it * 
•tt « COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 09.10.1996 
C( )Mc%) 463 final 
COMMUNICATION FROM THE COMMISSION 
BENCHMARKING THE COMPETITIVENESS OF EUROPEAN 
INDUSTRY 

TABLE OF CONTENTS 
I. INTRODUCTION 1 
II. COMPETITIVE PERFORMANCE OF EUROPEAN INDUSTRY 3 
1. The general context 3 
2. Growth of Industry 5 
3. Cost of key inputs 6 
4. Investment in industry 8 
III. DETERMINANTS OF COMPETITIVE PERFORMANCE 8 
1. Functioning of Markets 8 
2. Innovation 12 
IV. BENCHMARKING 15 
1. Enterprise benchmarking 16 
2. Benchmarking of sectors 16 
3. Benchmarking framework conditions 17 
V. CONCLUSIONS 18 
/)é\ 
INTRODUCTION 
The Communication takes as its starting point the Commission's proposals for a Confidence 
Pact for Employment!. That document begins by pointing out that the rate of structural 
unemployment is increasing regularly; at the end of each recession the level is higher. 
Ensuring a sufficient rate of net job creation to reverse this tendency and to ensure that all 
those willing and able to contribute to well-being in the Union through productive 
employment have the opportunity to do so constitutes the major challenge for Europe today. 
As pointed out in the White Paper on "Growth, Competitiveness and Employment"2 and the 
Communication on "An Industrial Competitiveness policy for the European Union"3, 
improved competitiveness of the European economy constitutes an important means to 
achieve that goal. These three documents, along with other Commission proposals, set out 
the agenda which must be met for competitiveness to improve. Many of these actions 
concern Member States. 
The purpose of this Communication is to provide an updated analysis of the present 
situation of European industrial competitiveness. In order to assist prioritisation, a limited 
number of key areas for improving competitiveness are identified in the light of the 
preceding analysis. The Commission calls attention to benchmarking not as a new policy 
initiative but as a tool to promote better implementation of measures in key areas for 
competitiveness by focusing on factors and conditions that determine superior performance 
and exchange of information on best practices. 
In this Communication, whilst the analysis of competitiveness mainly relates to industry, it 
also sheds light on some of the underlying factors explaining the outcome of the economy 
of the whole in terms of growth, productivity and employment. Indeed, no discussion of the 
competitiveness of European manufacturing industry would be complete without that of the 
competitiveness of a certain number of services. 
Competitiveness Advisory Group 
appointed by President Santer 
The first report of the Group took a broad view of competitiveness, stressing that 
competitiveness implies elements of productivity, efficiency and profitability, and that it is 
not an end in itself. It is a powerful means to achieve rising standards of living and 
increasing social welfare. For this reason, at the level of the economy the most important 
indicators of competitiveness concern growth, productivity and employment along with the 
factors that can explain a given outcome. At the level of the major sectors of the economy 
or individual sectors of industry and services, many of the same indicators of 
competitiveness can be used. Market share and profitability also constitute important 
indicators, which provide a link with the competitiveness of firms. The various indicators of 
competitiveness are connected, since ultimately it is enterprises that provide the growth 
which creates jobs and raises productivity. How competitiveness at different levels are 
interlinked to provide a given outcome is a significant issue, addressed below. 
Action for Employment in Europe. A Confidence Pact, SEC (96) 1093 of 6.5.1996 
Growth, Competitiveness and Employment (COM (93) 700, December 1993 
COM (94) 319 of14.9.1994 
A 
Structural factors affecting competitiveness are the focus of this Communication. But of 
course the macro-economic environment has a very important effect. However, the 
Commission does report regularly on these aspects in the annual economic report and 
monitors progress towards meeting macro-economic objectives through its examination of 
economic convergence. The Maastricht criteria, by putting targets for economic and 
monetary union, represent a form of benchmarking in the policy area, which has proved its 
usefulness in promoting convergence and which can serve as a model for the application of 
benchmarking to other areas of importance for competitiveness. 
EMU and Competitiveness 
The transition to the Economic and Monetary Union (EMU) will have important beneficial 
effects on competitiveness both as regard internal and external aspects. 
Internally, EMU will eliminate transaction costs of cross border payments. In addition, it 
will foster competitiveness through increasing transparency. SMEs whose costs in 
participating in international trade are at present relatively high, will particularly benefit, as 
EMU will enable them to increase their efficiency by entering into all European markets. 
Furthermore, EMU will contribute significantly to exploit the full advantages of the internal 
market. The past four years have witnessed that currency fluctuations have led to a sub-
optimal allocation of production factors, jeopardising the beneficial effects of economic 
integration and slowing down growth in Europe. 
Externally, given the importance of the European Union in international trade, financial 
markets may grant to the Euro a status of international currency, similar to that enjoyed by 
the Dollar. European companies will progressively be able to sell in Euro on third markets 
and will thus be safeguarded from the effects of currency changes on sales prices. 
Finally, macro-economic policies play a central rôle for competitiveness. In particular, 
public deficits which are too high absorb a considerable' share of private savings (nearly 
35% in 1993) to the detriment of productive investments and push interest rates higher. 
Policies oriented towards budgetary stability allow the macro-economic framework to be 
improved. Indeed, general government net borrowing decreased from 6.3% in 1993 in the 
EU to 5.1% in 1995 and 4.4% in 1996 (forecasts). Real short term interest rates have 
followed a similar path, falling from 6.7% in 1992 to 4.9% in 1993 and 3.9 in 1995. This 
development is reinforced by progress towards Economic and Monetary Union. 
The primary responsibility for ensuring that enterprises remain competitive" lies with 
firms themselves. They maintain competitiveness through the efficiency and the flexibility 
with which they satisfy existing market needs and through their ability to adjust to structural 
change, to create new markets and to meet new needs. The quality of management 
determines to a large degree the extent to which enterprises are successful in these tasks. 
Public authorities sustain competitiveness by putting in place the appropriate framework 
conditions under which enterprises operate. This takes the form of providing necessary 
infrastructure, putting in place an appropriate regulatory environment and specific 
initiatives, particularly in the areas of innovation, quality, the business environment for 
small and medium sized enterprises and economic cohesion (Commission Green Paper on 
Innovation, working document on quality and Multi-annual programme for SMEs). 
This Communication presents the diversity of and inter-relations between the factors 
influencing the competitiveness of enterprises, and, as a result, the necessity to develop a 
coherent approach concentrating on those factors in the business environment which are 
determining for enterprises. The urgency of this procedure derives from the globalisation of 
markets, and the risk that a lack of competitiveness on such markets holds for employment 
and living standards. In order to assist enterprises and public authorities in the adaptations 
required to meet greater international competition, the Commission proposes that 
benchmarking be promoted in partenariat with industry and public administrations. 
