Innovation Union Competitiveness report 2011 - frequently asked questions

Source: European Commission (EC) i, published on Thursday, June 9 2011.

The European Commission has just published its 2011 Innovation Union Competitiveness Report (see IP/11/692). The Report builds on the Innovation Union Scoreboard and includes a factsheet detailing each country's research and innovation performance. This MEMO explains the context of the Report and gives details of its findings.

Why is this report important?

This is the first report providing a comprehensive analysis of recent trends and long-term evolution in research and innovation performance in all 27 EU Member States and six Associated Countries.

The report provides solid facts on which to base European and national policy choices to build efficient research and innovation systems and turn the EU into a true "Innovation Union" (see IP/10/1288)

Public and private stakeholders will also get, in single compendium, valuable insights to design winning innovation strategies within Europe and for the global market.

How does it link to Europe 2020?

One of the five headline objectives of the Europe 2020 strategy is to improve the conditions for research and development (R&D) in Europe, with the aim of raising combined public and private investment levels in this sector to 3% of EU GDP.

The IUC Report monitors progress towards this objective, and the national R&D targets set by each EU Member State. It analyses the strengths and weaknesses of national research and innovation systems and presents winning strategies for progress in the Europe 2020 strategy for growth and competitiveness.

By offering a wider perspective on research and innovation, it complements the overall review of the Europe 2020 targets in the European Commission's Annual Growth Survey.

How does today's report link to the draft country specific recommendations that the Commission adopted on 7 June?

On 7 June 2011, the Commission published analyses of Member States' Europe 2020 National Reform Programmes (see IP/11/685 and MEMO/11/382), and proposed to the Council 27 sets of country-specific recommendations - plus one for the euro area as a whole - to help Member States gear up their economic and social policies to deliver on growth, jobs and public finances. The analysis in the report underpins those draft recommendations in so far as research and innovation issues are concerned

The country specific recommendations confirmed the place of research and innovation at the centre of the Europe 2020 strategy. The recommendation for the whole euro area called on Member States to "protect growth-enhancing items such as spending on research and development, education and energy efficiency".

Additional draft recommendations on research and innovation were put forward for:

  • - 
    Italy: Improve the framework for private sector investment in research and innovation by extending current fiscal incentives, improving conditions for venture capital and supporting innovative procurement schemes;
  • - 
    The Netherlands: Promote innovation, private R&D investment and closer science-business links by providing suitable incentives in the context of the new enterprise policy (‘Naar de top’);
  • - 
    Poland: Strengthen links between science and industry by implementing the ‘Partnership for Knowledge’ programme (‘Partnerstwo dla Wiedzy’);
  • - 
    United Kingdom: prioritise growth enhancing expenditure including research and innovation.

What is the relationship with the Innovation Union Scoreboard?

The two reports are complementary in the monitoring of Europe's research and innovation performance and progress towards the Innovation Union.

The Innovation Union Scoreboard (IP/11/114) published in February 2011 provides a comparative benchmarking of EU and Member State performance against 25 core research and innovation indicators. It showed that the EU is failing to close the innovation performance gap with its main international competitors: the US and Japan. While the EU still maintains a clear lead over the emerging economies of India and Russia, Brazil is making steady progress, and China is catching up rapidly.

It puts Member States into broad groups according to research and innovation performance. Within the EU, Sweden is the most impressive performer followed by Denmark, Finland and Germany. The UK, Belgium, Austria, Ireland, Luxembourg, France, Cyprus, Slovenia and Estonia, in that order, form the next group.

The 9 June 2011 Innovation Union Competitiveness Report is based on 200 indicators analysing the reasons for, and solutions to, the gaps found in the Innovation Union Scoreboard. It responds to the following two key questions: What are the causes of and remedies for inadequate performance? What strategies can help us reach the objectives?

What progress has been made on the Europe 2020 Innovation headline single indicator?

