Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions - Innovation policy: updating the Union's approach in the context of the Lisbon strategy
Date: 2003-03-11
Institutions: European Commission
Subjects: EU policy, competitiveness, innovation

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 11.3.2003
COM(2003) 112  final

COMMUNICATION FROM THE COMMISSION
TO THE COUNCIL, THE EUROPEAN PARLIAMENT, THE EUROPEAN
ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE
REGIONS

Innovation policy: updating the Union’s approach in the context of the Lisbon strategy

EXECUTIVE SUMMARY

Innovation  is  a  cornerstone  of  the  “Lisbon  strategy”  launched  by  the  European
Council  in  March  2000,  and  emphasised  by  subsequent  European  Councils,  in
particular at Barcelona in 2002.

The present Communication on innovation policy, together with the Communication
on industrial policy in an enlarged Europe and the Green Paper on entrepreneurship,
form a coherent framework for the development of an enterprise policy  that fosters
competitiveness of companies and contributes to the growth of Europe’s economy.

It also constitutes a timely contribution to the Spring European Council to be held on
20-21 March 2003.

While  recognising  that  research  is  a  major  contributor  to  innovation,  and  the
importance of the recent Communication “More research for Europe, towards 3% of
GDP”, the Communication highlights that there are many other forms of innovation.

Innovation  can  be  incremental  or  radical,  it  can  result  from  technology  transfer  or
through  the  development  of  new  business  concepts,  it  can  be  technological,
organisational or presentational.

The  object  of  the  Communication  is  firstly  to  describe  the  diverse  routes  to
innovation and analyse the consequences for the design of innovation policy and for
the different means by which innovation policy is put into action, so that they are not
hampered by a view of innovation which is too restrictive.

This analysis is complemented by examination of the current challenges that are, to
different  degrees,  specific  to  the  EU,  recognising  that  structures,  problems  and
opportunities  relating  to  innovation  are  not  necessarily  the  same  in  all  the  world’s
major  economic  areas.  Factors  considered  include  the  persistently  inadequate
performance of the Union, the implications of enlargement, demographic trends, and
the large size of the public sector in EU economies.

While  innovation  policy  takes  place  mostly  at  the  national  and  regional  levels,  the
Member  States  and  the  Commission  need  to  intensify  their  cooperation  for  the
strengthening  of  innovation  in  the  EU,  including  coordination  and  assessment
mechanisms  for  mutual  learning,  as  well  as  for  taking  stock  of  progress  achieved.
The  Communication  makes  concrete  proposals  on  how  to  turn  European  diversity
into a strength.

The Communication also suggests several new directions  for  EU  innovation  policy
development and, in particular, interaction with other policy areas. Innovation policy
must often be implemented via other policies, and the Communication suggests, inter
alia, better coordination and a pro-active follow-up by the Commission and Member
States.

The conclusion provides a summary of the main measures proposed to be executed
by the Member States, the Commission and in cooperation between both.

2

TABLE OF CONTENTS

1.

2.

2.1.

2.2.

3.

4.

4.1.

4.2.

4.3.

4.4.

5.

6.

6.1.

6.2.

6.3.

6.4.

7.

Introduction................................................................................................................ 4

Updating the concept of innovation: the multidimensional nature of the
innovation phenomenon and the implications for policy ....................................... 5

The diverse routes to innovation.................................................................................. 5

Implications for policy ................................................................................................. 7

The field of action of innovation policy.................................................................... 8

Current challenges for EU innovation policy ........................................................ 10

Inadequate performance ............................................................................................. 10

Enlargement ............................................................................................................... 11

Skills shortages .......................................................................................................... 11

Specific features of the Union’s economic and social setting.................................... 12

A coordinated framework for innovation policy in the EU context .................... 13

New directions for European innovation policy development ............................. 15

Interaction with other policy areas to improve the environment for innovative
enterprises .................................................................................................................. 15

Stimulate greater market dynamism and exploit the concept of lead markets........... 18

Promote innovation in the public sector .................................................................... 19

Strengthen the regional dimension of innovation policy ........................................... 20

Conclusions ............................................................................................................... 21

Annex 1

Innobarometer 2002 .................................................................................... 24

Annex 2

Summary of current EU activities to promote innovation ...................... 26

3

1. 

INTRODUCTION

Achieving  an  innovation  performance  that  makes  the  European  Union  a  world
reference  for  innovation  represents  an  enormous  opportunity  that  can  translate  into
raised  living  standards  over  the  coming  years.  Progress  towards  such  a  more
innovative European economy is however proving tentative and fragile.

Enhancing innovation is a cornerstone of the strategy to meet the target agreed by the
European  Council  in  Lisbon  in  March  2000  of  the  Union  becoming  the  most
competitive and dynamic knowledge-based economy by the  end  of the  decade. Yet
the Commission’s 2003 Spring Report1, which assesses progress towards the Lisbon
goal,  stresses  that  much  remains  to  be  done,  particularly  in  the  area  of  knowledge
and  innovation  signalled  as  the  central  priority  for  the  coming  year  in  taking  the
Lisbon strategy forward.

This  finding  is  also  reflected  in  the  Commission’s  2002  innovation  scoreboard2,
which  shows  that  the  innovation  performance  of  the  Union  remains  low  in
comparison with the United States and Japan.

Insufficient  innovative  activity  has  already  been  cited  by  the  Commission  as  a  key
factor  behind  Europe’s  underperformance  in  productivity  growth3.  The  positive
trends  revealed  by  the  scoreboard  are  welcome  but  not  sufficient  to  allow  us  to  be
confident of attaining the Lisbon target within the planned timetable.

A  similar  picture  emerges  from  the  Global  Competitiveness  Report4.  With  a  wider
coverage of non-European countries than the scoreboard, it shows most EU Member
States  outpaced  in  innovation  performance  by  several  countries  in  addition  to  the
United States and Japan.

With  three  years  already  passed  of  the  ten  set  by  the  Lisbon  timetable,  the  Union
must review its attitudes and approaches to innovation.

R&D  is  an  essential  factor  for  long-term  growth  and  European  prosperity.  The
Union’s  relatively  low  expenditure  on  R&D  explains  part  of  Europe’s  innovation
weakness, and has recently been addressed by the Communication More research for
Europe. Towards 3% of GDP5.

Important  though  research  is  as  the  source  of  invention,  innovation  encompasses
more  than  the  successful  application  of  research  results.  The  evolution  of  the
innovation concept - from the linear model having R&D as the starting point to the
systemic  model  in  which  innovation  arises  from  complex  interactions  between
individuals,  organisations  and  their  operating  environment  -  demonstrates  that
innovation policies must extend their focus beyond the link with research.

1

2

3

4

5

COM(2003) 5
SEC(2002) 1349. The European innovation scoreboard has been published annually by the Commission
since the Lisbon European Council.
Productivity: The Key to Competitiveness of European Economies and Enterprises, COM(2002) 262
Global Competitiveness Report 2002-2003, World Economic Forum
COM(2002)  499.  See  also  The  2002  Broad  Economic  Policy  Guidelines,  European  Economy  No  4,
Office for Official Publications of the EC, 2002

4

                                                
The  design  of  public  policy  to  encourage  and  support  a  larger,  more  effective  and
more successful population of innovative enterprises, including SMEs, is at present
based on a perception of innovation that remains rather narrow.

The Union must recognise the full scope of the innovation phenomenon. In order to
identify  whether,  and  how,  public  policy  should  address  weaknesses  in  the
innovation  system  in  Europe  it  must  develop  a  better  understanding  of  the
mechanisms of innovation in the European context.

The  Union  must  ask  questions  such  as  why  progress  in  matching  the  innovation
performance  of  the  world  leaders  is  proving  so  slow,  are  European  framework
conditions hindering the conversion of skills and knowledge into innovation, and is
the  process  of  innovation  in  the  European  context  properly  understood.  It  must
investigate whether there are actions that could be taken at European level that would
have a major leverage effect on the Union’s innovation performance. It must identify
effective responses, and implement them.

