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Ert.euJob Creation and This Report has been prepared by the Competitiveness Working Group of the European Round Table, inspired by the findings of an ERT Colloquium on "Job Creation through Innovation and Competitiveness" hosted in Brussels on 19 May 1998 by Baron Daniel Janssen on behalf of the ERT.
The Colloquium addressed a distinguished audience of senior decision-makers drawn from governments, European Institutions, industry, research and academic institutes. The debate was organised in three Panels: Panel 1. Entrepreneurship - creating and building businesses Panel 2. Innovation - releasing the potential of research Panel 3. People - changing attitudes.
The speakers were: ∆ Dr Lars Ramqvist, Chairman of Ericsson, Member of the ERT
∆ Dr Jos Peeters, Managing Director, Capricorn Venture Partners
∆ Mr Stefano Micossi, Director General, DG III, European Commission
∆ Mme Edith Cresson, Member of the European Commission responsible for Research,
Innovation, Education, Training and Youth ∆ Ing Pier Giorgio Gili, Member of the Board, Fiat Research Centre
∆ Prof Jonathan Knowles, Head of Pharma Research, F. Hoffmann-La Roche
∆ Prof Dr Frieder Meyer-Krahmer, Director, Fraunhofer Institut für Systemtechnik
und Innovationsforschung ∆ Lord Simon of Highbury, UK Minister of Trade & Competitiveness in Europe
∆ Dr Ben Knapen, Director of Corporate Communications, Philips
∆ Mr Elmar Brok, Member of the European Parliament
The debates were moderated by Prof Antonio Borges, Dean of INSEAD and by Dr Peter Lorange, President of
IMD, Switzerland. Prof Alexis Jacquemin, Chief Adviser, Forward Studies Unit, spoke for the Competitiveness
Advisory Group of the European Union.
The Competitiveness Working Group is composed of representatives of the following companies: BP, BT, Daimler-Benz, Ericsson, Hoffmann-La Roche, ICI, Investor, Nestlé, Nokia, Olivetti, Philips, Pirelli, Profilo Holding, Renault, Shell International, Siemens, Smurfit, Société Générale de Belgique, Solvay, Suez-Lyonnaise des Eaux, Unilever, VEBA and also representatives of BDI & UNICE.
and is assisted by Business Decisions Limited.
Job Creation and Competitiveness Part 1. Our view of innovation . . . . . 3 Part 2. The heart of the matter . . . . . 6 1. Changing attitudes . . . . . 7 2. Creating new businesses . . . 10 3. Research and development . . 13 4. Knowledge and skills . . . . 17 5. Finance and risk capital . . . 20 6. Government and legislation . 24 Part 3. Course of action . . . . . . . 27 ERT's Priority Actions . . . . . . . . 29 Colloquium participants . . . . . . . 30 Innovation boosts competitiveness and creates jobs
Employment levels are directly linked to makers to discuss different ways of using innovation competitiveness, which creates the wealth necessary to create new jobs. The wide-ranging debate to fund jobs. Competitiveness is in turn linked to convinced us that new initiatives are needed to innovation, which allows us to keep pace with, or improve the innovation process and to combat even take the lead in, advances in world markets. stagnation in Europe's performance.
The key to unlocking the potential of Europe is We are most grateful to the speakers who led the Innovation. Tomorrow's jobs rely on our ability to debates, and to the participants. Their main conclu- build the right conditions for innovation today, sions are presented in this Report, together with whatever the strength or weakness of the current relevant data and case studies drawing on corporate economic cycle.
and SME experience.
That is why we are writing this Report. Europe has less innovation and fewer entrepreneursthan the US. As ERT members we are convinced Although Europe's Single Market is larger than the that this situation can be put right through rapid US domestic market, the European Union is not action taken by Europeans in their public and itself as competitive as the US. Over the past decade private capacities.
the EU has not matched the US, either in terms of economic growth and job creation, or in the We direct this Report towards decision-makers in all development of businesses based on radically new walks of life: to politicians and businessmen, to public servants and professors.
Nevertheless, we in the European Round Table know Six courses of action are identified in this Report. We from our own experience of running major multina- believe that effort in these areas will make an imme- tional companies with worldwide operations that new diate difference to innovation in Europe. This will businesses can be created with sustainable new jobs.
help improve competitiveness and lead to new jobs. But too many job opportunities in Europe's network We invite you to act with us to help bring these of businesses are lost because of obstacles set up by ideas to reality.
European traditions and over-prescriptive legislativesystems. Removing these obstacles and providingincentives are central to the messages of this Report.
We need to act now. This is a critical time forEurope, with the single currency about to becomereality, and the enlargement of the European Unionon the near horizon. Daniel Janssen In May 1998 we organised a Colloquium in Brussels Chairman of the Board, Solvay where experts met an audience of senior policy- Chairman, ERT Competitiveness Working Group "He that will not apply new remedies must expect new evils;
for time is the greatest innovator."
Francis Bacon "Of Innovations" (1561-1626)
Change is inevitable. Europe is now facing major changes on
all fronts - political, social, economic - some stemming from
changes elsewhere in the world, some from within. These
changes are complex and admit of no easy solutions. How we
respond to the changes now will determine the kind of world we
leave to our children in the 21st century.
Innovation is an antidote to inertia and complacency. By itself it
is not a panacea. It will not on its own provide a definitive
solution to excessive unemployment.
Innovation challenges stale and hidebound ways of thinking
and acting. It invites us to look with fresh eyes, to think in
different ways, to seek out new answers to old problems.
Innovation leads to the creation of completely new markets -
with no way to predict exactly what these will be, let alone how
far they will transform our lives. It develops new products,
which in turn excite and attract people. It encourages a "feel-
good factor" that boosts confidence in where the economy is
Innovation enables us to organise our work and social struc-
tures in more efficient and more humane ways. It taps people's
creative energies. It makes the workplace more competitive and
also more satisfying.
We have to establish the close connection in Europe If we benchmark Europe's performance, we get between innovation, economic growth and job mixed signals from standard innovation indicators.
creation. Indeed, we have grounds for optimism. We (see Boxes 1 to 6 below) have a Single Market of 350 million people, thelargest in the world. It will be significantly There are many obstacles that Europe must over-
reinforced by Economic and Monetary Union and come. They have been well-documented elsewhere:
the single currency, which will widen capital resistance to change, unwillingness to take risks, markets and provide greater venture opportunities.
over-regulation, taxation and administrative Enlargement of the European Union to admit new disincentives, lack of entrepreneurship, and rigid Member States will add a new Germany in the labour market rules. We have still some way to go to first phase and a new France in the second, in complete the Single Market whereby goods, capital, population terms.
services, people and their ideas can move freelyacross Europe.
European companies should now be starting to
generate new wealth and new jobs. The new
Other obstacles exist, such as unwieldy approval market conditions will revitalise our economies and procedures for new products, slow and expensive this must encourage companies of all sizes to be patent systems, inefficient research funding systems more mobile and forward-looking.
and, of particular concern, an inability to movequickly from the research idea to market success.
Natural Sciences are critical for the development of new
inheritance, Europe still has too few engineers and research technologies. In 1975 the number of science graduates in scientists in its workforce (Box 2).
Europe was less than half that in the US, but by the early1990s, the EU had caught up and overtaken the falling In overall job creation numbers, with a smaller population US numbers (Box 1).
size the US has hugely outperformed the European Union.
Many new technology jobs displace traditional occupations, However, with a long history of deficit and cultural and this job churn affects the overall net increase (Box 3).
1. Graduates in Natural Sciences EU / US
2. Numbers of research students EU / US
3. Job creation and job churn EU / US
The US has created 60 million new jobs in the past 30 years, 14 million since 1992. Most of them are in small fast-growing hi-tech Of course not all these jobs are lasting. Taking into account jobchurn, the net increase in employment over 30 years is closer to 30 million.
During the same period, job creationacross the EU was in decline, and job churn was resisted in many sectors.
source: Human Resources for Sciences and Technology (1996) source: Human Resources for Sciences and Technology - source: Ernst & Young "European Life Sciences 98" National Science Foundation (1996) (1995 - 1998) There is no common pattern across all the
The EU and national governments are already countries of Europe.
addressing some of these issues. Implementation of the First Action Plan for Innovation in Europe has ∆ In countries where markets are freeing up, an started. The ERT welcomes the advances being made increasing number of innovative companies are in protecting intellectual property rights (IPR), being founded, revealing a new economic vigour.
financing innovation, administrative simplification, There is an encouraging revival of venture capital, education and training, and gearing research to and new stock markets are being created to target small companies.
But all this will be of no use: ∆ In other countries, regrettably, we are still visiblyheld back by barriers to entry and by limits placed on ∆ if the pace of progress remains leisurely entrepreneurs and on establishing new businesses.
