Executive Summary
Download the full study report
December 2009 (PDF, 2.4 MB)
ICT-related industrial policy as defined in this report comprises policies for ICT innovation in ICT-producing industries and ICT adoption in ICT-using industries. Both should be consid-ered as two parts of the same coin to enhance the competitiveness of European industry as well as growth and employment in Europe.
Consider specificities of ICT R&D&I. ICT is different from other technologies in that it has shorter innovation cycles and a relatively higher need for investment into commercialisation as compared to R&D. Industrial policies could consider these differences and, for example, focus on commercialisation activities.
Downsides of R&D&I joint ventures. While joint R&D&I is normally considered as beneficial because it increases economies of scale and scope, industrial policy should also consider that companies involved in joint ICT R&D&I may use results to prevent market entry of competitors and to slow down innovation activities.
Conditioning of public R&D&I grants. A game theoretical analysis suggests that public grants for ICT R&D&I in joint European programmes should be conditioned on the firms' own investment, e.g. public funds are only granted for investments beyond a certain limit, and national governments should be prevented from establishing competing programmes and subsidising national firms.
Balancing SME policies. Theoretical considerations question whether policies to promote the participation of small and medium-sized enterprises in electronic value systems necessarily enhance efficiency. In particular, policy measures may imply that an inefficiently high number of SMEs remain active.
e-Business standards policies should take into account possible rent-seeking behaviour on the part of the companies meant to adopt the standards. Public entities should rather foster institutions like standardisation committees that do not rely on direct payments.
This is a report of a Sectoral e-Business Watch study about an economic assessment of ICT-related industrial policy. The study objectives are to describe current practices and trends in such policy, to analyse selected policy measures and to draw conclusions for developing industrial policy measures in the future.
The analysis in this report is based on a theoretical analysis, case studies, an expert survey, expert interviews and literature evaluation.
ICT-related industrial policy is defined in this report as measures to promote ICT research, development and innovation (R&D&I) in ICT-producing industries as well as ICT adoption in ICT-using industries. The objectives of such policy are to foster competitiveness, growth and employment in the industries concerned (section 2.1).
This definition of industrial policy is open to different approaches which may be perfectly market conform. Possible instruments of ICT-related industrial policy include, as industrial policy in general, market regulation, infrastructure enhancement, financial incentives, and involvement in entrepreneurs' decisions.
The industrial policy of the European Commission (EC) combines horizontal and industry-specific approaches. Its objective is to "create the right framework for industry to thrive" without protectionism and subsidies. It is currently challenged to find appropriate answers not only to increasing global competition and climate change but also to the economic crisis (section 2.2).
There is no defined "ICT-related industrial pol-icy of the EU"; the term has been introduced for this study. The EC's ICT innovation policy in-cludes for example ICT-related R&D&I under the seventh EU Framework Programme, in the Competitiveness and Innovation Programme, and in the European Research Area. Within DG Enterprise and Industry, the following activities are related to ICT and e-business adoption: the e-Business Support Network for SMEs (eBSN), support for ICT standardisation and standards adoption, initiatives to improve e-skills, and activities to create a favourable legal environ-ment for e-business (section 2.2).
The strategic priorities of the EC's ICT-related industrial policy have changed over the years, from co-financing ICT investments towards stimulating SMEs to explore the innovation potential of ICT and, more recently, supporting SMEs to develop their e-business strategy in cooperation with their business partners. A next shift may focus on innovation of key ICT and their adoption in companies of all sizes.
This report focuses on ICT-producing industries and on ICT-using manufacturing industries. The competitive position of European hardware and software producers is ambiguous. In some segments European firms are strong, for example in mobile phones and business software. In others Europe is weaker, for example in semiconductors and packaged software. A strategic challenge for the European software industry and policy makers is to strengthen Europe's competitive position in the course of a shift towards new paradigms such as the "internet of things" and the "internet of services".
ICT-using manufacturing industries have many characteristics in common. Their supply side is typically an important and fragmented business activity. As regards market structure, ICT-using manufacturing industries typically have at least some sub-sectors that are highly concentrated, with large dominating international players. As regards e-business adoption, large and medium-sized companies are typically better equipped with ICT and typically perform higher rates of e-business practice than micro and small companies (section 2.3).