This  Communication  initiates  such  an  assessment,  as  a  start  to  the  process  of
updating the basis for European innovation policy and giving  a  new  impetus  to the
drive for innovation to help realise the Lisbon objectives. This must be founded on a
renewed  political  willingness  by  Member  States  to  tackle  the  obstacles  to  a  more
innovative Europe, a willingness which Member States recently showed in reaching
a  common  political  approach  on  the  Community  patent  at  the  Competitiveness
Council of 3 March 2003.

2. 

UPDATING  THE  CONCEPT  OF  INNOVATION:  THE  MULTIDIMENSIONAL  NATURE  OF
THE INNOVATION PHENOMENON AND THE IMPLICATIONS FOR POLICY

6

A  concise  definition  of  innovation  is  “the  successful  production,  assimilation  and
exploitation of novelty in the economic and social spheres”7.

Since it is through enterprises that the economic benefit of the successful exploitation
of  novelty  is  captured,  the  enterprise  is  at  the  heart  of  the  innovation  process.
Innovation  policy  must  have  its  ultimate  effect  on  enterprises:  their  behaviour,
capabilities, and operating environment.

2.1. 

The diverse routes to innovation

Enterprises are spurred to innovate by pressures and challenges, notably competition
and the desire to create new market space.

The novelty that is essential to innovation may arise in several ways.

6

7

Some  of  the  issues  examined  in  this  and  subsequent  sections  are  considered  in  more  detail  in  the
Commission  publication  Future  directions  of  innovation  policy  in  Europe.  Proceedings  of  the
Innovation Policy Workshop held in Brussels on 11 July 2002, Innovation papers No 31, 2003
See  COM(1995)  688,  which  also  presents  a  more  detailed  definition:  “innovation  is  the  renewal  and
enlargement of the range of products and services and the associated markets; the establishment of new
methods  of  production,  supply  and  distribution;  the  introduction  of  changes  in  management,  work
organization, and the working conditions and skills of the workforce.” These definitions continue to be
a  valid  basis  for  our  approach  to  innovation  policy,  and  are  consistent  with  the  Lisbon  European
Council’s perception of the importance of innovation to competitiveness.

5

                                                
– 

– 

– 

– 

It may be in the form of an invention. Exploitation of invention arising out of
the research laboratory is an important, and much studied, route to innovation.
Research  is  a  major  contributor  to  innovation,  generating  a  flow  of  technical
ideas and continually renewing the pool of technical skills.

An enterprise may innovate by taking an idea from another business sector and
adapting it for use in its own production processes or market. Examples are the
use  in  the  automobile  industry  of  high  performance  materials  originally
developed for aerospace  applications,  or  the  spread  of  computer-aided  design
into the textile and garment industries.  Innovation may  proceed  as  a  series of
small steps - incremental innovation – as enterprises find ways to update their
products and processes. Entrepreneurs are impelled to innovate as  a  means to
react to an innovative competitor, using their creativity to attempt to outdo the
competition.

The search for new, untapped, market space is another driving force. This may
rely  on  technological  innovation,  or  on  reconfiguring  existing  products  and
services so as to present a radical change that will be perceived by customers as
offering  more  or  better  value  (“value  innovation”).  The  “reinvention”  of  the
wristwatch  as  a  low-cost  fashion  accessory  is  an  example  of  this  form  of
innovation that was not technologically demanding.

It  may  be  through  introduction  of  a  comprehensively  new  approach  to  a
business,  such  as  the  new  business  models  of  on-line  retailers,  with  the
objective  of  creating  new  market  space,  or  increasing  profitability  in  an
existing market.

Competition through innovation appears to be as important as price competition as a
reaction by enterprises to market pressures.  In many  business sectors, an  enterprise
that  allows  itself  to  lag  behind  in  the  race  to  generate  new  or  improved  goods  and
services, and better ways to produce or run them, is putting its future on the line. In
such fast-moving sectors it is the new enterprises with growth potential that are often
the  most  innovative,  forcing  established  enterprises  to  respond  to  the  challenge  by
themselves becoming more innovative. Encouraging the emergence of new firms is a
strong force for innovation in many sectors.

While  research  is  a  major  contributor  to  innovation,  if  there  is  no  entrepreneurial
action  there  is  no  value  creation.  It  is  the  enterprise  that  organises  the  creation  of
value.  With  the  shortening  of  product  cycles,  enterprises  face  the  need  for  more
capital-intensive  investment  and  must  put  more  emphasis  on  the  ability  to  react
quickly.  For  enterprises,  innovation  is  a  crucial  means  to  create  competitive
advantage and superior customer value. Except for certain types of technology-based
enterprises,  the  focus  is  not  on  technological  aspects  of  new  product  development,
but on innovative ways to improve their position in the market.

Thus, in addition to the term technological innovation, covering innovation derived
from  research,  further  classifications  may  be  identified.  Organisational  innovation
reflects the recognition that new ways of organising work in areas such as workforce
management (such as positive action to involve all employees in order to make work
finance,
organisation  a  collective 
manufacturing, etc can have a positive influence on competitiveness. This term may
also include business model innovation. Presentational innovation is beginning to be

innovation),  distribution, 

resource 

for 

6

used  as  a  comprehensive  term  to  cover  innovation  in  areas  such  as  design  and
marketing.

The  speed  and  efficiency  of  the  diffusion  of  innovation  through  the  economy  is
critical to productivity and economic growth. It can be pictured as a cascade process.
Through the forces  of  competition and imitation, an  initial  innovation  is  developed
and  improved  so  that  the  impact  on  the  economy  is  many  times  greater  than  that
brought  about  by  the  first  application  of  the  innovation.  The  process  requires  the
constant reallocation of resources to activities that lead to more efficiency or greater
economic value, so that the occupational and geographical mobility of the workforce
is an important factor for innovation.

Leaders  in  technology  development  are  not  necessarily  leaders  in  technology
adoption. The most important economic contribution does not necessarily come from
the  “early  adopter”  but  from  the  “fast  follower”  who  adopts  the  innovative  design
that captures the international market.

2.2. 

Implications for policy

These  considerations  demonstrate  the  diversity  of  innovation  and  the  resulting
difficulty in modelling the processes by which innovation happens.

Descriptions of the innovation process – firstly linear models, later evolving into the
current  systemic  view  –  position  R&D  as  either  the  initiating  or  decisive  factor.
Although it is the systemic model that now dominates in policy discussions8, many
measures  put  into  practice  with  the  intention  to  promote  innovation  still  appear  to
owe more to the linear view.

These  models  help  us  understand  the  special  case  of  technological  innovation,  and
justify  concern  over  the  relatively  low  expenditure  on  R&D  in  the  Union9.
Furthermore, the progression to the systemic view marks a growing appreciation of
the  many  factors and linkages influencing the innovation process.  But the systemic
model has yet to be fully reflected in the way that innovation policy is devised and
implemented, and has to be developed so as to offer an understanding of other forms
of innovation to complement our knowledge of technological innovation.

These  models  also  colour  measurements  of  the  innovation  process  and  innovation
performance,  which  are  usually  biased 
technological
innovation.  Capacities  and  performance  in  non-technological  forms  of  innovation,
and market factors, are at present less well captured by innovation statistics, and less
subject to analysis, than innovation linked to research. This may partly explain why
some countries’ data showing excellent innovation performance are not matched by
equally visible evidence of strong economic growth.

indicators  of 

towards 

It is eminently conceivable that weaknesses in organisational, presentational, value-
added  and  business  model  innovation  are  as  relevant  to  the  slow  pace  of  progress
towards the Lisbon goals as is the evidently low level of R&D spending.

8

9

Managing national innovation systems, OECD, 1999
See the Commission’s Communication More research for Europe. Towards 3% of GDP, COM(2002)
499.

7

                                                
Enterprises  must  become  better  at  adapting  to  and  taking  advantage  of  change,
regularly  renewing  and  redirecting  their  activities,  and  showing  a  stronger
entrepreneurial orientation.

The Union must recognise the full scope of the innovation phenomenon and develop
a  better  knowledge  of  how  it  works  in  the  European  environment  in  order  to  put
public policy on a firm foundation.

