[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 15.5.2007

SEC(2007) 582

COMMISSION STAFF WORKING DOCUMENT

Annex to the Proposal for the Council Regulation on the setting up of the ARTEMIS Joint Undertaking Analysis of the effects of a Joint Technology Initiative (JTI) on Embedded Computing Systems [COM(2007)243 final] [SEC(2007) 583]

TABLE OF CONTENTS

EXECUTIVE SUMMARY 4

1. Procedural Issues and Consultation of Interested Parties 14

2. Problem Definition 15

2.1. The importance of embedded systems 15

2.2. What is the issue or problem that may require action? 20

2.3. What are the underlying drivers of the problem? 22

2.4. What are the risks in the current situation? 25

2.5. Who is affected, in what ways, and to what extent? 26

2.6. How would the problem evolve, all things being equal? Is intervention at Community level justified? 28

2.7. What are the overall policy objectives and what are the expected effects? 30

2.7.1. Policy objectives 30

2.7.2. Technological and economic objectives 30

2.7.3. Expected effects 31

3. Policy Options 32

3.1. Approach to reaching the objectives 32

3.2. Options discarded 34

3.3. Conclusions on the different approaches 36

3.4. Option scenarios 37

4. Structure and Governance of the ARTEMIS Joint Undertaking 37

4.1.1. Participation and legal form 37

4.1.2. Governance structure 38

4.1.3. Operations and funding model 39

4.1.4. Appropriateness of the governance model for the Joint Undertaking 41

5. Analysis of Impacts 42

5.1. Economic impact 42

5.1.1. Impact on mobilisation of resources 42

5.1.2. Impact of achieving the JTI’s technological objectives 44

5.1.3. Impact of removing budget uncertainty 48

5.1.4. Impact of streamlined procedures 50

5.1.5. Impact of shorter times to contract 51

5.1.6. General economic impacts 52

5.2. Social and environmental impact 53

5.2.1. Social impact 53

5.2.2. Environmental impact 55

6. Benefits and Risks 57

6.1. Benefits and risks for stakeholders 57

6.2. Relationship of JTI research with Community Programmes and Eureka research 59

7. Meeting the identification Criteria for JTIs 62

8. Monitoring and Evaluation 64

EXECUTIVE SUMMARY

BACKGROUND

This impact assessment examines options for stimulating innovation and investment at European level in the field of embedded computing systems research, in particular through the establishment of a Joint Technology Initiative (JTI).

The Seventh Framework Programme (2007-2013)[1] introduces the concept of Joint Technology Initiatives (JTIs) as a response to the real research needs of industry and other stakeholders. Through the commitment of massive financial, organisational and human resources, JTIs are expected to implement ambitious research agendas in genuine public-private partnerships at European level. JTIs should pursue activities that are of common European interest[2] and they should contribute to the achievement of the Lisbon competitiveness objective and the Barcelona targets for research spending[3] in areas that are critical for European competitiveness. With JTIs, the Community offers for the first time a legal and organisational scheme for effective pooling of resources from both the public and the private sector in specific areas and across Europe.

Information and communication technologies (ICT) are of increasing economic and social importance and will play a key role in realising the renewed Lisbon strategy for European growth and employment[4]. The Commission’s “i2010” initiative[5] (European Information Society in 2010) has also identified the strengthening of innovation and investment in ICT research as a priority in the effort to address the increasing productivity gap between Europe and competing zones. Embedded computing systems — the invisible electronics and software that impart intelligence to products and processes — are an especially important part of the ICT landscape as they underpin competitiveness, innovation and growth in key sectors of European industry (e.g. the automotive and aerospace branches, consumer electronics, telecommunications, and automation). Embedded systems add value to products by providing them with new intelligent functions, they increase productivity in manufacturing, logistics and the distribution of goods and services, and open the way to entirely new markets and societal applications — from personal health systems to environmental monitoring.

“Embeddedness” is one of the major technological drivers of digital convergence, and embedded computing has been identified as one of the EU’s main industrial and technological strengths in global markets[6]. Already by 2000, 98% of computing devices sold worldwide were embedded in products[7]. Forecasts predict more than 16 billion embedded devices by 2010 (nearly three devices per person on earth) and over 40 billion of such devices by 2020[8]. The central role of embedded electronics in innovation and value creation is reflected in their increasing share in the value of the final product. Within the next five years, the share of such systems is expected to reach significant levels[9] in the automotive sector (36%), industrial automation (22%), telecommunications (37%), consumer electronics and intelligent home equipment (41%), and applications related to health and medical equipment (33%). Furthermore, the value added to the final product by embedded software is much higher than the cost of the embedded device itself.

Worldwide, R&D in the field of embedded systems is expected to double over the next 10 years, supporting the growth of this expanding market. Whereas total R&D should increase by around 170% over the next ten years, expenditure on embedded software R&D is predicted to increase by 225%, from €58bn in 2002 to €132bn by 2015[10].

The ARTEMIS Technology Platform[11] brings together all the relevant sectors of industry, research centres, universities and European public authorities in the field of embedded systems. It is motivated by the belief that everyday life in our society and the competitiveness of industry in almost all sectors will increasingly depend on embedded computing. Its driving vision is “a major evolution of our society in which all systems, machines and objects will become digital, communicating, self-managed resources”. Its aim is to create the necessary critical mass and to coordinate the research efforts and initiatives needed across Europe in order to implement a coherent strategy for EU leadership in the field. One of its core tasks is the definition of a common “strategic research agenda” (SRA) that will become a reference in the field and attract investment from all stakeholders. The first version of the SRA was published in March 2006.

CONSULTATION

The impact assessment drew on the results of extensive consultations held by the Commission with stakeholders in the embedded systems domain following the creation of the ARTEMIS Technology Platform in January 2004. Consultations were held with national public authorities in the Platform’s “Mirror Group[12]“, gathering representatives from 24 Member States and Associated Countries. The relevant topics for this impact assessment, such as the Strategic Research Agenda and plans for the Joint Technology Initiative, were publicly presented and discussed at major events such as the ARTEMIS annual conferences (Rome 2004, Paris 2005, Graz 2006), the Information Society Technologies Conference IST 2006 (Helsinki), and the public presentation of the ARTEMIS SRA in March 2006 (Brussels).

As the final step in this process, three consultation meetings focused on the contents of this impact assessment. They gave rise to wide-ranging discussions to collate and review previous results and provided further inputs for an in-depth assessment of the proposed governance structure for the Joint Technology Initiative.

The assessment of the economic impacts has drawn primarily on public domain data, in particular two recent studies published in 2005 providing a detailed picture of the funding landscape (public and private) and technological and market trends in embedded systems-related areas[13].

THE NATURE OF THE PROBLEM

Insufficient R&D investment

Europe lags behind its international competitors in investment in ICT research and innovation and needs to address its productivity gap with competing zones. Overall in the EU, ICT accounts for around 18% of total R&D expenditure compared to 34% in the United States and 35% in Japan[14]. The difference is even more marked on a per capita basis, where the EU spends around €80 per head compared to €350 per head in the US and €400 in Japan. This situation is reflected in, and partly explains, Europe’s poor performance in productivity and economic growth.

For embedded systems research in particular, total public funding in Europe[15] is only 11% of the total for ICT, despite the economic importance of the area and the fact that embedded systems-related R&D accounts for more than 50% of total business expenditure on ICT R&D in all sectors.

The fragmentation of research funding in the EU

There are several funding programmes relevant to embedded systems in Europe. Firstly, the Framework Programmes have made major investments in ICT research over a number of years. However, they represent a relatively small percentage of the EU’s total public budget[16]. Another funding mechanism is the inter-governmental Eureka scheme. This is a valuable cooperation framework through which up to €200 million of public funding is provided to industrial R&D projects every year in the areas of embedded systems and software-intensive systems. However, Eureka has well-recognised shortcomings: duplication of evaluation and project monitoring procedures at inter-governmental and national level, variable levels and poor predictability of the public funding available, and long delays before starting projects have consistently weakened the effectiveness of the scheme.

At national level, 17 out of 122 funding programmes in 23 EU Member States and Associated Countries have significant relevance for embedded systems research. In some countries, embedded systems activities are spread over several (sometimes disconnected) programmes, while in others it is not possible to identify whether there are relevant activities at all in the area.

In the face of the major challenges confronting Europe’s industry and economy, Europe’s research landscape is fragmented and unable to come up with a coherent response in the area of embedded systems: the Framework Programme budget is limited compared to the overall public research budget in Europe; Eureka lacks efficiency and focus; and national efforts are scattered and not focused on common objectives. Current instruments do not provide an appropriate framework for mobilising European resources on a large scale and around common objectives, while remaining effective and efficient .

Technological complexity is a major challenge

Over the last 20 years, embedded systems have evolved from simple stand-alone single-processor computers to advanced multiprocessor systems with increasing communication capabilities coupled to the “real world” through sensing and actuating functions. In future, interconnected embedded devices will populate large, heterogeneous and reconfigurable ‘processor ecosystems’ in a wide variety of applications where safety, security, robustness and efficient operation need to be guaranteed. The resulting complexity is a huge technological challenge that currently cannot be met due to the lack of a systematic approach and associated engineering methods and tools to support the design and inter-operation of hardware and software systems of such sophistication and complexity.