The present Communication does not seek to examine all those framework conditions that 
affect competitiveness, but only a limited range. Some elements of taxation, social policy 
and the efficiency of public administration are examined in so far as they are identified as 
factors underlying competitiveness so are the regulatory environment, the burden of 
administrative procedures and the adequacy of public infrastructure. The Commission will 
continue to examine how public policies can support competitiveness. 
II. COMPETITIVE PERFORMANCE OF EUROPEAN INDUSTRY 
The general context 
A strong economy is an economy that is capable of high productive efficiency, creating 
jobs in order to raise living standards. Living standards must be defined broadly to 
include elements that are difficult to quantify, such as a high degree of environmental 
protection or a low level of crime. They include aspirations to a reasonable level of security 
against illness and destitution that has come to be known as the European social model. 
Maintaining and improving the quality of life in Europe requires that expectations and 
possibilities are matched and that the productive base is capable of delivering the desired 
outcome. 
Gross domestic product represents an imperfect measure of living standards. However, 
certain less quantifiable elements of living standards may be less incompatible with raising 
gross domestic product than may at first appear. For instance, a high level of environmental 
protection can, under certain conditions, support competitiveness^. Improving the efficiency 
with which the economy transforms energy and materials into goods and services 
constitutes both a key element for reaching sustainable development and a significant 
means for improving competitiveness. 
Commission Communication on Industrial Competitiveness and Protection of the Environment 
SEC(92) 1986 
The Competitiveness Pyramid 
[Standard of Living| 
J 
Employment 1 
Rate 1 
Participation 
Rate 
Demo­
graphics 
1 Ageing 
of the 
Population Job 
Creation 
Labour 
Markets ~ " r 
Internal & 
External 
Flexibility Intangible 
Investments l 
1 Produ 
Market 
Performance 
i i 
Intangible 
- Investments 
1" 1 Skills 
Formation , Research 
and 
Development Innovation 
f Organisation, 
Quality, 
Diffusion ctivity 1 
Financial 
Performance 
| Fixed 
Investments 
j 
Financing of 
Investments i 
Public 
Infrastructures 
~ T~ Taxation 
• High productivity provides the basis for raising living standards. Increases in the 
productivity of labour should not be achieved at the expense of job creation. The ability to 
achieve high rates of employment affects living standards directly by generating income 
from a larger proportion of the population. When both productivity and employment are 
rising together, strong growth can ensue. At the level of the economy, productivity and 
employment constitute the principal benchmarks of competitiveness. Unlike the Maastricht 
criteria, they can not directly be translated directly into policy actions. The structural 
conditions that underlie superior performance are more susceptible to be translated into 
policy actions through individual framework conditions that affect competitiveness. The 
different relationships that determine strong economic performance can be illustrated by the 
competitiveness pyramid. 
Europe continues to lag significantly behind the United States in terms of both labour 
productivity and the proportion of the working age population that is employed (the 
employment rate). It also lags behind the Japanese employment rate. The result is a level 
of GDP per capita nearly one third below that of the United States and one sixth below that 
of Japan. Such a result is by no means inevitable and should not be considered as 
acceptable. Europe's human resources, capital base, infrastructure and the size and 
development of its home market provide the foundation for both high productivity and high 
employment rates. Within the existing technological frontier, considerable unexploited 
potential remains. Further gains are possible beyond the existing frontier by speeding up 
innovation. 
Although difficult to interpret, the rapid increase in the capital stock in the European Union 
and Japan contributed significantly to the increase in labour productivity in these countries, 
but to an important extent this was at the expense of falling productivity of capital. In both 
the European Union and in Japan the substitution of labour by capital has been significant at 
the same time as capital intensity increased substantially. 
The record of employment creation remains disappointing. Since 1960, the European 
Unioa has managed to create 10 million net new jobs or half those of Japan and less thar. -
fifth of those in the United States, essentially because of a very high rate of gross 
At the same time, the number of new entrants to the labour market was one and , 
greater in the United States than in Europe, but lower in Japan, The high rats of net 
creation in the United States enabled it to increase its ernploy^ien'. rate F 
between 1960 and 1995, when it approached the consistently high Japanese rate. In the 
European Union, the employment rate declined over the same period. The fact that certain osses. 
•*;merj 
ioh 
wcujii v 
countries in Europe reach or even surpass US and Japanese rates would seem to indicate 
that low European employment rates are not inevitable. 
EMPLOYMENT RATE 
1960 1995 
European Union 67% 60% 
United States 63% 72% 
Japan 74% 74% 
• The main reasons for Europe's disappointing performance can be identified. Of 
particular importance for productivity levels and growth can be mentioned intangible 
investments, innovation, and fixed investments in plant and equipment. On the side of 
employment, in addition to investments in human resources, the functioning of the labour 
markets and demographic developments, particularly the numbers of new entrants to the 
labour market and the dependency ratio of old and young people, are important factors. In 
turn, these issues give rise to specific areas of concern such as the ageing of the population, 
internal and external flexibility of labour, skills formation, research and development, 
organisational issues, financing of investments and levels and structure of taxation. 
Public investment supports competitiveness when it develops Europe's infrastructure, 
encourages intangible investment in skills and technology and assists the development of 
lagging regions. It appears that the European economy increasingly faces problems 
resulting form infrastructural bottlenecks, both in the area of physical capacities and in 
relation to the way facilities are operated. As a result, the infrastructural costs of, e.g. 
transport operations, are in Europe considerably higher than in the United States, thus 
weakening the competitive position of enterprises located in Europe. 
A social safety net is required to ensure that the benefits of growth are equitably distributed 
and to combat social exclusion. However, social protection needs to equip recipients with 
the necessary skills and to encourage mobility for them to occupy productive jobs in order 
to promote competitiveness of the economy. Consumption driven public deficits ultimately 
reduce productive potential by depressing investment. 
Directly or indirectly, taxation, in particular of labour, represents a cost to enterprises. The 
share of taxation in GDP rose from 34% to 43% in the European Union between 1970 and 
1995. In addition, the very high fiscal deficits, driven essentially by the growth in public 
transfers, mean that domestic savings are being used to finance deficits rather than provide 
investment. Trends in the structure of taxation show that, over the period 1980-94, the 
European average of the effective tax rate on employed labour increased steadily from 34% 
to 40%, whereas the effective tax rate on other factors of production decreased from 44% to 
35%. 
It should be stressed that the functioning of the economic system depends not only on the 
availability and quality of any single aspect related to competitiveness, but much more on 
the interaction between different elements. The ways in which the different elements 
interact either sustain or hinder economic performance. 
