13.7.2. “Lead Market” initiative

Current limitation of Europe’s competitiveness and ability to face global competition can be overcome also becoming an economic zone that could generate much more “lead markets”.

The potential economic advantages of the “Lead Market” Initiative (LMI) for Europe are considerable. Facilitating the growth of lead markets is an approach to fill the gap between the generation of new technologies and the market success of innovations. The gains from closing the gap could include more rapid returns on investments and thus greater incentives for expanding private investment in R&D; location advantages for R&D and production facilities; higher productivity, increased exports, ultimately leading to higher levels of growth and employment. Given the areas identified, the approach would also generate substantial environmental and societal benefits (see the LMI Communication).

Two clear themes emerge from the sixth edition of the European Innovation Scoreboard. The first is that the innovation gap between the EU and the US has narrowed for the fourth year running. Secondly, national innovation performances within the Union are beginning to converge as new Member States move closer towards the EU average.

This snapshot of the state of play of innovation in the EU25 last year is the result of an analysis of 25 different indicators ranging from the percentage of the population with tertiary education to the number of new patents registered. These were grouped into five main families: innovation drivers, knowledge creation, innovation and entrepreneurship, applications and intellectual property.

Over the past year, the EU improved its relative performance against the US in almost a dozen indicators. These include new science and engineering (S&E) graduates, who now make up 13 per thousand 20-29 year olds in Europe compared to 10 in the US. The EU also leads in employment in manufacturing industries producing high-tech goods (7% of total workforce compared to 4% in the US).

However, the EU lags behind in other key areas. Venture capital investments in the early life of a company are three times higher on the other side of the Atlantic than in Europe. The share of total exports taken up by high-tech products is noticeably higher in the US (26.8%) than in the EU (18.4%) and the US files a lot more patents.

After falling further behind Japan in 2005, the EU has reversed the trend, making up for the ground lost in the previous four years. The change in fortunes was partly due to a stronger performance in S&E graduates and broadband penetration rate.

Within the EU, there are still significant national differences between innovation leaders, innovation followers, catching-up countries and those trailing behind. The first group contains Sweden, Finland, Denmark and Germany. These are followed by the UK, France, Netherlands, Belgium, Austria and Ireland, which find themselves basically on a par with the US.

The scoreboard reinforces the key message: in order to perform well in the innovation stakes, it is necessary to have a strong all-round performance. Weaknesses in one or more of the five families of indicators can drag down the whole and must be tackled, but not in isolation.

As the EU's innovation policy becomes more sophisticated, the emphasis is shifting away from assessing what can be done to improve innovation performance per se to ways in which imaginative breakthroughs can be used in practice to achieve societal goals.

This can be seen from the agreement of the December 2006 Competitiveness Council. This acknowledged the critical role that innovation can play for Europe to respond to the challenges and opportunities of the global economy and its important contribution to the EU's growth and jobs strategy. To accelerate the process, the Council agreed a nine-point strategic priority action plan, which is currently being put into practice. The creation of a European Institute of Technology is arguably the plan's flagship.