Innovation in the field is also hindered due to a lack of common standards and tools . Acceptance of design tools in development organisations will be poor if there is a danger of being “locked in” to a specific vendor and no open standards exist. In the long run, the productivity impact of improved design practice will only be unleashed if adequate, open standards for establishing tool chains exist. Similarly, new standards will be needed to allow diverse embedded devices and electronic systems to talk to and “understand” each other.

Skills and the scarcity of human resources

In order to manage increasing system complexity and the gap in design productivity, European companies are using ever-increasing numbers of software programmers and outsourcing programming tasks to third countries. It is clear that this is not a sustainable solution in the longer term; on the contrary, the likelihood of system faults and software bugs increases with the size of teams working on a system development project. Europe also has to reverse the brain-drain of highly skilled engineers and doctoral graduates (mainly to the USA) and address the slowdown in imports of foreign third-country graduates.

What is at stake

Europe’s capability to provide domain-specific integration know-how has given the EU a large share of the market in secondary market domains such as the automotive, industrial and energy sectors, or defence and space. This leadership position needs to be maintained and strengthened by harnessing the new embedded technologies. But embedded systems are not only crucial to the competitiveness of existing European industry sectors: they are also at the heart of the next generation of ICT systems that will transform our economy and society in the face of the major challenges of globalisation, ageing, climate change and sustainability. Much in the same way that the first two “waves” of the IT revolution (desktop computing in the 80s and the internet in the 90s) led to the creation of new markets, the third wave made possible by the “embedding of intelligence” in our everyday environment is coming unannounced and will see the creation of even larger markets for applications we cannot yet fully grasp.

At risk is not just the opportunity to create jobs and to innovate in products and services in the short term, but the very ability to innovate . Embedded systems are so central to value creation in the modern world that an economy that fails to master embedded systems and meet their technological challenges will lose a significant part of its innovation capability. An even more important risk is that Europe will be unable to reap the benefits from the new markets created by the “embedding of intelligence”, and will become dependent on non-European technology, as has already happened with the desktop and internet waves of IT. In addition, unless it is able to nurture and retain talent, Europe will be unable to attract or retain the best researchers in relevant fields.

Finally, there is a ‘cultural’ risk. These intelligent systems will touch upon the lives of European citizens in very intimate ways. European industry needs to be able to respond to home-grown demand in a way that recognises Europe’s unique preferences and values . A strong European industry and research community are essential for this.

Unless ambitious and concerted action is urgently taken, there is a risk that leadership in systems engineering, the flagship of EU industrial excellence, will be lost to Europe’s international competitors.

THE CASE FOR EU ACTION ( subsidiarity test)

The embedded systems field has reached a threshold. It has the potential to drive innovation and growth and contribute significantly to European competitiveness and economic and social change. But Europe’s current leading position in key sectors is under threat from global competition, a fragmented research landscape and escalating technological challenges. All of these factors are set to be exacerbated over the coming years, making the current approach unsustainable. Europe cannot continue to rely entirely on a cumbersome research structure that lacks focus and leads to duplication of effort. And European industry cannot hold back from developing the interoperable solutions necessary for success in new fast-growing markets. Europe must increase and make better use of its investment in this strategic area .

The current structure of European industry does not provide the necessary framework in which to develop the enabling technologies and standards that are necessary to cope with the huge challenges posed by the increasing complexity of embedded systems and their applications. There are several reasons for this: first, many of the technologies involved transcend the traditional industrial sectors, whereas most industrial developments are still sectoral; second, the European design tools and software industry is very fragmented with hardly any major players that can lead developments; and third, many of the technologies that need researching are generic and enabling in nature, or are technological “commons” meant to be shared by a diverse set of stakeholders. Furthermore, many of the technology components and tools — such as future middleware “glue” and design and software tools — are for markets that do not yet exist, and their development therefore entails high risks.

Without a focused and coherent industrial R&D programme able to draw on all sources of R&D investment (public or private), European efforts in embedded systems research will continue to be scattered and unstructured. Progress will be held back by the lack of coordination of industrial R&D objectives, duplication of effort, unnecessary bureaucracy, and suboptimal use of limited research funding.

Only Community legislation can establish an operational R&D framework that combines the benefits of European integration with rapid adaptability of industrial goals and policies and with flexibility in participation and national commitment on the part of Member States.

OBJECTIVES

The overarching objective is twofold. On the economic and technological side, the aim is to launch an initiative to realise Europe’s potential in the future markets for intelligent products, processes and services and achieve world leadership in embedded technologies, allowing the cost-effective deployment of seamlessly connected systems and the spearheading of applications that enhance the safety, security and well-being of citizens. On the policy side, the realisation of these ambitious technological and economic objectives depends on the creation of a true European Research Area and on fostering investment in this area .

In particular, the policy aims are the following

1. To create a single, Europe-wide R&D programme that is industrially driven and focuses on selected, specific joint technological and economic objectives.

2. To put in place a new mechanism able to combine, for the first time, national, EU and private funding within one coherent funding instrument that allows a number of countries to move forward within a flexible legal framework (“variable geometry”) while remaining effective and efficient.

3. To ramp up R&D investment in Europe by providing incentives to industry and Member States to increase their R&D expenditure.

POLICY OPTIONS AND ANALYSIS

The following two policy options have been considered for analysis:

4. ‘Business-as-usual’ option . This is a continuation of the current working arrangements. Parts of the ARTEMIS Strategic Research Agenda would be implemented through the existing EU instruments and, separately, through national programmes including some intergovernmental cooperation under Eureka (MEDEA+ and ITEA2). Commission support would be through the regular instruments in FP7. This option will be considered as the baseline option.

5. “ARTEMIS JTI” - Joint Undertaking on the basis of Article 171 of the Treaty to implement a “Joint Technology Initiative” with the participation of industry, the European Commission and Member States, building on the existing ARTEMIS Technology Platform. In this model, the Community (represented by the Commission) would be a full member alongside other entities willing to commit funding or contributions in kind. The Joint Undertaking would be created by a legislative procedure requiring the definition of all the characteristics of the entity in a Council Regulation.

ECONOMIC IMPACT

Economic benefits from the achievement of the technological objectives

The economic benefits of achieving the technological objectives of the ARTEMIS JTI can be partly quantified, in particular in terms of reductions in system design costs and development lifecycles. The analysis shows that the ARTEMIS JTI will achieve gains of at least €14.7bn per year in reduced development costs by 2015, equivalent to at least 55k person-years of effort compared with the “business-as-usual” scenario. The net present value (NPV) of these gains in 2006 is estimated at €109bn.

The economic impact of achieving several other goals set forth in the Strategic Research Agenda (e.g. achieving seamless cross-domain interoperability) is much harder to quantify, although it may be extremely significant as it would lead to the creation of entirely new markets for applications.

Financial leverage effect

The proposed ARTEMIS JTI option will enable every euro contributed by the Commission to leverage about 2 euros at national level plus additional private research efforts, to yield an expected overall leverage effect of 1 to 7 euros of R&D effort . In the “business-as-usual” option, the Commission’s contribution will not have any leverage effect at national level and would be matched by roughly 0.5 euros in private funding (under the new rules for Framework Programme 7).

A more efficient R&D and innovation framework for industry

The ARTEMIS JTI provides R&D actors with a reliable and efficient framework that removes the budget uncertainty that exists in the present EUREKA system, allowing industry stakeholders to better plan their investments.

Due to the streamlining of procedures through the ARTEMIS JTI, each R&D project will gain six months compared to the EUREKA system in the “business-as-usual” scenario. Furthermore, a 50% reduction will be achieved in the effort required for proposal preparation and submission. The ARTEMIS JTI will thus yield net savings of €73m over the “business-as-usual” scenario (equivalent to ~4% of industry’s total commitment to the JTI). Further savings will accrue from reductions in project management costs as a result of removing unnecessary duplication in reporting and monitoring, estimated at about €52m over the lifetime of the JTI. Overall, the ARTEMIS JTI would thus save €125m in “procedural costs” compared with the business-as-usual scenario.

Streamlined and quicker procedures will have a knock-on effect in terms of the productivity of the research process, allowing research results to be brought to market more rapidly. This reduced time-to-market is, potentially, one of the most significant of all the benefits of the ARTEMIS JTI. Cutting even a few months off the development cycle can allow a company to get to market ahead of its competitors (and so gain higher market share) and/or have a longer period through which to recoup its R&D investment.

The quantitative and qualitative advantages of the ARTEMIS JTI over “business-as-usual” in removing budget uncertainty, streamlining procedures and shortening time to contract is specially important in terms of ‘behavioural additionality’, as the more attractive regime (especially for SMEs) will broaden participation and increase the number of new partners in the R&D activities.

More efficient R&D spending by public authorities

A further benefit of the ARTEMIS JTI is that the expected ~€750m of national money spent through the ARTEMIS JTI will be allocated through common European procedures and work plans as in the Framework Programme. It is reasonable to expect that the impact of this spending on GDP will be similar to that of EU-level expenditure, and much higher[17] than in the “business-as-usual” scenario, where this funding would be disbursed according to the different priorities of national programmes.

Broader economic and social impacts

With respect to competition in the internal market , the common technologies developed by the ARTEMIS JTI will provide a level playing field for embedded systems-based industry and for European regions, leading to increased cost-effectiveness for ICT and end-user industries and increased competition for products and services based on standardised platforms.