3. 

THE FIELD OF ACTION OF INNOVATION POLICY

As  the  motive  force  for  innovation,  the  enterprise  operates  amid  an  array  of
influencing factors subject to manipulation, to varying degrees, by public policy.

– 

Innovation  is  founded  on  the  enterprise’s  ability  to  recognise  market
opportunities,  its  internal  capabilities  to  respond  innovatively,  and  its
knowledge base.

There  must  be  a  strong  entrepreneurial  orientation  among  management  and
staff if enterprises are to show this kind of  dynamic capability.  Policy  should
help  to  promote  entrepreneurial  behaviour,  for  example  by  pointing  to  role
models and by offering specific forms of training.

Entrepreneurship  is  first  and  foremost  a  mindset,  as  pointed  out  in  the
Commission’s Green Paper Entrepreneurship in Europe10 in discussing policy
options for boosting European levels of entrepreneurship. The vast majority of
new  businesses  set  up  by  entrepreneurs  are  however  very  similar  to  already
existing businesses: no novelty is created11. For entrepreneurship to contribute
to competitiveness, by creating firms that grow and provide more quality jobs,
a special highly-developed form of entrepreneurial drive must be encouraged.

– 

Closely linked is the enterprise’s immediate operating environment, providing
a set of interactions with other enterprises, organisations and public bodies that
are  essential  for  innovation.  Factors  such  as  the  shortening  of  product  life
cycles and the  combination of several technologies within a single product or
service  mean  that  the  innovating  enterprise  increasingly  depends  on  external
inputs,  in  the  form  of  skills,  advice,  proprietary  technologies,  cooperation
networks, etc. Considerations of this nature are behind the growing importance
in  support  of  clusters  –  geographic  concentrations  of
of  policies 
complementary,  interdependent,  yet  competing  enterprises,  their  suppliers,
service providers and associated institutions (see Chapter 6.4).

–  Market demand, market conditions and customer attitudes are strong influences

on the innovation behaviour of enterprises

– 

Framework  conditions  govern  the  overall  environment  which  enterprises
operate  in,  affecting  their  propensity  to  innovate.  Innovation  requires  highly
competitive  markets,  well  functioning  capital  markets  (including  venture

10

11

COM(2003) 27
Global Entrepreneurship Monitor, 2002 Summary Report. 93% of entrepreneurs consider their business
to be a replication of existing business activity.

8

                                                
– 

– 

capital), a supportive regulatory environment, and flexible, mobile and skilled
human resources.

The knowledge base, as the source of solutions to problems that the enterprise
cannot resolve from its internal resources, is a critical aspect of the framework
conditions.

So  are  education  and  training,  contributing  to  attitudes  to  innovation  and
providing the skills required by the innovative enterprise. The knowledge  and
learning capacities of people are instrumental for innovation processes, as are
their powers of creativity, initiative and drive, determining to a large extent the
innovation capability of organisations.

A  recent  Innobarometer  survey  presents  the  views  of  business  managers  on  the
current environment for innovative enterprises (see Annex 1).

There are three main “dimensions” to the policies impacting on these components of
the  innovation  terrain.  They  also  figure  as  factors  to  be  taken  into  consideration  in
the debate on industrial policy in an enlarged Europe12. Policies to foster innovation
and entrepreneurship share common ground with industrial policy and, if successful,
generate  the  constant  renewal  that  enables  industry  to  outperform  in  growth  and
competitiveness.

Firstly,  the  “policy  governance”  dimension:  policy  influencing  the  innovation
capabilities and behaviour of enterprises may be set at local, regional, national, EU
or even global level. Coherence and complementarity between the different levels is
clearly essential.

Secondly, the sectoral dimension: many factors affecting innovation are common to
all  industrial  sectors,  although  their  relative  weight  will  differ  according  to  the
characteristics  of  each  sector.  Some  sectors,  however,  such  as  information  and
communication  technologies,  the  textile  industry  and  biotechnology,  have  highly
specific  characteristics  and  therefore  face  specific  issues  that  may  require  a  policy
response.

Thirdly,  interaction  with  other  policy  areas:  innovation  policy  must  often  be
implemented via other policies, to take account of the diversity of factors influencing
innovation  by  enterprises.  Innovation  concepts  must  be  increasingly  embedded  in
many policy areas13.

These multiple dimensions confirm the ubiquitous nature of innovation policy. This
characteristic  is  the  main  obstacle  to  effective  policy  –  because  innovation  is
everywhere, it is nowhere. Public administrations often show too much conservatism
in their processes for innovation policy development, by rigid adherence to orthodox
definitions of departmental “territory”. Dealing with a policy without a well-defined
“territory” or an administrative home is a major challenge.

12

13

COM(2002) 714
Examples are presented under point 6.1

9

                                                
The  Union  must  seek  to  build  on  this  multidimensional  framework  of  innovation
policy  and,  on  this  basis,  define  clear  objectives  and  priorities  that  will  have  a
positive leverage effect on innovation performance throughout the Union.

4. 

CURRENT CHALLENGES FOR EU INNOVATION POLICY

The  scope  of  the  innovation  phenomenon  and  the  ubiquitous  nature  of  innovation
policy  are  not  the  only  challenges  faced  by  European  innovation  policy.  The
economic, social and political context poses equally significant challenges for policy
makers.  The  Union’s  structures,  problems  and  opportunities  relating  to  innovation
are not necessarily the same as those encountered in other major economic areas of
the world.

4.1. 

Inadequate performance

The dominant challenge is the inadequate innovation performance of the Union as a
whole.

Many  states  that  compete  strongly  with  the  Union  in  global  markets  are
implementing  strategies  to  boost  innovation  that  have  much  in  common  with  the
Lisbon  strategy.  The  EU  will  have  to  work  hard  just  to  retain  its  present  relative
position. To attain the Lisbon goal of being the most competitive requires us to step
up a gear.

Above  all,  the  resistance  to  structural  change  that  is  frequently  encountered  in
Europe  must  be  overcome  when  it  stands  as  an  obstacle  to  innovation,  especially
when change is resisted merely because it challenges existing procedures that people
have become accustomed to14.

The  innovation  performance  of  Member  States,  Candidate  Countries  and  certain
other  European  States,  and  of  the  Union  as  a  whole,  is  measured  by  the
Commission’s  European  innovation  scoreboard.  It  demonstrates  the  weaknesses  in
the Union’s position relative to the United States and Japan.

There  are  nonetheless  some  encouraging  features  of  Europe’s  innovation  profile.
Both  the  2001  and  2002  scoreboards15,16  show  that  for  many  innovation  indicators
the leading countries of the Union are ahead of the United States and Japan17. Both
scoreboards  also  demonstrate  the  wide  variety  of  innovation  performance  in  the
Union,  and  possible  diverging  trends  between  Member  States  for  some  innovation
indicators. These considerations highlight the potential for exchange of good practice

14

15

16

17

See the Commission’s Spring Report 2003 (COM(2003) 5) which identifies key priorities for the next
twelve months within the decade-long Lisbon strategy. Many of these focus on completing the process
of structural reforms of labour, capital, goods and service markets and improving the regulatory climate
for business.
SEC(2002) 1349
SEC(2001) 1414
It must be borne in mind, however, that the European innovation scoreboard focuses on high technology
innovation. Although it includes indicators for the diffusion of innovation, these are not fully adequate
to capture innovation through the purchase of advanced manufacturing technology or the development
of new  methods  of  production  and  delivery,  as  occurs  in  sectors  characterised  as  “low”  or  “medium-
low” technology (see SEC(2002) 1349). A further challenge for the Union, therefore, is to develop an
innovation scoreboard with a more satisfactory coverage of innovation in all its forms.

10

                                                
and  experience  within  the  Union  using  the  “open  coordination  method”  defined  at
the Lisbon European Council, and the challenge of capitalising on this potential.

4.2. 