2. Growth of Industry 
D In spite of much improved economic fundamentals, European industry has not been 
performing as well as it might. In most manufacturing sectors, the United States continues 
to lead European productivity. High Japanese productivity is concentrated in a limited 
number of export oriented sectors. 
The European Union share in OECD export markets (excluding intra-EU trade) has been 
declining since 1987. This loss in market share can be attributed essentially to an 
insufficient presence on markets with strong growth rather than to exchange rate or other 
price developments. A similar absence of specialisation on growth markets can also be 
observed for European direct investment in third countries. The European Union's external 
trade and investment has been concentrated on mature markets, eastern Europe and on the 
Mediterranean rather than the high growth markets of east Asia and certain parts of Latin 
America. Since 1993, there are encouraging signs of improved European performance in 
growth markets for both exports and foreign investment. In order to maintain and develop 
their position on world markets, it is imperative that European enterprises have access to 
third country markets, both on equivalent terms to those of its main competitors and 
compared to those of domestic competitors.^ 
Net profit margins and return on investment for European enterprises began to improve in 
1994. Nevertheless, compared with the cost of capital, returns remain inadequate (7%) since 
they are even lower than the rate of interest on long term public debt (8%). 
• Over the last ten years, industrial value added increased by 2.4% per annum in the 
European Union compared with 3% in the United States and 3.8% in Japan. The overall 
result is also reflected at the individual sectoral level. Of the manufacturing sectors, only 
food, drink, and tobacco and wood and furniture grew faster in the European Union than in 
the United States and Japan between 1985 and 1995. 
All the sectors for which growth in value added in Europe was equivalent to or above that in 
the United States or Japan realised productivity gains equivalent to or above those of its 
main competitors. In all those sectors which grew more slowly in Europe, productivity 
gains were lower. Equally, European sectors with average or good relative growth 
performance also maintained higher investment rates than their competitors. 
3. Cost of key inputs 
In order for enterprises to remain competitive, they must control unit costs either by 
increasing efficiency or by controlling costs of inputs to production or by a combination of 
both. Individual items of cost appear differently from the point of view of the enterprise in 
manufacturing than from that of the economy as a whole. For the individual industrial 
enterprise, purchases of goods and services make up sixty percent of costs, followed by 
labour with thirty percent of costs (and seventy percent of value added) and finance the 
remainder. 
Since purchases of goods and services make up such a large share of costs, access to 
efficient suppliers represents a key condition for competitiveness. Energy, water and 
producer services (communications, transport, financial and business services) account 
directly or indirectly for over one fifth of manufacturing costs. Prices for key service 
inputs m Europe have remained Hgher than those of major competitors, and with the 
progress of liberalisation elsewhere the gap between Europe and major competitors has 
been widening., In telecommunications, after the introduction of competition the price of 
Commission Communication on Market Access of 14.2.1996, COM(96)53 
long distance calls declined between 18% and 35% over the period 1990-1994. In the 
absence of competition prices fell by between 12% and 16%. In energy, gas prices have 
fallen in parallel to oil prices, but, on average, remain 30% higher than US prices. For 
electricity, the difference is bigger. 
Large firms have access to a deep pool of international savings and complex financial 
instruments along with sophisticated treasuries. They can finance investments on favourable 
terms. Most small firms remain unquoted, often locally oriented and rely on very traditional 
sources of finance for investment. Overwhelmingly, they rely on retained earnings, which 
attract a high tax penalty, and bank loans. Since 1980, average nominal long term interest 
rates in Europe have remained between one and two percentage points higher than those in 
the United States, and about four percentage points higher than those in Japan. Cost of 
capital estimates also point to higher financing costs in Europe, and especially amongst the 
smaller Member States. Amongst the factors which have contributed to high capital costs in 
Europe can be mentioned inflationary expectations, high public sector deficits, lack of 
competition between financial institutions and limitations on cross-border investments. 
The third element of industry's cost base is that of labour. Developments in the cost of 
labour are closely tied up with the overall macro-economic situation. Over the past two 
decades, the EU economy has undergone a difficult process of adjustment, not just in terms 
of structural change, but in order to bring inflationary pressures and costs under control, and 
in order to restore the profitability of capital investments. During the 1970's inflation 
exceeded 10%, coming down to 5% by the beginning of the 1990s and to 3% today. 
Inflationary expectations had a significant effect on the context in which wage bargaining 
took place. Today, the Union enjoys favourable economic fundamentals. Inflation is 
historically low and still declining, exchange rate tensions have progressively eased, world 
trade is expanding at a healthy pace, and investment profitability is improving. 
Nevertheless, it is clear that the European economy still retains certain cost and productivity 
problems. 
From the point of view of competitiveness, it is necessary to take all of the charges an 
employer faces in employing labour and then adjust total labour cost for productivity to 
establish unit labour costs". Unit labour costs in practice are difficult to calculate and for 
this reason there are relatively few robust estimates of unit labour cost available. Over the 
past decades, the European Union has gradually brought its inflation problem under control 
and reduced the share of wages in GDP to a level comparable with the United States and 
Japan. It has also continued to improve its level of productivity relative to the United States. 
In consequence, EU real unit labour costs have been progressively reduced since 1980. 
In the manufacturing sector, the situation is less clear and probably less favourable. Over 
the past years, for example, while real unit labour costs in the EU economy as a whole have 
fallen by 5% relative to the United States, indications suggest that real unit labour costs in 
manufacturing have risen by 1-2% in total. 
A key difference in the structure of labour costs between the European Union and the 
United States concerns non-wage costs and taxes, reflecting the extent to which certain 
services - health, pensions etc. - are funded through taxation or take home pay. One 
particular issue of concern for the European Union expressed in the White Paper is the 
way that non-wage costs bear particularly heavily at the low end of the scale. Demand for 
unskilled labour has been declining relative to skilled labour and employment problems 
are particularly severe for the unskilled. Diminishirig the level of non-wage costs relative 
to those up the scale could help to make employing unskilled labour more attractive. 
6 Total labour cost is composed of social security and taxation in addition to wages and salaries. It should 
not be confused with income. Unit labour costs combine productivity with total labour costs to yield the 
labour cost content per unit of output. High productivity can compensate for high labour costs. 
8 
Growth in wage costs is now relatively moderate. The reform of tax< : m and social 
security systems, already underway, should contribute to containing labour costs although 
the main scope for keeping unit costs low will lie, as in the past, in the active pursuit of 
productivity improvements in the context of a high income, high skill economy. 