The ARTEMIS JTI will draw on the ARTEMIS Technology Platform’s policy for mobilising resources, promoting ARTEMIS standards, fostering collaboration with international partners, with the aim of opening new markets for EU industry, and helping Europe become a ‘brain magnet’ for the best researchers worldwide.

The ARTEMIS JTI will have an impact on society in a number of ways, contributing to more and better quality jobs — in line with the relaunched Lisbon strategy — and enabling smarter working and more agile production. Greater use of embedded systems-based products and services will lead to the creation of jobs in Europe, in the ICT sector as well as the overall economy, through both direct and indirect effects. Many ARTEMIS applications will support human operators and/or enhance automation and control, thus increasing the added value of jobs across a wide range of application domains.

The application scenarios under the ARTEMIS Strategic Research Agenda that motivate the future development and integration of embedded systems technologies have a strong societal orientation. Environmental monitoring and management itself is an important application area for ARTEMIS. For instance, mesh networks based on large numbers of sensors and actuators will be able to monitor their surroundings and respond accordingly, in order to improve the abatement of industrial pollution or to monitor sensitive ecosystems.

MEETING THE CRITERIA FOR A JOINT TECHNOLOGY INITIATIVE

The proposal satisfies all of the criteria set out for a Joint Technology Initiative under the Seventh Framework Programme:

- Scale of the Impact on Industrial Competitiveness and Growth : Embedded systems are a strategic technology for Europe. This is because embedded systems technologies underpin the future development of major high-tech sectors that are key to the EU’s economic strength and are significant drivers of innovation and growth.

- Degree and Clarity of the Definition of the Objective and Deliverables to be Pursued: The Strategic Research Agenda (SRA) of ARTEMIS sets out tangible industrial objectives to keep Europe at the forefront of the embedded systems field, aiming at realising Europe’s potential in the future markets for intelligent products, processes and services. The SRA addresses the development of common technology for high value-added embedded systems across different application areas in order to deliver common embedded computing platforms, middleware for seamless connectivity of devices, and better methods and tools for system design.

- Inability of Existing Instruments to Achieve the Objective : While the EU will continue to invest in embedded systems research under the Framework Programme, the regular FP instruments alone cannot bring together resources and expertise on the scale needed to meet the investment challenge. None of the existing instruments can combine, under one umbrella, industry, Member States and the Community . The proposed public-private partnership provides a platform to pool resources from the Framework Programme, Member States and industry, and can build sufficient critical mass to pursue the ambitious objectives set. The involvement of Member States is crucial to achieving the objectives, since they account for a very substantial proportion of public R&D in relevant fields. The involvement of the Commission is also crucial as an integration driver, guarantor of the common JTI processes, and provider of funds.

- Added Value of European-Level Intervention : The proposed public-private partnership to implement the ARTEMIS JTI will provide the necessary legal and organisational framework to stimulate long-term commitments from all stakeholders and to allow the Strategic Research Agenda to be implemented in a seamless manner across Europe. Such a new framework can be established only by action at Community level, which will combine the benefits of European integration with rapid adaptability of technology goals and industrial policies and with flexibility in participation and commitment on the part of Member States .

- Strength of the Financial and Resource Commitment from Industry : Industry has already invested a lot of effort in preparatory activities and will financially contribute to the operating costs of the JTI at 1% of the overall costs of the R&D (estimated at around €2.7 billion). The initiative is recognised at the highest level of the management of the main industrial partners involved, who have expressed their long-term commitment to it on numerous occasions, including in a signed letter[18] to Vice-President Verheugen and Commissioners Reding and Potočnik. In terms of in-kind contributions of resources to R&D projects, industry is expected to contribute around 60% of costs .

- Importance of the Contribution to Broader Policy Objectives Including Benefit To Society : Achieving the ARTEMIS JTI technological objectives will have direct benefits for European industry of at least €14.7bn per year by 2015 through savings in development costs . Further indirect benefits can be expected from this improved profitability in terms of increasing market share and revenues, moving to higher added-value product segments, and improving longer-term technological competitiveness. In addition, the JTI will bring benefits for stakeholders through improvements in the efficiency and organisation of the research funding regime: the new structure will remove budgetary uncertainty and unnecessary bureaucracy, avoid duplication in evaluation and monitoring, and enable shorter times to market. The JTI will also create new jobs in the wider economy and open the way to new applications to improve the safety, security and well-being of citizens.

- Capacity to Attract Additional National Support and Leverage Current and Future Industry Funding : The ARTEMIS Joint Undertaking uses Community funding as a lever to increase and align national funding towards common goals and objectives and to provide incentives for greater investment by industry. Industry is prepared to double its resources in this field over the next years. The Joint Undertaking also provides a mechanism for broadening participation in R&D and for industry to act together towards common goals and objectives so as to achieve greater market leverage in how results are exploited and applied. For a total Community funding of €410m for R&D activities, the ARTEMIS Joint Undertaking should leverage seven times that amount, 60% of which should come from the contributions of industry and other R&D actors .

CONCLUSION

The proposed Joint Technology Initiative on Embedded Computing Systems (ARTEMIS JTI) is an appropriate means to implement an initiative to realise Europe’s potential in the future markets for intelligent products, processes and services. The ARTEMIS JTI addresses the core of the Lisbon agenda: it will pursue objectives of high strategic value for EU competitiveness; will foster greater investment in the area by industry; will allow Community funding to be used as a lever to align national funding in a flexible way towards common goals and objectives, creating a true European Research Area in the field; and will provide a mechanism for broadening participation in R&D and for industry to act together towards common goals and objectives, so as to achieve greater market leverage in how results are exploited and applied. The JTI governance and operation model also provides an appropriate framework to combine the strengths of inter-governmental schemes (Eureka) and European programmes while overcoming their weaknesses.

1. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES

Consultation

This document focuses on the impact analysis of the ARTEMIS Joint Technology Initiative and the review of the potential governance arrangements. The procedures followed reflect the Commission’s guidelines for ex-ante impact assessments[19]. Parts of the impact assessment were subject to a contract with an external consultant awarded after a tendering competition.

The impact assessment drew on the results of extensive consultations held by the Commission with stakeholders in the embedded systems domain following the creation of the ARTEMIS Technology Platform[20] in January 2004: more than 40 meetings were held with the industrial Steering Board, the Executive Committee and several Working Groups (in particular the Strategic Research Agenda (SRA) and Governance and Financial Strategy groups), as well as the national public authorities represented in the “Mirror Group[21]” with representatives from 24 Member States and Associated Countries. The relevant topics for this impact assessment, such as the Strategic Research Agenda and the Joint Technology Initiative, were publicly presented and discussed at major events such as the ARTEMIS annual conferences (Rome 2004, Paris 2005, Graz 2006), the Information Society Technologies Conference IST-2006 (Helsinki) and the public presentation of the ARTEMIS SRA in March 2006 in the presence of Commissioner Reding.

In the final step of this consultation process, representatives of the ARTEMIS Steering Board and the Mirror Group met with the external consultant carrying out the study on three occasions over the period July-September 2006 (a dedicated meeting on 13 September and two meetings in the margins of important ARTEMIS events — ARTEMIS Summer Camp 5-7 July 2006 and the Joint Steering Board/Mirror Group meeting on 21 September). These meetings focused specifically on the contents of this study and involved wide-ranging discussions to collate previous results, provide further inputs and review the final results. The study also undertook an in-depth assessment of the proposed governance structure of the Joint Undertaking implementing the Joint Technology Initiative.

For economic analyses, the assessment has drawn primarily on public domain data, in particular two recent studies that provide a detailed picture of technological and market trends in embedded systems-related areas: Worldwide Trends and R&D Programmes in Embedded Systems by FAST GmbH (resulting from an open call for tenders by DG INFSO’s Embedded Systems Unit) and Software Intensive Systems in the Future by IDATE and TNO, both published in 2005. The FAST study presents an assessment of the current state of the embedded systems domain as a whole, taking into account technological, sectoral, market-related and funding aspects. The IDATE/TNO study presents a quantitative evaluation of the impact of software activities on the world economy, focusing on the internal development of software in both the ICT and non-ICT sectors. The methodologies used in both studies, including rechecking original data sources, are satisfactory and represent a sound basis for assessing the economic impacts of the ARTEMIS JTI.

2. PROBLEM DEFINITION

2.1. The importance of embedded systems

The economic dimension of ICT research

Information and communication technologies (ICT) are of increasing economic and social importance, underpinning productivity, innovation and growth . They are key to the EU’s ambitions under the Lisbon strategy for improving competitiveness, employment and sustainability and making the EU the world’s most dynamic knowledge-based economy and society[22],[23].

Member States have recognised the contribution of research and development to this agenda and have set targets — known as the Barcelona Objectives — to increase their spending on research to at least 3% of GDP by 2010, two-thirds of which should come from the private sector[24]. Progress towards this objective has been slow, however, especially in increasing the industrial component. Meanwhile, the debate has moved on, with the focus now shifting downstream to the way research results are used within the market (innovation), the importance of knowledge and skills in exploiting innovation, and the role of ‘lead markets’ and procurement of research and development in pulling through radical innovations[25].

In the context of the Lisbon strategy and the Barcelona Objectives, the Commission initiative[26] “i2010” (European Information society in 2010) has identified the strengthening of innovation and investment in ICT research as a priority in the effort to address the increasing productivity gap between Europe and competing zones.