Enlargement

Enlargement will significantly change the Union’s innovation profile. The available
evidence points to strong disparities in the innovation frameworks and performance
of  Candidate  Countries  compared  to  Member  States.  On  the  one  hand,  people  and
companies  in  the  Candidate  Countries  have  shown  a  remarkable  capacity  to
transform  their  economies.  This  also  reflects  a  taste  for  innovation  which  will  be
beneficial  for  the  enlarging  EU.  On  the  other  hand,  the  existing  obstacles  to
innovation  in  Candidate  Countries  must  be  directly  addressed  to  raise  the
performance  of  the  enlarged  Union,  making  a  further  challenge  to  the  open
coordination method.

Many  of  the  challenges  faced  by  the  Candidate  Countries  are  similar  to  those  in
Member States, although often more acute: risk aversion, under-investment in R&D,
limited research-industry cooperation, etc. Others are more specific to the Candidate
Countries. The legacies of centrally-planned economies have left their mark, not only
on their economic but also on their institutional, educational and social frameworks.
The  absence  of  fully-fledged  innovation  policies,  lack  of  coordination  between
policy areas having a bearing on innovation, limited human and financial resources
for implementation of innovation initiatives, as well  as  weak  financial  systems  and
limited  capacity  among  firms  for  absorption  and  application  of  knowledge  and  for
networking,  all  constitute  significant  challenges  to  a  strengthening  of  innovation
capacity and will need proper policy responses by the EU18.

Necessity entrepreneurship – a term that describes those who start a business because
they cannot find alternative forms of employment – is rare in several Member States
but  may  play  a  more important role in  Candidate Countries.  It  is  important  to  note
that many who are forced to become necessity entrepreneurs are well-informed and
creative, and they include entrepreneurs creating new markets.

Innovation  requires  that  entrepreneurship  be  encouraged  in  Member  States  and
Candidate  Countries,  by  policies  that  take  into  account  the  different  patterns  of
entrepreneurship that are pertinent in different countries and regions.

4.3. 

Skills shortages

Real  wealth  –  in  terms  of  economic  performance,  industrial  competitiveness  and
employment – comes not from the production of material goods alone, but from the
production, transformation and exploitation of knowledge. Especially in the context
of the increasing role played by the service sector in economic activity, knowledge is
of fundamental and strategic importance for innovation.

The skills of their staff are fundamental to enterprises’ capacity to obtain knowledge
and to use it to innovate. Shortages arise  within the Union of certain specific  skills
relevant  to  the  innovation  process.  Examples  are  to  be  found  in  the  periodically
recurring  mismatches  between  labour  supply  and  demand  for  specialist  skills  in

18

See  Innovation  Papers  No  16,  and  further  papers  to  be  published  in  this  series,  on  innovation  policy
issues in Candidate Countries

11

                                                
information  and  communication  technologies,  or,  among  venture  capital  operators,
for  the  ever-changing  specific  skills  needed  to  assess  and  manage  investments  in
innovative enterprises in new technological fields.

Innovation  also  requires  the  widespread  acquisition  of  more  general  skills.
Entrepreneurship  skills  must  become  more  common  than  at  present,  as  must  the
skills to thrive in new and changing work situations.

Demographic trends in Europe mean that enterprises will tend to have proportionally
more older staff. In most Member States, the working age population (15-64  years)
will stop increasing before 2012.

This  trend  will  have  to  be  taken  into  account  in  work  organisation  and  in  human
resources policies. The organisation  of  work  must  provide  opportunities  adapted  to
the last phase of working life encompassing flexible working time arrangements and
participation  in  training,  for  example.  Methods  will  have  to  be  addressed  to
continually  update  skills  and  knowledge  and  to  ensure  good  cooperation  between
staff of different  ages, drawing the benefits  of the  skills of the various  generations.
Social partners at  all levels should work towards  a framework  which  facilitates  the
modernisation  of  work  organisation  in  a  way  which  contributes  to  developing  the
skills  of  all  age  groups  and  to  prolonging  the  contribution  of  older  workers  to
economic activity.

4.4. 

Specific features of the Union’s economic and social setting

Several further specific features of the European Union have an important bearing on
innovation policy development, for instance:

– 

The large size of the public sector in Member State economies means it should
be  heavily  involved  in  the  campaign  to  boost  innovation.  As  a  major  user  of
products and services that enterprises provide, the public sector  is  in  a  strong
position to encourage innovation among enterprises.

Public  authorities,  as  providers  of  advisory  and  support  services,  and  as
implementers of regulatory and administrative rules, have many interfaces with
innovating  enterprises.  Well-designed  services,  operated  in  an  efficient
manner,  contribute  to  a  good  climate  for  innovation,  as  does  timely  and
efficient implementation of rules.

–  Most  Europeans  live  in  metropolitan  areas.  In  regenerating  our  cities,  we
should build on their capacities in the provision of knowledge, skills, a highly
qualified  work  force  and  geographical  links  to  turn  them  into  foci  of
innovation.  Cities  aspiring  to  become  centres  for  innovation  must  make
themselves attractive not only to companies but also to talented individuals19.
This means welcoming innovative newcomers, including foreign-born workers
who often bring in new ideas and a new spirit of enterprise. Plenty of jobs must
be  available:  many  talented  people  will  not  move  to  a  new  city  without
reasonable  assurance  of  finding  another  job  there  when  the  first  job  ends  or

19

Competing in the Age of Talent: Quality of Place and the New Economy. R. Florida. A report prepared
for the R.K.Mellon Foundation, Heinz Endowments, and Sustainable Pittsburgh, 2000

12

                                                
when  they  want  to  move  on.  Cities  must  also  offer  a  variety  of  lifestyles  to
attract and retain innovative talent.

– 

European  diversity  brings  with  it  different  aspirations  and  attitudes  to
innovation  that  have  to  be  respected.  Attitudes  are  especially  likely  to  be
nuanced  when  innovative  developments  have  a  social  impact.  The  full  and
genuine  participation  of  all  stakeholders  in  the  innovation  process,  including
the public at large, needs to be ensured.

In brief, the challenge is to develop a specifically European approach to innovation
policy that will constitute a path to improved economic growth.

5. 

A COORDINATED FRAMEWORK FOR INNOVATION POLICY IN THE EU CONTEXT

Through  the  specific  innovation  promoting  programmes  of  successive  EU  research
framework  programmes,  notable  progress  has  been  made  in  linking  national
innovation  systems.  European-level  networking  of  key  players  in  the  innovation
process  is  in  place,  and  services  are  offered  to  further  transnational  technology
transfer. A mutual learning process for policy makers, and the information collection
and analysis that it relies on, has been set up. These activities, summarised in Annex
2, continue under the current Sixth Framework Programme (2002-2006).

It also goes a step further than previous research framework programmes in placing
squarely  on  the  beneficiaries  of  research  funding  the  responsibility  to  generate
innovation  from  their  EU-funded  activities.  This  obligation  is  especially  clear  and
strong  in  the  case  of  integrated  projects,  and  research  to  boost  the  technological
capacities of SMEs.

The substantial progress in managing the link between research and innovation, and
integrating innovation promotion in EU research policy, should be complemented by
examination  of  other  policy  interfaces  at  EU  level  relevant  to  the  climate  for
innovation by enterprises.

innovation:  (1) Coherence  of 

in  a  knowledge-driven
The  Commission’s  2000  Communication  Innovation 
economy20  identified  five  priorities  to  steer  Member  State  and  EU-level  actions  to
promote 
innovation  policies,  (2) A  regulatory
framework  conducive  to  innovation,  (3) Encourage  the  creation  and  growth  of
innovative  enterprises, (4)  Improve  key  interfaces  in  the  innovation  system,  and
(5) A  society  open 
this
innovation.  An  account  of 
Communication  by  Member  States  is  published  in  the  report  Innovation  policy  in
Europe, 200221.

the  follow-up  of 

to 

These  priorities  continue  to  be  valid  today.  The  preceding  analysis  demonstrates,
however,  that  a  further  enhancement  of  our  efforts  to  encourage  innovation  is
required. This should take account of the broad scope of the innovation phenomenon,
the  diversity  of  public  policies  that  have  an  influence,  or  have  the  potential  for
influence,  on  innovation  performance,  and  the  specific  nature  of  the  European
context.

