Source: EURLEX
Language: en
Format: md

**COMMISSION OF THE EUROPEAN COMMUNITIES**

**Brussels, 16.04.1997**
**COM(97) 152** **final**

**COMMUNICATION FROM THE COMMISSION**

**TO THE COUNCIL, THE EUROPEAN PARLIAMENT,**

**THE ECONOMIC AND SOCIAL COMMITTEE**

**AND THE COMMITTEE OF THE REGIONS**

**"The competitiveness of** **the European** **Information and**
**Communication Technologies (ICT) Industries"**

_**TABLE**_ _**OF**_ _**CONTENTS**_

**1.** **Introduction**

**2.** **The ICT Industries: global structures, European competitiveness**

**2.1.** **Market structure**

**2.2.** **Competitiveness of the European ICT industries**

**3.** **Main challenges for the European ICT industries**

_Improve market take-up_
_Transform industrial structures_
_Develop fast-growing companies_
_Enable European excellence in software_
_Optimise technology_ _development_ _and diffusion_
_Exploit_ _the_ _potential for_ _employment_ _growth_

**4.** **Priority areas for policy initiatives**

**4.1.** **Policy initiatives under way which require urgent implementation**

**4.2.** **New areas requiring attention**

_Improve global competition_

_Accelerate ICT_ _take-up_ _and promote awareness_

_Create new markets by timely standards_
_Exploit_ _the_ _potential of enlargement_
_Promote industrial cooperation_
_Facilitate the emergence_ _ofSMEs_
_Focus on_ _employment:_ _skills,_ _education and training_
_Promote benchmarking_

**5. Conclusion**

**Annex 1 - The Council Resolution of** **18.11.1991** **and its follow-up**
**Annex 2 - Statistical Tables**

**/A**

**1.** **Introduction**

The Information and Communications Technologies (ICT) Industries (fig.l) are a critical
**component** of the European economy, they are:

 - a major **and** growing part of industrial activity

 - **one** of **the** keys to future competitiveness of all industrial processes, **products** and

services

 - **the** platform for the emerging Information Society in the 21st century

It is essential that Europe possess a competitive dynamic ICT industry in order to:

 - avoid excessive dependence on key technologies

 - participate in expanding global markets

 - contribute to the creation of new employment

 - be at the forefront of future innovation

Europe cannot afford to miss the boat. There are worrying signs of:

 - slow market growth

 - declining relative shares for European producers

 - uneven response to market and technological evolution

Urgent action is required by all actors (Industry, Member States, Commission) to force
the pace and ensure that European ICT industries are at the forefront of market and
technological evolution. Many are already under way, and now need effective and urgent
implementation. Others need to be developed.

The Netherlands Government and the recent informal Industry Council have launched the
debate. This Communication is a first contribution from the Commission, updating the
analysis and identifying the main challenges and areas for attention. A tripartite exercise
should be pursued over the coming months to carry the work forward towards priority
setting and implementation.

For the purpose of this communication, ICT industries are defined as comprising:
consumer electronics, computer and office equipment, telecommunication equipment,
components, software (either as component or product, or services associated to the
provision of software). Other sectors, such as broadcasting or content industries, often
included in the definition of ICT industries, are not covered here.

_**2,**_ **The ICT Industries: global structures, European competitiveness**

**2.1.** **Market structure**

Over the past 5-10 years technological, economic and social progress has transformed the
industries and their markets (often referred to as "convergence"). There are three main
segments to the market: infrastructure, commercial and consumer. The different features
of these markets impose different structures and modes of operation on the enterprises
supplying them (fig. 1), and imply different legislative and policy interests for public

authorities.

_Infrastructure,_ comprising large-scale systems with long product life-cycles and
relatively slow growth, are being affected by downsizing and deregulation. Although
traditional European-affiliated suppliers enjoy strong competitive positions In some areas
such as telecommunications, they are under extreme pressure to adapt themselves to the
progressive liberalisation and deregulation oftheir sectors.

                            - _b_

_Industrial and commercial markets_ attract numerous new entrants addressing niche
markets which in many cases have grown to very large segments. Producers tend to be
technology oriented and depend heavily on venture capital in their early phases. US
industry generally enjoys very strong positions in these markets.