The importance of embedded systems research

Embedded computing systems — the invisible electronics and software that impart intelligence to products and processes — are an especially important part of the ICT landscape. They underpin the competitiveness of key areas of European industry , including the automotive and aerospace branches, consumer electronics, telecommunications devices and equipment, and manufacturing automation. “Embeddedness” has been identified as one of the major technological drivers of digital convergence, and embedded computing is seen as one of the EU’s main industrial and technological strengths in global markets [27].

Intelligent functions embedded in components and systems are in demand across a wide range of application areas. They will be a key factor in revolutionising industrial production processes, adding intelligence to process control and to the manufacturing shopfloor, helping improve logistics and distribution — and so increasing productivity .

The central role of embedded electronics in innovation and value creation is reflected in their increasing share in the value of the final product . As reflected in Table 2.2 below, within the next five years, such systems are expected to reach significant levels: in the automotive sector (36%), industrial automation (22%), telecommunications (37%), consumer electronics and intelligent home equipment (41%) and applications related to health/medical equipment (33%). The value added to the final product by embedded software is much higher than the cost of the embedded device itself .

Embedded systems are drivers of innovation

Embedded systems are an important enabler of innovation. They allow products and services to be differentiated and made smarter and more user-friendly. They allow us to design systems and applications that are cheaper, safer, more reliable, and more secure. Europe’s competence in embedded systems underpins the competitiveness of key European industries, such as the automotive and aerospace branches, industrial automation, telecommunications, consumer electronics, medical systems and energy, where leadership and market dominance are achieved by innovative and high-quality functionality. These are largely sectors concerned with the engineering of large complex systems, whether cars, airplanes, power plants or telecom networks: these are precisely the domains where the widespread use of embedded computers has become the main source of innovation and market advantage.

Take for example the case of the car: today 20% of its value comes from the embedded electronic components (new models can contain more than 50 controllers and more than 1 million lines of code) and over 90% of innovations brought to the market rely on advances in embedded software and hardware technologies . Take the example of a physically much smaller system — the mobile phone. Mobile phones today combine the capabilities of a small laptop of just a few years ago with those of a camera, a music player and a phone, with much more to come in the near future! A television set today contains hundreds of thousands of code lines on which its entire functionality is based; in the 1980s, embedded software content was essentially nil… . As for the aeronautics sector, the number of lines of code per functionality in aircraft systems has increased from 10 to 105 between 1970 and 2007… All this vertiginous functionality relies on enormously complex software embedded in the mobile device and running on the chips it contains.

Furthermore, the capabilities and ubiquity of embedded systems will make possible the emergence of completely new societal-scale applications, affecting citizens, cities, regions or entire continents in areas such as energy, environment, or social well-being. The safety of our lives already relies on the embedded electronics and controls that make our home appliances less prone to human error, our cars safer, our manufacturing and power plants less likely to cause accidents. The monitoring of our environment increasingly relies on embedded sensing, computing and control to warn us of hazardous situations and reduce pollution from plants, cars and buildings. We increasingly use electronic devices for our entertainment and social life, from the GPS device that guides us through the maze of the streets of an unknown city to our portable multimedia devices. And there is much more to come. The ability to design and interconnect powerful and cheap embedded computing systems will allow us to construct intelligent homes that care for their elderly inhabitants and actively optimise their energy consumption; accurate fire detection systems that would put an end to the fires that devastate south European countries; or electricity distribution systems that are fully reliable.

Mastery of embedded systems is essential for Europe to maintain a leadership position that contributes both to its economic strength and the quality of life of its citizens. But as the pervasiveness of embedded systems increases, so do the challenges in technology, interoperability, standardisation, methodology, safety, and security.

Globalisation of markets and R&D; embedded systems markets and trends

Already by 2000, 98% of computing devices sold worldwide were embedded in products[28], and current forecasts predict more than 16 billion embedded devices by 2010 (nearly three devices per person on earth) and over 40 billion of such devices by 2020[29]. This means that today the volume of the embedded systems market is about 50 times as large as the desktop market — an economic factor that cannot be underestimated.

Assessing market size and value is however problematic for embedded systems, since the technology penetrates many different areas of the value chain. Trade data tend to underestimate the position since they exclude all the value added by in-house development, which is significant and growing. The real value of embedded systems as part of the final product value is much higher than the market size . Wherever market figures are quoted, ‘value’ figures are the most relevant.

While it is clear that embedded systems are a strategic technology, the diversity of embedded systems and their applications makes it difficult to quantify the market size and growth. One indicator is the market for electronics, which covers many of the hardware components associated with embedded system products (including semiconductors, microcontrollers, microprocessors and memory products, and passive, electromechanical, power and discrete components).

Current estimates suggest the world market for electronics is worth around €850 billion, of which Europe has a market share of around 26% (Table 2.1). Growth rates in embedded systems are significantly higher than for general electronics in all application sectors.

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Table 2.1: Electronics and Embedded Systems Markets and Growth Rates, 2002 – 2004 (Source: FAST Study, based on various sources)) |

Industry domains | Size of world market for electronics (€, bn) | European market share in electronics | Average annual growth rate of electronics market | Average annual growth rate of ES market |

Automotive branch | 30.1 | 37% | 10% | 10% |

Avionics/ Aerospace | 29.6 | 30% | 5% | 14% |

Industrial automation | 88.9 | 30% | 5% | 7% |

Telecommunications | 83.2 | 28% | 9% | 15% |

Consumer electronics & intelligent homes | 182.9 | 10% | 8% | 15% |

Health & medical equipment | 193.0 | 24% | 18% |

The economic importance of embedded systems is underlined by their share in the value of the final product (Table 2.2). Although estimates vary, the general picture is of a significant and increasing contribution to added-value in all application sectors.

Table 2.2: Share of Embedded Systems or Electronic Components in the Value of the Final Product or Service, 2004-2009 (Source: FAST Study, based on various sources) |

Industry domains | 2004 | 2009 |

Automotive branch | 20% | 36% |

Avionics/ Aerospace | n.a. | n.a. |

Industrial automation | >13% | 22% |

Telecommunications | >23% | 37% |

Consumer electronics & intelligent homes | >14% | 41% |

Health & medical equipment | 25% | 33% |

The high relevance of embedded systems for industry drives R&D in this area. Research in embedded systems constitutes a very significant proportion of total business expenditure on ICT R&D for all sectors (Table 2.3). In several cases (e.g. the automotive branch, aerospace, ICT hardware, and consumer electronics), it is already well over 50% and will intensify further over the next five years, with R&D in embedded systems expected to grow at a faster rate than ICT R&D overall.

Table 2.3: Business R&D Expenditure on ICT and Embedded Systems, 2003 and 2009 (Source: FAST Study, based on various sources)) |

Industry sector | BERD on ES, 2003 (€ bn) | Share of ES in R&D for ICT | BERD on ES, 2009 (€, bn) | Share of ES in ICT R&D |

Automotive branch | 9.0 | 75% | 14.4 | 80% ( + 5 ) |

Avionics/ Aerospace | 1.7 | 58% | 3.2 | 69% ( + 11 ) |

Industrial automation | 1.0 | 43% | 1.4 | 46% ( + 4 ) |

ICT equipment | 37.5 | 74% | 75.4 | 82% ( + 8 ) |

Consumer electronics | 11.3 | 67% | 22.8 | 77% ( + 10 ) |

Medical equipment | 0.3 | 22% | 0.8 | 35% ( + 13 ) |

ICT services | 2.6 | 10% | 4.2 | 13% ( + 3 ) |

NB: ICT equipment here relates to R&D within the ICT industry itself on both hardware and software (i.e. for functionality/added value built into hardware when it is delivered) |

Worldwide, R&D in the field of embedded systems is expected to double over the next 10 years, to support the growth of this expanding market. Whereas total R&D will increase by around 170% over the next ten years, expenditure on industrial software R&D is predicted to increase by 225%, from €58bn in 2002 to €132bn by 2015[30]

Around 50% of all proprietary industrial ICT R&D in Europe is related to embedded systems in some form. Estimates vary: FAST estimates the figure at ~€12bn, IDATE at ~€18bn, while the ARTEMIS Technology Platform puts it at around €20bn. All sources are agreed, however, that such research is concentrated overwhelmingly (>95%) in the six high-tech sectors identified above.

2.2. What is the issue or problem that may require action?

Insufficient investment in R&D

Despite the increasing economic and social importance of ICT, Europe lags behind its international competitors in investment in ICT research and innovation. Overall, ICT in the EU accounts for around 18% of total R&D expenditure, compared to 34% in the United States and 35% in Japan[31]. The difference is even more marked on a per capita basis, where the EU spends around €80 per head compared to €350 per head in the US and €400 per head in Japan. The situation is reflected in, and partly explains, Europe’s poor performance in productivity and economic growth .

For embedded systems research in particular, total public funding in Europe (around €380m annually[32]) is only 11% of the total budget for ICT in public funding programmes, which is not at the level of its economic importance: areas related to embedded systems account for more than 50% of total business expenditure on ICT R&D in all sectors.