20

21

COM(2000) 567
Innovation papers No 29, European Commission, 2003

13

                                                
Member  States  and  the  EU  institutions  must  respond.  The  main  elements  of  a
coordinated framework are as follows.

–  Member States  must build and strengthen their national innovation strategies,
adopting  an  approach  that  is  well  coordinated  across  all  government
departments with areas of responsibility having a bearing on the conditions for
innovation. Coordination  should take place at  a  high  political level, to ensure
the  maximum  commitment  from  the  departments  involved,  and  will  require
administrative support from a “light” central structure.

– 

– 

– 

In  Finland,  for  example,  the  Science  and  Technology  Policy  Council  is
responsible  for  the  strategic  development  and  coordination  of  science  and
technology  policy  as  well  as  of  the  national  innovation  system  as  a  whole.
Chaired  by  the  Prime  Minister,  it  comprises  seven  other  ministers  and  ten
members representing stakeholders in innovation. Another example of such an
“innovation council” structure is in Portugal, where the government has set up
PROINOV,  the  Integrated  Programme  for  Innovation,  with  a  coordination
structure  involving  five  ministries  dealing  with  policies  related  to  innovation
under the chairmanship of the Prime Minister.

Systemic policy-making is also the main challenge at EU level. In the Council
of the EU, in 2002 the former Internal Market, Industry and Research Councils
were  merged  into  a  new  Council  configuration  called  the  Competitiveness
Council. This important development offers scope, yet to be fully explored and
exploited, for better integration of research, innovation and competition policy.
Within  the  Commission  there  are  regular  meetings  of  the  Group  of
Commissioners  on  Growth,  Competitiveness,  Employment  and  Sustainable
Development,  offering  even  broader  scope  for  a  systemic  basis  to  design  of
innovation policy.

EU institutions and Member States must together  ensure that mechanisms are
in  place  for  “vertical”  coordination,  so  that  policies  interlock  at  EU,  national
and regional levels. Member State prerogatives in building their own national
innovation  systems  must  be  preserved.  A  common  framework  for  overall
coordination  and  coherence  must  however  be  present  with  the  objective  of
assisting national systems in extracting the maximum possible benefit from the
European dimension. It must also work to reduce the innovation divide within
the  Union,  including  within  the  context  of  enlargement,  at  the  same  time
contributing  to  a  major  improvement  in  the  performance  of  the  Union  as  a
whole.

Efforts  at  Member  State  and  EU-level  must  be  supported  by  upgrading  of
knowledge  on  innovation,  innovation  systems  and  innovation  performance,
through  improved  statistics on innovation and through  analysis. For  example,
data  collection  and  analysis  should  take  account  of  the  different  routes  to
innovation  and  the  importance  of  diffusion.  Member  States  should  consider
setting  targets  for  some  indicators  as  a  means  to  help  mark  progress  towards
achievement of specific national objectives.

National  statistical  offices  should  be  encouraged  in  their  efforts  in  collecting
and  providing  comparable  statistical  data  in  the  area  of  innovation.  The
Commission  will  increase  the  coherence  of  the  various  ongoing  policy

14

benchmarking exercises that fall under the competence of the Competitiveness
Council  (European  innovation  scoreboard,  enterprise  scoreboard,  science  and
technology  key  figures).  Improved  innovation  statistics  also  have  to  be
coherent with international standards in order to allow meaningful comparisons
with other major economic areas in the world.

This work should lead to a better understanding of the main factors influencing
the performance of national innovation systems in Europe, and identification of
actions with a major leverage effect on these factors that could appropriately be
put in hand at European level.

This framework must be backed by a number of supporting measures:

– 

Existing  processes  enabling  Member  States  to  learn  from  each  other’s
experience  in  innovation  policy  development  and  implementation  will  be
strengthened. An improved framework for the mutual learning process will be
built on the existing European forum for benchmarking and exchange of good
practice  in  innovation  policy22,  and  on  the  Group  of  Senior  Officials  from
Member and Associate States that assists the Commission in these activities.

–  Within  this  mutual  learning  process,  a  pilot  initiative  will  be  launched  to
facilitate  smooth  convergence 
the  design  and
implementation of programmes, schemes and specialised support agencies for
the promotion of innovation.

towards  excellence 

in 

The  pilot  initiative  will  offer  support  for  independent  evaluations,  on  a
voluntary  basis,  of  such  programmes,  schemes  and  agencies  with  a  view  to
identification  of  the  most  effective  methodologies  for  innovation  promotion
among the many public-supported measures in place within Member States.

– 

Also  included  will  be  the  establishment  of  a  platform  for  exchange  of
information  and  experience  specifically  focused  on  the  innovation  profile  of
Candidate  Countries,  to  support  them  in  rapidly  developing  their  frameworks
for innovation.

6. 

NEW DIRECTIONS FOR EUROPEAN INNOVATION POLICY DEVELOPMENT

To complement this overall framework, several new directions should be addressed
as routes towards improved innovation performance.

6.1. 

Interaction with  other  policy  areas  to  improve  the  environment  for  innovative
enterprises

The  means  to  take  the  innovation  imperative  into  account  in  other  Community
policies  will  be  further  developed.  Building  on  analysis  to  establish  a  better
understanding  of  the  interfaces  with,  for  example,  competition,  trade,  employment,
regional and environmental policies, the  objective is  to systematically  consider  and

22

This framework, the Trend Chart on Innovation in Europe, includes the collection, updating, analysis
and dissemination of innovation policies and performance at national and EU level. One component is
the annual European Innovation Scoreboard.

15

                                                
take  account  of  the  potential  impact  on  Europe’s  innovation  performance  of
legislative and policy initiatives.

Awareness and understanding of the relationships that come into play at the various
policy interfaces is essential. As examples of the diversity of issues that will need to
be considered:

– 

– 

– 

– 

Competition  policy  is  clearly  important  since  competition  is  one  of  the  main
drivers of innovation. From the perspective of innovation policy it is important
to distinguish the different forms competition can take. Innovative products, for
example,  are  more  likely  to  arise  where  there  is  sophisticated  consumer
demand  than  to  be  the  fruit  of  competition  merely  on  price.  The  effects  of
competition and cooperation on innovation are increasingly being recognised.
Enterprises  that  are  effective  innovators  are  often  those  that  participate  in
networks  with  other  organisations.  The  interaction  between  competition  and
innovation  policy  should  aim  at  encouraging  the  flow  of  new  knowledge,
recognising that some agreements between enterprises may be in the interest of
promoting innovation and ultimately lead to greater competition23.

Another key interface exists with the Internal Market policy: a well functioning
Internal  Market,  without  barriers  to  trading  across  borders,  encourages
competition  in  goods,  services,  capital  and  the  mobility  of  people.  This
increased competition in turn promotes innovation in all its dimensions, both in
the  private  and  public  sector,  regarding  aspects  as  diverse  as  advertising,
industrial organisation and management, training, customer services, etc.

Regional  policy  is  an  important  route  for  encouraging  innovation.  The
European  Regional  Development  Fund  contributes  to  innovation  by  funding
many  innovative  activities  or  projects  indirectly  supporting  innovative
activities.  Strengthening  of  the  regional  dimension  of  innovation  policy  is
examined further in section 6.4.

The  development  of  an  innovative  enterprise  culture  and  competitive  nations
depends crucially on taxation policies that create an environment favourable to
investment,  innovation,  business  development  and  employment.  Taxation
policies  that  contribute  to  achievement  of  these  aims  need  to  be  studied  and
replicated where possible.

Enterprises  may  be  encouraged  to  innovate  by  offering  them,  in  conformity
with competition rules, tax relief on expenditure on innovation. In comparison
with  direct  financial  support  for  innovation,  the  important  characteristic  of
fiscal incentives is that the  business sectors  and  geographic  areas  that  benefit
are in effect decided  by  market  forces,  since  it  is  enterprises  themselves  who
opt  to  make  the  expenditure  that  qualifies  for  the  tax  relief.  Direct  financial
support,  on  the  other  hand,  is  more  suited  to  the  targeting  by  government  of
specific  sectors  and  objectives.  Often  both  methods  will  be  used,  the  precise
mix depending on national objectives, conditions and industrial structure.