The new indicator, part of the Innovation Union commitments, is expected to measure the employment share of fast growing companies in innovative sectors of the EU economy. It will tell us how successful we are in delivering the benefits of innovation to European citizens.

It is currently under construction and testing within the framework of an ongoing dialogue with Member States. It is expected to be proposed to the European Council at the end of 2012.

What happens next?

The monitoring of progress towards the Innovation Union will continue until 2020.

The Innovation Union Scoreboard will be published every year. The next edition is foreseen for December 2011.

The Innovation Union Competitiveness Report will be published every two years up to 2020, the next report being foreseen for Spring 2013. It includes the Innovation Union's Atlas and Country factsheets which will be updated regularly on the Innovation Union Competitiveness Report website at: ec.europa.eu/iuc2011

The Innovation Union Competitiveness Report 2011 will be useful for each Member State to prepare its updated R&D target for the annual National Reform Programmes.

What are the report's main findings?

The Innovation Union Competitiveness Report brings answers to the following key questions:

  • 1. 
    Is the EU making progress towards its R&D target for 2020?

The EU is slowly advancing towards its 3% R&D target - but there is a widening gap between the EU and its world competitors notably due to weaker business R&D investment.

During the period 2000-2007, the EU R&D intensity stagnated as a result of parallel increase in GDP and Gross Expenditure on R&D (GERD). More recently, EU R&D intensity has grown from 1.85% of GDP in 2007 to 2.01% in 2009, partly as the result of a decrease in GDP but also thanks to the widespread budgetary prioritisation of public R&D funding combined with the resilience of private investment in R&D. These latter developments can be attributed to the positive impact of the Lisbon Growth and Jobs Strategy and of national reforms initiated starting in 2005.

In 2010, nearly all the EU Member States set new R&D targets for 2020, which are generally ambitious but achievable.

EU under-investment in R&D is most visible in the business sector where Europe is falling further behind the United States and the leading Asian economies. Relative to GDP, business invests twice as much in Japan or in South Korea as in Europe.

  • 2. 
    What has been the effect of the economic crisis on R&D investment?

The economic crisis has hit business R&D investments hard, though less so in Europe than in the US. However, as part of a counter-cyclical effort, many European countries are maintaining or increasing their levels of public R&D funding. Evidence shows that this generates jobs both in the short and longer terms and is key to ensuring a more rapid return to sustained economic growth.

In 2010, sixteen Member States increased their planned R&D budgets (actual spending data is subject to final outturn figures): Finland, Sweden, Austria, Denmark, Belgium, Luxembourg, Slovenia, France, Czech Republic, Estonia, Spain, Cyprus, Lithuania, Poland, Romania and Slovakia.

For 2011 several Member States are committed to increasing significantly their budget allocation (including Austria, France, Germany, Ireland, Poland and Slovakia) but it is not yet clear whether the EU's overall trend will be as encouraging as in 2010.

While the crisis has had a stronger impact on private R&D investment than on public funding, R&D spending by firms headquartered in the EU fell in 2009 half less than that by US firms (-2.6% and -5.1% respectively). Private R&D investment proved to be relatively resilient in 2009, and even increased in Asia. This demonstrates the determination of the business sector to preserve R&D investments in times of crisis in order to maintain their competitiveness in the present globalisation context.

  • 3. 
    Are more researchers working in Europe?

Europe hosts a large and diversified pool of skilled human resources in particular in science and technology, which the business sector is not making full use of.

In 2008, there were 1.5 million full time equivalent researchers in the EU, compared to 1.4 million in the United States and 0.71 million in Japan. However, in absolute terms, China has taken the world lead with 1.6 million researchers in 2008. The EU will need to create at least 1 million new research jobs if it is to reach an R&D intensity of 3%, especially since a large number of the existing research work-force will retire by 2020. This net increase by two thirds of the number of European researchers by 2020 should primarily benefit the business sector where there is a large gap with our international competitors. Only 46% of researchers in the EU work in the business sector, compared to .69% in China, 73% in Japan and 80% in the United States.