_Consumer markets_ demand constant innovation and product reliability, and suffer
constant price erosion. Consumer products are increasingly the technology drivers of the
ICT industries. These features have driven industrial concentration to the point where
global markets are dominated by a small number of recognised brand-names supported
by complex dynamic global production structures. Japanese, and more recently Korean,
producers are prominent, though European-affiliated producers maintain significant
presence. US producers are gaining importance as PC-related products expand into

consumer markets.

The growing _globalisation_ of these markets has driven industry to spread out its
manufacturing operations seeking the most cost-effective structures and resulting in a
truly global network. The relative absence of trade barriers and the universal nature of
market demand for ICT products is, of course, the underlying factor in providing the
volume necessary to obtain the economies of scale which drive this evolution. In Europe,
as elsewhere, a large proportion of manufacturing activity is carried out by transnationals
with US, Japanese or Korean capital affiliation.

The _employment_ situation in the ICT industries is the result of two opposing trends (see
Fig. 2): on one hand the effect of high productivity gains in manufacturing methods and
in some cases relocation, have resulted in substantial reductions in sectors such as

consumer electronics, computers and terminals. On the other hand, the spectacular
growth in software and services has increased employment. The net result is a balanced
situation of overall moderate growth in the long term, which however require important
changes in the skills structure. Over the past ten years, jobs have moved from
manufacturing to R&D and sales/marketing, as well as from blue collar and clerical

workers to white collar.

**2.2.** **Competitiveness of the European ICT industries**

The ICT industries represent an important and growing proportion of manufacturing
industry in Europe (see Fig. 3.1): 8.3% of turnover (up from 4.3% in 1981), 6.5% of
employment, 7.8% of production, 9.1% of total gross value added (up from 6.1% in
1991). On all these measures except employment, the ICT industries provide higher
contribution than either the chemical or the automotive industries (see Fig. 3.2). Their
relative share will increase in the future as the Information Society in all its forms takes
hold. These figures do not take account of services industries (including software) which,
for ICT, show significant employment growth. Market growth rates are of the order of
7%, and are expected to continue at this rate over the next few years (see Fig. 4).This is
an impressive figure, considering that unit prices are in general decreasing - even
drastically for some products - and each new generation of products provides
significantly increased performance.

Despite this positive macro picture, there are causes for serious concern.

High as they seem, these _growth rates are consistently lower than those of the USA and_
_the growing Asian economies._ Of particular concern is the fact that since 1990 Europe's

Employment in the ICT sector - Study by B1PE for the European Commission - DG III - July 1996

share of world-wide IT markets has declined from 35% to 28% (see Fig. 5). During the
same period, US IT markets have grown from a similar starting point to represent about
41% of the world-wide market in 1996. IT expenditure in Europe represents 4.5% of
GDP, compared with 5.7% in the USA. The _per capita_ IT expenditure is 797 ECU in
Europe, compared to 1,285 ECU in the USA (see Fig. 6). Within the Union, large
differences exist between Member States, expenditure being generally lower in peripheral
and southern States. In addition, the _trade_ _balance,_ with the exception of
telecommunications equipment, _is worsening_ in most ICT industry sectors (see Fig. 7).
Imports have increased five-fold since 1980 to 143 BEcu in 1995, and now represent
_circa_ 50% of consumption in some areas (office equipment and computers, and consumer
electronics) - this is to be compared with _circa_ 11 and 17% in the chemical and
automotive sectors respectively.

Success in ICT is mostly the result of a combination of access to excellent research and
availability of risk capital in early stages, and strong focus on markets once established.
This is typically the case in _software packages,_ where US suppliers have captured
leadership. In this area, the European successes are limited to _niche_ applications, in
particular in sectors where it has been possible to build application excellence on
experience from leading edge users, _e.g.;_ in engineering or design packages.

In _semiconductors,_ European manufacturers have been able, through international
strategic alliances and important R&D efforts, notably by JESSI and the Esprit
programme, to maintain a competitive position, which ensures a European production
base, access to key manufacturing technologies and ability to provide critical supply to

the downstream user industries.

The _electronic assembly_ sector, both for consumer electronics and for computers, is
where Europe, as a production area, shows the heaviest handicap, due largely to the high
cost of labour. This disadvantage has led to complex combinations of délocalisations, in
Asia and more recently in central and eastern European countries, and installation of
some manufacturing functions in proximity to the destination markets.

In the _telecommunications equipment_ sector, the global structure of the main players and
constant efforts in technology have ensured to Europe a leading position, exemplified by
the GSM success. The importance itself of the European telecommunications equipment
industry shows the need to face adequately the ongoing technological revolution.