23

See, for example, the Block exemption Regulation (EC) No 2659/2000 for R&D agreements (OJ L304
5.12.2000,  p.7)  and  the  Guidelines  on  the  applicability  of  Article  81  of  the  EC  Treaty  to  horizontal
cooperation agreements (OJ C3 6.1.2001, p.3)

16

                                                
So far, fiscal policies in support of innovation concentrate mainly on tax relief
for  expenditure  on  R&D.  Spain  is  an  interesting  exception,  where  tax
incentives  apply  not  only  to  R&D  but  also  to  expenditure  on  technological
innovation.  In  the  Netherlands  it  is  the  human  resources  for  R&D  which  are
targeted, by way of tax relief for the wage costs of R&D personnel.

The use of fiscal policy to boost components of national innovation systems in
addition to  R&D  may  be  further  explored.  In  order  to  design  a  cost-effective
system of fiscal incentives, it may be necessary to identify the key components
which need to be supported and define them in precise and operational terms.
Furthermore,  more  information  is  required  on  the  effectiveness  of  fiscal
measures,  to  allow  Member  States  to  fine-tune  their  measures,  maximising
expected benefits against the cost in terms of foregone tax revenues.

–  When tax relief is given selectively it is of course a form of state aid, and one
of  the  tasks  under  European  competition  policy  is  to  monitor  state  aids  since
the  European  Community  Treaty  prohibits  aid  that  distorts  intra-Community
competition.  Certain  aid,  however, may  be  allowed, for  example  if  it  pursues
objectives  of  common  interest  without  distorting  competition  to  an  extent
incompatible  with  that  interest.  On  this  basis  the  Commission  has  issued
guidelines that allow state aid schemes in areas including support for research
and  development  and  the  provision  of  risk  capital,  and  block  exemption
regulations allowing aid for SMEs, and employment and training.

State aid is an example of an area of competition policy where Member States
and  the  Commission  must  be  alert  to  the  scope  for  measures  in  support  of
innovation  that  are  not  in  contradiction  to  the  open  competitive  environment
that incites enterprises to innovate.

– 

Rigidities  of  the  labour  market  continue  to  be  an  important  barrier  to
innovation  in  Europe,  making  employment  policy  another  area  with  a  strong
influence  on  the  capacity  for  innovation.  Some  Member  States  have  already
shown  creativity  and  success  in  linking  innovation  to  the  creation  of  jobs.
Organisational  and  shop-floor  innovation,  aiming  at  “high  trust,  high
performance workplaces”24 as a means to fully reap the productivity benefits of
new technologies, require industrial dialogue built on existing good practice or
the  development  of  new  methods.  Well-functioning  labour  markets  should
provide  adequate  incentives  and  flexibility  for  both  firms  and  employees  to
take advantage of opportunities for innovation.

Improved  occupational  and  geographic  mobility  help  to  make  the  labour
market more flexible. The Commission’s Action Plan on Skills and Mobility25
and  its  reform  of  the  EURES  system  on  the  Europe-wide  exchange  of  job
vacancies26 are designed to make the European labour markets more accessible
and to help tackle skills shortages.

– 

The capacity of the United States to attract highly competent students, workers
and researchers has a direct and positive impact on its innovation potential. The

24

25

26

For example, by organising the workforce into self-managed, autonomous work groups.
COM(2002) 72
Commission Decision 2003/8/EC of 23 December 2002 (OJ L5/16, 10.1.2003)

17

                                                
– 

– 

– 

brain  drain  that  Europe  experiences  may  negatively  affect  its  innovation
capacity.  The  objective  set  by  the  Barcelona  European  Council  to  make
Europe’s  education  and  training  systems  a  world  quality  reference  by  2010
addresses this issue among others27.

innovation 

requires  huge 

Europe is recognised as the global leader in environmental policy. Fulfilling its
environmental  commitments 
efforts.  The
sustainability challenge creates not only new innovation pressures but also new
markets  for  products  and  processes.  Proactive  and  innovative  environmental
policies have been introduced at the national level (leading, for example, to the
dynamic  growth  of  wind  energy  industries  in  Spain  and  Germany).  As
European  businesses  are 
their
environmental  impacts,  European  environmental  policy  is  also  gradually
moving away from “command and control” to an approach  which  gives more
freedom to innovators (for example, the “integrated product cycle” policy28).

responsibility 

increasingly 

taking 

for 

innovations 

The use of open standards in different business areas reduces costs, simplifies
processes  and  is  a  key  factor  in  dissemination  of  technical,  managerial  and
organisational 
such  as  product  development,
manufacturing, marketing, etc. Innovation may be aided by  standards  that  are
performance-based  rather  than  prescriptive,  in  the  environmental  sector  for
example. The interface to standardisation policy must be strengthened in order
to  address  future  challenges,  such  as  the  dissemination  of  information  and
communication technologies in traditional industrial sectors.

in  areas 

The  objective  of  a  Community  Patent  that  is  simple,  cheap  and  reliable  has
proved  difficult  to  attain,  but  has  recently  become  much  closer  through  the
adoption by the Council of a common political approach on the main elements
of the Community patent. The advantages are clear: estimated  annual  savings
in  processing  and  administering  intellectual  property  rights  of  around  €0.5
billion, lower litigation costs and simpler enforcement29.

At  Union  level  the  new  Competitiveness  Council  configuration  and  the  Group  of
Commissioners  on  Growth,  Competitiveness,  Employment  and  Sustainable
Development  are  contributing  to  innovation  policies  based  on  systemic  principles.
These developments must be reinforced by a deeper understanding of policy choices
on  innovation  processes  and  performance,  and  by  mechanisms  to  take  innovation
considerations  into  account  without  adding  complexity  to  the  policy-development
process.

6.2. 

Stimulate greater market dynamism and exploit the concept of lead markets

The  creation  of  new  markets  and  acceptance  of  new  products  by  customers  are  of
paramount importance for innovation. The market’s impact on innovation will grow

27

28

29

The  Commission’s  proposal  for  an  “Erasmus  World”  programme  (COM(2002)  401)  is  also  a  step
towards  making  Europe  more  attractive  for  students  and  researchers.  So  are  measures  under  the
“Human Resources and Mobility” heading of the Sixth RTD Framework Programme, including support
for the professional reintegration of highly qualified European researchers returning to Europe after a
spell working elsewhere.
COM(2001) 68
COM(2003) 5

18

                                                
in  the  future,  and  the  majority  of  managers  expect  that  markets  will  become  more
receptive for introducing new products.

In  this  context  a  deeper  understanding  is  urgently  required  of  the  relevance  to
innovation of market dynamics, including the emerging concept of “lead markets”30.

There are many cases where the country developing a new technology is not the one
that  adopts  it  first.  National  markets  vary  in  their  receptiveness  for  a  given
innovation. The price and cost structure of a national market can be encouraging for
certain types of innovation. For example, automation technologies develop faster in
countries  with  relatively  high  labour  costs,  and  energy  saving  innovations  in
countries with higher energy prices.

Other factors may contribute to market structure  advantages, such  as regulations or
liability rules.

Understanding  the  reasons  why  particular  national  markets  in  Europe  become  lead
markets, thereby offering a multitude of opportunities to innovators from all Member
States,  is  important  and  contributes  to  the  management  of  European  diversity.  The
main factors for national markets to become lead markets are the following:

– 

– 

They are in advance of a global trend (in income structure, demographic trend,
regulations, liability rules, standards, etc).

They demonstrate a high degree of openness and therefore are likely to reflect
global trends.

