innovative Europeâ€, 2005 21 Figure 18: Innovative medicine †strengths (share of S&t in ERA), 2000†10 Figure 19: Innovation medicine †relevant specialisation of European countries 22 Europe†s compet it ive technology prof i le in the g lobal ised knowledge economy cancer, immune-mediated diseases, infectious disorders and treatment through electronic health. This innovation challenge concerns principally science and technology in health and biotechnology, but their convergence with ICT and nanotechnologies also has large potential for innovative products. Figure 18 shows that Germany, the United kingdom, France, Sweden and The netherlands have relatively extensive technology development in all of these fields, while the United kingdom and the Netherlands are backed also strongly by high-quality scientific research in most or all of these fields. Germany and Sweden also have strong scientific backing and would have additional scientific strengths cooperating with neighbouring countries such as Denmark and Finland or Switzerland, Belgium and Austria Considering the potential for technology collaboration and networked specialisation within the European Research Area, Figure 19 identifies highly relevant technological specialisation in Estonia, Latvia and Iceland, but also in Ireland, Israel, Slovakia and Belgium (specialised in health and biotechnologies. The possibilities for scientific cooperation with other European countries addressing comprehensive solutions for innovative medicine is even broader, with Ireland and Belgium standing out. Other possible cooperation partners include Spain and Greece with a health research profile, and Portugal and Latvia with biotechnologies combined with nanotechnology specialisation. There are also many other interesting and potential cooperation partners for the S&t centres in these areas 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 knowledge assets. Knowledge is increasingly important for the production of goods 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 The analysis has showed also that technology-intensive countries in North america and Asia are more strategic than the EU, with a better focus on key enabling technologies and transformative technologies linked to societal challenges. The US stands out in technologies for health, biotechnology, energy, nanotechnology and security, 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. The EU presents a broader but less specialised technology profile keeping its strengths in established industry sectors such as transport, construction, food and agriculture The EU€ s specialisation profile matches its technology strengths well. This contrasts with the highly specialised technology profile of the Asian countries. The US is in an intermediate position. The specialisation profile in both Asia and the US is focused more on transformative and pervasive technologies. The US is specialised in health biotechnology, nanotechnologies 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. Building on the European Research Area and the single market, there is large collaboration potential in key growth areas, such as sustainable construction, clean transport and innovative medicine. The cross-border technology drive inside Europe is in the hands of certain Western europe countries which also have advanced framework conditions for innovation. However, many related technologies, as well as science, can be explored through collaboration with other European countries including several countries in the Eastern and Southern part of Europe CONCLUSIONS 24 Europe†s compet it ive technology prof i le in the g lobal ised knowledge economy Azagra-Caro, J. and Grablowitz, A. 2008) †Exploring data on business R&d: the case of BERD and Scoreboardâ€, JRC-IPTS 28.01.2008 Castells, M. 1996) †The Information Age. Economy, Society and Cultureâ€, Volume I: The Rise of the Network Society Blackwell Publishers Ltd, Oxford, UK Expert group report to the European commission, chaired by Mr Esko Aho (2005) †Creating an Innovative Europe†Expert group report to the European commission (2007) †Accelerating the Development of the Sustainable Construction Market in Europeâ€, report of the taskforce on sustainable construction, in preparation of the EC Communication †A Lead Market Initiative for Europeâ€, COM (2007) 860 final Expert group report to the European commission (2008) †Challenging Europe†s Research: Rationales for the European WARN-Not a number in Unicode character name: upwards Research Area (ERA) †Expert group report to the European commission (2009) †Le monde en 2025. La montã e en puissance de l†Asie et la transition socio-à cologique†Porter, M. E. 1990) †The Competitive Advantage of Nationsâ€, Free Press, New york Schã n, L. 2009) †Technological Waves and Economic growth †Sweden in an International Perspective 1850-2005†paper 2009/06, Circle, Lund University Stehrer, R. 2013) †Vertical specialisation in global value chainsâ€, in Innovation Union Competitiveness report 2013 European commission Tsipouri, L. 2012) †Combining supply -and demand-side measures to stimulate business investments in new technologies and innovative productsâ€, 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 How To obtain EU publications Free publications •one copy via EU Bookshop (http://bookshop. europa. eu •more than one copy or posters/maps from the European Union†s representations (http://ec. europa. eu/represent en. htm from the delegations in non-EU countries (http://eeas. europa. eu/delegations/index en. htm by contacting the Europe Direct service (http://europa. eu/europedirect/index en. htm) or calling 00 800 6 7 8 9 10 11 (freephone number from anywhere in the EU **The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you priced publications •via EU Bookshop (http://bookshop. europa. eu priced subscriptions •via one of the sales agents of the Publications Office of the European union http://publications. europa. eu/others/agents/index en. htm KI-03-13-356 -EN -N 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. This is particularly the case when addressing comprehensive global societal challenges, which require converging technologies. A strategic supply of converging technologies relevant for emerging growth markets provides a strong supply position, 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. A general conclusion is that while Europe remains an inevitable knowledge centre of the world its technology profile is less strategic than its main competitors and less oriented towards converging technologies relevant for addressing societal challenges and emerging global growth markets. The analysis shows that Europe†s competitive position could be strengthened through a more determined orientation of its technology development coupled with reinvigorated intra-European cooperation using the potential of networked specialisation Studies and reports

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