Europe’s competitors have been quick to recognise this situation and have made major investments in ICT. Asian countries such as Taiwan, Korea and, particularly, China are investing large amounts of public funds in new production facilities and design capabilities. Similarly, Japan is supporting its microelectronics industry through its Semiconductor Leading Edge Technologies (SELETE) organisation. The USA is also investing massively in electronics, especially through defence projects — both directly with support for R&D and through government purchase of the resulting products. Emerging economies, such as China, India and Brazil, are fast becoming world-class centres for research and innovation, where they compete on cost and, increasingly, also on know-how. It is indicative that the Tsing Hua University (China) has risen from 62 to 28th place in the global ranking produced annually by the Times[33].

The fragmentation of research funding in the EU

Europe has made major investments in ICT research over a number of years under the Research Framework Programmes . Concentrating on high quality, the EU’s ICT research programmes both focus and integrate Europe’s ICT-based science and research, and were the first to include the new Member States in collaborative projects. This effort is being renewed and expanded under the forthcoming Seventh Framework Programme (FP7). It includes a number of innovations to ensure research meets the needs of the European economy and society, including a seven-year timeframe for programme planning, an increased budget and simpler procedures. Greater emphasis than in the past is given to the needs of European industry, to help the ICT sector compete internationally and develop its role as a world leader in key sectors. Nevertheless, the Framework Programme still has significant limitations: its contents reflect those areas where the EU25 can agree to spend a relatively small percentage of the EU’s total public budget . For example, FP6 accounted for only 5-6% of all public support for civilian research expenditure in the EU[34].

Another funding mechanism is the inter-governmental Eureka scheme . Eureka has proved to be a valuable cooperation mechanism that complements the FP in important ways. In particular, it allows cross-national R&D cooperation in areas where it is needed but which the FP budget would not be able to support. The Eureka framework has notched up some notable achievements over the years, most notably the longstanding collaborations in the form of “cluster projects” in microelectronics (the JESSI, MEDEA and MEDEA+ clusters) and software-intensive systems (ITEA and ITEA2). These have been valuable cooperation mechanisms, channelling up to €200 million of public funding to R&D industrial projects every year. It is no coincidence that all four current Eureka cluster projects concern the ICT domain; overall, around two-thirds of Eureka project funds are estimated to be devoted to ICT.

However, Eureka and its cluster projects also have well-recognised shortcomings . Its inter-governmental mechanism means that once a project has been accepted by Eureka it often then needs to go through the national procedures of each partner for individual national grants just as any other national R&D project. On top of the duplication of evaluation and project monitoring procedures, the variable level and predictability of the public funding available has consistently weakened the effectiveness of the scheme. To date, Eureka has not been able to correct or resolve these underlying problems[35].

At national level [36], 17 out of 122 funding programmes in 23 EU Member States and associated countries are dedicated to or have significant relevance for embedded systems research. In some countries, embedded systems activities are spread over several (sometimes disconnected) programmes, while for others it is not possible to identify whether there are relevant activities at all in the area.

In face of the major challenges confronting the European industry and economy, Europe’s research landscape is fragmented and unable to come up with a convincing response in the area of embedded systems : the Framework Programme can define top-down priorities but requires broad agreement on priorities for budget allocation, and its overall budget is severely limited compared to the overall public research budget in Europe; Eureka is bottom-up but lacks efficiency and focus, and national efforts are scattered and not focused on common objectives.

Current funding instruments are inadequate: the need for public and EU intervention

Substantial added value can be realised by a European-level approach that draws together and intensifies some of the current research efforts (national, European or private) in order to address the needs of Europe in terms of industrial competitiveness. Europe has to step up its game, in quantity as well as quality, in embedded systems research in the face of fierce international competition. In such a fast-moving global market, Europe needs to be able to focus coherently on common objectives and to adapt these objectives to changing industrial and market circumstances. It must develop a European approach that builds critical mass but also allows flexibility at both strategic and operational levels without suffering all the drawbacks of inter-governmental schemes.

Current instruments do not provide an appropriate framework for mobilising European resources on a large scale around common objectives. They also lack the flexibility to enable Europe to go forward in a structured and organised way that allows for “variable geometry” in mobilising private, European and national funds while remaining effective and efficient .

Industrial R&D structure and key generic solutions for future markets

Finally, the increasing complexity of embedded systems and their applications poses huge technological challenges (as detailed in the next section). However, the current structure of European industry does not provide the necessary framework to allow the market-driven development of the key enabling technology components, methods , tools and standards . The middleware “glue” and the design and software tools necessary for future applications have not been developed, as the markets for them do not yet exist. Moreover, in the medium term, the “traditional” approach of increasing the labour force (designers, developers and testers) to cope with increasing complexity and functionality is not a sustainable solution. Disruptive technologies applicable to a wide range of sectors have to be developed. As a result, the research costs are too high and the associated risks too great for industry.

2.3. What are the underlying drivers of the problem?

Technological complexity is a major limitation

Embedded systems face huge technological challenges. These arise mainly from the lack of a systematic approach and associated engineering methods to support the design of hardware and software systems of increasing sophistication and complexity . Over the last 20 years, embedded systems have evolved from stand-alone single-processor computers to special-purpose, advanced multiprocessor systems with increasing communication capabilities (Figure 2.1). As systems become linked together and more interdependent, they are expected to evolve into a networked, reconfigurable ‘processor ecosystem’.

Miniaturisation (towards the nano-scale) and the increasing number and functionality of components are bringing about a step-change in system complexity. Designers are looking to use modular approaches to keep the design effort manageable and successful. Even so, the increase in technological capabilities is outpacing improvements in the productivity of designers, leading to an ever-widening design productivity gap[37] (Figure 2.2). Figure 2.2 illustrates the rapid exponential growth of design complexity (following Moore’s Law[38]) compared with the linear increases in design productivity (expressed as the average number of transistors designed per staff/month). In other words, current approaches to systems design (and in particular for networked embedded systems) are proving inadequate in the struggle to keep up with system complexity.

Figure 2.1: Evolution of Embedded Systems

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Figure 2.2: The Design Productivity Gap

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Interoperability between embedded systems is a major challenge

In the medium term, this design complexity will make progress unsustainable. So, as well as supporting the evolution of the state-of-the-art, research programmes must stimulate disruptive technological solutions to close this widening gap and achieve major breakthroughs in design capabilities.

Interconnected embedded devices populate large and heterogeneous reconfigurable ‘processor ecosystems’ in a wide variety of application fields. There is an increasing need for a kind of “lingua franca” that would allow all these diverse electronic devices and systems to talk to and “understand” each other. Market innovations and increases in productivity will be possible only if open, reusable cross-sectoral solutions are available, such as open and common standards and middleware that ensure interoperability and seamless connectivity amongst heterogeneous devices for a wide range of applications. There is also an increasing need for generic architectures built for a set of similar products that share a common technology platform as well as having a common functionality. The use of generic solutions in industrial software development has been shown to have significant advantages in terms of the reuse levels of the developed software and a reduction in the development time of follow-up products.

The embedded tool industry in Europe

The market for embedded platforms and their components in Europe is based on a small number of major enterprises served by a high number of suppliers (mainly SMEs) that occupy smaller and more specific niches in the software markets by developing domain- and enterprise-specific solutions. These characteristics indicate the high fragmentation of the market for embedded systems. Often, the combination of a big player and many SMEs leads to the emergence of clusters around the big enterprise, fostering the diffusion of knowledge.

Europe’s capability to provide domain-specific integration know-how has given it a large share of the market in secondary market domains like the automotive, industrial and energy sectors, or defence and space.

At the same time, there are tool suppliers and consulting firms that mostly focus on specific domains or on single components. The value of design tools in industrial practice hinges to a large degree on interoperability with third-party tools, and the suitability of the tools environment in heterogeneous supply chains. Today, there are a surprisingly high number of tools employed in both research and industry to move from specification to design and implementation, but the degree of industrial adoption of new techniques is very low. Especially in large and heterogeneous value chains, such as the automotive and aeronautics industry (with thousands of suppliers/subcontractors involved in the process), innovation in the field is often hindered due to a lack of common standards and tools .

Acceptance of design tools and methods in development organisations will be poor if there is a danger of being “locked in” to a specific tool vendor and no open standards exist. In tightly integrated tool chains, the different tools have to offer extension mechanisms and better usability. In the long run, the productivity effects of improved design practice will only be unleashed if adequate, open-standard and simple techniques for establishing tool chains exist.

Skills and the scarcity of human resources

In the absence of disruptive technological solutions, the approach followed to tackle the widening design productivity gap is to add further human resources. As the new generations of embedded systems are increasingly complex and demand higher levels of functional safety and security, the number of R&D workers in the embedded systems field has to be increased accordingly. The worldwide population of embedded systems developers is estimated to have been between 460 000 and 488 000[39] in 2005, growing to 530 000 in 2007 at the start of Seventh Framework Programme (FP7). Assuming the current growth rate (10%/year), the R&D population in the embedded systems field is therefore expected to double over the next 10 years .