European  diversity,  as  manifested  by  differences  in  consumer  preferences  for
example, coupled with the size of the Internal Market offer a unique combination to
enterprises for the introduction of innovative products and services. It is proposed to
further  investigate  the  parameters  involved  in  the  formation  of  lead  markets,
including  examination,  together  with  industrial  representatives,  of  the  potential  for
specific industrial sectors to benefit from European lead markets as a step towards a
stronger presence on the international market.

6.3. 

Promote innovation in the public sector

Administrators in the public sector acknowledge the importance of innovation, but in
contributing  to  an  improved  environment  for  innovation  they  are  hampered  by  a
relatively  poor  awareness  of  the  issues  at  stake  and  of  the  interrelated  factors
influencing the innovation performance of enterprises.

Furthermore,  as  many  “traditional”  policy  areas  have  an  influence  on  the  climate
shaping  the  innovation  behaviour  of  firms,  public  administrations  will  often  be
obliged to  arbitrate between conflicting interests. A good understanding  is  required
of the innovation process and of the policy trade-offs that may have to be made.

The public sector plays an important role in all European countries. It can be a source
of  innovation,  and  is  certainly  an  important  consumer  of  innovative  products  and

30

See,  for  example,  Lead  Markets.  Country-Specific  Success  Factors  of  the  Global  Diffusion  of
Innovations, Marian Beise, ZEW Economic Studies, Vol. 14, Heidelberg/New York, 2001

19

                                                
services.  Efficient,  open  and  competitive  public  procurement  can  be  a  powerful
instrument  to  push  innovation.  To  develop  its  role  as  a  source  of  innovation,  the
public  sector  could  promote  new  types  of services and the use  of  e-government,  e-
health, e-education, etc.31

6.4. 

Strengthen the regional dimension of innovation policy

Measures  to  improve  the  climate  for  enterprises  to  innovate  are  increasingly  being
devised  and  implemented  at  regional  levels,  to  take  account  of  regions’  specific
strengths, weaknesses and ambitions. This trend brings  with  it  the  risk  that  regions
design  and  implement  their  strategies  in  isolation,  failing  to  take  advantage  of
experience  gained  elsewhere  and  not  seizing  opportunities  to  benefit  from
transregional or transnational networks.

Regional  authorities  must  be  sensitised  to  the  increasing  importance  of  regional
policies  for  promoting  innovation.  When  designing  and  implementing  regional
the
innovation  policies,  regional  authorities  must  fully 
distinctiveness and the social and economic characteristics of the region. They must
learn  from  what  others  are  doing,  but  avoid  simple  duplication  –  they  must  each
develop their own specific route to improved innovation capacity, depending on their
own unique set of circumstances.

into  account 

take 

The  development  of  clusters  of  excellence,  when  there  is  a  conjunction  of  factors
such  as  infrastructures,  availability  of  skills  and  expertise,  research  and  technology
centres,  and  enterprises  with  innovation  potential,  is  of  paramount  importance  for
innovation  performance.  Where  these  conditions  exist  it  is  important  that  the
innovative capacities are encouraged to develop and create competitiveness at world
level.

The Italian “industrial districts” illustrate how regions specialising in specific sectors
and dominated by small firms are able to grow rapidly and develop global leadership
in  their  sector32.  Industrial  districts  are  characterised  by  high  productivity  and
specialisation  in  complementary  phases  of  production,  founded  on  the  presence  of
subcontractors,  component  suppliers  and 
them.
Accumulation of know-how is an important factor behind the lasting competitiveness
of such clusters.

fierce  competition  among 

A well-known example is the Prato region near  Florence,  an  international  leader in
the  production  of  yarns  for  knitwear,  and  knits  and  textiles  for  the  garment,
upholstery and other industries. This success is complemented by the construction of
textile machinery, which is also highly export-oriented.

Italian  “industrial  districts”  demonstrate  how  global  leadership  can  be  achieved  by
close  interaction  and  sector-specific  patterns  mixing  cooperation  with  competition
(“co-opetition”) among SMEs, and by a type of creativity that absorbs R&D inputs
without entirely relying on them.

31

32

See the eEurope 2005 action plan: COM(2002) 263
See,  for  example,  Les  districts  italiens.  Un  modèle  de  développement  local  exemplaire,  F.  Vidal,
Futuribles no. 256, September 2000

20

                                                
Centres  of  learning  are  also  important  for  their  potential  to  act  as  nuclei  for  the
formation of clusters, building on spin-offs from academic research and creating “hot
spots” for innovation.

The  Commission  will  support  the  efforts  of  regional  authorities  and  other  regional
players in the innovation process in devising  and  implementing  innovation  policies
that are of good quality and include European-level linkages. Support will be built on
existing  innovation  support  networks  and  other  activities  targeted  at  the  regional
level (such as the network of Innovation Relay Centres and the Forum of Innovation
Regions)33.

7. 

CONCLUSIONS

The  productivity  gap  between  the  Union  and  major  economic  areas  such  as  the
United  States  may  not  at  present  have  effects  that  are  generally  visible  in  terms  of
quality  of  life.  This  does  not  mean  that  we  can  afford  to  postpone  addressing  this
growing  challenge,  which  ultimately  reflects  a  weakness  in  Europe’s  capacity  for
innovation.

In the long term, European prosperity is at risk if the productivity  gap continues to
increase. Lagging our major competitors in this respect could reduce the capacity to
offer  the  benefits  required  by  the  European  social  model.  A  successful  innovation
policy could help to reduce the gap and contribute to increased national wealth. The
resistance to change already cited as an obstacle to innovation must be considered in
this  light.  If  innovation  activity  weakens  and  falls  behind,  then  changes  could  be
forced, in a less controllable fashion, through lack of resources.

There are trade-offs to be made between the preservation of existing  structures  and
practices, and the penalties of a weak innovation performance. Europe must find its
own way to balance conflicting interests and priorities.

The Member States and the Commission should define a common framework, and a
set  of  priorities  and  objectives,  for  both  European  and  national  innovation  policy,
respecting the characteristics of national innovation systems and the diversity within
the European  Union.  They  should  build  on  the  acquis  communautaire  (the  Internal
Market, the euro, etc) and take account of enlargement of the Union.

The  Commission  therefore  invites  the  Council  to  alert  Member  States  to  the
continuing  importance  of  the  innovation  issue  and  the  potential  contribution  of  a
better  understanding  of  the  innovation  process  in  the  European  context  to  the
performance of all Member States.

33

The Sixth  RTD Framework Programme provides  many opportunities to European regions in terms of
networking, exchanging good practice and developing new initiatives. As well as measures targeted at
the  regional  level  to  encourage  a  more  innovation-friendly  environment,  regional  authorities  can  tap
into  the  new  instruments  of  the  Sixth  Framework  Programme  (networks  of  excellence  and  integrated
projects) and the ERA-NET scheme.

21

                                                
7.1. 

Summary of actions arising out of the Communication

Member States should commit themselves to:

–  build and strengthen their national innovation strategies, define their own sets of
policy  objectives,  set  their  own  targets  and  have  their  own  sets  of  indicators
compatible with European and international statistics,

–  cooperate  with  the  Commission  by  making  information  available  on  innovation
policies  and  performance,  produce  further  data  and  indicators  and  stimulate
national statistical offices in their efforts in collecting and providing  comparable
statistical data in the area of innovation,

–  participate actively in the mutual learning process initiated by the Trend Chart on

Innovation in Europe and in analysis of the innovation phenomenon.

The Commission will:

–  increase the coherence of the various policy benchmarking exercises falling under
the competence of the Competitiveness Council (European innovation scoreboard,
enterprise scoreboard, science and technology key figures),

–  build an improved framework for the mutual learning process in innovation policy

on the basis of the present Trend Chart on Innovation in Europe,

–  cooperate with Member States in analysis of the innovation process, policies and

performances,

–  launch a pilot initiative offering independent evaluations (on a voluntary basis) of

programmes, schemes and support agencies for the promotion of innovation,

–  establish  a  platform  for  exchange  of  information  and  experience  focused  on
Candidate  Countries,  to  support  them  in  rapidly  developing  their  framework  for
innovation,  and  extend  the  European  innovation  scoreboard  to  give  the  same
coverage to Candidate Countries as to the current Member States,

–  report, every two years, on progress in strengthening innovation policy at national

and EU level,

–  contribute to promoting innovation in the public sector by:

– 

– 

– 

– 

organising exchanges of experience on the promotion and dissemination
of information on innovation in government and public services,

promoting  training  and  awareness  activities  on  policies  and  factors
shaping the innovation performance of firms,

setting up a web-site to disseminate initiatives and tutorials,

promoting  dissemination  of  good  practices  emanating  from  the  public
procurement authorities.