Adapting the profiles of researchers to new priorities and market demands will constitute one of the main challenges facing national research and innovation systems in the years to come.

  • 4. 
    Has the EU improved its scientific excellence?

The EU is the first producer of peer-reviewed scientific publications in the world, with 29% of the world production in 2009, ahead of the United States (22%), China (17%) and Japan (5%).

Europe's capacity to produce high-impact scientific publications, which is a proxy for scientific quality, is 16% above the world average and has been increasing since 2000. The Netherlands, Denmark, Switzerland and Iceland score highest and rank amongst world leaders on that criterion. This achievement is correlated with the gradual development of a European Research Area and the improvement of EU and national R&D funding instruments as part of the Lisbon strategy.

But in spite of such recent progress the United States is still performing one-third better than Europe in terms of R&D excellence, with 15.3% of US publications among the world's 10% most cited.

  • 5. 
    Is Europe improving its capacity to get knowledge to the market?

In terms of development of competitive technology, Europe is losing ground in a context of increased competition. Today, the world share of PCT1 patents is at a comparable level for the EU, the United States and the five leading Asian countries (all at 25-30%). However, the rate of growth in the number of PCT patent applications over recent years in Japan and South Korea is almost double that of the EU.

The share of the EU Member States in EPO2 patent applications declined from 44.8% in 2000 to 44.2% in 2007. Moreover, the number of EPO patents relative to GDP has also decreased in the EU since 2000 while this ratio increased in the rest of the world. Even more worrying, about half of the Member States do not produce high-tech EPO patents at all. It is therefore not surprising that licence and patent revenues from abroad are three times higher in the United States than in Europe, demonstrating the difficulty for Europe to acquire a leading role on world technology markets.

The relative high cost of filing and maintaining a patent in Europe may partly explain this situation: An SME must disburse €168,000 of legal fees to obtain and maintain a patent protection in all 27 EU Member States. It would cost only €4,000 for a protection of the same duration in the United States. This is why the Commission has proposed a European Union Patent.

  • 6. 
    What are Member States doing to improve the functioning of the public research base and increase public-private cooperation?

During the period 2000-2009, the EU Member States have started reforming their higher education institutions and organisations performing public research. In many Member States, universities have been given more autonomy and have developed institutional strategies to prioritise research activities, attract top foreign researchers and promote pubic-private cooperation. Out of 200 European universities recently surveyed, 86% had a technology transfer office and more than a third had created 10 or more spin off companies.

However, these reforms are often still underway, with large differences between countries. As a result, scientific and technological cooperation between the public and private sectors remains generally weak in Europe. The number of joint publications between private and public actors per population in the EU is roughly half that of the United States and one-third lower than in Japan.

  • 7. 
    Is the gender balance in research improving?

Reforms for a more efficient and creative research and innovation system include measures for a better gender balance. The gender balance in the European research population is improving, but major research institutions continue to be predominantly led and managed by men.

In 2007, women represented on average in the EU 37% of total researchers in higher education institutions, 39% of researchers in public research organisations and only 19% of researchers in the business sector. Since 2002, the average annual growth rate in the number of female researchers has been higher than that of male researchers. Moreover, the gender gap has been closing more markedly among scientists than in the labour market in general.

However, only 13% of higher education institutions were headed by women in 2007, and the proportion of female staff in research institutions having reached the position of full professor or equivalent remains very low: 7.2% in engineering and technology, 17% in medical sciences and 27% in humanities.

  • 8. 
    Is Europe making progress towards a true European Research Area?

The European Research Area3 is still far from being a reality and progress has sometimes been slow since the launch of the initiative in 2000.