4. Investment in industry 
To a large extent productivity improvements depend on investment, both tangible and 
intangible. Investment in plant and equipment not only increases productive capacity but 
also incorporates technical progress. The investment effort by Japan in plant and equipment 
has been particularly noteworthy rising at its peak at the beginning of the decade to three 
times the level of the early 1970s before falling back during the current recession. Up to 
1990, investment in equipment in the United States and Europe followed a parallel path 
when US investment began to rise very fast. 
In the field of intangible investments, more specifically relating to the importance of 
quality management for the competitiveness of industry, the World Competitiveness Report 
presents information related to the different elements of the competitive situation of 
countries all around the world. Trends over recent years show that changes in the level of 
quality is mirrored by implementation of quality management strategies. The United States 
is even in the process of overtaking Japan in terms of degree of quality, for the first time 
since the mid seventies. These trends are confirmed in the areas of the degree of customer 
satisfaction as well as of workforce motivation and the quality of industrial relations. 
Research and development represents another significant form of intangible investment 
for which European performance is insufficient. 
TOTAL R&D SPENDING R&D SPENDING BY INDUSTRY 
as % of GDP as % of GDP 
European Union 1.9% 1.0% 
United States 2.5% 1.6% 
Japan 3.0% 2.2% 
in. DETERMINANTS OF COMPETITIVE PERFORMANCE 
Two main causes for the poor competitive performance of European industry can be 
identified: the functioning of markets and innovation. The essential complementarity 
between efficient markets and high rates of innovation and intangible investment need to be 
stressed. Removing barriers to access in key product markets and ensuring that capital and 
labour markets are able to meet the needs of new forms of investment and organisation of 
work is critical to innovation. Without a sufficient degree of market liberalisation, the 
benefits from intangible investment, which must constitute the basis of Europe's 
competitive advantage, will not materialise. Equally, efficient markets are not sufficient to 
ensure the high level of intangible investment required to make further gains in living 
standards possible and to ensure that growth is driven in a skills and knowledge intensive 
way. 
1. Functioning of Markets 
Restrictions on access to markets lead to inefficiency, stifle innovation and growth. 
Recognition of the high cost of market access restrictions has led to a clear trend amongst 
developed countries towards liberalisation of markets. In the European Union, the Single 
Market programme, in conjunction with competition and trade policies, has led to a 
significant opening of access to markets particularly for manufactured products. 
Product Markets 
The Single Market has led to the removal of barriers to trade and facilitated market access. 
However, in certain key markets effects have been more limited. Areas in which least 
progress has been made in removing barriers to access, whether in the enhancement of 
bilateral economic relations or through international trade negotiations under the Uruguay 
Round, under the Single Market programme or under national programmes, include those 
that supply government markets (public procurement), public utilities and many services. It 
should be stressed that many restrictions on market access, particularly in services, are the 
result of the actions of national governments. Areas under which national restrictions 
continue to apply include business services, construction and distribution. Altogether, 
sectors for which more or less serious access restrictions remain make up around half of 
gross domestic product. 
The Commission Communication on Services of General Interest6 in Europe sets out a 
certain number of principles which guide policy in this area. As regards services of general 
economic interest they refer to market services which the Member States subject to specific 
obligations by virtue of a general interest criterion, covering such things as transport 
networks, energy and communications. For this reason, the introduction of competition in 
these sectors is accompanied by public service obligations including the provision of 
universal service which is to ensure access for all citizens to quality service at prices 
that everyone can afford. 
For its part, the second report of the Competitiveness Advisory Group has highlighted the 
fact that infrastructure quality is the single most important factor influencing 
multinational investment. According to the group, introducing competitive forces in the 
sector of public utilities has proved to be a win-win situation for the State (positive impact 
on the public borrowing requirement), for industry (utilities which are more responsive to 
needs) and for the consumer (competitive pricing and service and greater choice). In their 
conclusions, the group states that the Commission should stimulate the exchange of best 
practice by monitoring and publicising on an annual basis a benchmark report on the best 
public-sector reform practices and competitiveness improvements achieved in the European 
Union as compared with the USA and Japan. 
D Evidence from those countries that have liberalised key services shows that considerable 
scope for growth and employment in addition to the beneficial effects of lower price and 
better service can be obtained: 
- Telecommunications are a case in point since many innovative services depend on 
open cost-efficient telecommunications networks for their development. For example, 
in the United States the price of long distance and international calls and of leased lines 
is substantially lower than in Europe, giving enterprises relying heavily on 
communications a competitive advantage. Furthermore, unlimited local calls are usually 
included in the fixed telephone line rental fee; this has provided a powerful stimulus for 
services on the Internet. In Europe, Internet connections are paid for at local rates and 
according to duration. Closed networks have also stifled the development of information 
technology services by limiting the range of services that can be provided. 
6 Commission Communication on Services of General Interest in Europe of 11.9.1996 COM (96) 443 
final 
10 
Uncompetitive telecommunications services constitute a factor that is slowing down the 
development of the Information Society in Europe. Where markets have been opened, 
significant employment creation in the telecommunications cluster (including 
equipment) has ensued. For instance, in Finland, employment in telecommunications 
increased 20% faster than employment in general after liberalisation. 
- Liberalisation of the conditions for access to transport markets is improving the 
competitiveness of the road haulage, aviation and maritime sectors, generating 
significant cost savings. Further improvements can be expected as market structures are 
adapted to the more liberal regulatory environment. For air transport, which constitutes a 
major means of communications for business users, a history of bilateral cooperative 
arrangements between national flag carriers in the past appears to have undermined 
some of the benefits that could have been expected to flow from liberalisation. Effective 
liberalisation of access to rail services,is less advanced than other forms of transport 
despite its high strategic importance for easing road congestion. 
- Energy is another area where liberalisation will bring benefits to industry once the 
Single Market is achieved in practice. Some progress is being made in the electricity 
context. 
- Notwithstanding Single Market legislation, financial services remain fragmented with 
little cross-border competition. To the extent that competition has increased in banking, 
it can be attributed essentially to technological developments such as tele-banking, 
which enables banks to offer services at much lower cost. 
- Least progress in removing limitations to market access has been made in the field of 
business services. Marketing remains an area for which a multitude of national 
restrictions inhibit industry's ability to develop co-ordinated marketing programmes 
across borders. The recent Commission Green Paper on Commercial Communications in 
the Single Market describes the situation in more detail7- Professional services remain a 
fortress into which competition has yet to enter. Putting into place the requisite 
legislation for liberalisation and, once it is in place, ensuring coherence between 
different policies to ensure that benefits can be reaped remain areas in which the 
European Union must improve its performance if industry is not to suffer from a serious 
competitive handicap. 