∆ if the progress achieved on paper is not translatedinto real change for Europe's citizens on the ground.
Biotechnology, one of the key enabling technologies of
that in the US, and the number of employees is less than the 21st century, also provides a sharp contrast in one third of those in the US. Biotech for jobs in Europe performance (Box 4).
still has a long way to go to catch up with the US (Box 5).
The number of specialist companies in Europe has more Finally, Europe still has a reasonable share of European patents than doubled in recent years. However the total number granted in all areas, but its performance in hi-tech areas such of specialist companies in Europe is still less than half of as electronics falls well short of that of the US (Box 6). 4. Biotech companies and the creation of 5. Newly created specialist biotech
6. Patents granted in 1996 EU / US
new jobs EU / US
companies EU / US
Number of companies Number ofcompanies ALL AREAS ELECTRONICS SHARE OF EUROPEAN SHARE OF US PATENTS PATENTS IN THE WORLD source: Ernst & Young "European Life Sciences 98" source: Ernst & Young "European Life Sciences 98" source: CEC: The First Action Plan for Innovation in Europe (1995 - 1998) (1995 - 1998) Europe must create more jobs. We owe this to our citizens, young and old. Unemployment is a time bomb waiting to explode. From every point of view, reducing unemployment is to the benefit of all.
How to achieve this is another matter. We can increase our competitiveness and stimulate innovation in our companies and in society. Greater competitiveness and innovation are essential for the creation of new jobs. But to make a stronger link between them requires that we overcome a number of formidable barriers. There must be immediate action on six 1. Changing attitudes
2. Creating new businesses
3. Research and development
build new BUSINESSES 4. Knowledge and skills
5. Finance and risk capital
6. Government and legislation
build new MARKETS 1. CHANGING ATTITUDES
"We live in an industrial revolution which goes so far that the
public does not understand it any more. People understand
that there is a revolution, but they cannot reconcile this
with their personal security. They are afraid of it."
Elmar Brok, MEP
Europe could learn from the experience of other
taxation, social security and care of the environment.
countries, but it does not. "We do ten years later
In time, voting will be done electronically, and this what the Americans have already done and have will radically change the interaction between citizens forgotten," says Brok. This is confirmed in a recent and those who represent them. ICT will also affect survey of business opinion conducted by the World the provision of healthcare as much as it will Economic Forum (Box 7).
transform the leisure market. Industry will have a major part to play in promoting 7. Attitudes to risk-taking and individual initiative EU / US
the wider acceptance of the cashless society with electronic commerce. The INTERNET paves the way.
Is risk-taking and indi- vidual initiative fullysupported and rewarded ICT is but one driver of change. "Understanding the genetic basis of life will revolutionise our lives just asICT did," argues Jonathan Knowles of Hoffmann-La Roche. A better understanding of how illnesses arise,and of the possible preventative actions, will entirely change the practice of medicine. Biotechnology will have a significant impact on
insurance and healthcare funding, as well as on the source: World Economic Forum: "The Global Competitiveness Report" efficiency of work and on the cost of healthcare (1996) based on survey of over 2,000 senior business managers. provision to our societies. Biotechnology alreadyconstitutes the new foundation for agriculture, thefood industry, pharmaceuticals and environmentalmanagement. For all this to happen, our attitudes to Resistance to change not only affects new science, innovation will have to come to terms with the speed it undermines entrepreneurship and employment.
and extent of progress throughout the life sciences.
Our biggest challenge is to persuade society to be
inspired by the advances of science instead of
Governments must play a leading role in helping
to change society by brokering the opportunities ofinnovation and entrepreneurship to the public. They Many surprises are still in store for society from must themselves become more innovative and further applications of Information and Communi-
entrepreneurial, as the UK Government has done cation Technologies (ICT). Innovations as a result
(Box 8). These cultural changes are as important as of ICT have already affected banking and transport, opening up markets and removing rules and and are about to revolutionise public services such as regulations that visibly block progress. The importance of flexible attitudes and of new ways 8. UK Government progress in one year
of thinking is highlighted in the way that British The UK Government is committed to improving the Petroleum (BP) reviewed its insurance strategy environment for innovation in Britain. The previous government had already introduced favourable personaland capital gains tax measures to improve the riskreward balance for innovators. The current governmentinitiated a year-long consultation exercise to find out 10. New approach to insurance at BP
what else had to be done. The results stressed the needfor leadership and partnership in innovation.
Finding new solutions to an old problem enabled BP tosave money and improve shareholder value. The Government has now defined a new set of goals toguide national policies. These aim to simplify For 75 years BP had bought insurance to hedge against regulations, provide new integrated sources of finance, large potential losses while self-insuring against smaller develop an adaptable workforce, encourage continuous ones. This changed dramatically in the 1990s, when BP learning, and open up product, labour and capital switched to a new policy of virtually no insurance. markets. Above all, it is now recognised that governmentand business need to share information, goals and This innovation was the result of viewing insurance in cultures, and to pull together as a team.
a new way - from the perspective of long-term share-holder value. Cost analysis also showed that over a longperiod the premiums paid vastly exceeded the claimsmade.
For larger companies, a strong corporate culture can
This required a major attitudinal shift on the part of BP's be a positive driver of innovation. They can choose
directors and managers. BP initiated a worldwide to replace rigid hierarchies with flexible management programme to educate its managers in risk and how to systems, and benchmark their management and value it. This new approach has generated premium overall performance against global best practice.
savings of EUR 85 million per year and demonstratedconfidence in the company's improved safetyperformance.
Under the impetus of innovation, established
companies can reinvent themselves to achieve a
new competitive style matching future needs, as did
Philips (Box 9). The transformation that comes from
In the world of finance and banking, the challenge
within is usually the most successful. is to be more open to risk, and to accept success andfailure as part of normal business life. Lenders shouldnot attach stigma attached to business failure. Norshould small-scale start-ups be denied funds because 9. The transformation of Philips
there is no guarantee of early payback.
Philips, a large company with 300,000 employees, wasfacing bankruptcy in 1990. Yet in the space of five years Attitudes must also change in the labour market.
the company returned to profit and changed the way theoutside world perceives it.
Jobs associated with new technology do not followthe pattern of traditional jobs. It is important All this required the development of new corporate therefore to get public acceptance of the objectives of transparency, accountability and de-verti- entrepreneurial model of employment: flexible, calisation. Although a large number of jobs were shed, mobile, risk-taking and increasingly working at the company took pains to foster conditions for new jobopportunities. In several countries a host of small busi- home for multiple employers.
nesses are thriving on and around the sites of formerPhilips production facilities. Many of these are hi-tech School leavers must be ready for a working and and are run by former employees. living environment very different from that of their parents. ERT reiterates its call to place greater We have to get more accurate information across
emphasis on entrepreneurship in schools and in
to the public in order to enable a better balance to
colleges. And similar emphasis is required to boost be achieved. Potential consumers of new products respect for innovative ideas.
need access to commonsense information to offsetoften sensational media reporting. Technological Opposition to new technologies existed even novelty, or personal success, should no longer be before the days when people first tried to smash singled out for abuse or for ridicule. It is also up to printing works and textile machines. Modern politicians to market the opportunities of change and opposition to scientific progress is however more
of entrepreneurship to the public. One way is to insidious. Powerful media messages reach a wide provide sponsorship to improve the reporting of public immediately and exert a pervasive effect.
scientific and technological subjects in newspapers This can influence national attitudes, even the way and journals, on radio and TV, and on the INTERNET.
Industry in turn must be readier to provideinformation that is easy to comprehend.
Change attitudes by promoting a European Society
open to innovations in science, technology, business,
living and working conditions:
∆ Promote the spirit of enterprise throughout society, in industry, government, finance and in education.
∆ Ensure that sound and well-researched information on scientific breakthroughs, new products and services always gets through to CHANGING A
2. CREATING NEW BUSINESSES
"We in Europe are inward-looking all the time. Whenever you
enter a market or a new business, you must think global
because it is only in the global perspective that Europe can
Lars Ramqvist, Chairman of Ericsson
Innovation boosts competitiveness and creates
From the outset, products should be designed jobs. It is the origin of new products and services in with global markets in view, and greater priority
markets which better meet existing needs and better should be given to negotiating and using interna- satisfy new customer demands. A competitive tional standards. The most striking example of an Europe can create more jobs if it welcomes the value entirely new industry based on a new worldwide of new technologies and the creation of new busi- standard is mobile telephony with its GSM (Global nesses and new business sectors. System for Mobile Communications) standard.