Indicators on co-publications show that researchers based in the EU are increasingly integrated in transnational networks, as evidenced by the higher growth of transnational co-publications (both within the EU and with non-EU countries) compared to the growth of publications within individual Member States over the same period 2003-2008.

However, it is estimated that in 2008 only 4.5% of the national R&D budgets of the EU Member States was allocated to trans-nationally coordinated research (4.3% in 2007). Intra-European mobility remains at a modest level. In 2008, only 7% of European doctoral candidates studied in another Member State. When it comes to established researchers however, 56% of researchers based in Europe have worked at least three months in another country during their career.

  • 9. 
    Are European Small and Medium size Enterprises (SMEs) sufficiently innovative?

Of European SMEs with innovation activities, 27% introduced new or improved products to the market in 2008 according to surveys. This figure reached 41% in Sweden.

But relative to the size of the economy, SMEs perform more R&D in the United States than in the EU: in 2007, SMEs' R&D expenditure amounted to 0.25 % of GDP in the EU against 0.30% in the United States. However, in a number of European countries (Denmark, Finland, Belgium, Austria and Sweden), SMEs perform much more R&D (above 0.5 % of GDP).

More worrying is the fact that, in terms of patenting activity, young (fewer than five years old) firms in the EU are less innovative than their counterparts in the United States, except in Norway and Denmark where more than 30 % of young firms have filed a PCT patent application between 2005 and 2007.

As a result, innovative SMEs and enterprises of intermediate size do not grow sufficiently to become large R&D-investing and innovative companies. The share of companies created after 1975 is three times higher among the top R&D-investing US companies (54.4%) than among the top R&D-investing EU companies (17.8%). This is symptomatic of a consistently lower capacity of the EU over the last 35 years to create and grow new companies in research-intensive sectors as compared to the United States. As a result the EU's industrial structure is not oriented enough towards fast-growing economic sectors.

  • 10. 
    Does the EU and Member States provide the right framework conditions for research and innovation (R&I) in Europe?

Weaker framework conditions for business research and development (R&D) and a fragmented European market for innovation are hampering private R&D investments and affecting the attractiveness of Europe.

At national level, evidence shows that framework conditions for business R&I vary considerably between EU Member States. Northern European countries are systematically in the top positions for many indicators; while new Member States are generally in less attractive positions.

One of the major obstacles to innovation concerns the protection and management of intellectual property. The EU Patent currently being negotiated will be an important start to ensure a more cost-efficient intellectual property protection.

When it comes to access to private finance by firms, Europe lags well behind the United States regarding venture capital. Early stage venture capital funds in the EU are at less than half of the level in the United States (respectively €1.9 and €4.5 billion in 2009) and are only prominent in Norway, The Netherlands, Denmark, Portugal, Finland, Belgium and France. There are only three European countries that stand out regarding venture capital investments at the expansion phase: the United Kingdom, Sweden and Switzerland. New Member States have low levels of venture capital and generally still insufficiently attractive framework conditions for private R&D, in spite of recent progress.

At EU level, current initiatives mostly provide incentives stimulating the supply of innovation in fast-growing sectors (e.g. the Strategic Energy and Technology Plan, Joint Technology Initiatives, European Technology Platforms, and Joint Programming) whereas there have been fewer and less intensive efforts to stimulate the demand side (e.g. the Lead Market Initiative).

  • 11. 
    Is Europe ensuring a structural change towards a more knowledge-intensive economy?

In the last 15 years, the EU economy has become ever more service oriented with the weight of manufacturing sectors shrinking to 20% of total value added.

While the EU economy has become slightly more knowledge-intensive since 2000, the gap with the United States has widened due to the higher share of high-tech sectors in the US economy and higher research intensities in individual sectors including services.

Structural change in Europe will be facilitated by the development of lead markets and addressing obstacles to the growth of new technology-based firms.

  • 12. 
    Is research and innovation in Europe sufficiently addressing societal challenges?