It is clear that just increasing the labour force is not a sustainable solution in the area of embedded systems. Europe cannot continue to hire more programmers indefinitely to tackle the design gap. In order to manage increasing system complexity and the gap in design productivity, European companies are using ever-increasing numbers of software programmers and outsourcing programming tasks to third countries. It is clear that this is not a sustainable solution in the longer term: firstly, developing countries providing outsourcing facilities are already suffering a severe shortfall of IT skilled staff to support their economic growth[40]. Moreover, the likelihood of system faults and software bugs increases with the size of teams working on a system development project. The ever-increasing complexity of interconnected embedded systems cannot be tackled by simply adding more programmers, but with novel approaches and associated engineering methods and tools. Europe also has to reverse the brain-drain of highly skilled engineers and doctoral graduates (mainly to the USA) and address the slowdown in imports of foreign third-country graduates. Although Europe has seen strong increases in engineering graduates (three times as many engineers as North America in 2002), it has to fight a brain-drain of highly skilled engineers and doctoral graduates (mainly to the USA) and a slowdown in imports of foreign third-country graduates (much of the world has now developed an infrastructure capable of retaining and using these highly educated people productively)[41].

2.4. What are the risks in the current situation?

ICTs are not only crucial to the strength and competitiveness of European industry, they also present opportunities to transform our economy and society in the face of major challenges such as ageing, climate change and sustainability. Embedded systems are at the heart of the next generation of ICT systems that will facilitate this. Much in the same way that the desktop computing (in the 80s) and internet (in the 90s) “waves” of the IT revolution led to the creation of new markets, the third wave made possible by the “embedding of intelligence” in our everyday environment is coming unannounced and will see the creation of even larger markets for applications we cannot yet fully grasp. The wave will of course come to Europe as well; the only question is: will Europe be in a good competitive position to lead these developments in accordance with its economic interests and its cultural values?

On the other hand, the current situation in embedded systems development — characterised by increasing technological complexity, lack of cross-sectoral interoperability, weak links in the embedded systems value chain, escalating competitive pressures arising from globalisation, and a fragmentation of research efforts — bears substantial threats and risks for Europe.

The current fragmented situation in Europe is ineffective and inefficient. Without a focused and coherent industrial R&D programme able to draw on all sources of R&D investment (public or private), European efforts in embedded systems research will continue to be scattered and unstructured. Progress will be held back by the lack of coordination of industrial R&D objectives, duplication of effort, unnecessary bureaucracy, and suboptimal use of limited research funding .

This, in turn, will lead to a loss of competitiveness for Europe . At risk is not just the opportunity to create jobs and to innovate in products and services in the short term, but also the very ability to innovate . As explained in the previous section, embedded systems are so central to value creation in the modern world that an economy that fails to master embedded systems loses a significant part of its innovation capability. Without a coherent effort to develop an infrastructure for embedded systems research, Europe will be unable to meet the technological challenges and will fall further behind its international competitors. Unless it is able to nurture and retain talent, Europe will be unable to attract or retain the best researchers in relevant fields.

An even more important risk is that Europe will be unable to reap the benefits from the new markets created by the “embedding of intelligence”, and become entirely dependent on non-European technology, as has already happened for the desktop and internet waves, adopting applications ultimately developed elsewhere and entirely relying on non-EU technology for their supply and operation.

The current situation also represents a risk from a standards point of view. Standards are essential in global markets, but with the current proliferation of standards organisations, their impact depends on speed of action and the ability to bring players together through alliances. This is essential in encouraging market pull and establishing lead markets for innovative ICT-based applications. Europe’s contribution to standardisation is currently fragmented and many of the key bodies are dominated by major US companies. Europe needs to improve its effectiveness in establishing and influencing internationally agreed standards. As well as promoting standardisation within Europe, concerted action is needed to promote European standards on the world stage.

Finally, there is a ‘cultural’ risk . The intelligent systems enabled by embedded systems will touch upon the lives of European citizens in very intimate ways. Secure access to public services; tracking of goods, vehicles and people; monitoring of our viewing and browsing habits; robots and software agents that know our personal details: all will be enabled by embedded systems technologies. European industry needs to be able to respond to home-grown demand in a way that recognises Europe’s unique preferences and values . And European citizens need to be able to exercise democratic scrutiny over products and systems that may impact on privacy or ethics. A strong European industry and research community are essential for this.

2.5. Who is affected, in what ways, and to what extent?

Embedded systems sit in the middle of the ‘inverted pyramid’ of electronics markets, a key link between chips and low-level hardware components on the one hand and end-user products and services on the other (Figure 2.1).

Figure 2.1: The Inverted Pyramid of Value

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The value chains in embedded systems are highly complex. The supply industry comprises not just large enterprises, for which the markets are effectively global, but also many small and medium-sized enterprises (SMEs). These small companies are essential to innovation, and larger enterprises subcontract some of their R&D work to them or use them as sources of ideas and technology. Increasingly, individual SMEs have to work together — with other SMEs or with larger firms — as part of wider production chains, clusters or industrial ‘eco-systems’. A new supply industry is expected to emerge which is able to use standardised results and technologies (components, middleware and design tools) as building blocks for these new ecosystems.

System integrators take research results and use them within innovative products and services. This is not a linear model and often the system integrators are in end-user industries such as the automotive and aerospace sectors, telecommunications and consumer electronics. These industries have complex supply chains that provide huge amounts of added value to systems and components, and ultimately to the final product. To compete, European players need to move faster in world markets and to be at the forefront of innovation. Access to standardised methods and tools will enable them to innovate more quickly across the product and service lifecycle while significantly reducing development costs. Common European platforms will also provide a basis for competition in world markets. In the automotive branch, for example, many new cars already have more than 50 embedded controllers, more than 1 million lines of code and several different bus (communication) systems carrying thousands of signals. This will increase further in future as systems such as parking assistance, adaptive cruise control and brake-by-wire become commonplace. In-car entertainment and navigation systems are also in increasing demand, requiring the industry to become more flexible in building in compatibility with consumer electronic devices such as mobile phones, PDAs and MP3 players.

Embedded systems research is inherently multidisciplinary, spanning both a range of technological disciplines (computer science, electronic and mechanical engineering, cognitive sciences, control, etc.) and a broad range of application fields. To meet the medium- to long-term research needs of European industry, close cooperation is necessary between the best academic and industrial research groups. Academic efforts need to be more directed and focused so as to improve their outputs and keep brain power in Europe. Within such a diverse field, there is scope for pooling European knowledge within centres of excellence. Industry-academic collaboration should also extend to education and training, so as to close the gap between academic theory and industrial practice.

National public authorities are interested in the embedded systems arena as policy-makers, regulators and funding bodies. They are looking to leverage their own research efforts, avoid duplication and develop synergies between national and European programmes and policies. They are severely limited in their actions due to the conflict between their mandate, which is national, and the nature of the problems they tackle, which is European or even global (although Eureka is a partial answer to this problem). This is especially true for public authorities in smaller Member States that lack the critical mass at national level to launch meaningful and effective action. At present, therefore, few Member States have national programmes focused exclusively on embedded systems, although relevant research is addressed under general ICT research. Public authorities also have to be alert to the regulatory and policy issues arising from new applications, concerning aspects such as safety, security, digital trust and the environment.

Finally, European citizens are affected by embedded systems in a variety of ways: through lower cost products and services; through improved safety, security and quality of life arising from innovative applications; and through improved access and choice.

2.6. How would the problem evolve, all things being equal? Is intervention at Community level justified?

The embedded systems field in Europe has thus reached a threshold. It has the potential to drive innovation and growth and contribute significantly to European competitiveness and economic and social change. But Europe’s current leading position in key areas also faces global competition, a fragmented research landscape, escalating technological challenges and increasing international competition. All of these factors are set to be exacerbated over the coming years, making the current approach unsustainable. Europe cannot continue to hire more programmers indefinitely to tackle the design gap. It cannot continue to rely only on a cumbersome research structure that lacks focus and leads to duplication of effort. And European industry cannot hold back from developing the interoperable solutions necessary for success in new fast-growing markets. Europe must increase and make better use of its investments in this strategic area .

Market failure and the European added value of Community intervention

The current structure of European industry does not provide the necessary framework in which to develop the key enabling technological components, methods, tools and standards necessary to cope with the huge technological challenges posed by the increasing complexity of embedded systems and their applications. As a result, the research costs are too high and the associated risks too great . Given the limited resources available, market failures will prevent the market from reaching optimal output for the following reasons:

Positive externalities/knowledge spill-overs : R&D in embedded computing systems, as in many other areas of research, generates benefits for the economy and society in the form of knowledge spill-overs. Where only the market decides, a number of projects may have an unattractive rate of return from the perspective of a single private company, even though they would be beneficial for society or economy as a whole. This is because profit-seeking businesses neglect these external effects of their actions when deciding how much R&D they should undertake. Consequently, projects that could be in the common public interest may not be pursued unless the government intervenes.

Public goods/knowledge spill-overs : The creation of general knowledge through foundational and applied research on the development of cross-cutting technology for high value-added embedded systems is costly and labour-intensive, whereas it is ultimately impossible to prevent others from using this knowledge. Many businesses tend to free-ride on the general knowledge created by others, which makes companies unwilling to create this general knowledge themselves. On the other hand, European companies will become inefficient or disappear altogether if they do not acquire their own portfolio of ‘general’ knowledge. To ensure that they do, governments may have to pay partially or fully for more long-term, foundational, and/or generic research.

Imperfect and asymmetric information : R&D in embedded computing systems is characterised by a high degree of risk and uncertainty. Due to imperfect and asymmetric information, private investors may be reluctant to finance valuable projects and highly qualified personnel may be unaware of recruitment possibilities in innovative businesses. As a result, the allocation of human and financial resources may not be adequate in these markets and projects valuable for the economy may not be carried out.