Competitive intensity on markets can also be undermined by continued subsidisation of 
enterprises. In the face of market failures, certain subsidies can have a positive impact on 
competitiveness (for example subsidies to R&D or small and medium sized enterprises or 
for the creation of enterprises) or may be required to meet certain Community objectives 
such as economic and social cohesion (regional aid and aid for training). Nevertheless,, 
state aids remain a significant problem in Europe, with state aids to manufacturing industry 
alone totalling 34 billion ECU in 1992, equivalent to 1,200 ECU for every employee in the 
industrial sector. Although state aids are concentrated in manufacturing, they also pose a 
problem in certain specific services undergoing liberalisation. For instance, in the field of 
air transport, high levels of subsidisation can undermine efforts to introduce more 
competition by liberalisation of markets. This situation has led the Commission to introduce 
a specific aid regime in the domain of air transport. 
COM (96) 192 final of 8.5.1996 
11 
Capital market 
Liberalisation of movements of capital has been a major achievement of the Single Market 
programme. However, a number of imperfections and restrictions remain on capital markets 
which limit the possibilities of European firms to raise equity for investment. In the 
field of mortgage credit, there is unequal access to capital markets for the purpose of 
refinancing. There are problems too in some bond markets. Differences in taxation of 
investment income continue to perpetuate distortions in capital movements between 
Member States. Insurance companies are often restricted as to the type of investment and 
country in which they hold their reserves. In many Member States, the pan-European 
activities of pension funds are seriously hampered. The relatively large share of foreign 
assets for funds based in the United Kingdom and the Netherlands stems from the fact that 
these are the only two countries, together with Ireland, where pension fund investment is 
unrestricted. 
Labour market 
A better functioning labour market is generally acknowledged to be a vital factor for the 
competitiveness of European industry, just as the competitiveness of industry is, in itself, a 
determining factor for the level of employment. 
More fundamentally, there is a need for a radical rethink of all relevant labour market 
systems - employment protection, working time, social protection and health and safety - to 
adapt them to a world of work which will be organised differently, in particular one where 
the boundaries between work and leisure, work and learning, employee and self-employed 
are, or may become, less well-defined. The concept of security for workers has to be 
reformulated, focusing more on security based on employability and the labour market 
rather than security based on the individual work place. It should be focused on security in 
change, not security against change. 
Over the last decade, substantial changes have been made by Member States to introduce 
greater flexibility into the labour market through changes to the regulatory framework 
governing employment. Virtually all Member States have seen a significant reduction in 
working time regulations and rules relating to taking on and laying off workers have been 
reviewed and restrictions eased in a third of Member States. It has become easier for 
employers to take on part-time as well as temporary workers, and the possibilities for self-
employment have increased considerably. Member States have focused changes on 
measures which have actually inhibited employment prospects of the weaker groups, such 
as the unskilled young and/or other workers with little experience. 
Lack of flexibility on the labour market arises for a number of reasons, which are not 
necessarily linked to the rules and conditions governing employment. For instance, 
company pension schemes can impose a substantial penalty for those that change jobs 
because entitlement to benefits can rise very steeply in the final years before retirement. 
Housing markets in Europe also discourage geographic mobility in several European 
countries. Not only major differences in house prices between high and low unemployment 
regions, but also the lack of rented accommodation as a result of restrictive tenancy 
provisions, may make it very difficult to change regions. 
a Deficiencies in the functioning of labour markets in Member States are partly due to 
inappropriate, or outdated, systems or labour market regulations, which can restrict internal 
and external flexibility and the capacity of firms to create jobs. Levels of labour market 
regulation vary considerably within the European Union. Evidence suggests that, while 
employment performance is primarily determined by the performance of the economy as a 
whole, labour market regulations may affect the level of employment creation or, at least, 
the speed with which firms adjust their labour force in response to change. Restrictions on 
12 
the capacity of enterprises to adjust their labour forces in the form of regulations or in terms 
of the cost of taking on and laying off workers are likely, when excessive or outdated, to 
affect economic performance of companies, although, in practice, enterprises often find 
ways to circumvent some of these effects through an increased use of temporary and other 
a-typical working arrangements. 
- It should be emphasised that increased flexibility needs to be combined with a sufficient 
level of stability and employment security in order for the full benefits to be reaped. 
Effective use of human resources remains a key element for gains in productivity and 
also for internal flexibility. An increasing volatility of employment bears the risk that 
the investment in human capital, notably through training, required for long-term growth 
and competitiveness will not take place. Training and continuous upgrading of skills is 
(and in future will become even more so) intangible investment with real and increasing 
benefit for industry and employees alike. A high skill, high quality, high productivity 
industrial strategy will enhance industry's competitiveness and employees' 
employability as explained below. 
- Sector-wide wage bargaining has been the prevailing mode of bargaining in Europe, 
whilst plant-level bargaining is usual in the United States and Japan. The level of wage 
bargaining is usually set by the social partners, and they need to agree on any changes to 
existing arrangements. Different forms of wage bargaining each have their advantages 
and disadvantages and it is not possible to conclude at the present time that any 
particular form is inherently superior to another. On the one hand, for instance, 
centralised or sector-wide bargaining has been used to introduce successfully wage 
moderation in certain countries, with significant impact on inflation as well as costs. It 
also contributes to transparency of wages and to social and regional cohesion On the 
other hand, however, sector bargaining also leads to comparable rates of pay between 
enterprises irrespective of levels of productivity and across regions in the same country 
irrespective of differences in availability of labour. 
- Working hours are governed by collective agreements or by legislation. Restrictions on 
working hours set by Member States unrelated to the minimum standards set by 
European legislation, which allow considerable flexibility for implementation at national 
level, affect the time when work is carried out. In this way, the ability to run plant in the 
optimal fashion to make best use of existing or future investments may be impeded. The 
level of capital utilisation is thereby reduced. Certain services, such as the possibility for 
shops to stay open to meet the requirements of those at work during normal hours, are 
also prevented from developing as they might. Innovative uses of flexible working time 
arrangements can also lead to the significant creation of new jobs. 
Well functioning labour markets are responsive to global competition and technological 
developments which, by truncating time, are increasing the speed with which structural 
change is taking place. 
Europe (and the world) is evolving towards a more knowledge-based economy where 
information and technology play a crucial rôle, reshaping company structures and 
organisational competence. Industry's success in meeting the challenge of such changes 
will depend on how well skills can be upgraded. Each year at least 10% of all jobs 
disappear and are replaced by new ones, different jobs, in new processes, in new 
enterprises, requiring higher or broader skills. But these changes have not been 
accompanied by adequate measures to develop and improve the skills of the labour force, 
and have led to a skills gap and mismatch. 