Major societal challenges such as climate change or energy efficiency require developing innovative solutions which in turn will provide major opportunities in future high-growth markets around the world.

Europe is not short of potential. For example, in 2007, the EU accounted for 40% of all patents related to climate change technologies in the world, with Germany, Denmark and Spain accounting for nearly half of world wind energy production in 2009.

In health technologies, Europe is lagging behind the United States, which accounts for almost half of all health-related patents in the world, for both pharmaceutical products and medical technologies. EU patenting in health technologies has fallen slightly since 2000. However, individual Member States such as Denmark, the Netherlands, Sweden and Germany are at the forefront of technology in health-related technologies.

Targeted research and demonstration investment in key areas combined with measures to support market development can lead to new technologies and innovations. This is the spirit of the European Innovation Partnerships launched by the Innovation Union.

What is being done at EU level to stimulate innovation in Europe?

The Innovation Union Competitiveness Report will allow effective monitoring at all levels of the activities and proposals which are being or will be implemented under the Innovation Union flagship initiative launched in October 2010. These include, for example, the development of a single European Union Patent and faster standardisation processes. On 13 April 2011, the Commission proposed a unitary patent protection that will reduce the cost of patents in Europe by up to 80% (IP/11/470). On 1 June 2011, the Commission proposed a series of measures to develop more and faster standards, with the aim to boost European competitiveness and fulfil consumers' interest (see IP/11/668). The new standard for a universal mobile-phone charger to fit all models is a perfect example of the value of European standards in our daily lives (IP/11/136).

Improved EU research and innovation funding will also stimulate innovation especially for SMEs. Commissioner Geoghegan-Quinn has already implemented simplification reforms to the procedures for applying for and managing funding under the EU's Seventh Framework Programme (FP7) for research. This year's main set of FP7 calls for proposals (these invitations to bid for funding in 2012 will be published in July 2011) will be the biggest ever, around €7 billion within an overall 2012 FP7 budget of €8.9 million. In addition to funding for cross-border collaborative projects, individual researchers are supported under FP7 by EU grants from the European Research Council and the Marie-Curie actions.

How will EU research and innovation funding change in the future?

In so far as the new framework for EU research and innovation funding after 2013 is concerned, the Commission's proposal for a "Common Strategic Framework" in its February 2011 Green Paper (IP/11/138) is about making participation in EU programmes for research and innovation easier and focusing investment on tackling "grand challenges", in particular climate change, energy and food security, resource efficiency, health and an ageing population. The Commission aims to increase scientific and economic impact and get the best value for every euro invested. The proposal is to cover the whole "innovation chain" with a harmonised approach starting from basic research, culminating in bringing innovative products and services to market, and also supporting non-technological innovation, for example in design and marketing. Participants will therefore be able to concentrate on their objectives and not on confusing red-tape. The "Common Strategic Framework" would cover the current Framework Programme for Research (FP7), the Competitiveness and Innovation Framework Programme (CIP) and the European Institute of Innovation and Technology (EIT).

The Commission recently launched a public consultation (IP/11/474) on the EIT's first 'strategic innovation agenda', which will set out its priorities and headline targets for the next seven years.

A major conference on 10 June will give stakeholders an opportunity to debate with Commissioners the way forward on this. The Commission will put forward a legislative proposal towards the end of 2011.

1 :

The Patent Cooperation Treaty (PCT) is an international treaty, administered by the World Intellectual Property Organization (WIPO), signed by 133 Paris Convention countries. The PCT makes it possible to seek patent protection for an invention simultaneously in each of larger number of countries by filing a single 'international' patent application instead of filing several separate national or regional applications.

2 :

European Patent Office is an intergovernmental organisation that was set up in 1977 on the basis of the European Patent Convention.

3 :

The European Research Area is composed of all research and development activities, programmes and policies in Europe which involve a transnational perspective. Together, they enable researchers, research institutions and businesses to increasingly circulate, compete and co-operate across borders