Challenges for EU competitiveness ICT for Europe: Challenges for EU competitiveness ITU Workshop Geneva, 15 January 2007 Tapani Mikkeli European Commission, Directorate-General Enterprise and Industry Unit D4: Technology for Innovation, ICT industries and e-Business

The Renewed Lisbon Strategy to increase Competitiveness ICT UPTAKE INNOVATION Industrial Policy BARRIERS Better Regulation 3 ways of achieving the Lisbon targets. CIP is a practical response to the Lisbon objectives. One of the Commission’s flagships in the period 2007-2013. EUR 4,2 bill. EUR. CIP will complement the Commission’s initiatives regarding effective competition policy and better regulation. CIP will also work in close co-operation with 7 FP RTD, Lifelong learning and Cohesion activities.

Innovation Competitiveness Lisbon Strategy Review of Lisbon Strategy 2005; Growth & Jobs Industrial Policy Communication 2005 Broad-based Innovation Strategy and Action Plan Lahti & European Summit: Innovation-friendly, modern Europe Lahti meeting on Friday 20 Oct is officially called “Informal meeting of Heads of States and Governments”. Innovation has sometimes been defined / described as the source of a sustained competitive advantage, either for enterprises or for entities of public administration. This leads us to competitiveness, which at the European level thus means our changes for success, when compared to other participants in the constantly on-going race. The purpose of the renewed Lisbon Strategy is precisely to improve these changes of ours. Review of Lisbon Strategy: Action Programme “Working Together for Growth and Jobs: A New Start for the Lisbon Strategy”, COM(2005)24 Communication “Common Actions for Growth and Employment: The Community Lisbon Programme”, COM(2005)330, 20.7.2005 The EU’s priorities were declared: Making Europe a more attractive place to invest and work Putting knowledge and innovation at the heart of European growth Shaping policies to allow businesses to create more and better jobs Industrial Policy Communication “Implementing the Community Lisbon Programme: A policy framework to strengthen EU manufacturing – Towards a more integrated approach for industrial policy”, COM(2005)474, 5.10.2005 In order to contribute to a strong industrial base, the Commission committed itself to the necessary actions to improve the framework conditions for manufacturing industry and to ensure the consistency of various policy areas. The Communication contained several horizontal and sectoral initiatives (incl ICT TF) to complement work at MS level. A mid-term review is scheduled for 2007. Innovation Strategy and Action Plan Communication “Putting knowledge into practice: A broad-based innovation strategy for the EU”, COM(2006)502, 13.9.2006 Based on the existing policy document, a broad strategy has been presented for EU’s future role in this field, in order to better “translate investments in knowledge into products and services” (Spring Council 2006). The areas dealt with range from education and internal market to the regulatory environment and the IPR framework, to financial measures and the role of governments. [The emergence of innovation-driven lead markets is to be facilitated.] The Communication also contains a list of 10 actions, most of which are already underway. This brings us further to the most recent events in Lahti.

European Challenges / Paradoxes Inventions not converted into products, jobs, patents, growth Small innovative start-ups not growing into global scale Uneven ICT uptake across sectors Result: Europe not consistently able to bridge the innovation gap Link to Lahti Communication, p. 3 Communication “An innovation-friendly, modern Europe”, COM(2006)589, 12.10.2006 Reference to both the Lisbon Strategy and the Hampton Court meeting Global position of Europe: Many innovation assets, but also important “paradoxes”, maybe rather challenges for us: Inventions not converted into products, jobs, patents, growth At the level of inventions, Europe is generally considered very qualified. This goes especially for the field of ICT and some of its sub-components. However, something stops this inventiveness from being converted into new products in the corresponding scale: the same goes for services or f.ex. the number of European patents, All this is obviously reflected on the growth of the European economy and the number of jobs created and available to us. Small innovative start-ups not growing into global scale In Europe, there exist many small and often highly innovative start-up enterprises: the areas of ICT, especially software, and ICT uptake (e-business) are prime examples of such emerging new players. Again, some obstacles prevent many of these start-ups from turning up into globally successful companies of a much larger size. The same reflections come as results as presented above. Uneven ICT uptake across sectors In certain sectors, such as telecommunications, the adoption of ICT innovations has resulted in important productivity gains. However, in other fields, such as financial services and distributive trades, this has failed to happen. Also the ICT uptake across the different sectors of the European economy remains quite uneven, as the figures retrieved from eBusinessW@tch show. Innovation gap and handicaps for Europe The Communication lists several areas, where we need to improve. On top of this list come high-quality education and skills, followed by R&D investments and the remaining obstacles for economic dynamism. ETPs and JTIs, better cooperation between universities, research and business, as well as improvements in the framework conditions are seen as the way forward. All of these features obviously have a straight link to ICT and ICT uptake.