Coordination and network failures . The ability of businesses and Member States to spontaneously coordinate or at least interact to deliver R&D may be limited for various reasons, including difficulties in coordinating R&D and finding adequate partners. Difficulties arising from fragmentation of the research landscape in Europe on the one hand, and the extremely high costs of developing new technologies and the need to mix competences from different scientific fields on the other, can only be overcome through a strongly coordinated initiative combining all the means available.

Europe “lost” the desktop computing (in the 80s) and internet (in the 90s) waves of the IT revolution to Asia and the US; a third wave is now coming: information processing and communication capabilities embedded in the real world that surrounds us — within our furniture, our clothes, our buildings and our cars.

Market failure in embedded computing systems would lead to the same situation as in the personal computing market, where both hardware and software are dominated by a few non-European players. Unless ambitious and concerted action is urgently taken, there is a risk that Asia and the US will take over the last bastion of EU industrial excellence (i.e. systems engineering), leveraging their strong investment and skills in IT. This would have serious consequences for the competitiveness of high-tech European companies. In addition, it could lead to organisations outside the EU monopolising European markets. The intervention of public authorities at European level is needed to provide a state-of-the-art research infrastructure and to create the necessary innovation environment for high-tech industry to thrive.

It is clear that only action at Community level can develop an approach that combines the benefits of European integration with rapid adaptability of goals and industrial policies and with flexibility in participation and national commitment on the part of Member States .

The European Technology Platform in embedded computing systems

Stakeholders have recognised the critical nature of this problem and have come together in the ARTEMIS European Technology Platform (ETP). The Platform comprises players from industry, SMEs, universities, research centres and public authorities who are working together to reinforce the EU’s leading position in the design, integration and supply of embedded systems.

The Platform has published a Strategic Research Agenda (SRA) outlining the evolution of the field over a medium- to long-term perspective and identifying a number of important technological and regulatory challenges for Europe. To help meet these challenges, the SRA sets out a comprehensive programme of action to focus and coordinate research, encourage innovation and streamline policies. To implement its SRA, the ARTEMIS ETP envisages a synergistic approach based on a combination of European, industry and national funding. However, the Framework Programme (FP) can reflect only some of the SRA goals in its work programme. Conversely, Eureka and the related scattered national programmes are bottom-up and cannot drive the SRA vision to realisation in a coordinated way. Maintaining this status quo will not achieve the ambitious goals necessary to put Europe at the forefront of embedded systems markets.

2.7. What are the overall policy objectives and what are the expected effects?

The overarching objective is twofold. On the economic and technological side, the aim is to launch an initiative to realise Europe’s potential in the future markets for intelligent products, processes and services and achieve world leadership in embedded technologies, allowing the deployment of seamlessly connected systems and the spearheading of applications that enhance the safety, security and well-being of citizens. In addition, these ambitious technological and economic objectives have to be combined with the political will to create a true European Research Area and foster investment in this area .

2.7.1. Policy objectives

In particular, the policy objectives are the following :

6. To create a single, Europe-wide R&D programme that is industrially driven and focuses on selected, specific joint technological and economic objectives.

7. To put in place a new mechanism able to combine, for the first time, national, EU and private funding within one coherent funding instrument that allows specific sets of countries to move forward within a flexible legal framework (“variable geometry”) while remaining effective and efficient.

8. To ramp up R&D investment in Europe by providing incentives to industry and Member States to increase their R&D expenditure.

2.7.2. Technological and economic objectives

The Strategic Research Agenda addresses the development of common technology for high value-added embedded systems across different application areas. This common technology includes:

- Reference designs offering standard architectural approaches for a range of applications;

- Middleware solutions for seamless connectivity and wide-scale interoperability;

- Integrated design methods and software tools for rapid development and prototyping; and

- Piloting new applications in the specific contexts of home, nomadic, industrial and public-infrastructure environments.

To focus its research and innovation activities, the SRA has set a series of high-level targets to be attained by 2016. These include:

- 50% of embedded systems deployed worldwide to be based on ARTEMIS results and developed under the engineering discipline established by ARTEMIS.

- Twice as many European SMEs engaged within ARTEMIS in the embedded systems supply chain, from concept through design to manufacture, delivery and support.

- ARTEMIS to have generated at least 5 ‘radical innovations’ of a similar paradigm-breaking nature to the microprocessor, digital signal processing or software radio. As a general indication of innovation, the number of relevant patents granted per annum to European companies engaged in ARTEMIS should have doubled.

Particular emphasis is given to closing the design productivity gap between potential and capability. Specifically, the SRA targets are to:

- Reduce the cost of system design by 50%, through approaches enabling a much higher degree of strategic reuse and easier assembly.

- Achieve a 50% reduction in development cycles, through a focus on design excellence, including validation, verification and certification.

- Manage a complexity increase of 100% with a 20% reduction in effort, through techniques to better manage uncertainty in the design process and upgradeability across the lifecycle.

- Reduce by 50% the effort and time required for revalidation and recertification, so that this is linearly related to the changes in functionality.

Other targets that are not expressed in quantitative terms but are equally important include: achieving the cross-domain seamless connectivity and inter-operability necessary for ‘ambient intelligence’; developing fully integrated tool chains to support the development of embedded systems across the lifecycle; making embedded systems and devices more reusable between sectors and developing related standards; and improving the European research infrastructure and education system to better meet the needs of industry.

2.7.3. Expected effects

Achieving the above objectives is expected to have the following effects:

- Focusing effect: to focus R&D agendas more effectively than the current dispersed national programmes and bottom-up Eureka clusters. This will provide a coherent structure for Europe’s fragmented research efforts in embedded systems and help build a European Research Area (ERA) in the field.

- Greater flexibility: To provide a mechanism to mobilise Member States that are ready to work towards common goals in a flexible way according to their available resources and enable them to adapt promptly to the rapidly evolving needs of the area, so helping to build critical mass for embedded systems research in Europe.

- Integration of national efforts : To pursue objectives defined at European level within the SRA of the relevant Technology Platform, and to carry out project selection according to a common, single European process and according to criteria published in advance.

- Leveraging effect: To provide incentives to industry and Member States, attracting additional national support and leveraging greater industry funding. This will directly contribute to the Barcelona Objectives of increasing Europe’s R&D spending to 3% of GDP, with two thirds coming from industry.

- Programme efficiency: To combine the strengths of transnational (Eureka) and European programmes while overcoming their weaknesses. In particular, to avoid uncertainty in national budgets (compared to Eureka) and the duplication of evaluation and monitoring procedures. The adoption of common procedures should allow shorter times-to-contract while avoiding additional red tape for participants.

- Economic efficiency: To reduce the time-to-project, allowing industry to execute projects more quickly and hence accelerate the time-to-market for research results. Faster product development, fewer lost market opportunities and higher productivity can bring huge benefits for companies in a situation where windows for action are shrinking.

- Economic impact: Economic impacts are expected through: achieving the technological objectives (improved productivity of the research process); simpler and more efficient procedures (lower overheads for participants and greater concentration of research resources); and from shorter times to contract (improved competitiveness and growth in jobs). These aspects are analysed in detail in section 5.

3. POLICY OPTIONS

3.1. Approach to reaching the objectives

New Mechanisms in FP7

Recently adopted by the European Parliament and Council, the Seventh Framework Programme (FP7) (2007-2013) is an important point of departure for Europe. It reflects a consensus that to equip itself as a competitive and dynamic knowledge-based economy Europe must redouble its efforts to increase and get better returns from its R&D investments. FP7 has recognised the problems described in the previous sections, and introduces the concept of Joint Technology Initiatives (JTI) as a major innovation to give concrete answers to the need for greater strategic focus, for assembling a critical mass of research in key areas, for better coordination in research, and for tighter coupling between research and innovation .

A JTI is a public-private partnership , mainly resulting from the work of European Technology Platforms (ETP) to implement (parts of) their Strategic Research Agendas. JTIs have been identified by the Commission[42] as an FP7 instrument that can support a limited number of European Technology Platforms in reaching their objectives[43]. As reflected in the FP7 text:

“In a very limited number of cases, the scope of an RTD objective and the scale of the resources involved could justify setting up long-term public private partnerships in the form of Joint Technology Initiatives. These initiatives, mainly resulting from the work of European Technology Platforms and covering one or a small number of selected aspects of research in their field, will combine private sector investment and national and European public funding, including grant funding from the Seventh Framework Programme and loan and guarantee finance from the European Investment Bank. “

JTIs are a new means to respond to the real needs of industry and other stakeholders, able to accommodate variable configurations of public authorities (Commission and Member and Associated States) in a way that is not possible under the ‘traditional’ FP7 instruments. For the first time, the Community will offer a legal and organisational framework that allows the effective pooling of resources from R&D performers, the Commission and national governments. In this way, JTIs “transcend” the Framework Programme and national programmes, integrating both in an area where urgent action and industrial strategic focus is necessary . Setting up JTIs alongside the funding schemes of the Framework Programme is an essential step in achieving the Framework Programme’s overall objectives.

As indicated by the FP7 impact assessment[44], the implementation of Joint Technology Initiatives will help achieve the Lisbon competitiveness objective and the Barcelona targets for research spending, identifying areas critical for European competitiveness and supporting ambitious research agendas that are strategic and long-term in nature, involving the commitment of massive financial, organisational and human resources through public-private partnerships,

Why a JTI in the embedded systems field?