**3.** **Main challenges for the European ICT industries**

**Improve market take-up:** European markets lag behind those of other regions. First, the
commercial market is less forward-looking; too many companies perceive investment in
ICT primarily as an element of cost, to be reduced when business confidence declines.
The contribution of ICT towards improving competitiveness, streamlining business
processes and enabling innovation is underestimated or ignored. Second, the take-up of
ICT by individual consumers is slow. With some exceptions, notably in Nordic countries,
the number of Internet users is comparatively low in Europe (see Fig. 8). Third, public
administrations are slow to make innovative use of ICT, this is particularly important in
education, but affects many other areas where potential gains in efficiency and quality of
service are very significant. Finally, the uneven pace of telecommunications liberalisation
throughout the Union has probably been the single most important brake. Such structural
delays represent serious handicaps for the European ICT industry, both in the context of
the movement towards the Information Society, and the development of industrial
competitiveness policies. Suppliers must work harder to seek means to convince the

market of the benefits of ICT and to stimulate accelerated take-up. An open and
functioning single market is essential for the diffusion of ICT products and the
development of related services. Divergent standards and regulations persist, imposing
obstacles to the expansion of the ICT industries. These issues are dealt with elsewhere [2],
but they must be resolved if Europe's full market potential is to be realised.

**Transform industrial structures:** European ICT industry has been slow in restructuring
itself to meet the new challenges. They have not kept pace with the trend of outsourcing,
developing networks of competitive component suppliers, _cross-national_ _production_
_networks,_ which is so much a feature of the US and Japanese producers and their Asian
supply networks . The opportunities presented by the economies of the central and
eastern European countries, and their eventual integration into the Union, to enable
restructuring should be seized by industry - and facilitated by public authorities.
Industrial cooperation in global markets is essential in order, not only to participate in the
creation of standards and be present in the markets, but also to ensure access to key
technologies and components and to avoid excessive dependency.

**Develop fast-growing companies:** Europe has also failed to foster the sort of dynamic
growth of _new entrants_ which is so much a feature of the US industry. The conditions
surrounding SMEs and start-ups must be improved; their role is critical in introducing
new technology, in supporting competitive improvements in large enterprises and, most
importantly, in the creation of employment. Industrial restructuring inevitably means
changes in employment, which can be facilitated by instruments to create a flexible
educated work-force. If ICT production in Europe is to remain competitive, industry also
has to commit itself to the continuous upgrading of its skills.

**Enable European excellence in software:** No amount of restructuring can change the
fact that Europe is a high-cost region for manufacturing. European manufactured
products must compete in global markets on design and quality, and in some cases do so
very successfully, for example GSM mobile telephones and digital satellite TV. The role
of _software,_ particularly embedded software, in conferring competitiveness and providing
added value, is so important as to merit particular mention. The _traded_ software area is
relatively well understood, including package software, custom software and services.
But this represents only a fraction of the total industrial activity: every significant
manufacturer has some software activity in-house, developing, adapting, servicing and
maintaining. Indeed for many businesses, core competence is expressed in software.
Much of the product of financial services is software; software already constitutes a
significant part of the value of modern aircraft and provides an increased share of the
functionalities which make several industrial products competitive in the marketplace.
Securing adequate understanding of the contribution of this element of economic activity
to competitiveness, added-value and employment is now long overdue. Only with
adequate understanding of the structures and economics of this industry can policy be
developed at company or government level to exploit the benefits software offers. It is all
the more important because the development of the myriad applications of the
Information Society will require a massive effort of software development and content
production. The linguistic fragmentation of the European software market represents an

2 COM(96)359 of 24.7.1996- Communication from the Commission on "Standardisation and the global
information society: The European approach".

' "Wintelism and the Changing Terms of Global Competition" Professors M. Borrus and .1 Zysman,
University of California 1997.

additional challenge but also an opportunity for specific European solutions: a large part
of development and marketing costs depend on the number of language versions of the
product, while the size of language market addressed first constitutes an important
competitive advantage.

**Optimise technology development and diffusion:** ICT industries need to remain at the
forefront of technological developments. Not only are R&D costs rising as a result of
shorter product life-cycles, but in addition the interactive innovation process requires that
industry react more in tune with customer requirements. Further, for the ICT industry to
profit from R&D investment, technologies should be diffused as timely and as widely as
possible. This is not an automatic process; it requires significant effort for the take-up of
new technologies by all classes of users: industry, services (private and public) as well as
private citizens.