Scandinavian companies now dominate global New business sectors require:
markets for mobile phones (Box 12) since they - people with vision to identify a clear need,
pushed early and hardest for the GSM standard. - world-class science to develop the right products,
- an open regulatory environment in which markets
for the new products can flourish, 12. Mobile telephony
- a system of rewards that provides incentives for
This is a fast-growing market. In the EU there are nowmore than 70 million subscribers. There are likely to At present, the rate of job creation in Europe be around 1.3 billion throughout the world by 2003.
resulting from new company openings is less than This sector has created over 300,000 European jobs inequipment suppliers and operators. Continued growth half the US rate (Box 11).
with the next generation of mobile telephony couldlead to the creation of a further 300,000 jobs by the 11. Jobs created by new company openings EU/US
European mobile phones - Employees (estimate)
annual average rates as% of total employment over period 1983-84 source: OECD Jobs Study 1994 source: Ericsson (1998) Large and small companies need each other. Smaller 14. Shell invests for the long-term in renewable
companies can add flexibility and accelerate the process of innovation when working together withlarge companies. The strength of these links is Industry must often be prepared to make long-term described in our report on practical partnerships investments. At present, renewable energies can onlycompete with fossil energy in niche markets. According between large and small companies (Box 13).
to a Shell Group scenario, half of the total world energydemand could be provided by renewables by the year2050.
13. "A Stimulus to Job Creation"
To become a major player in this field, Shell This 1996 ERT Report argues that cooperation between International Renewables was created in 1997 with an large and small companies is part of the transformation investment plan of EUR 500 million for the following of the world of work, with a profound effect on job five years. Half of that amount is destined for forestry creation. Large company investment leading to new jobs and the other half for biomass conversion, solar voltaics may now take the form of providing funds for start-ups, and wind power. This strategy also provides new jobs.
the transfer of knowledge, specialist education andtraining, and management support for sub-contracted A new 25 MW photovoltaic power plant in Germany and spin-off activities. All this helps to build up new based on up-to-date technology, due to start in 1999, will business infrastructures which can grow and thrive. create more than 300 jobs.
There is great potential for job creation in anexpanding fabric of small innovative start-ups and 15. Low cost colour printing
SMEs. Entrepreneurs and new business start-upsare both a rich source for new employment, but When Bayer's research department came up with an
these jobs will not come into being without someone innovative new technology capable of providing highquality, short run colour printing quickly and at low taking a chance. As Jos Peeters of Capricorn Venture cost, the company was not planning to expand activities Partners, says: "Jobs cannot be created by decree.
in that area. But there was a gap in the market between They are created by entrepreneurs who exploit new office printers and photocopiers on the one hand and opportunities and who take personal risks." conventional printing equipment on the other. Bayertherefore spun off the activity in a new company - Entrepreneurship is as vital to large companies
providing it with full support, including seed capital,advice and facilities.
as it is to smaller ones. Many are now empowering
their employees to use more initiative and act as
Xeikon, the new company, was set up in Belgium in 1988.
entrepreneurs, thus creating new jobs. Risk capital in the development stage came from venturecapitalists and the Flemish regional authorities. Later, "A negative attitude in large corporations is funds came from a private equity placement and an IPO dangerous," says Lars Ramqvist. "If companies are on NASDAQ. The company now has annual sales of EUR67 million and employs more than 160 people.
too stiff or rigid, that leads to the kind ofdownsizing and outsourcing which kills lots ofjobs, instead of reshuffling and reorganising thejobs within the companies themselves." Both start-ups and spin offs need easier access to
risk capital. This is particularly true in certain parts
By generating new activity with a very long-term of Europe where seed capital and venture capital are perspective, large companies also create sustainable in their infancy. Closer co-operation between large new jobs. Shell's investment in renewable energy is companies and venture capitalists should be one example (Box 14).
encouraged to identify and create new spin-offs. Using the logic of the entrepreneur, a new British Telecommunications (BT) adopted another company may be created inside a larger company approach. To acquire the skills needed to compete in and then be spun off. It can then develop a life of a new market segment, BT established a joint venture its own, unfettered by supervision from tighter, with a partner with complementary skills. They more rigid procedures that have evolved to suit the eventually bought out the partner when the business demands of a large organisation (Box 15).
was fully fledged (Box 16).
system. Successful entrepreneurs and their staff
16. BT and Concert Communications
should be allowed to earn and to keep more of Concert Communications Services was a joint venture their own money. Stock options and other means company created by BT with MCI to satisfy the growing of raising the variable part of personal income need amongst international companies for one single should be permitted and encouraged. telecoms supplier able to manage seamlessly their communications needs around the globe.
We urge governments to reform and modernise
Conceived five years ago, it was recognised that a their personal taxation systems, social security
dynamic multi-skilled team was needed to exploit the arrangements and pension schemes to meet
market opportunity. People with experience in both the needs of modern working individuals and
technology and marketing were drawn from the partnercompanies around the globe. A "can do" culture was to provide appropriate incentives for inventors developed and brought to market.
and investors as well as entrepreneurs.
Sales grew by nearly 50% each year, eventually exceedingEUR 1 billion with more than 1000 people on the payroll.
More favourable conditions should be created for BT recently bought out its partner and now owns the lending money to start-ups and to companies that whole concern.
have good reasons to expand quickly. Failure
should not block entrepreneurs from trying
Running an innovative company requires creativity, again. In the American context, failure can even
enthusiasm and drive. Innovative management be honourable. "In California, if by the age of 35 means encouraging genuine job mobility and fostering you have not failed three times, you have not a stronger sense of personal responsibility and
been trying hard enough," cites Antonio Borges, empowerment throughout the company. Managers
Dean of INSEAD.
who take initiative and take risks naturally expect tobe rewarded on the basis of their success rather than Europe's newest companies that use cutting edge on the basis of length of service. In many companies technologies are usually able to recruit the scientists this is difficult to achieve. they need, but seldom find managers of the rightdynamic calibre. Scientists with good management We need to move away from a fixed-wage-earning
skills are even rarer, though this combination of society to a performance-linked compensation
qualities is increasingly in demand.
Creating new businesses means fostering entre-
preneurship by removing obstacles to initiative
and by rewarding risk-taking and success:
TING NEW BUSINESSES
∆ Establish supportive fiscal conditions for inventors, entrepreneurs and investors.
∆ Drastically reduce the demands of bureau- cracy and ensure that legislation does not penalise failure.
3. RESEARCH AND DEVELOPMENT
"We must restore the confidence of our citizens in science and
Mme Edith Cresson, Member of the Commission
responsible for Research and Innovation
The transformation of scientific breakthroughs from procedures in public/private joint efforts with un- basic research into commercial success is fundamen- tal to competitiveness. Too many European
inventions are being successfully exploited
Public programmes should be used as spring-
outside Europe. Europe spends less than 1.5% of its
boards for private initiatives. The European Action
GNP on R&D, which compares badly with 2.5% in Plan on Innovation (Box 18) and the European Fifth the US and 2.8% in Japan. The European Union's Framework Programme (Box 19) are both intended budget devotes just 4% to R&D. Moreover, Europe to stimulate entrepreneurship in Europe. spends relatively less on the development phase thando its principal competitors (Box 17).
18. EC First Action Plan on Innovation
"Cultural attitudes, the economic environment, thesocial context and the educational and legal structures 17. Total R&D expenditure and closeness to market
are key factors in the spirit of innovation and enterprise." Innovation for Growth and Employment (produced by Applied R&D DG XII for the European Commission). This document reports on implementation of the First Action Plan onInnovation in Europe, adopted in 1996.
The 1997 Luxembourg European Council on Employment confirmed the Plan's proposal to tackleunemployment by stimulating research andinnovation. It also identified the need to encourage thespirit of enterprise, and generally improve conditionsfor small and medium enterprises (SMEs).
source: CEC The first Action Plan forInnovation in Europe (1997) CEC Green Paper on *Europe split of R&D type based on Germany and France only. Innovation (1995) The Framework Programme must go beyonddeveloping the competitiveness of an inner circle of The orientation and management of public manufacturers and their traditional partners in programmes have failed to keep step with the pace of specific markets. "It presents a unique opportunity innovation. If more public funding is called for, it to work together in R&D", says Pier Giorgio Gili of must be more innovatively managed. Issues of Fiat, "but the real impact on Europe is linked to the accountability affecting the use of public money strategic emphasis we can give to its focus, must not be allowed to weigh down management organisation and management." Cooperation between companies and universities 19. The Fifth Framework Programme for R&D in
in research is less common in Europe than in either of its major competitors. In some countries it The Commission sees the 5th Framework Programme as is even illegal to commercialise research ideas
an instrument of a new Community research strategy.
coming from academic institutions. We need to
Europe's citizens now expect scientific and technological find a way to facilitate and improve this type of co- advance to meet their concerns with regard to health and operation (Box 20).
quality of life, and their aspirations in terms of social wel-fare and economic prosperity. This is the starting point.