A theoretical analysis of selected ICT-related industrial policy measures is a key part of this report. The overall objective of the theoreti-cal analysis is to produce insights about strategies and behaviour of companies, Member States and the European Commis-sion when interacting about funding of ICT research, development, innovation and adoption as well as about the design of re-lated policies (section 4.1).
Three analyses are conducted, one related to ICT-producing industries, one related to ICT-using industries and one applying game theory to joint European R&D&I programmes:
The theoretical analysis is based on the following four theoretical approaches (section 4.1):
The importance of ICT for growth and employ-ment in Europe is undisputed. However, the EC sees a critical need for European ICT R&D&I to be better co-ordinated, concentrated and spe-cialised. Policies to tackle this problem involve intense cooperation between the European Commission, Member States and companies (section 4.3).
ICT R&D&I has some special features, which include short innovations cycles and relatively small investments for R&D but relatively high in-vestments for commercialisation. Further aspects include standardisation or compatibility issues between existing and new products or technologies as well the cost of imitating innovations of successful competitors. These characteristics of ICT R&D&I put large firms at a competitive advantage versus SMEs.
Potential state failure related to ICT R&D&I funding can be due to at least three reasons:
Theoretical considerations question whether policies to promote companies' participation in electronic value systems necessarily enhance efficiency:
As regards policies to standards adoption, pol-icy makers need to be aware that companies may have strategic incentives to hide relevant information in order to reduce their costs of implementing a new standard or to receive di-rect grants (section 4.4).
The most important lessons for the European Commission are related to the optimal design of the framework conditions of joint ICT R&D&I programmes before their inception. The EC faces a dilemma: On the one hand it has to ensure that firms and national governments must find it profitable to participate at the outset; on the other hand the firms' and national governments' incentive to strategically exploit the programme once it has been created have to be as low as possible. Key insights from the analysis are that public grants for ICT R&D&I should be conditioned on the firms' own investment, e.g. public funds are only granted for investments beyond a certain limit, and that national governments must be prevented from establishing competing programmes and subsidising national firms (section 4.5).
Empirical findings for this report support theoretical arguments. Three case studies were conducted.
A case study about the US Networking and Information Technology Research and Development (NITRD) programme shows a need for coordination of dispersed Federal activities to promote ICT R&D&I. In particular, it sheds light on the need to promote technology transfer not only from public organisations to the market, but also among public research organisations themselves (section 4.1.1).
A case study about the Korean IT839/u-IT839 master plans illustrate a massive public support to ICT R&D&I in this country, close intertwinement of public and private activities as well as support by a technology-friendly culture in the population. The master plans appear like a concerted activity targeting not only R&D but also venture capital and the educational system (section 4.1.2).
A case study about the initiative "Cluster Automotive Region Stuttgart (CARS)" illus-trates the practical importance of e-business adoption in order to remain part of the supply chains to large automotive manufacturers. It also highlights that the prevalence of proprie-tary e-business standards can be an important barrier to enhancing e-value systems (section 4.1.3).
Findings from an online expert survey with 46 respondents confirm that ICT R&D&I as well as e-business adoption in European industries need to be improved in order to enhance their competitiveness (section 4.2). The respondents saw a clear need for public policy to support ICT R&D&I and adoption. In fact, the majority of respondents found that the European Commission is focusing on the right issues but the policies were found to be insufficient in scope. The findings also suggest that there is a need for closer co-operation between the European Commission and the Member States in related policies and for clustering activities.
This study suggests a concept for developing ICT-related industrial policy that distinguishes between policy themes and counterparts. The principal themes are policies for ICT product innovation and policies for e-business adoption. The principal counterparts are companies and Member States. Taking these themes and counterparts together there are four distinct fields of ICT-related industrial policy. The study suggests twelve related specific implications (section 5.1):
European Commission ICT innovation policies towards companies:
European Commission ICT innovation policies towards national governments:
European Commission e-business adoption policies towards companies:
European Commission e-business adoption policies towards national governments:
