Tom Togsverd and Henrik Valentin Jensen from the DICTAT Initiative actively participated in the Conference “Global ICT industry: changing landscape? – The future of European ICT R & D”. Here is an article about the conference from the IS News Issue 6.
The Information Society Unit at JRC- IPTS has been investigating the Information and Communication Technologies (ICT) sector and its R&D for several years as part of the PREDICT research project. The PREDICT report series offers an analysis of the EU ICT industry and its R&D over several years. The conference was organised to disseminate the results of this research and also as a forum to discuss the questions raised by these results, such as:
- What are the global challenges that affect the ICT industry and its R&D? How is the European ICT industry adapting to these new times?
- What is happening in the new telecom, media and internet ecosystem? How is this impacting other parts of the value chain?
- Is the role played by the EU ICT manufacturing industry in Europe decreasing? Can Europe let its ICT manufacturing relocate to other regions of the world?
- What is the future of the software industry in Europe? How can Europe benefit from the increasing role and importance of e-services?
- How can the innovation capacity of the EU ICT industry be strengthened? How can the “innovation gap” between R&D and commercialisation be filled?
- How can the EU ICT industry better take advantage of internationalisation of ICT production and R&D? How are EU ICT companies positioning themselves on the markets of emerging economies?
- How should policies help at EU, national, and regional levels?
The conference was attended by one hundred participants. These included a balanced mix of representatives from industry, policy, academia and consultancies. Twenty-five presentations were made by speakers from these different areas. The presentations and subsequent discussions had a strong international dimension. The main discussions of the conference are briefly summarised below.
The place of Europe in the global ICT industry ecosystem
A new ICT industry ecosystem is emerging where the roles and ambitions of existing and new players are being redistributed across different interconnected layers (e.g. manufacturing, services, telecom, media, internet, software-based applications, etc.). A diagnosis on whether or not the state of the EU ICT industry has improved in recent years clearly varies according to the segments of the industry.
Europe is an important producer of ICT (4.7% of its GDP in 2008), with a strong ICT services orientation (3.7% of GDP). European ICT companies are, however, smaller and less numerous than in the US, and do not grow as fast. In addition, companies from South Asia are emerging, essentially from Korea, Taiwan and more recently -and more strongly- from China.
The 2009 economic crisis reshaped the industry worldwide. In some segments, US and Asian ICT companies have emerged stronger from the crisis than EU companies (e.g., smartphones, internet). Though EU ICT companies have reacted to changes in the ecosystem, it looks as if the EU telecom ecosystem has not managed to lead the mobile internet wave. On the telecom equipment side, EU companies already face increasing competition from large emerging actors from China with strong ambitions (e.g. Huawei) and this will grow in the future. Take up of internet- based solutions in all sectors of the economy is expected to generate a new wave of innovation and market opportunities (cloud computing is an example).
Europe is an important location for ICT R&D also, as is the US. This is shown by levels of investment and patenting, though the EU ranks behind the US in volume of ICT R&D in part because of the smaller size of its ICT sector. South East Asia is emerging as a new location for ICT R&D, with US companies seemingly taking better advantage of knowledge sources in South East Asian than EU companies.
Not surprisingly, talents are considered to be a key resource for companies. World regions with the best supplies of talent – sometimes niche talents- are preferred locations for R&D facilities.
The role of SMEs is probably underestimated by available R&D statistics, but in an economy where services are overwhelmingly based on ICT, this role is central.
What is Europe’s vision?
A key question debated at the conference was: What does Europe want to be, as a user or producer of ICT and as location for ICT R&D? There is no doubt that the EU is a very big market for ICT products and services, however its use of ICTs may not be sufficient to benefit from their economic potential. South Korea for example is aiming to become the world’s fifth largest IT exporter by 2015. Taiwan managed to become a “king maker” because of organisational innovation and the role played by Taiwanese suppliers in the value chains of their main customers (such as Apple, HP), creating a less visible but highly effective alliance with US companies in the R&D production process.
A possible strategy for Europe is to remain an important source of talents and an important node in global production networks, able to capture a large share of value added. As for European companies, in order to remain competitive, they must take advantage of local talents, resources, and markets, globally. They need to develop their own bold vision of the role they want to play: for example, that of a main value node in their value chain, in the context of new forms of competition created by the new ICT ecosystem (with blurred borders between manufacturers, application and service providers, media and internet).
The role of R&D and innovation
EU ICT companies, like their global competitors, invest a significant amount of revenue in R&D. Several EU ICT manufacturing -and also software- companies invest more than 15% of their revenues in R&D.
A series of puzzling facts on ICT R&D were however presented and discussed during the conference.
Data show that in recent years R&D investments by ICT firms globally have been mostly pro-cyclical (i.e. correlated with sales trends), though one would have expected them to be counter-cyclical. Some large EU ICT companies report that R&D budgets are increasingly limited by financial constraints (from shareholders, financial markets). Is R&D therefore increasingly seen as an investment in an existing business model with hopes of a short-term fixed return on investment, rather than a way to develop new forward looking business? Some speakers also questioned the importance, for large firms, of public funding in ICT R&D (e.g. EU programmes). Also a very successful US company, Apple, reports rather low investments in R&D compared to its level of sales (although this might be the result of Apple’s value chain organisation, where a good part of R&D is invested by its partners).
New innovation models have recently emerged, including “open innovation” and “social innovation”. Some large EU ICT companies are going through a “democratisation of innovation” with hundreds of thousands of contributors. Other companies – like again Apple – claim that their own vision is what drives their innovation. Creation of new markets is however often the result of many technologically-driven innovations coming together (convergence). To take the example of on-going mobile internet development, it could not happen without innovation in terminals, network technology, software, semi-conductors, etc.
Only a few really innovative companies are successful in creating new markets. Most companies follow (rather than “surf”) the innovation waves, and for these, innovation is essentially competition-driven. It may also be misleading to think about innovation as being just science and technology; many innovations are “frugal” and occur outside the traditional scientific environment (as shown, for example, by the case of India).
R&D remains nonetheless an important tool in an industrial strategy and it is becoming very international in nature. EU companies, especially large ones, are now actively chasing the best talents globally.
An EU innovation and entrepreneurship gap – Enabling the growth of new firms
The observed gap between the EU and the US in ICT R&D investment and performance figures might not necessarily be the sign of a gap in ICT R&D per se, but rather the result of the smaller EU ICT sector which has smaller companies. Europe probably suffers more from an innovation and entrepreneurship gap than a pure ICT R&D gap. Several speakers mentioned that in many ICT R&D fields, Europe is either a world leader or is very strong. Europe seems, however, to have difficulties in translating this strength into a stronger industrial position. There seems to be a gap between the shares of ICT R&D and of ICT manufacturing. For instance, in the large solar energy market, the EU has the largest R&D centres but is lagging behind in production, and subsidies to consumers are used for the acquisition of foreign equipment. The same is happening in other key enabling technologies.
Europe also suffers from difficulties in supporting the creation of new firms and in enabling them to grow into global players. It is more difficult for young companies in Europe to grow than in other parts of the world. This is particularly obvious in new sectors like the internet industry, in which no EU company has yet reached a global scale.
Policies and indicators
What is the role of public policies in this context? What policies are needed? And what is needed by policy makers in order to design the right policies?
If Europe wants to remain a significant economic player in ICT, and an important source of ICT R&D, rather than just a large market for ICT products and services, it needs to further strengthen its industrial and innovation policies. Particularly important are those policies that help the EU to grasp the opportunities of new innovation waves, and help new companies to emerge and grow into large global players.
Europe needs policies that create conditions for a competitive environment and conditions for new companies to emerge and grow on a global scale. It needs support for fast and flexible entrepreneurship, easier access to finance, development of a real single EU market, European IPR homogeneity, and education policies to ensure the supply of talents. This support should encourage dense networking of actors, natural enterprise turnover, trial and error, incremental innovation, and development of personal services (such as games, virtual presence, geolocation, etc. – sometimes called “non-serious”).
EU, national and regional policies should be better aligned.
In terms of international R&D collaboration, particularly with Asian countries (and notably China), there is a need for reciprocal agreements and rules.
With increasing internationalisation of ICT production and of ICT R&D, several indicators should be watched beyond official statistics: such as the evolution of global distribution of value added in different ICT sectors and ecosystem layers, the global distribution and networking of R&D centres or the distribution and mobility patterns of ICT R&D employment. Shares of global ICT exports and ICT-related investments should also be watched.
The conference helped to better understand the positioning of the EU ICT industry and its R&D in the global landscape. Not all initial questions could be answered and new key questions were asked, for example: What do we (Europeans) want as our future? What initiatives at European, national or regional levels should we take to get what we want? What role can the ICT sector play in achieving our goals? Is there a need for a new ICT- specific innovation policy, built on a different basis to current European initiatives, and that would target both innovation in the ICT sector itself and ICT-enabled innovation in the rest of the economy and society?
The conference outlook was neither negative nor pessimistic. Recommendations for policy makers were to develop bold visions, which should aim to “facilitate” the fight against fragmentation, to build and develop strengths (important to develop skills), and to work with the rest of the world.
As one of the speakers underlined, innovation and ICTs may not be given enough attention by policy makers, though they are key to the recovery and future of Europe: “The four key drivers of ICT (geo-economics, demand, business models and innovation) are all changing radically, and a ‘fifth element’ is necessary to ‘keep them together’. It combines collaboration (with new roles for public policies), focus on content, value, skills, and imagination. And Europe is uniquely placed to combine all of the above, and turn it to its global advantage” [See keynote presentation by Dr. Bruno Lanvin on the Conference webpage].