FP5 is geared toward objectives of great relevance to the 20. Research cooperation: perception of business leaders
Union, and actions have to represent more clearly the added value over national initiatives. Characterised by a Research co-operation simplified structure of 6 programmes, it thus breaks new between companies and ground. Simplification will lead to more consistency as a result of wider ranging programmes, each addressingpriority socio-economic needs. Increased flexibility andefficiency of management are to be achieved by decom-partmentalisation of activities within programmes wheredifferent scientific and technological disciplines interact.
We should now be encouraging cross-participationover the entire scientific, technological and industrial source: IMD: "The World frame in Europe, public and private, with greater Competitiveness Yearbook" (1996) based on a survey of more than 3,000 attention to small companies and innovative start-ups, senior business managers. and to the stimulation of public/private partnerships.
European competition law should allow companies to
work on R&D in joint ventures and in large
But there are examples of successful co-operation, international partnerships to achieve critical mass.
as in the case of the development of a new tyre by Research joint ventures in Europe often need prior Pirelli (Box 21).
approval from the Commission's DG IV. In this crucialarea, American anti-trust law is generally more 21. Pirelli and the P6000 Tyre
understanding, thus research groupings in the US are Pirelli developed a new tyre (the P6000) launched in usually three to four times larger than those in Europe.
1995, which sets new standards in the high performance Moreover, "for Europe it is really necessary to tyre market through its use of new materials, new tread complement successful intra-European partnerships designs, a new tyre profile and improvements in tyre by some more international ones. The existing US-EU alliances play a very important role," argues FriederMeyer-Krahmer of the Fraunhofer Institut. During the development phase Pirelli worked closelywith a number of universities. There were regular The time has come to extend the Single Market
exchanges of information with customers, and close concept into the world of academia and, above
relationships were established with researchers in the all, into publicly funded R&D. Europe can no
auto industry and raw materials suppliers. Production longer afford to disperse its resources, human and and launch of the new tyre also involved new ways ofworking in Pirelli, with different functions and material, in parallel work in different national insti- organisations in different countries all co-operating tutions. The "Centres of Excellence" concept will closely to ensure the success of the new product.
have to be refined and more specialisation intro-duced to ensure pan-European critical mass. This This breakthrough was achieved as a result of a will require greater mobility of researchers, and a fundamental change in the behaviour and attitudes of readiness to accept that certain disciplines may lose people in the company. A wide network of contacts was their place in the national context in order to used to gather new knowledge.
achieve balance at EU level. Another critical test will be how we handle bio-
22. Customer-led innovation at Unilever
technology, which will change the face of industry
in Europe. The likely impact of biotechnology on Good science must take place close to the market if it virtually all our existing R&D programmes and is to be turned into successful innovation. Unilever's processes is greatly underestimated. Biotechnology new product (Checkpro) came directly out of the challenges our cultural preconceptions and could creative interaction between marketer and scientist.
affect forever how R&D programmes are organised.
Checkpro is used to monitor hygiene standards in catering Yet at the European level it has no single home, being establishments. Developed in response to rising food the responsibility of several Directorates General hygiene concerns, it meets a growing need for informa- inside the European Commission, with a total lack of tion that can be obtained simply, quickly and cheaply. overall strategic orientation.
The market opportunity was identified by a marketing Biotechnology is thus an unwelcome orphan in the manager, not a scientist, who specified the precise performance requirements of the product before the system. A home must be found, and that preferably
research programme began. The research was targeted inside a Directorate handling industrial policy. Until from the start to develop a product that was fast, low this is achieved, we run the risk of rejecting the tech- cost and usable by anyone.
nology today, only to import the products tomorrow. Industry can play a major role in providing new 23. The need for a unitary patent system in the
employment through R&D. Science-based innovation inside companies requires early cooperation between
Patents play a key role for European industry in Europe research, product and marketing departments.
and worldwide. A unitary, well-structured and cost- Many excellent scientific ideas are never turned into effective patent system is crucial to increase companies' commercially viable products because scientists do not competitiveness and to foster the free movement of have the necessary commercial and management goods, yet there are three patent systems in Europe: skills, nor do they understand the consumer. In the US a) national patent laws this kind of cooperation is part of their training and b) the European Patent Convention system (EPC) their culture.
c) the Community Patent Convention and its Protocol Innovation, benchmarking, upskilling, customer Industry must have a unitary Community patent system, focus and speed-to-market must be introduced as top which means one patent covering the whole EU: priorities in Europe's research establishments to keep - a single language system (i.e. English, with possibility alive the concept of competitiveness. Close coopera-
to file patent applications in any official language, but tion between creative scientists in industry with
with translation into English); their counterparts in academia can generate positive
- a single unitary judicial system for enforcement, i.e. by synergies for both sides. European courts, European procedural rules and injunctions.
A good example of a customer-focused development is To accommodate enterprises having limited geographi- the Unilever CheckPro system (Box 22).
cal interests or ambitions, the existing European patentsystem and national patent systems would remain. Chief among the principal obstacles on the path
between invention and innovation are bureaucracy
and administrative systems that demonstrate a
EUR 20-30 million. A true Single Market must
complete lack of understanding of R&D needs, have a workable unitary European patent (Box 23).
particularly on intellectual property rights (IPR) and
time to market. Patents are painfully slow to file
Crucially in terms of innovations and the market, and immensely expensive to translate and maintain.
new product authorisations take many times
One large European multinational, having more longer in Europe than in the US. This particularly
than 1000 patent applications a year, estimates that affects biotechnology, but also threatens competi- the annual cost for translations alone lies between tiveness in many other sectors.
Even worse, insufficient public recognition is
24. From campus company to NASDAQ in 6 years
given to early stage technology developments in
brand new hi-tech or life science sectors. Yet it is
IONA Technologies was started in 1991 by two people precisely in these areas that specialised SMEs can in the Computer Science Department of Trinity take up the opportunities and grow spectactularly College, Dublin, working on ESPRIT-funded projects.
fast. They should be accorded higher priority in the From there it was fostered by the Campus Innovation queue for funding.
Centre and after two years was solid enough to be ableto move out, to launch new products and to formalliances with larger companies such as Sun Restrictive national laws limit the formation and
transformation of research teams in severalcountries. Compared with the US, and even Japan, IONA's success is based on "distributed object technol- Europe produces too few scientists and engineers, ogy" that enables businesses to communicate between and does not do enough to persuade highly qualified different software applications. It is now the number graduates to stay and work in Europe instead of one supplier in the market and its main product is used seeking jobs and improved conditions elsewhere.
by over 3500 businesses worldwide. IONA has aturnover of EUR 52 million and employs 470 people. It Though later than in the US, Europe is beginning to was floated on NASDAQ in February 1997, valued at see the clustering of new small businesses around EUR 300 million.
important centres of learning, particularly in the hi-
tech, nanotechnology, biotech and pharmaceutical
fields. This natural phenomenon is highly positive.
We also have some universities actively incubating
small companies. The success of Iona Technologies
(Box 24) shows clearly what opportunities Europe is
missing if it does not provide greater encouragement
for such start-ups.
Get more from Europe's Research and Development through introducing
the Single Market concept to our research and academic communities:
∆ Reform the patent systems in Europe, permitting single filing of a unitary patent for all Europe with no translation obligations.
∆ Promote biotechnology as one of the key technologies of the new Millennium and provide a more supportive external and regulatory environment.
4. KNOWLEDGE AND SKILLS
"I think there is a poison in education all across Europe
which is anti-industry and anti-entrepreneurship."
Jos Peeters, Capricorn Venture Partners
People are now, more than ever, Europe's most
Work patterns are changing towards increased valuable resource. We have already seen how our
mobility, declining central office functions, flattened future society will be strongly influenced by scientific management hierarchies, and new methods of and technological progress. Other international knowledge management within companies that bodies share this view (Box 25). A knowledge-based operate at global rather than national level. This type economy cannot be separated from the skill-sets of its of new working environment can be highly produc- citizens, who will be expected to use the new tech- tive, as seen in the case of Nokia (Box 26).
nologies and to create the future demand for them.
26. New ways of working in Nokia
25. The role of people
Nokia has transformed itself over the past decade into "Jobs are shifting from low-skilled to high-skilled a global leader in mobile communications. They faced workers. Many firms see strong productivity growth the problem of how to grow rapidly while remaining and job gains through the combination of technological sufficiently nimble to innovate and exploit change in change, organisational change and upskilling." this highly competitive market.