**Exploit the potential for employment growth:** The diffusion of use of ICTs will have a
profound impact on quantitative and qualitative aspects of the employment. A recent
study identifies three types of effect of ICTs on employment: direct effects on the ICT
and related industries; indirect effects on other branches of the economy such as increases
in productivity and changes in production structures; and other effects triggered by the
increased "tradeability" of services and the resulting changes in the international division
of labour. The same study estimates long term effects for Europe over ten years between
a loss of three million jobs (negative scenario) and a gain of six million additional jobs
(in the positive scenario of expeditious ICT diffusion). It is however clear that the direct
effects on jobs in the ICT industries show a positive trend. The experience of the USA,
where ICT industries' restructuring started earlier, indicates that more than 150,000 jobs
were created between 1988 and 1995 in the Personal Computer sector alone (for example
one US company, starting up in 1985, grew to nearly 6B$ t.o. and 15,000 employees by
1995). The Union must encourage the growth of such companies financed through
dynamic pan-European secondary capital markets. European IT companies will create the
high quality jobs of the future.

**4.** **Priority areas for policy** **initiatives**

Broad consultations with industry and the Member States, as well as the
recommendations from various consultative bodies and studies show remarkable

consistency. They fall into two categories. The first comprises those recommendations,
such as telecommunications liberalisation, which are already the subject of action or
reflection in the Commission and National administrations. These are summarised here in

order to bring attention to the importance of implementing a range of key policies for the
competitiveness of the industry. A second set of issues is identified which concern the
ICT industries more specifically, or which would benefit from future priority
examination. These are dealt with in the second part.

IFO Institut fur Wirkschaftsforschung. Miinchen, 1996

**4.1.** **Policy initiatives under way which require urgent implementation**

The adoption in November 1996 of a comprehensive action plan for the Information
Society has served to fine-tune the Commission's priorities. It addresses the need for
rapid progress and provides a sense of urgency to the EU's policy commitment for an
effective implementation of all aspects of the IS. The priorities are:

 - The _effective_ implementation by all member states before 1.1.98 of the
_telecommunications_ markets _liberalisation_ is vital. The Commission is determined

that the commitments made will be implemented and it will be monitoring carefully
the legislative development in the Member States.

 - _Electronic commerce_ is the first practical implementation of the IS, the first "massive
application" of the future. In the communication "Putting services to work" [6], a
European initiative on electronic commerce was announced. To launch this initiative,
a framework communication to the Council has been adopted by the Commission
listing the key priority areas that have to be resolved.

- Strengthening and acceptance of _internationally_ _agreed principles and rules_ covering
competition, intellectual property rights, privacy and individual rights, information
security, interoperability and standards.

 - _Take-up actions_ and _awareness initiatives_ need to be established or expanded to
encourage European industry and society to increase ICT usage.

- _Satellite-based_ _broadband communication systems:_ the action plan submitted by the
Commission addresses the regulatory adjustments and R&D actions needed in order to
ensure significant European presence at international level.

- In the _transport sector,_ new applications in trans-European networks (TENs), new airtraffic control systems and numerous consumer applications are emerging which will
offer growing markets for the European ICT industry. Action plans for Intelligent
Transport Systems (ITS) and Location and Navigation systems (GNSS) are being
prepared.

- _The Framework Programme for R&D_ is especially important in making the best use
across the EU of the substantial investment in R&D which is required in order to
maintain competitiveness. The 5th Programme due to start in 1998, will focus
particularly on the participation of users in R&D activities, essential to ensure that
actions meet real needs in line with the requirements of the market. In parallel, the
support of the development of key technologies will be integrated into one programme
and will be structured in four areas: services for the citizens, electronic commerce,
multimedia content and key technologies. Responsiveness and flexibility will also be
enhanced.

_»_ _Education and training_ are critical in providing employees with the necessary skills
and flexibility to use new technologies. Educational infrastructures must be upgraded
by **equipping** schools and cultural institutions with ICTs, providing them with network

**5** **COM(*6)6©7** of 27.11.1996 - Communication from the Commission on "Europe at the Forefront of the
**Gtotol** **Information** Society: Rolli«<g Action Plan".