FP7[45] identifies Embedded Computing Systems as one of the areas where the establishment of a JTI could be of particular relevance (resulting from the work of the ARTEMIS Technology Platform). This was confirmed by the Competitiveness Council meeting on 4-5 December 2006[46]..

The critical mass and greater flexibility and focus brought by a JTI is especially relevant in the embedded systems field: it will have a strong industrial orientation and address the core of the Lisbon agenda by supporting innovation and competitiveness for key sectors in the EU; there are already a variety of important national efforts and trans-national initiatives (Eureka clusters); it has a broad constituency, much of it outside of the core ICT sector; and the systemic nature of the technology requires close links between research, innovation and deployment. All these factors make the embedded systems field an excellent candidate for a Joint Technology Initiative.

The JTI on Embedded Computing Systems ( ARTEMIS JTI ) is a means of setting up and running a European Industrial R&D Programme in this area to run alongside and tightly coupled with the more foundational embedded systems research typically funded under the FP.

Implementation of Joint Technology Initiatives

FP7 specifies[47] that a Article 171 of the Treaty[48] may provide the specific legal basis for implementing the JTIs. Article 171 of the Treaty offers a wide range of possible implementation structures for Community research and development programmes, including a Joint Undertaking. In the context of JTIs, the main advantage of a Joint Undertaking is that it creates a strong and efficient coordination mechanism, able to structure and handle contributions coming from different fields and sectors. Although the application of Article 171 to the concept of Joint Technology Initiatives is novel, there are a number of examples where Article 171 has been used to set up Joint Undertakings in the research field, including, notably, Galileo under EC rules and JET in the framework of EURATOM.

The rest of this document will refer to “ ARTEMIS JTI ” as the Joint Technology Initiative option, and in some cases as “ ARTEMIS Joint Undertaking ” when dealing with the implementation details of the legal structure (legal issues, governance, funding schemes, etc.).

3.2. Options discarded

Some other options have been considered but were discarded at an early stage:

- Do nothing

The ‘do nothing’ option refers to no financial support at EU level for embedded systems research and technological development (discontinuing the funding of this area in FP7). As pointed out by the FP7 impact assessment[49], this option can be clearly ruled out as it would go against the need to invest more and better in research and innovation and for building an integrated European Research Area in a critical area for European competitiveness.

- Implementation of the JTI using alternative legal models

During the preparation of FP7, several other options were considered by the Commission for setting up public-private partnerships to implement JTIs that could accommodate the participation of industry, the European Commission and Member States. An extensive analysis was carried out by a Commission Inter-Service Working Group[50] and the following is a summary of its conclusions regarding the main alternatives considered for the form of legal entity, together with a brief analysis of the implications for Commission participation[51]:

- The “European Economic Interest Grouping” (EEIG) model (e.g. European and Developing Countries Clinical Trial Partnership, EDCTP). Potentially light procedure, as the legal form is already recognised and accepted in all Member States. In the existing (EDCTP) and potential future initiatives (e.g. Ambient Assisted Living in FP7), the participation of the Commission in the legal structure has been discarded as an option.

- The “Non-Profit Organisation” model — an Association (e.g. INTAS asbl) or Foundation (e.g. European Energy Foundation), established under national law (non-harmonised). As in the previous case, the participation of the Commission in the legal structure is strongly discouraged. The principle of “one member, one vote” and majority voting would anyway pose significant problems of control over the Community contribution.

- The “Commercial Private Company” model — involves the formation of an enterprise, generally limited by guarantee. Community participation is not permitted under Commission guidelines.

- Participation in joint actions by Member States

This option for achieving the ARTEMIS JTI objectives is based on Article 169 of the Treaty[52], which enables the Community to participate in research programmes undertaken jointly by several Member States[53] in implementing the FP. This option was discarded as it would present a number of difficulties:

9. The JTI is above all motivated by industrial competitiveness objectives and not by the need for the Community to participate in national RTD programmes/activities. Moreover, at present few Member States have national programmes dedicated to embedded systems research; instead, funding is scattered across a range of programmes of varying relevance or where this relevance is unquantifiable.

10. Article 169 of the Treaty only covers the public sector and does not allow for private-sector participation, which is essential to ensure industrial relevance and focus in such a fast-moving field. The markets and opportunities in embedded systems are of such a magnitude that an industry-driven approach is required . As the JTI focuses on industrial objectives that are important for economic competitiveness, industrial participation is necessary to guide the preparation of the Research Agenda, ensuring consistency between industrial strategies and priorities and public funding policies. In addition, industry’s participation is necessary to ensure its long-term commitment to the objectives.

11. The joint implementation of research programmes by several Member States would need a private-law legal structure to be established. The Commission guidelines[54] indicate that in principle the Commission cannot participate in such bodies. Therefore, the Commission would be able to contribute financially through a grant and have a limited influence but not be able to actively lead developments .However, the participation of the Commission in the legal structure is of paramount importance. It must have a decisive strategic role in (a) the adoption and implementation of the Strategic Research Agenda and (b) the integration process, driving and balancing the different interests of the parties involved (Community, Member States and industry). The Commission is the only actor that can defend the Community’s interests in this process. The direct participation of the Commission will also ensure full control over its own contribution.

3.3. Conclusions on the different approaches

From the above analysis, implementing the ARTEMIS JTI through a “Joint Undertaking” model on the basis of Article 171 of the Treaty as described in 3.1 above is the only option that satisfies the constraints and requirements for achieving the objectives of the action: the legal entity has to be a structure durable over time, with legal personality, which (a) provides a legal framework for the collaboration and direct participation of public (Member/Associated States and the Commission) and private stakeholders, and (b) is capable of receiving funding from different sources (e.g. grants from the Community, loans from the EIB, etc.).

The options considered in 3.2 above cannot be considered appropriate for the proposed action, as they do not satisfy the above constraints.

3.4. Option scenarios

Following the conclusions above, only the following two policy options have been considered for further analysis:

12. ‘Business-as-usual’ option. This is basically a continuation of the current working arrangements. Parts of the ARTEMIS Strategic Research Agenda would then be implemented through the existing EU instruments and, separately, through national programmes, including some intergovernmental cooperation under Eureka (MEDEA+ and ITEA2). Commission support would be through the regular instruments in the FP7’s four Specific Programmes, in particular for collaborative research under the Cooperation Programme. This option will be considered as the baseline option.

13. ARTEMIS JTI – ‘Joint Undertaking’ on the basis of Article 171 of the Treaty to implement a “Joint Technology Initiative” with the participation of industry, the European Commission and Member States and FP7 Associated Countries, building on the existing ARTEMIS Technology Platform. In this model, the Community (represented by the Commission) would be a full member alongside other entities and national authorities willing to commit funding or contributions in kind. A JTI is created through a legislative procedure (Council Regulation established by means of the consultation procedure) that implies the definition of all the characteristics of the entity in a Council Regulation. A detailed description of the proposed model for governance and operations of the Joint Undertaking can be found in the next section.

4. STRUCTURE AND GOVERNANCE OF THE ARTEMIS JOINT UNDERTAKING

4.1.1. Participation and legal form

The founding members of the Joint Undertaking (ARTEMIS Joint Undertaking) under Article 171 of the Treaty would be Member States (to be determined at the time of discussion in the Council), the European Commission and a non-profit industrial association called ARTEMISIA. Other members can join at a later stage:

- Member States or Associated Countries that are not part of the initial founding group can become members through a simple request to join, in which they commit to the obligations and rights of the members as described in the ARTEMIS Joint Undertaking Statutes annexed to the Council Regulation.

- Private entities will participate in the Joint Undertaking predominantly through membership of ARTEMISIA[55] . ARTEMISIA is open for membership to research and development actors in the area of embedded computing systems and promotes the broad involvement of industry, including in particular SMEs and other research and development stakeholders. Third Countries with active policies or programmes in the field of the ARTEMIS JTI and other legal entities capable of contributing substantially to the realisation of its objectives will be able to participate in the Joint Undertaking through special agreements to be negotiated between them and the ARTEMIS Joint Undertaking.

The participation of research and development actors (industry and academia) in the legal structure of the JTI could have been either on an individual basis or through a non-profit association. However, the latter provides a more flexible and elegant solution, in particular when the number of stakeholders is large: new companies and research organisations may join the association at any time through a very simple process, which might not be the case if individual organisations were to be members of the JTI directly.

The participation of research and development actors through ARTEMISIA will ensure that industrial and academic involvement reflects a wide constituency rather than a ‘closed shop’ of a few key players. The statutes of the association have to follow the general principles of openness and transparency for joining, and include special provisions for the participation and representation of SMEs and other research and development stakeholders, including academia. In addition, the JTI’s Calls for Proposals will be public and participation will be open to all organisations (whether members of ARTEMISIA or not) from any Member State or Associated Country .

4.1.2. Governance structure

The bodies of the Joint Undertaking will be the Governing Board, the Industry and Research Committee, the Public Authorities Board and the Executive Director (Figure 4.1).

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Governing Board: The Governing Board has overall responsibility for implementing and supervising the execution of the JTI programme and takes all decisions of a strategic nature. Voting rights will be split equally: 50% for ARTEMISIA and 50% for public authorities (Commission and p