Technology, Productivity and Job Creation, OECD, 1998 They have introduced new ways of working based "In the fast media-driven world of today, a minimum of on a flat structure and a new culture. New product scientific culture and critical outlook are essential for development involves close cooperation between distinguishing the false from the truth." researchers, marketing and sourcing people, IRDAC Report Quality and Relevance, European manufacturers and suppliers. The new culture values customer satisfaction, respect for the individual,achievement and continuous learning. Training programmes are now team-based and cross-functional.
Europe therefore needs a highly knowledgeable These changes have enabled Nokia to speed up decision- workforce with a constantly evolving palette of
making and improve the effectiveness of its R&D.
skills and aptitudes that did not exist ten years
earlier. Today we need to train people to be able
to adapt to future jobs in areas that have not been
identified yet. "Employability means that you
Our aim is all-round individuals with strong inter-
have to be the master of your own future, so you personal skills, capable of living with uncertainty, have to be your own company, in a sense," says keen to search for innovative solutions to complex Ben Knapen of Philips. problems, and committed to Lifelong Learning. Education systems need to be receptive to innovative As young people reach school leaving age, their general ideas coming from an ever-widening range of education should include basic business concepts
disciplines. But Europe's education leaders also need sufficient to enable them to set up and run their own to embrace innovation. All too often the education business. We have seen from the success in Scotland process itself is entrusted to people who appear to of the Schools Enterprise scheme (Box 28) in have no dialogue with, nor understanding of,
winning the hearts and minds of schoolchildren that industry and the path of progress. This goes some
the task is not hopeless, but it requires patience for way to explaining the persistent mismatch between long-term results. Other European countries should the skills required by employers for new vacancies pursue similar programmes without delay.
and those offered by entrants into the labour market.
Our European cultures favour achieving greater 28. Schools Enterprise Programme in Scotland
security, stability and equality over risk-taking, A highly popular innovative approach to developing the creativity and innovation. Our education system is entrepreneurs of tomorrow has been taken by ScottishEnterprise. A series of educational programmes for more focused on avoiding failure than on taking schools, colleges and universities, "from primary to plc" has been developed since the early 1990s. These aredesigned to promote more positive attitudes to A profound reform of education systems in Europe is needed. We have already published our ideas intwo Reports, Education for Europeans and Investing in 80% of Scotland's schools have participated in the Knowledge (Box 27). Greater emphasis must be Schools Enterprise Programme for students aged 5 to 14.
And 60% of 14-18 year olds have been offered the placed on entrepreneurship at all levels of educa-
opportunity to enjoy real enterprise experience. Seven tion. Despite the pressing need to manage better the
Scottish universities are now offering modules in transition from school to work, school-industry entrepreneurship to students in every faculty.
cooperation is still underdeveloped in Europe.
The impact on the youth of Scotland has been consider-able. Since the programme started, the number of peopleinterested in starting a business has increased by 35%.
27. ERT Education Reports
Education for Europeans (1995):
Industry and business need to employ entrepreneurs,
not robots. Early specialisation at school is a handicap.
Universities no longer have the monopoly on
Learning is a life-long process where teachers become disseminating knowledge. We cannot leave all
guides and pupils/students take on responsibility for action in the hands of the public sector. The provision their careers and future development.
of education is a market opportunity and should betreated as such. Nowadays there are far more players Investing in Knowledge (1997):
in the higher education market. Industry also has a The introduction of ICT in education can help develop personalised lifelong education and training schemes.
ICT changes the way that people learn, and transformslearning from a passive into an active and far more A large number of industrial companies are running productive process.
their own programmes to degree standard andabove, some in partnership with a university, otherson their own. The qualifications thus obtained It is obvious to us that school leavers should also not should be recognised across Europe. In comparison, enter the working environment without having been it is estimated that more than 1000 corporate taught a fundamental grounding in today's sciences.
universities exist in the US.
Business education is a major growth sector with a 29. Continuing education and training for adults
Europe-wide potential and a growing export market.
In the Europe of distance learning, virtual colleges
Participation in job- and universities are growing in importance, and the
related continuing way is clearly open for software companies to enter education and training as % of employed the field in a major way.
population aged 25-64.
For the public and private sectors to interact
effectively in a Learning Society, it is essential to
train legislators in the innovative new technologies
to enable them to understand the basics of new
sectors now being regulated.
source: OECD "IndustrialCompetitiveness: Benchmarking Business Environments in the Global We must also find innovative ways to bring new Economy" (1997) knowledge within reach of managers who are working
full time in their businesses. It is unfortunate that
the concept of adult education, well recognised in
some parts of Europe, is completely ignored in others.
At the moment, fewer Europeans than Americans are
engaged in job-related adult education (Box 29).
Improve Europe's knowledge and skills through re-igniting enthusiasm
for innovation and entrepreneurship in the educational environment:
∆ Build basic business education into school curricula and provide state of the art education in science and technology.
∆ Promote an Innovation Year to bring the impor-tance of innovation and entrepreneurship into the heart of schools and training colleges.
KNOWLEDGE AND SKILLS
5. FINANCE AND RISK CAPITAL
"High risks require high returns."
Stefano Micossi, Head DG III (Industry), European Commission
Fast access to risk capital on reasonable terms
and conditions is essential for successful entre-
30. Speech technology
preneurship and innovation, whether this takes the
Lernout & Hauspie, a company with roots in Ypres, form of seed capital, venture capital or development Belgium, is a world leader in state-of-the-art speech capital. In much of Europe, small, often locally- and language technologies: the use of a human voice as dominant, financial institutions lack the vision and the interface and solution for various commercial the creativity required to assess and evaluate applications and products. They license products to major companies in the telecommunications, entrepreneurial risk. PC/Multimedia, consumer electronics and automotiveelectronics sector.
In its recent Communication* on Risk Capital, theEuropean Commission argues that employment Founded ten years ago by two Belgian entrepreneurs, would be better served by encouraging thriving they reached a turnover of EUR 100 million in 1997. The SMEs, and by increased enterprise creation (especially company employs 1800 people directly, and contracts in high-tech areas) rather than by government- out translation work to another 1500 freelancers. Its sponsored job creation programmes, or by propping success has its origin in the willingness of two people to up individual large employers in economic difficulties.
take risks, a highly innovative product and the provisionof a broad range of technologies in a number of platforms Venture capital is vital for the success of new
entrepreneurial companies, many of which wouldnever have come into being if they had relied on Access to the right sort of equity capital at the right timehas also been crucial. They received support from the traditional financing. The essence of venture capital is a Belgian government and local venture capital investors.
high-level of risk-taking, a willingness to lose in good Access to public capital markets has also been of critical faith, and patience before cashing in on successful importance. Lernout & Hauspie has been quoted on investment. The history of Lernout & Hauspie is a NASDAQ since 1995 and is now also quoted on good example of effective financial support (Box 30).
EASDAQ. The company has grown in value to over EUR1.5 billion.
The job creation potential of such firms in Europe isenormous, far outstripping job growth in large moreestablished companies. In a recent study by theEuropean Venture Capital Association (EVCA) and Between 1991 and 1995, venture capital-backed Coopers & Lybrand, 500 companies backed by companies managed twice the sales revenue, made venture capital were compared with the Top 500 more than twice the investment and created a 15% European companies listed by the Financial Times.
increase in employment, whereas the Top 500companies had managed an increase of only 2% in * Risk Capital: A key to job creation in the European Union, 1998 job numbers (Box 31).
31. Comparison of growth rates 1991-1995
Graph comparing venture capital and Top 500 company growth rates(EVCA) source: Capricorn Venture Partners The venture capital industry in Europe is expanding.
Large companies too have an important role to play in The networking function between entrepreneurs and providing funding for new small companies. One investors can itself create revenue flow. Enthusiastic example is given by Jefferson Smurfit in Ireland investors spread the word, and more money is channelled towards venture capital companies. Newfunds raised for venture capital in Europe grew fromEUR 3.4 billion in 1993 to EUR 8 billion in 1996.
33. Smurfit Job Creation Enterprise Fund
Over the same period, early stage investing almost In 1993 the Irish Government urged large companies doubled to EUR 380 million. But this is still only a to encourage the establishment of small companies in drop in the ocean compared to the sums raised in the order to stimulate enterprise and employment in US (Box 32).
Ireland. In response, the Jefferson Smurfit Group set upa Job Creation Venture Capital Fund of EUR 15 millionto assist start-ups and the early stage development ofmanufacturing and traded service companies. In 1996 32. Formal sources of venture capital
the Government provided EUR 7.5 million in additional matching funds.
High tech investmentsLow tech investments Jefferson Smurfit also provide executives to sit on the board of small companies and to act as mentors.