6 CSE(%)6 of 27 November 19% - "Putting Services to Work", a Communication to the European

Council.

access (in particular Internet). This should be accompanied by improved teacher
training in ICT applications. In cooperation with the Member States, the Commission
will stimulate actions at national level to offer European citizens training appropriate
to the Information Society. The action plan "Learning in the Information Society",
approved by the Commission in December 1996, will bring together the most
important players in order to provide better access to skills needed in the future. The
implementation of the action plan runs in parallel with the work undertaken by the
Task Force "Educational software and multimedia", _i.a._ a joint call between several
Commission services, thus facilitating access to Community support in this area. The
measures will be renewed next year.

The _language_ issue, particularly important in Europe for software, is addressed in the
Information Society and Language Engineering programmes .

**4.2.** **New areas requiring attention**

Action in these areas should be targeted at improving either conditions in the supply side,
such as benchmarking and training, or opening up the demand side, for example market
access or take-up measures.

**Improve global competition:** The positive conclusion of the Information Technology
Agreement (ITA) at the WTO Conference in Singapore in December 1996 and the WTO
telecommunications Agreement in February this year are very important steps in this
direction. The abolition of tariffs on all IT products by the year 2000 accelerates the
process started in the last round of GATT negotiations. It will contribute to reducing the
costs of producing ICT equipment in Europe, while providing European manufacturers
with better opportunities for exporting to foreign markets. The ITA must be implemented
immediately, while at the same time launching the review mechanism to extend product
coverage. Action should be initiated to extend the country coverage to those nonparticipating WTO countries (notably in South America), while participation in the ITA
should be required of candidates for accession to the WTO, notably China and Russia.
With the removal of tariffs following the ITA, attention will shift towards the elimination
of non-tariff barriers in our main trading partners, notably by pursuing Mutual
Recognition Agreements (MRAs), and greater harmonisation of standards and
conformity assessment procedures. The first priority will be to build on the work of the
TransAtlantic Business Dialogue to conclude an MRA with the USA, exploring in
particular the possibilities of extending the principle of manufacturers declaration of
conformity. In parallel, operational activities will be developed in the context of the
TransAtlantic Small Business Initiatives (TASBI). These and other trade policy
instruments should be applied in a coherent manner ensuring that European industry
operates under optimal conditions both within the Union and in global markets.

**Accelerate ICT take-up and promote awareness:** Public administrations can and
should do more to stimulate the take-up of ICT, both within their own services and with
the public at large. In the first place, education authorities must improve the provision of
ICT to schools in order to pave the way to the Information Society. Moreover, they must
respond to public demand for better, more cost-effective services. And in the broadest

7 COM(96)456 of 2.10.96 - Multi-annual programme on Multilinguism in the Information Society.
Adopted by the Council on 8.10.1996

context, the furtherance of National and Community policies in many domains would
benefit by accelerated greater innovative use of the means offered by ICT. For example,
fig. 6 demonstrates the relative lack of investment in IT in southern and peripheral
Member States, despite the fact that IT is a powerful tool to promote Cohesion by linking
regions and reducing barriers. A number of Member States are now in the process of
establishing innovative fiscal and other incentives aimed at accelerating the take-up of
ICT in homes, schools and businesses. These schemes point the way, and should be
emulated and expanded upon broadly throughout the Union.

**Create new markets by timely standards:** The creation and use of standards has
become one of the key strategic levers used by industry to establish new markets.
Consumer markets, particularly, depend on establishing purchaser confidence in
products, hence the importance of establishing cooperation between suppliers to support
universal standards. To participate in the benefits of such cooperation, producers must
bring contributions to the table, in the form of technologies, standards or markets,and be
active in the international standards creating process if they are not to fall behind
technologically and commercially. The regulatory side of standardisation also needs
attention to simplify and accelerate procedures _(e.g._ manufacturers declaration of
conformity) in order not to hinder new product marketing. Standards in ICT are generally
global in nature, but often multiple standards, based on regional specificities, will
compete for market acceptance. European companies should therefore should not only
participate in the standardisation of technical specifications via international consortia,
but should also use. when possible, European platforms. The European Commission
supports the creation of a flexible and open workshop structure enabling European
companies to participate in the international ICT standardisation process. They should
trigger internationally recognised standards using European specificities. This calls for
agreements at the strategic level between the principal actors on the main user

Q
requirements . To translate user requirements into technical specifications, pragmatic and
flexible delivery mechanisms need to be developed by industry in close collaboration
with European standardisation organisations. The European Commission supports the
creation of flexible industry-led standardisation procedures to develop - besides the
adoption of formal European standards - technical specifications for European market
operators. To ensure consistency and an optimal use of the European standardisation
resources, a "guichet unique" under the umbrella of the European standardisation
organisations should be considered as a matter of urgency.