ICT as driver and enabler Development of new (online) business models EU ICT sector: Responsible for 4 % of value added to GDP, 40 % of productivity growth EU strengths: Sophisticated and high-quality products Chip design, software and services Human capital EU challenges: Danger for an outflow (off-shoring) of R&D Manufacturing trade deficit Lower investment growth compared to emerging economies Two important distinctions would have to be made: Firstly, between technological and non-technological innovation, And secondly, between innovation taking place within the ICT sector, and innovative features applied within ICT uptake horizontally across all the sectors. On the first matter, it should be emphasised that a large part of ICT-related innovations actually has to do with the non-technological side, notably the development of new business models. The view about innovation always being linked with new flashing or groundbreaking technology had better be swiftly abandoned: a thorough re-figuration of the business approaches could usually do much more to a company than any individual invention when applied in practice. The second distinction may seem similar to the first one. However, the sectoral and the horizontal innovations can both be either technological or non-technological ones: besides, they can come to be applied in different manners, owing to their sector-specific or overarching nature. Numbers: (the 40 % figure is from i2010 Communication) In 2003, the ICT sector represented 3% of total EU25 employment and its value added 4% of GDP. In 2003, ICT services accounted for 70% of total EU25 ICT sector employment, 80% of value added and for about 90% of its enterprises. In 2003, the ICT sector in EU25 comprised 600K enterprises, 5M employees and 400B€ value added ICT impacts on the rest of the economy through ICT investment, ICT production and ICT usage. In 2003, the EU15 ICT sector contributed to 45% of total EU15 market economy labour productivity growth. ICT capital contribution in EU15 amounted to 23% of total EU15 GDP growth between 1995 and 2004. Strengths and challenges The EU ICT sector is successful in producing sophisticated and high-quality ICT products (scientific instruments, electronic components and telecommunication equipment). The EU ICT sector is particularly strong in chip design, software development and ICT services. One of the key strengths of the EU ICT sector is its human capital. Strategic R&D is performed in the EU while less knowledge-intensive market oriented R&D is located in South-East Asia. The ICT manufacturing trade deficit was 55 billion euros in 2004. Large parts of ICT hardware production software coding have been relocated to South-East Asia. The ICT uptake in other parts of the economy is slower than in USA and Japan. Lower investment growth than in emerging economies threaten lower value added activities in the EU. Conclusive remarks The answer to the challenge from low-cost producers lies in further climbing up the quality ladder. Raising R&D investments of the EU ICT sector and ensuring the availability of skilled labour will be crucial for the EU ICT sector’s future competitiveness. Policies that matter most for the EU ICT sector’s competitiveness include those fostering R&D and innovation, entrepreneurship, IPR, e-skills, ICT uptake and completing the Single Market.

ICT Task Force ICT Markets ICT Services, Production and Manufacturing Identify key obstacles to competitiveness and ICT uptake. Recommend policy responses. Final Report 27 November 2006 Six Working Groups Selected headings from the final report ICT uptake ICT Markets ICT Services, Production and Manufacturing IPR for competitiveness and innovation ICT Uptake Innovation in R&D, manufacturing and services Innovation SMEs and entrepreneurship Investment and finance Skills and employability Legislation Standards Achieving a single market

Digital Convergence / Relevance of Voice Increasing demand for high bandwidth IT, telecommunications and media Global market for digital content Pricing shift from minute based to flat rates Growth of network infrastructure and access platforms Technology shift from small- to broadband Substitution of PSTN-Voice through IP-Voice Technological development leading to new devices and functionalities Fixed Mobile Substitution Role of emerging technologies such as NGN, Triple Play, Convergence?

Incentives for innovation New markets are characterised by innovation, rapid market growth and volatile market shares. Market dynamics to bring up new service opportunities for end-users new business models. Lead markets? Pre-commercial procurement?

The principles of Better Regulation A detailed impact assessment of the proposed measures remains essential Explore self-regulatory options in order to reduce disproportionate and restrictive regulation Create a level playing field No extensive application of rules to innovative services.

For more information e-mail: entr-innov-ict-ebiz@ec.europa.eu Tapani.Mikkeli@ec.europa.eu Hasan.Alkas@ec.europa.eu http://europa.eu.int/comment/enterprise/ict/index.htm http://ec.europa.eu/enterprise/ict/policy/legal/bxl2006/index.htm http://europa.eu.int/comm/enterprise/ict/policy/e-bus-snfsme.htm http://www.ebusiness-watch.org http://www.emarketservice.com