Over the past five years the fund has invested EUR 12 million in 25 projects, which now employ 750 people, an increase of 300 on their preinvestment level. The fund is showing a significant return, and two projects investment (1996) are now preparing for an IPO.
source: OECD and Bannock Overall, we urgently require more innovation and creativity in the world of European finance, bankingand investment. For a start, given current uncertain- Venture capital is now being increasingly used for ties, the completion of the Single Market for
service companies and university spin-offs. Venture financial services would give a powerful and much
capital companies often provide not only equity but needed signal to both banks and businesses that also mentoring and strategic analysis to help those Europe is determined to ensure that its financial setting up on their own. system is in order.
In particular, restrictions on how pension funds
NMAX forms a network called EURO.TM. Other can be invested must be abolished. In the US,
exchanges which target high-growth SMEs, such as pension funds are important major investors in the UK's AIM (Alternative Investment Market), are venture capital funds. But in most of Europe (except moving well. We have to sustain the development
in Ireland, the Netherlands and the UK) they are not of these exchanges in order to boost employment
permitted to do so. Pension funds are intended to generate growingreturns on capital over time to finance the retirement 35. Stock markets for small companies, US/EU
of their members. They should be allowed to concen- NASDAQ has some 5400 listed companies. Its market trate on the instruments with the best historical capitalisation exceeds $2 trillion, and in 1994 it created record, that is on long-term investment in equities. An 16% of all new jobs in the US.
all too common bias in favour of government paperseverely limits the positive role these institutions can The market capitalisation of EASDAQ is $15 billion play in a European growth scenario. Allocating their (but growing fast). It is estimated that all the European assets to optimise their return on investments would stock exchanges that target high-growth companies boost growth and job creation in Europe.
together contribute to the creation of 15% of all newjobs in Europe each year. Initial public offerings (IPO) have significantly
More than one third of US venture capital is devoted to increased the return for venture capital funds.
start-ups, compared with only 10% in Europe, which Access to stock market quotations is being made still favours management buy-outs.
easier for small companies. A stock market role isimportant for giving immediate visibility to brandnew companies in fast-growing markets, as the smallbiotech company Innogenetics found out (Box 34). Meanwhile there is a confusing proliferation across
Europe of public/private schemes to assist the
financing of start-ups and further growth of small
34. The Innogenetics experience
businesses. Without doubt this constitutes a Innogenetics started as a biotech company in Belgium in significant misallocation of resources. A hard look at 1985, at a time when venture capital was scarce. After results reveals that most of these have proven ten years the company was doing well, but was still ineffective. This is borne out by the depressingly small in size and visibility. It went public on EASDAQ in small number of dynamic SMEs actually created.
1996 and two years later its stock had risen from $12 a Greater use should be made of public/private and share to $65. In the process it had become the largest private/private schemes such as mentoring, manage- biotech company in Europe.
ment training, access and contacts provision. The company chairman and founder believes that if Investment in early stage technology in Europe is EASDAQ had existed 20 or 25 years earlier, Europe about one-seventh of that in the US. Europe's R&D would have hundreds of thousands more jobs today.
sector is always in need of new funds, with fewerstrings attached, as it sets out to achieve the critical Between 1990 and 1994, companies listed on mass necessary for global competition. Better
NASDAQ, the US stock exchange for small companies, access to private funds for investment in early
created 16% of all jobs in the US although they stage technology would help attract research
represent only 2.5% of total employment. Following activities back to Europe and leverage funding from the success of NASDAQ, Europe has produced public sources.
several specialised markets. As a further stimulus to initiative, financial
The best known of these is EASDAQ, the European advantage should accrue to those who generate
Association of Securities Dealers Automated wealth. Taxation systems should be modified
Quotation. A recent alliance of the French Nouveau accordingly. Reform should be introduced to create Marché, Germany's Neuer Markt and the Dutch tax-efficient stock option plans. The differing tax treatments for venture capital, which discourage 36. The challenges to government set by the
this type of investment in some Member States, European Venture Capital Association
must be eliminated. 1. Encourage dynamic entrepreneurship and European standards of corporate governance are
still too ill-defined and lack the transparency that
2. Provide competitive stock markets for smaller and growing companies.
investors need. Greater clarity would assist capitalmarkets in allocation of resources, boosting 3. Develop and channel sources of long-term capital.
prospects for long-term sustainable growth. The 4. Provide appropriate investment fund structures for ERT strongly supports the OECD position on private equity funds.
5. Adjust tax rewards for those bearing the highest Finally, the ERT calls for action on the Commission's 6. Promote investment in innovative start-up ventures recommendations to facilitate the transfer of companyownership in order to safeguard businesses as 7. Facilitate the transfer of company ownership to generations change. This too is one of the EVCA's revitalise existing businesses.
eight challenges to government (Box 36).
8. Develop the markets in countries where private equity is emerging.
source: EVCA White Paper Boosting Europe's growing companies. Free up more finance and risk capital to fund
businesses by injecting entrepreneurial attitudes into
the world of finance and banking:
∆ Remove restrictions on pension fund investment thathold back risk capital.
∆ Expand access to risk capital markets and encouragethe development of the pan-European stock markets that target small high-growth companies.
FINANCE AND RISK CAPIT
6. GOVERNMENT AND LEGISLATION
"Partnership between business and government is vital. Leader-
ship on innovation must come from both sides pushing together.
If they don't work together, then nothing will happen."
Lord Simon of Highbury
There is a great deal that government in Europe
So, government must act faster. For example, the
can do to create an environment receptive to
liberalisation of hi-tech European markets such as innovation. The good news is that much is already
telecommunications and financial services is hap- being done. The bad news is that more is needed pening, but far too slowly. Throughout the European because the external world never stops changing.
Union, the need is to lower for new companies the Therefore - whether national or regional or Union - barriers to entry and to make it easier for existing government must continuously evolve in policy-
companies to leave. New markets should be allowed making. What has been done can be built upon, but
to grow free of legislation for legislation's sake, we do not just need more, we now need something untrammelled by controls and regulations which have their origin in markets that no longer exist. The more active European governments have started One example of the problems created by over- benchmarking their policies and services to ensure regulation of new sectors is biotechnology, (Box 37).
that quality keeps pace with new citizen demandsand those imposed by new technologies. Others, 37. Nestlé, biotech and the food sector
however, declare their good intentions but with little Nestlé and the other ERT food manufacturing com- real follow-up.
panies have recognised the vast global potential ofbiotechnology. It could help to overcome world food It is essential to complete Single Market legisla-
shortages, produce plants that require less pesticide, and tion and to enforce national implementation of
develop food with higher nutritional content.
EU legislation. But this will only take us part of the
way. There is broad agreement on the principle of
But strategic technologies of this kind require a long-term approach. Nestlé first began research in 1982, and liberalisation of markets for products, labour and has built up its European R&D over time.
capital, but Member States argue that this should bedone in a way that does not undermine a European Nestlé would like to continue to develop biotechnology in Social Model which aims to ensure job security. ERT Europe and use its strong brands to launch a range of notes, however, that Western Europe has long suffered products using this technology. However, regulations in the highest unemployment rate amongst industri- Europe are increasingly unpredictable. Approval time isthree times longer than in the US.
alised countries. Biotech will become critical to the future competitiveness "Finding the right balance makes for a new kind of of the food industry. The question is whether Europe will politics in Europe," according to Lord Simon. "We participate. Employment in biotech-related sectors in are on the brink of something massively exciting. If Europe was estimated to be around 300,000 in 1995. This we don't pull it off, then the American model will could rise to over 3 million by 2005 - provided business is allowed to make full use of the opportunities bio- take us. That is the way of the world." technology offers.
Government needs to spend more time to under- 38. Setting up a business: cost and time taken for
stand and benchmark microeconomic and supply- establishment of a private limited company
side policies. Political and social stakeholders needto accept that job losses in traditional occupations is normal in a healthy economy. Hastily drafted protective measures put up to delay this process will only hurt more in the long run. Government andbusiness have to understand each other. "We need consensus and conviction," says Stefano Micossi of DG III. "We need to manage flexibility and adaptemployment support systems to make it possible to accept, even support, change with available publicinstruments." Probably the most difficult thing for government to understand is the dual concept of risk and reward.