13 
2. Innovation 
D Intangible factors play a predominant rôle in the ability of companies to innovate and their 
competitiveness. They enable knowledge intensive economics to maintain their competitive 
position compared to resource or labour intensive economies and to continue to raise living 
standards in an environmentally sustainable manner. Dematerialisation of the economy 
involves investing to an ever high extent in intangibles. Intangible investment and 
innovation are inseparable. A high level of skills promotes adaptability and ensures that 
ever more technologically advanced processes can be implemented. Intellectual property 
constitutes the basis on which enterprises exploit their technological superiority for 
commercial success. The Green Paper on Innovation constitutes an opportunity to review all 
of the different obstacles to innovation and to develop a common approach to their 
removal**. 
Skills 
In spite of the lack of comparable data, an examination of educational and training 
systems yields some important information about current requirements for human 
resources. The much faster rate of change and the necessity for an individual to change jobs 
several times in the course of a working life requires a soundly based general education on 
which to build subsequent skill development. Education and initial training systems, 
therefore, provide an essential foundation for participation in further training. Systems 
providing access to qualifications - particularly acquired through apprenticeships enabling 
someone to qualify in a trade or craft - later in working life, taking account of their previous 
work experience are not well developed. This limits the scope for changing jobs and careers 
throughout working life. It also limits job prospects and undermines the efficiency of the 
labour market. 
The skills required for the effective functioning of enterprises today go well beyond 
technical skills associated with a particular task or function. In particular, the ability to 
operate in teams, to adjust rapidly to changing circumstances and to take responsibility are 
as important as more formal grounding in specific aspects of the production process. The 
implementation of quality management strategies designed to manage constant change in 
modern industry, has influenced fundamentally the importance and contents of vocational 
training and professional education, as everyone in such cases is an integral part of the 
quality. 
The active involvement of industry is essential to the effectiveness of the vocational 
education and training systems. However, when the investment can be lost for the enterprise 
in question, it may fail to invest in training. The area in which skills development appears to 
be least well assured is that of initial vocational training for transferable skills of a technical 
character. A market failure in the provision of training for transferable skills can be 
observed and requires correction. 
• A key weakness of training systems remains the lack of transparency and recognitioK of 
qualifications between Member States. An approach inspired by product standards may be 
required if mutual recognition is to become effective as a means of improving the levels s>nd 
acceptability of qualifications. Systems to ensure that training systems and provision are of 
a high standard need to be developed. An approach similar to that of quality and or 
environmental standards, backed by certification, may be an appropriate route to achieve 
quality control of training. In this context, the work already carried out by bodies such as 
the European Organisation for Quality (EOQ), which has developed a harmonised scheme, 
at European level, for qualification of quality professionals (quality engineers, managers 
8 COM (95) 688 final 20.12.1995 
14 
and auditors), could be of exemplary value. The development of such assessment 
techniques lay the foundation for successful benchmarking of skills. 
Technology 
Europe has not been using its advanced base in science in technology to the best advantage 
and indeed the European research base does appear to be less market oriented than that 
of its major competitors. In addition fewer human resources are devoted to R&D. Scientific 
research personnel represent only 0.47% of the labour force, compared to 0.74% in the 
United States and 0.80% in Japan. The Community Innovation Survey indicates that firms 
that engaged in technical cooperation agreements usually have a substantially larger 
proportion of new or improved products in their total sales. The value, therefore, of linking 
public support of R&D to cooperation, as is the case for European Union programmes for 
R&D, should be stressed. 
Between 1984 and 1993, the European Union lost share in patents, the principal indicator 
of innovating capacity, for all sectors except aerospace and transport equipment. The most 
significant loss took place in electronics, a sector for which R&D is highly intensive and 
which exerts considerable influence on innovation in the rest of industry through 
technology embedded in investment goods. 
Adaptive organisations have become a prerequisite for innovation. Such organisations use 
multi-skilled employees, decentralisation of responsibility and teamwork to achieve the 
integration of different functions within the firm from research, engineering, and production 
to marketing and distribution, based on a project approach. Faster new product 
development depends on the successful integration of functions. Increasingly, suppliers are 
brought into the development process. Changes in management practices are also central to 
the introduction of lean production processes including total quality management, 
continuous incremental improvement (kaizen) and just-in-time production systems. 
Quality 
A number of surveys carried out by Eurobarometer at the request of the Commission, on the 
effect of quality systems on the commercial results of companies, indicate that the 
implementation of quality management strategies generate significant improvements in the 
companies' performance. If Europe has increasingly been assimilating best organisational 
practice developed elsewhere, there are few signs that significant improvements to best 
practice have been made in Europe. 
In order to be effective, efforts to promote quality will need to be integrated into a 
framework for the continued reinforcement of the technical quality infrastructures for 
industrial and economic initiatives. By giving a European tone, framework and sense of 
direction to the various initiatives in the Community, the Commission can help to bring 
awareness to industry and public authorities alike. The Commission can also help, through 
the implementation of the Quality Promotion Policy, to deploy the quality message in its 
various policies by ensuring coherence and integration of the different measures at its 
disposal (e.g. environment, social policy, regional policy,...). 
European Quality Promotion Policy has the primary ambition of constituting above all an 
awareness policy, to give political visibility and support to a European-wide range of 
quality instruments and actions. No public authorities, either national or European, can 
oblige the market place to adopt quality strategies, but they can, by their public 
commitment and by wide dissemination of information and messages, influence the 
environment in which management establish their strategies. A clear political signal can 
heavily influence industrial investment. 
15 
Diffusion 
Everywhere, affiliated or partner companies, clients and suppliers are important 
mechanisms for. the diffusion of innovation. Differences appear however in the linkages 
and interchange between industry and the research system. The German infrastructure, in 
particular the Fraunhofer centres, is often considered exemplary in respect of fostering 
innovation diffusion. 
Innovation systems remain essentially national. Diversity should be seen as a source of 
enrichment in the innovation process. However, fragmentation of effort should be seen as a 
disadvantage. The successful development of the Information Society depends on a much 
faster rate of adoption of new technologies. Even though at the present time diffusion of 
innovation remains primarily a national responsibility, cross border cooperation can 
contribute to mutually beneficial interaction and exchange. Technical cooperation 
agreements both between firms operating in Europe and between these firms and those in 
third countries remain the most effective instrument for developing cross-border diffusion. 
Financing of innovation 
In addition to diffusion, financing of innovatory and high-technology firms remains & 
major problem in Europe, particularly for small and medium sized firms. Innovatory 
projects require considerable funding even before the start of commercial activities, at the 
research phase, the prototype phase, and, in particular, for the start of production. Financing 
is thus required at a stage when potential returns are remote and technological uncertainty 
high. Venture capital in Europe has always neglected the seed capital area, investing only 
7% of total funding in this area. This weakness weighs particularly on the creation of 
innovative and technological firms, which are required to ensure a renewal of the 
productive base and European presence on markets of the future. 