Member States and the Commission must:

22

–  ensure that mechanisms are in place for “vertical” coordination, so that policies in

support of innovation interlock at EU, national and regional levels,

–  strengthen existing processes, in the framework of the Trend Chart on Innovation
in  Europe,  enabling  Member  States  to  learn  from  each  other’s  experience  in
innovation policy development and implementation,

–  intensify their cooperation and create a common framework for the strengthening
of  innovation  in  the  EU,  including  assessment  mechanisms  taking  stock  of  the
progress achieved.

23

ANNEX 1

INNOBAROMETER 2002

Innobarometer  200234,  a  survey  carried  out  for  the  European  Commission  in  September
2002 amongst business leaders in the 15 Member States of the European Union, under the
Flash Eurobarometer opinion polling system, reports that:

– 

– 

– 

– 

– 

– 

– 

Enterprises  in  the  European  Union  slowly  but  continuously  strengthened  their
innovation  activities  from  2001  to  2002:  the  share  of  new  or  renewed  products  or
services introduced within the last two years went up 2 points from the 2001 survey
and now accounts on average for 22% of companies' turnover.

The  share  of  investment  channelled  into  innovation  by  all  companies  increased
slightly  since  2001  and  now  reaches  on  average  over  one  quarter  of  companies'
investment.  The  manufacturing  sector  stands  out  with  a  proportion  of  32%  of
investments  devoted  on  average  to  innovation.  Exporting  and  “younger”  companies
are also more active in their investments in innovation.

Knowledge  and  competencies  of  staff  are  key  to  innovation  performance:  managers
attribute their strength in innovation in the first place (49%) to  the  qualification  and
professionalism of their staff. The priority area for training is at the level of technical
training  and  apprenticeship  (45%),  followed  by  commercial  training.  The  time
effectively allocated to training, however, varies considerably between countries and
enterprises:  for  about  one  in  four  companies,  commitment  to  training  is  absent  or
merely symbolic, i.e. none or only 1-2 days per employee per year.

To access advanced technologies, cooperation between enterprises is becoming more
important: business leaders count firstly on active collaboration with their suppliers or
customers (59%), then on the purchase of equipment (41%), followed by in-house or
contracted-out R&D.

The  creation  of  new  markets  and  the  acceptance  of  new  products  by  customers
increasingly require an open debate about innovation with the public. Most companies
seem willing to participate in this debate, but for the majority (48%) such discussions
take place internally at the enterprise level.

The most important unsatisfied need relating to innovation is, for one manager out of
three,  access  to  innovative  customers  and/or  markets.  The  majority  of  managers
expect that markets will become more receptive for introducing innovative products in
the coming years.

European  business  leaders  consider  the  role  of  markets  that  are  open  to  innovative
products even  more  crucial  compared  to  2001.  They  expect  innovation  to  benefit  in
the coming years particularly from both the market dimension of the European Union
and  its  common  rules.  Highly  innovative  European  firms,  which  are  found  most
frequently  amongst  exporting  companies,  younger  enterprises  and  the  industrial
sector, already seem well placed to build on this opportunity.

The  2002  Innobarometer  underlines  the  willingness  of  European  managers  to  strengthen
their  competitive  position  through  innovation.  The  qualifications  of  human  resources,

34

To be published

24

                                                
cooperation  practices  with  suppliers  and  customers  and,  last  but  not  least,  the  European
process.
dimension 

innovative  markets 

roles 

play 

this 

key 

of 

in 

25

ANNEX 2

SUMMARY OF CURRENT EU ACTIVITIES TO PROMOTE INNOVATION

So far, EU activities to promote innovation in Europe have been funded from the Research
and  Technological  Development  (RTD)  Framework  Programmes.  They  include  the
observation  of  innovation  policy  and  performance  in  Europe,  and  practical  measures  to
improve the innovation environment.

The following is a summary of current activities. Many of them will be further developed in
the Sixth Framework Programme.

– 

– 

– 

– 

– 

– 

The  Trend  Chart  on  Innovation  in  Europe,  providing  collection,  updating,  analysis
and dissemination of information on innovation policies at national and EU level35. It
is  also  the  framework  for  implementing  the  “open  method  of  coordination”,  as
launched  at  Lisbon,  in  the  area  of  innovation  policy.  Thus  the  Trend  Chart  spreads
good  practice  in  order to  help Member  States  develop  their  own  innovation  policies
and achieve greater convergence towards the Lisbon goals.

One  component  is  the  European  Innovation  Scoreboard,  an  annual  presentation  of
quantitative  data  on  framework  conditions,  the  science  and  engineering  base,  firms’
operational environment, and innovation behaviour within firms.

In  operating  the  Trend  Chart,  the  Commission  is  assisted  by  a  Group  of  Senior
Officials from Member and Associated States (including Candidate Countries).

Data on firms’ innovation behaviour is collected by the Community Innovation Survey,
implemented via Eurostat and national statistical offices36.

Studies  analyse  specific  issues  in  detail,  often  in  the  domain  of  framework
conditions37.  A  lighter  type  of  survey,  the  Innobarometer,  making  use  of  the
Eurobarometer opinion polling system, looks at firms’ attitudes to innovation38.

Several activities operate on firms’ operational environment. Mechanisms to support
innovative  start-ups  and  their  growth  are  a  main  focus  of  attention,  notably  by
networking  economic  areas  with  successful  records  in  this  area  of  entrepreneurship
(PAXIS  initiative39).  Networks  are  also  being  set  up  among  players  in  innovation
financing, and amongst industrial liaison offices in public research organisations with
a view to strengthening public-private links (Gate2growth initiative40).

The Innovating Regions in Europe network provides a mechanism to share experience
in  developing  innovation  strategies,  and  thus  is  relevant  both  to  firms’  operational
environment and to framework conditions41.

The network of Innovation Relay Centres, by offering firms  a  local starting  point to
help them develop transnational technology cooperation and transfer, assists firms in
forming linkages with other firms and organisations42.

35

36

37

38

39

40

41

42

http://trendchart.cordis.lu/
http://www.cordis.lu/innovation-smes/src/cis.htm
http://www.cordis.lu/innovation-policy/studies/home.html
http://www.cordis.lu/innovation-smes/src/innobarometer.htm
PAXIS: Pilot Action of Excellence on Innovative Start-ups; http://www.cordis.lu/paxis/
http://www.cordis.lu/finance/home.html
http://www.innovating-regions.org/
http://irc.cordis.lu/

26

                                                
– 

– 

Also  directed  towards  the  firm’s  proximate  environment  are  innovation  projects,
addressing  generic  barriers  to  market-driven  innovation43.  They  emphasise  non-
technical  aspects  of  the  process,  generating  knowledge  that  ultimately  will  have  its
major applications within firms.

CORDIS,  the  web-based  Community  R&D  and  innovation  information  service44,
offers  access  to  the  science  and  engineering  base,  for  example  through  the  recently
introduced  Technology  Marketplace45  of  business  opportunities  from  EU-sponsored
and other research.

Although these activities are part of the RTD Framework Programmes in budgetary terms,
their scope goes beyond fostering the emergence  of  innovation,  skills and  know-how  from
the  European  research  effort.  In  view  of  the  wide  span  of  the  innovation  phenomenon,
approaches in support of innovation must take account of forms of innovation not dependent
on research or where research plays only a minor part in bringing about the economic and
social benefits of innovation.

43

44

45

http://www.cordis.lu/innovation-smes/src/projects.htm
http://www.cordis.lu/
http://www.cordis.lu/marketplace/

27