Time taken to set up a business Cost of setting up a business OECD and Logotech (1998) Better methods of evaluating the risk content of newventures must be found and set against the likelyrewards. As already noted, it is crucial not to One positive result was the BEST Report (Box 39) penalise business failure for entrepreneurs: they from the European Commission on improving and must be encouraged to try and try again. In the US, simplifying the business environment for start-ups, for example, someone who has been bankrupt can issued in June 1998. The ERT wants to ensure that still be given a chance to establish a new business this Report's recommendations are duly implemented.
with further backing from financial institutions, as The time for good intentions has run out.
he is less likely to fail the second time round. Legislation ought to be appropriate, simple and
39. Simplifying the business environment for
easy to use. It should guarantee the same solutions
to the same problems in all countries across the EU, There are 18.5 million small companies in the European not just in a few. National legislation should not be Union, accounting for more than 60% of EU turnover used to block innovations in work patterns and and 66% of total EU employment. As some 1 million markets in order to protect existing jobs. If more new small companies are created every year, there is apressing need to reduce the administrative burden of legislation is market-led and implemented in a current legislation for small companies. uniform way in each country within the same timeframe, doors would be opened to new opportunities The European Commission's BEST Task Force published for growth and jobs.
its recommendations in June 1998. The administrative and financial burden of national
What is called for: better public administration; newapproaches in education, training and the workplace; and European regulations on companies of all sizes,
easier access to finance and help for innovation. The small, medium and large, is striking and must be Report called on the European Institutions to provide alleviated. Furthermore, every study indicates that it detailed proposals for implementation, including represents a proportionally bigger problem for SMEs timetables for action.
and gravely limits their possibilities of expansion.
Setting up a company can be a lengthy and costly business (Box 38).
In the absence of supportive legislative frameworks The European Commission's commitment to simplify that help rather than hinder new markets for legislation is welcome only if it is pursued. The need innovative products, companies can often suffer to lighten the burden of European legislation, heavily during the cumbersome process of satisfying
especially on small companies, was recognised by regulatory procedures in different countries. The case
the Luxembourg Employment Summit of 1997. of Luvox is just one example (Box 40).
There is now a crying need for greater flexibility
40. The heavy cost of regulatory delay
in labour laws at national level in Europe. This
Luvox, an important anti-depressant, is Solvay's leading again is vital for companies of all sizes. Short-term, pharmaceutical product. Annual sales in 1997 reached part-time, temporary and seasonal employment have to be properly accommodated.
Research on fluvoxamine started in the late 1960s in Given the background of technological change plus Solvay's R&D laboratories, in cooperation with Dutch globalisation, each with its inherent risks, the time is academic centres. R&D investment totaled some 3000man-years, which today in monetary terms is valued at surely ripe to breathe some fresh air into labour $600 million.
legislation throughout Europe and to bring newideas to the negotiating table. So much has changed Solvay was the first to patent such a product in 1975.
in the past few years in the world of work, and in The first registration and launch took place in society itself, that it is impossible to carry on denying Switzerland in 1983. Registration in the other main the regulatory needs of today's very different European markets took time and was not completeduntil 1987, and not until 1995 in the US.
Meanwhile the American firm Eli Lilly, located in the The ERT cannot be prescriptive, but it should be world's biggest market, had also obtained a patent in possible to reward good performance without
1975 for a similar product (Prozac), and went on to starting a generalised upward wages spiral. Ways
launch it with a significant time advantage in their home must be found to increase the rewards and incentives market. By 1997 Eli Lilly had achieved global sales of$2.5 billion, fourteen times more than Solvay.
in the variable part of salaries. Just as systems such asstock options are available to company employees,an incentive bonus system should be available tothose who work in public services, service units andthe liberal professions.
Modernise government and legislation
through finding the right balance between
freedom and rules for running local and
global businesses, using a lighter approach
to legislation as a positive tool:
∆ Implement Single Market rules fully at national AND LEGISLA
∆ Reform restrictive labour market rules to favournew jobs and types of employment.
"We need to see better, we need to mobilise faster, we need to
give the doer space."
Peter Lorange, President of IMD
This Report shows that innovation is the core issue in competitiveness, and that competitiveness is the key to the creation of lasting jobs. It also shows that innovation is not only about new technology, science and research; it is also about attitudes of mind which should permeate government, businesses, academia, indeed the whole of society. It is therefore neither useful nor helpful to address innovation as a strictly economic issue.
New jobs are created through innovation and competitiveness, either directly in new businesses, or indirectly through the removal of obstacles, the freeing of markets, and the creation of more favourable conditions for employment in existing businesses. The most crucial jobs are those for the future, and people must be ready and willing to take them. A new spirit of enterprise is needed. We can prepare for this by applying innovation now, in human resource management, in R&D strategies, in educational institutions, and in government. As Daniel Janssen indicated in the Foreword, the priority actions identified here are not comprehensive but, if implemented right across society - by government, public services, businesses and the individual - they would go a long way towards reducing unemployment in Europe.
The quotation above points the way forward. We need to see
better: can we see as early as possible the less obvious
opportunities for creating new enterprises? We need to mobilise
faster: can we mobilise our resources efficiently and competently,
with Member States and companies working in harmony, and the lines of responsibility made clear? We need to give the doer
space: in a highly regulated Europe, can we help those who have
imagination and show initiative - whether working for companies, in public service, or as individuals - to take risks? Our overall message is positive, despite all the obstacles that have been identified. In general, a more active interchange between government, society, stakeholders, the company and the individual is essential. As the obstacles are removed, the way to future opportunity and future jobs is opened up.
build new BUSINESSES build new MARKETS ERT's PRIORITY ACTIONS
for Job Creation and Competitiveness
CHANGE ATTITUDES by promoting a European Society open to innovations in science,
1 technology, business, living and working conditions:
∆ Promote the spirit of enterprise throughout society, in industry, government, finance and education.
∆ Ensure that sound and well-researched information on scientific breakthroughs, new products and services always gets through to the public.
CREATING NEW BUSINESSES means fostering entrepreneurship by removing obstacles to
2 initiative and by rewarding risk-taking and success:
∆ Establish supportive fiscal conditions for inventors, entrepreneurs and investors.
∆ Drastically reduce the demands of bureaucracy and ensure that legislation does not penalise failure.
Get more from Europe's RESEARCH AND DEVELOPMENT through introducing the Single
3 Market concept to our research and academic communities:
∆ Reform the patent systems in Europe, permitting single filing of a unitary patent for all Europe with no ∆ Promote biotechnology as one of the key technologies of the new Millennium and provide a more supportive external and regulatory environment.
Improve Europe's KNOWLEDGE AND SKILLS through re-igniting enthusiasm for
4 innovation and entrepreneurship in the educational environment:
∆ Build basic business education into school curricula and provide state of the art education in science and technology.
∆ Promote an Innovation Year to bring the importance of innovation and entrepreneurship into the heart of schools and training colleges.
Free up more FINANCE AND RISK CAPITAL to fund businesses by injecting entrepreneurial
5 attitudes into the world of finance and banking:
∆ Remove restrictions on pension fund investment that hold back risk capital.
∆ Expand access to risk capital markets and encourage the development of pan-European stock markets that target small high-growth companies.
Modernise GOVERNMENT AND LEGISLATION through finding the right balance between
6 freedom and rules for running local and global businesses, using a lighter approach to
legislation as a positive tool:
∆ Implement Single Market rules fully at national level. ∆ Reform restrictive labour market rules to favour new jobs and types of employment.
Mr Alexandros Akritopoulos Mr Rob F. van Esch DG III, European Commission Head of European Union Liaison Director European Affairs, Unilever Shell International Ltd Ms Yvonne Gärtner Conseiller Recherche Scientifique European Affairs Associate, Microsoft Permanent Representation of Sweden to the EU Policy AdvisorMinistry of Education, Culture & Science (NL) Ing. Pier Giorgio Gili Member of the Board, Fiat Research Centre Secretary General, EuropaBio Mr Alessandro CagliIndustry Attaché, Perm. Rep. of Italy to the EU Director, European Commission Mr Jan F. Candries Turkish Industrialists' & Businessmen's Assoc.
Advisor, AECA Europe Mrs Sophie GuillotEU Corporate Affairs Deputy Manager, Michelin Mr Stefano Catelani Head EU Liaison Office Director Governmental Affairs Europe BASF EU Liaison Office Du Pont de Nemours International S.A.
Director, Transatlantic Policy Network Dr Marc Battaille Mr Michel Catinat Sir Ronald Hampel President, I.P.A.C.
Adviser to the Director General European Commission - DG III Mr Alain Heilbrunn DG III, European Commission Mr Thierry Chambolle Director for European Affairs, Total Deputy Director General-Environment Ms Geneviève De Bauw Suez Lyonnaise des Eaux Ms Lone Henriksen Director, EU Government Affairs Detached National Expert, European Commission Dow Europe s.a.
Dr Jean-Marie ChandelleManaging Director, CEMBUREAU Mr Hugo Van Heuverswyn Gimentas Liaison Officer Dr William Coderre Turkish Industrialists' & Businessmen's Assoc.