**Exploit the potential of** **enlargement:** The enlargement of European Union offers the
European ICT industry an expanded and growing internal market, improved economies
of scale, as well as new development locations to site cost-sensitive operations. The
European ICT industry has the opportunity here to re-engineer its manufacturing supply
structures, similarly to those of US and Asian producers, and so sharpen its global
competitiveness. Much of the industry is in the process of setting up various forms of cooperation in these countries, which offer also skills availability and competitive
manufacturing conditions. European producers are relocating activities back from the Far
East in order to take advantage of these, often better, conditions, releasing Far East
plants to concentrate on growing and increasingly open local markets. Particular attention
will be given to the facilitation of co-operation between the industries of the EU and the
CEEC. This is already under way in the consumer electronics industry. The Commission

8 An example of such agreements is the Mol) on "Open Access to Electronic Commerce for European

S M Es".

supports this initiative, and its expansion and extension to other sectors of the ICT
industries. Actions proposed by industry include benchmarking suppliers, supplier
conferences, in-plant training, and quality workshops. The Commission would support
the establishment or strengthening of active industry representation in the CEEC. The
pre-accession strategy provides a solid framework to establish conditions for fair
competition and to create a level playing field which will benefit the European industry.

**Promote industrial cooperation:** Numerous other important industrial co-operation
initiatives are under way or proposed, notably in the Newly Independent States, in the
Mediterranean area, South America and Asia. Several export promotion activities are also
proposed. In so far as the ICT industries are concerned, and particularly the SMEs, more
effort needs to be made to raise industry's awareness of the opportunities offered and to
help them to prioritise according to their circumstances. In addition, transborder
industrial co-operation activities could benefit largely from enhanced co-ordination with
existing Member States' programmes.

**Facilitate the emergence of** SMEs: Small and medium enterprises (SMEs) are critical
for employment generation and a key element of the ICT industry (particularly in the
software and multimedia content areas) because they often play the leading role in the
development of new technologies and the creation of innovative products. European
industry lags far behind the US in high-tech IT start-ups. This is a serious handicap, as
can be seen from the fact that many of today's leaders in ICT were SMEs in the USA less
than 20 years ago. Policy initiatives aimed at creating favourable conditions for fostering
and financing innovative start-ups is of the greatest importance. Policy initiatives should
pay particular attention to facilitating the provision of venture capital and co-operation
should be sought with financial institutions, in order to develop mechanisms such as
technology "rating". Efforts should also continue to reduce the administrative burden,
often a prime source of discouragement. The environment surrounding in particular
starting new businesses, should be considered as the subject of a benchmarking analysis,
by comparing the situation in Europe and in other regions, particularly the USA (Silicon
Valley). These problems have long been evident, but the situation remains critical. There
is _urgent_ need for the Commission and Member States to develop rapid and effective
action. The Commission also intends to use the G7 project "Global market-place for
SMEs" [1], as the basis for encouraging the exchange of experiences at global level and
facilitating other forms of co-operation.

**Focus on employment: skills, education and training:** As earlier noted. European ICT
industry must restructure continually in order to remain competitive, upgrading its
products and processes to provide increased added value while relocating less profitable
cost-sensitive operations. Skills upgrading are at the heart of the process. The
implementation _oï_ a "skills standards" scheme could go a long way to fulfilling this
objective. Establishing skills profiles related to the main activities on an industry wide
basis provides a reference for building a competent workforce, improving performances
and defining training programmes. Such standards will also contribute to a better
functioning of labour markets by providing a clear basis for matching employers" needs
and skills offered. Moreover, standards offer a practical basis for improved co-operation
between industry and schools and colleges, and a set of criteria to help education

9 Specific features of SMEs are addressed in the "Action Plan for Innovation in Europe", adopted by the

Commission on 20.1 l.P)%. - COM(%) ?X<>

10 Project launched at the (i7 Ministerial Conference in Brussels in February ! ( )95

**9**

authorities in Member States in their efforts to tailor curricula to the 21st century digital

economy.