European venture capital industry 
Some of the weaknesses in the European venture capital industry result from the 
underdeveloped nature of pension funds, which are major investors in the United States. 
Another significant weakness lies in the fragmented nature of the market. Investors will 
take positions in high risk projects provided that there are sufficient of them to diversify 
risk. Equally, suitable exit routes for investors must exist. The lack in Europe of an efficient 
low cost financial market for growth stocks similar to the NASDAQ over-the-counter stock 
exchange in the United States means that innovative firms in Europe with strong growth 
potential are denied access to suitable finance, since national markets are incapable of 
providing sufficient depth of projects to diversify risk. A number of recent initiatives 
attempt to address this shortcoming. The EASDAQ market has already begun trading, and 
the Paris and Frankfurt new markets and London AIM market all cater in varying ways to 
the needs of companies which are not covered by existing stock markets. 
16 
IV. BENCHMARKING ' 
The previous sections have set out key areas in which European industry is not performing 
satisfactorily and some of the reasons for this situation. As stated in the Introduction, the 
Commission believes that it has already identified and proposed the key actions which are 
required to address the current competitive situation both at European Union and Member 
State level. However, progress has been slow in implementing those measures and the 
results have yet to be reaped in the form of faster growth, more employment and higher 
productivity. A tool to monitor progress on an on-going basis and assess the situation 
against continuously improving best practice world-wide, could provide the European 
Union with a powerful instrument to strengthen competitiveness. Benchmarking can 
constitute a tool for promoting convergence towards best practice, providing that it is 
clearly related to the essential factors of competitiveness. 
BENCHMARKING FOR COMPETITIVENESS 
Competitive analysis identifies gaps in performance on key dimensions such as 
productivity, growth, costs, investment and innovation. However, competitive analysis does 
little to explain why these differences of performance have occurred and, in some cases, 
remain for many years in spite of widespread access to new technologies, capital and skilled 
human resources amongst developed countries. Benchmarking goes beyond competitive 
analysis by providing an understanding of the processes that create superior performance. It 
first identifies the key areas that need to be benchmarked and the appropriate criteria on 
which to evaluate that area. It then sets out to identify best practice world-wide and to 
measure how those results have been achieved. 
The potential range of benchmarking is very wide. In this Communication a number of 
different possible applications of benchmarking are presented. In each case, the type of 
benchmarking undertaken will depend on the use to which the results of the exercise are to 
be put. Benchmarking for competitiveness has for object to help enterprises, industries and 
public authorities improve their performance on critical dimensions that affect 
competitiveness. 
/. Enterprise benchmarking 
Benchmarking at enterprise level can offer a key instrument for improving competitiveness. 
It remains the primary responsibility of industry to implement such benchmarking and it is 
not the intention of the European Commission to become involved in the benchmarking of 
individual enterprises. However, a number of schemes, both public and private, seek to 
promote benchmarking of enterprises to a wider audience, particularly to small and 
medium sized enterprises that do not have the resources or the experience to undertake 
benchmarking on their own. 
National Programmes for Benchmarking Enterprises 
The Department of Trade and Industry In the United Kingdom has established a National 
Benchmarking Scheme to enable sharing of statistical data and identification of national 
best practice. Member States and private organisations have cso ^a^d b*"ogr -r *ies to 
facilitate the diffusion of environmental b>s>: practices (e _ * UK c, <* *~ i " rfa! 
technology Best Practice Programme), 
17 
The disparate nature and the diverse techniques and processes employed in benchmarking 
for enterprises do not contribute to the proper promotion of the usefulness and effectiveness 
of such quality techniques. Industrial co-operation and networking, which are inherent to 
benchmarking, can be strong instruments for the development of a European way of doing 
things, for the real development of a European quality culture which can strengthen 
European industry internally and help it face up to its external competitors. 
The Commission therefore suggests that Community institutions should recognise the value 
of benchmarking of enterprises in the furtherance of an integrated and competitive market 
and invite all concerned to bring their experiences together into a truly European system 
with clearly visible European processes. This will entail, through co-operation, developing 
European processes out of the various existing ones, comparing practices, setting common 
rules and a common calibration system. It will also entail developing common 
indicators/criteria and a European information network and management system for data. 
2. Benchmarking of sectors 
Benchmarking can also be applied to sectors, for which a significant amount of expertise is 
beginning to emerge. This constitutes a natural extension of enterprise benchmarking in 
that many of the same principles can be applied to that set of enterprises that make up an 
industry and for which similar types of best practice are fundamental for competitiveness. 
The Commission has already underlined the significance of benchmarking for sectors in its 
recent Communications on the automobile and chemical industries. Benchmarking of 
sectors enables the Commission to monitor on a continuing basis the ability of European 
industries to respond to international competition. When applied to the key locational 
factors it provides a lead in to the necessary benchmarking of framework conditions. 
Benchmarking of sectors by the Commission 
The pilot programme for component suppliers to the consumer electronics run in 
conjunction with MITI and industry aims to improve the quality of European based 
suppliers of components through a process of benchmarking against Japanese best practice. 
In its Communication on the European Union Chemical Industry (COM (96) 187 final), the 
Commission states that it "will implement, in cooperation with representatives from the 
European chemical industry a structural follow-up programme, and will closely monitor the 
evolution of the international competitiveness of this sector and the adoption of the various 
measures proposed in the Communication". 
The Commission has begun to benchmark the competitiveness of European manufacturing 
locations for the automotive industry. Information technology is another area in which the 
Commission intends to develop benchmarking. 
3. Benchmarking framework conditions 
Thirdly, benchmarks can be developed to appraise the performance of key elements of 
framework conditions for industry. These enable an evaluation to be made of the 
attractiveness of Europe as a place to do business. The Dutch Ministry of Economic Affairs 
has published a report "Benchmarking the Netherlands: Test of Dutch Competitiveness" 
which demonstrates some of the ways in which benchmarking for framework conditions can 
be undertaken. 
18 
The present Communication has identified a number of key priority areas for performance, 
which may be suitable for benchmarking: 
- Concerning costs, unit labour costs, costs of finance, levels and structure of public 
expenditure, taxation and deficits constitute key elements. 
- Benchmarking can be applied to key inputs for industrial competitiveness as 
requested by the Competitiveness Advisory Group. The Australian Bureau of Industry 
Economics has undertaken pioneering work on benchmarking infrastructure services. It 
has demonstrated the feasibility of benchmarking such inputs and also of identifying key 
reasons for less than adequate performance, some of which depend on the regulatory and 
business framework. Key areas to be benchmarked include price, quality and 
accessibility of service and number of innovatory services provided. Productivity of both 
capital and labour need to be measured in order to establish the underlying causes of 
unsatisfactory performance. As identified above, telecommunications, energy, transport 
and business and financial services are the principal services for which benchmarking is 
required. Closely linked to benchmarking the quality of services is that of infrastructure. 