Counsellor Science & Technology Lord Simon of Highbury The Canadian Mission to the European Union Minister for Trade and Competitiveness in Europe Mr Robin Berkeley Department of Trade and Industry Director, European Government Affairs President, ABB Service Worldwide Mr Alfred HoffaitGeneral Manager Research & Development Mr Michel Bilquin Mrs Edith Cresson Head of International Communication Member of the Commission European Commission Mr Dirk HudigSecretary General, UNICE Ms Mona Björklund Mr Stanley Crossick EU Affairs Consultant Chairman, European Policy Centre Mr Jan-Peter Huges European Energy & Telecom Consulting President, AKZO NOBEL International NV Mr Philippe Nestor Louis D'Heygere Mr Jehan-Eric Blumereau President, Stow International Group of Companies Mr Torbjörn Ihre Directeur des Relations Inter-Entreprises President, Ericsson European Affairs Office Mr Joël De DeckerPublic Affairs Manager, IBM Mr Toshikazu Inui Counsellor, Mission of Japan to the EU Chief Executive Officer, Ducroire Mrs Mia DeclercqAdvokaat, Baker & McKenzie Mrs Daniela Israelachwili Prof. Antonio Borges Director, Economic & Financial Affairs, UNICE Mr Jean-Claude DeltheilEU Corporate Affairs Manager, Michelin Prof. Alexis Jacquemin Chief Adviser, Forward Studies Unit Chairman Employment & Labour Market European Commission Committee E.C.
Manager Economic Department Ministerie Sociale Zaken & Werkgelegenheid (NL) Mr Georges JacobsCEO, UCB Mr Alexandre Brégadzé Managing Director, Businesscom International S.A.
H.E. Mr Lee Jai-chun Ambassade de Russie en Belgique Ambassador Extraordinary & Plenipotentiary Mission of Korey to the European Union Mr Walter Brinkmann Senior Vice President European Affairs Baron Daniel Janssen Coca-Cola Greater Europe Mr Jaime Echevarria Chairman of the Executive Committee, Solvay Director Corporativo, Iberdrola Mr Hans Broeckhoff Mr Staffan Jerneck Deputy Head of Safety & Env'l Assurance Centre Mr Harry van Egmond Deputy Director, Director of Corporate Relations Economic Adviser, Unilever Prof. Dr Henri Jolles Member of the European Parliament Member of the European Parliament Directeur France, Ecole Européenne des Affaires Mr Hans-Werner Müller Sabanci Holding Liaison Officer Secretary General, UEAPME Public Affairs Manager, Solvay Turkish Industrialists' & Businessmen's Assoc.
Mr Béla Murányi Dr Teun Swanenburg Mr Roland de Kergorlay Counsellor S&T, Mission of Hungary to the EU Senior Director for Research Coordination Philips Corporate Research Société Européenne des Satellites Mr Paul MuysExternal Relations Officer, Solvay Senior Director European Affairs Advisor to the Chairman, Fiat Philips Electronics NV Chargé de Mission Société Générale de Belgique Ms Maria Szalankiewicz Director, Corporate Communications & Public Mission of Poland to the EU Managing Director Prof. Jonathan Knowles Capricorn Venture Partners n.v.
Head of Pharma Research Deputy Director-General - DG XII F. Hoffmann-La Roche Ltd.
European Commission Secretary General, ERT Mr Mathias Ternell Deputy Chief of Mission Mr Toine Philippa Industry Attaché General Manager, InTerPAC BV Permanent Representation of Sweden to the EU Dr Herwig Kressler Mr Matti Pietarinen Head Remuneration-Industrial Relations Advisor, Councellor, Permanent Representation of Finland Managing Director European Energy & Telecom Consulting Mr Tilmann Kupfer Principal Administrator, DG XXII Mr Georges de Veirman Senior Adviser, European Regulation European Commission BT Brussels Representative Office American European Community Association Chairman, Ericsson Mr Baudouin Velge Senior Vice President, Nokia Corporation, Directeur, VBO-FEB Mr Keith RichardsonSpecial Adviser, European Policy Centre Mr Bernard de Laguiche Membre du Cabinet de Mme Cressson Manager Corporate Planning, European Commission EU Focal Point, Shell International Ms Caroline Walcot Mr Paul Van Leeuwe Deputy Secretary General, ERT Permanent Representation of the Netherlands Mr Marc De Schinckel Senior Vice President - Group EU Director Mr Eckart Lehfeldt Vice-President Public and EU Affairs, Leiter Verbindungsbüro Bonn Forschung und Technik, Daimler-Benz Dr Hendrik Schlesing Director European Operations Australian High Commission President and Maucher Nestlé Professor, IMD The Weinberg Group Mr Rudi M. Mariën Chairman, Innogenetics European Affairs Director Federation of German Industries (BDI) Mrs Regina Matthijsen Deputy Director, International Industrial Relations Mr William Seddon-Brown Adviser, Cabinet of President Santer Philips International B.V.
European Commission Prof. Dr. Frieder Meyer-Krahmer Director, Fraunhofer-Institut für Systemtechnik Deputy Secretary General, Eurochambres Chef de Cabinet of Mrs Cresson und Innovationsforschung European Commission Ms Patience Nontatu Zanele Skolo Mrs Liliane Meyers Corporate Manager Industrial Property and Info.
South African Mission to the European Union & Doc., Solvay S.A.
Mr Stefano Micossi Senior Director, Siemens Director-General - DG III, European Commission Mrs Marianne Spangenberg-Carlier Mr Luc Van Den Moortgate Manager Small Business Unit & SPMO Director, Fabrimetal Shell Nederland BV Mr Albrecht Mulfinger Mr Lars Stålberg DG XXIII/C/2, European Commission Senior Vice President, Ericsson Group Members of the European Round Table of Industrialists
Morris Tabaksblat François Cornélis Dimitris Daskalopoulos Société Générale de Belgique Carlo De Benedetti Thierry Desmarest Jean-René Fourtou José Antonio Garrido Hoffmann-La Roche Flemming Lindeløv Suez Lyonnaise des Eaux Mark Moody-Stuart Royal Dutch/Shell Heinrich von Pierer Manfred Schneider General Electric Company Jefferson Smurfit Marco Tronchetti Provera Secretary General LIST OF BOXES
1. Graduates in Natural Sciences EU / US 22. Customer-led innovation at Unilever 2. Number of research students EU / US 23. The need for a unitary patent system in the EU 3. Job creation and job churn EU / US 24. From campus company to NASDAQ in 6 years 4. Biotech companies and the creation of new jobs EU / US 25. The role of people 5. Newly created specialist biotech companies EU / US 26. New ways of working in Nokia 6. Patents granted in 1996 EU / US 27. ERT Education Reports 7. Attitudes to risk-taking and individual initiative EU / US 28. Schools Enterprise Programme in Scotland 8. UK Government progress in one year 29. Continuing education and training for adults 9. The transformation of Philips 30. Speech technology 10. New approach to insurance at BP 31. Comparison of growth rates 1991-1995 11. Jobs created by new company openings EU / US 32. Formal sources of venture capital 12. Mobile telephony 33. Smurfit Job Creation Enterprise Fund 13. A stimulus to job creation 34. The Innogenetics experience 14. Shell invests for the long-term in renewable energies 35. Stock markets for small companies US / EU 15. Low cost colour printing 36. The challenges to government set by the 16. BT and Concert Communications European Venture Capital Association 17. Total R&D expenditure and closeness to market 37. Nestlé, biotech and the food sector 18. EC First Action Plan on Innovation 38. Setting up a business: cost and time taken for 19. The Fifth Framework Programme for R&D in Europe establishment of a private limited company 20. Research cooperation: perception of business leaders 39. Simplifying the business environment for start-ups (BEST) 21. Pirelli and the P6000 Tyre 40. The heavy cost of regulatory delay RELATED ERT PUBLICATIONS
∆ Beating the Crisis (1993)∆ European Competitiveness: the Way to Growth and Jobs (1994) ∆ Education for Europeans (1995)∆ Benchmarking for Policy-Makers (1996)∆ A Stimulus to Job Creation; practical partnerships between large and small companies (1997)∆ Investing in Knowledge (1997) The report has been prepared by members of the The publication is available in English, French and ERT Competititiveness Working Group, chaired by German and is distributed free of charge. The Daniel Janssen, based on the Colloquium held on English text may also be downloaded from the ERT 19 May 1998. We are grateful to Piet Steel of Solvay and Caroline Walcot of ERT for their work in organising the Colloquium and editing the text. For information and further copies, please contact: The European Round Table of Industrialists (ERT) This report was approved by the ERT Members at avenue Henri Jaspar 113 their Plenary Session of 16 November 1998. Most of these opinions are widely shared within the business community, but individual ERT Members may differ Tel: +32 2 534 31 00 on specific issues.
Fax: +32 2 534 73 48e-mail: email@example.com is a group of 44 European industrial leaders who are personally committed to strengthen and develop Europe's industrial and technological competitiveness.
Since its creation in 1983 the ERT has contributed significantly to an improved dialogue between industry and governments at both national and European levels.
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