**Promote benchmarking:** The European Commission considers benchmarking to be an
effective and powerful tool for improving competitiveness and intends to promote its use
by enterprises, in particular SMEs. Because of its economic importance and global
nature, the ICT industry is among the first to be singled out for the application of
benchmarking, and the Netherlands Government has had carried out a benchmark study
of the industry. The Commission intends to promote benchmarking at sector and
framework condition level. The competitiveness of the European economy as a whole
benefits from improvements in the ICT industry. Systematic review of industrial
performance, identification of relative weaknesses and adoption of corrective measures
contributes to progress. The Commission will review its current information sources to
determine whether they are adequate for the purpose of providing appropriate
benchmarking indicators, and will revise them if necessary. It will work closely with the
Member States and industry to identify critical framework conditions for industry and to
identify best practises. Areas already identified here for consideration include SME startups and embedded software.

**5. Conclusion**

A number of key areas for action have been identified in this Communication. The
longer their effective implementation is delayed, the more difficult it will be to hold a
leading position for the European ICT industry. Telecommunications liberalisation is
critical, but others are also necessary as described above.

The Commission proposes to follow up on this Communication by working together with
the Member States and Industry to draw up specific actions responding to these key
areas, to establish a work programme for their execution by all concerned parties
(Commission, Member States, Industry), and a mechanism for regular review of progress.

**10**

**Annex 1**

**The Council resolution of** **18.11.1991** **and its follow-up**

Since the resolution of 1991, the launch of the 4th Framework Programme for R&D has
successfully addressed industry requirements for R&D in ICT. User and market needs
have guided the relevant R&D programmes (Esprit, ACTS and Telematics), and the
technologies developed as a result are having a direct market impact.

Best use of results and active international co-operation have been two key elements in
programme action. Attention has been focused on SMEs. Synergies with the Eureka
programme have been strengthened.

As explained in the resolution of 1991, multilateralism is the basis on which access to
markets should be sought. This approach has been pursued in the GATT where
significant reductions in tariffs were obtained in the Uruguay round negotiations. These
were followed by the Information Technology Agreement (ITA) which will result in the
elimination of tariffs for most IT products by the year 2000. Of similar importance is the
success achieved by the conclusion of the WTO agreement in February 1997, opening
markets for telecommunication services world-wide.

The multilateral approach does not preclude bilateral actions where appropriate. Contact
has regularly been made with the US and Japan to protest against bilateral agreements
which discriminate against the EU _(e.g._ the US-Japan Semiconductor Arrangement).

A "Centralised Point of Information" was established in order to collect information and

analyses concerning market access to and competitive practices in the main industrialised
countries. A report was issued covering anti-competitive practices, distortions in
procurement, state aids, including examples of discriminatory practices and structural
impediments.

A number of industrial co-operation initiatives have been undertaken. An important
example is the parts and components industry supplying consumer electronics producers,
whose production practices have been compared with those of similar Japanese
companies. This has been done in a co-operative benchmarking project jointly organised
by the European and Japanese consumer electronics industries, with the support of the
Commission and MITI. This exercise has produced many useful suggestions, as well as
helping suppliers and users to understand each other's requirements better and resulting
in improved performance and increased business. The programme is now being oriented
to the countries of Central and Eastern Europe.

' Council Resolution of 18 November 1991 concerning electronics, information and communication
technologies.

_2_ Report presented on 1 1 March 1994 to the Directors (ieneral of Industry.

**/ /**

**Figure** **1:** **ICT industry structural trends**

**YESTERDAY** **TODAY**

Services

(information
society)

Markets Markets

transport
equipment

manufacturing
other
equipment

**c**

### **r-**

Figure 2

**EU employment in the** **ICT** **industries**
**(thousands of employees)**

1990

**284**

**243**

**181**

**392**

**612**

1994

**175**

**224**

**110**

**361**

**732**

Computers
Components
Consumer electronics

Telecom equipment

Software and services

1980

**242**

**258**

**230**

**493**

**270**

Total

**1493**

Total **1493** **1712** **1602**

Source: BIPE

**1712**

###### **_II_**

**EU** **1** 2 **ICT** Industries as a % of the **Total** Manufacturing
**Industries (81-90-94)**

```
0.0%

```

Number of Turnover Total Production GVAfc in

Persons investment excl. VAT in 1990 prices
Employed 1990 prices

Exports Imports

**Figure 3.1**

```
  1981

  1990

  1995

```

**Figure 3.2**

EU 12:Comparasion for Main Indicators in 1995 (As a % of
the Total Manufacturing Industry)