This is particularly important for transport where much of the efficiency of the service is 
determined by the quality of the infrastructure, whether that be ports, roads, airports and 
traffic control or the rail network. Investment in plant and equipment and intangible 
investment both in education and training and in research will be also be required. 
- One area for benchmarking concerns skills. In the context of its on-going evaluation of 
competitiveness, the United Kingdom has recently published a skills audit which 
represents an approach to benchmarking in this area. The audit is based on qualifications 
rather than skills although coverage is also devoted to the acquisition of basic skills. In 
order to benchmark skills adequately, it is necessary to benchmark the skills actually 
acquired rather than qualifications delivered. It is also necessary to benchmark the 
capacity of education and training systems to deliver a prescribed set of skills. 
- Innovation also represents an area for which benchmarking would be useful. In the 
context of its policy on innovation, the Commission intends to establish a permanent 
monitoring of innovation in Europe and in the world. Benchmarking research, in 
particular research financed by industry itself is an area for which the Union has already 
developed suitable indicators. Research represents an input to innovation rather than an 
output and can provide only a partial view of the extent to which European innovation 
systems are sufficiently competitive. Intellectual property can be benchmarked to a 
certain extent through patent applications and trade marks. Organisational and product 
innovation as well as the capacity of national systems to diffuse innovation are more 
difficult to benchmark. Technology licensing, adoption rates of generic technologies, 
speed to market, and the degree of application of total quality concepts represent 
examples of indicators that might be used to benchmark innovation. 
- Benchmarking of environmental efficiency will be required to ensure that efforts to 
improve competitiveness are not made at the expense of sustainability. Key criteria 
relate to the capacity of the economy to efficiently transform flows of materials into 
goods and services. Suitable indicators in the field of energy efficiency already exist. 
However, benchmarks for other material flows, such as the use of water, which is 
becoming an increasingly rare resource, will need to be developed. Criteria such as 
recycling rates of water can help to measure the efficiency with which the European 
economy in general and European industry in particular is using resources. 
~- Many policy areas affecting competitiveness are either the exclusive or principal 
responsibility of the Member States. A number of product markets, including 
distribution, and labour and capital markets fall under this category. Benchmarking in 
these areas will need to be developed in close cooperation with Member States. The 
Commission is already actively working with Member States on th-.: use of criticn1 
indicators in employment policy. Of particular importance in this context will indicators 
for monitoring progress in promoting positive flexibility both internally within firms 
and externally; 
- Fostering an administrative environment favourable to enterprise is a prerequisite for 
business competitiveness. Some Member States have developed bold strategies of 
administrative simplification. Under the Integrated Programme for SMEs and the Craft 
Sector9, the Commission and the Member States will develop concerted actions where 
benchmarking will play a valuable rôle in promoting best practice in the area of 
administrative simplification. 
There are a number of reasons why the European Union should become involved in 
benchmarking. First, there are a number of policies developed at Union level that influence 
competitiveness, and it is important that their impact should have as positive effect as 
possible. Regular monitoring and evaluation against world best practice and not merely 
against that in Member States is required to ensure that these policies are indeed providing 
the necessary benefits. Secondly, many policies are the responsibilities of Member States 
and their ability to benchmark both against each other and with regard to best practice 
world-wide should be encouraged. Collection of data is both an expensive and time 
consuming process. By pooling their efforts, the Commission and Member States can make 
substantial savings in the benchmarking process. 
The Commission's efforts will be devoted initially to bringing together all the different 
actors to identify which actions are already being undertaken and which need to be treated 
on a priority basis. Based on partenariat between industry, Member States and the 
Commission, a work programme will need to be drawn up in the course of 1997. This work 
programme should include a certain number of pilot projects to test the validity and 
feasibility of the application of benchmarking at European Union level. It should further 
specify how to manage benchmarking on an on-going basis and how to ensure the best 
exploitation of results. 
V. CONCLUSIONS 
The analysis developed in this Communication reveals the urgency of action to promote 
industrial competitiveness and the necessity of a global approach concerning all those 
factors in the business environment which are determining for enterprises. 
1. The Commission invites the Council and the European Parliament to endorse, the 
Commission's analysis of competitiveness, the main points of which are: 
- while the situation of the European economy presents a number of areas of strength, the 
European Union is not exploiting its full potential or meeting the performance of its major 
competitors in terms of living standards, productivity and employment creation, leading to 
idle resources and high rates of unemployment; 
- inadequate performance is also reflected by weak growth in industrial value added, low 
profitability and falling share of exports from developed countries; 
- high costs and low investment, especially intangible investment, combine to depress 
industrial performance; 
9 COM(96) 329 final of 10.07.1996 
20 
public deficits remain too high and expenditure too concentrated on transfers and 
consumption with insufficient levels of public investment in both infrastructure and 
intangible investment. The level of public deficits exerts pressure on interest rates and 
siphons off available savings; 
continue to control state aids with the objective of reducing overall levels of state aid and 
reliance by firms on public support; 
in spite of some very well functioning education and training systems in Europe, lifelong 
learning and permanent upgrading of human resources still has some way to go in order to 
reach the highest levels in most Member States; 
Europe's research base is insufficiently market oriented and close integration with industry 
is needed at the same time as spending on research is insufficient and the take up of new 
technologies is slow; 
the adoption of new technologies remains too slow, particularly in areas relating to the 
Information Society; 
financing of innovation remains a specific problem in Europe; 
quality in all its aspects represents an essential element for improving competitiveness and 
adaptive organisations are required in order to introduce quality management and speed up 
the process of innovation. 
2. The Commission proposes that the Council and the European Parliament support: 
- the value of benchmarking as a tool for identifying the underlying reasons behind poor 
competitive performance and to assist in addressing these weaknesses and the 
Commission's intention over the coming year to bring forward a programme of 
benchmarking on the basis of close consultation with industry and Member States in order 
to track progress in improving competitiveness in key areas. 
- a European Quality Promotion policy which will contribute to reinforcing the 
competitiveness of European enterprises by drawing up a multi-annual European Quality 
Promotion programme of actions, centring in particular on the promotion of self 
assessment, benchmarking, networking of information and the development of European 
quality training programmes and techniques for measuring progress. 
ISSN 0254-1475 
COM(96) 463 final 
DOCUMENTS 
EN 10 17 
Catalogue number : CB-CO-96-501-EN-C 
ISBN 92-78-09915-5 
Office for Official Publications of the European Communities 
L-2985 Luxembourg