- 14.0%

_V)_
_%_ 12.0%

ç

? 10.0%

**I** **8.0%**

**6.0%**

**4.0%**

11.2%

I ICT

I Chemicals

[Automotive

**o**

**2.0%**

**0.0%**

Number of

Persons

Employed

GVAfc in

1990

prices

**Indicators**

## **_h_**

**ICT** **Market Growth, CGAR 1996-98**

Figure 4.1

9.50

10%

Total ICTMarket

Telecom Services

Telecom Equipment

Services

Software Products

Data Comm. Hardware

Office Equipment

Computer Hardware

Source EITO 97

Figure 4.2
**Western European Information and Communications Technology**
**(ICT) Market, 1996 Billion** **ECU****

1996 %of

Value ICT

**Total** **IT** **148** **47.1**
Computer and Datacom Hardware 58 **18.4**
Office Equipment 2.5
Software **31** **9.9**
Services 37 11.6
Hardware Maintenance and Support **15** 4.7
**Total Telecommunications** **167** **52.9**
Telecommunication Equipment 29 **9.1**
Telecommunication Services 138 43.8

**Total ICT** **315** **100**
Note: 'Western Europe includes the 15 EU and 2 non-EU countries (Switzerland and Norway)
** It should be noted that all figures have been rounded to the nearest billion ECU at
1996 constant exchange rates. Total and percentage may not add up due to rounding.

Source: EITO 97

Figure 4.3
**Western European Information and Communications Technology**
**(ICT) Market by Product. 1996**

Total Value =

315 Billion

ECU

**Telecoms**

**Equipment**

9%

Source: EITO 97

**Office**

**Equipment**

**3%**

**HW Maint.**

& **Support**

**5%**

_**>f**_

Figure 5.1

**Worldwide IT Market by Region: Percentage**

**Breakdown Calculated on Market Values.**

**1995-1997. Billion ECU**

1996

Value

1995

%

1996

%

1996 1995 1996 1997
Value % % %

Europe* 154 29.4 28.3 27.5
US 225 41 41.4 41.8
Japan 92 16.9 16.8 16.6
4 Tigers* 16 2.7 2.9
RoW** 57 10 10.5 11.1

**Total** **544** **100** **100** **100**

**Note:** **Europe includes Western and Eastern Europe**

*** 4 Tigers** **=** **Hong Kong, South Korea, Singapore, Taiwan**

***" Row = Rest** **of World**

**Source: EITO 97**

Figure 5.2

**Worldwide IT Market by Region.** **1996**

Total Value =

544 Billion

ECU

**4 Tigers**

**3%**

**Rest of**

**World** **17%**

**/6**

Figure 6
**IT/GDP** **and** **IT** **per Capita in Western Europe, the US and Japan. 1995**

**IT per Capita ECU**

_**WEmmEEEmam**_ **672**

```
                        3.67 763

                                              942

                                             630

                              88

                                            I 648

                                      521

                                217

                             50

                                    426

                                         698

                                     453

                                    396

                               131

                                214

                                       370

                                       • 417

                                   IB 460

                              200 400 600 800 1000

Source: EITO 97

```

Figure 7

**EU 12: Trade Balance for the ICT, Chemical and Automotive**

**Industries**

Automotive

ICT Ind.

**D**
**O**

**UJ**

o
**i**

```
D1995

• 1990

• 1985

• 1980

```

-30000 -20000

Cons. Elect.

Telecom. Equip.

Off.Mach/Comp.

Chemical

-10000 0 10000 20000 30000

Sectors

_**/?•**_

**Penetration** **of Internet Hosts per 1.000 People, July 1996**

**S N M :** **EITO** **97/fMworkVMurës,** **[http://www.nw.com and](http://www.nw.com)** **AMriiWy***

**Figure 8**

##### **I 2 t I | I**

**p** **o**

_**I?**_

**ISSN** **0254-1475**

#### COM(97) 152 final

# **DOCUMENTS**

EN 15 16 08

Catalogue number : CB-CO-97-157-EN-C

ISBN 92-78-18704-6

**Office for Official Publications of the European Communities**

**L-2985** **Luxembourg**

### **_/n_**