Third European Forum for Innovative Enterprises
Stockholm, 8 April 2002

Mr Erkki Liikanen Member of the European Commission, responsible for Enterprise and the Information Society

"Opening remarks of the Third European Forum for Innovative Enterprises"

Minister, Ladies and Gentlemen,

Thank you, Mr Cederschiöld, for your warm welcome and being the host of this important conference.

In November 2000, we met last time in Lyon for the Second Forum on Innovation. At that time, we discussed three topics: spirit of enterprise, information networks and the role of regions for the creation of companies.

EU leaders had met in Lisbon, in March 2000, to set a target for the EU to become the most dynamic and competitive knowledge based economy. That is why we added a fourth priority: technology revolution and the importance of Information and Communication Technologies (ICT).

Enterprise policy and information society strategy played again a major role at the European Council meeting in Barcelona three weeks ago. Heads of state and government supported the idea of better focus on entrepreneurship and innovation in a knowledge based economy.

What is the situation now?

Our point of departure is challenging.

GDP per capita in the EU is currently only two-thirds that of the United States. The gap has not been as large as this since the end of the 1960s. 2/3 of the gap is due to the lower employment rate, 1/3 due to a lower productivity development.

The Commission's competitiveness report (in 2001) draws two important conclusions:

- we must be stronger at research and innovation, and in introducing and benefiting from Information and Communication Technologies (ICT).

• Firstly, we need to invest more in research, in public and private sector.

As a percentage of GDP, business expenditure on R&D in Europe is less than two-thirds that of the United States and a little more than half that of Japan.

Therefore, the European Council in Barcelona agreed that overall spending on R&D and innovation in the Union should be increased with the aim of approaching 3% of GDP by 2010. Two thirds of this new investment should come from the private sector.

• Secondly we need to invest more in Information and Communication Technologies.

The hype of the year 2000 is over. But the role of ICT is as vital as ever.

But to get the benefit for the productivity, we must do two things at the same time.

We need to invest more in skills. In Europe, there is a skills gap in ICT, a gap which has persisted in spite of the current economic slow down.

And we must be able to re-engineer the business and administrative processes.

Productivity advantage comes only when all three issues are done; investments in ICT, in skills and in reorganisation.

Ultimately the dynamo of innovation and growth is the individual enterprise. This is the most important factor.

In terms of enterprises, innovation begins when the entrepreneur sees a market opportunity, probably not all that clearly at first. His or her awareness of the firm's capabilities and knowledge base suggests that the opportunity can be grasped.

The firm may need to work with its suppliers. Almost certainly it will have to work with its customers.

Partnerships between entrepreneur and customers, between entrepreneur and suppliers, will be built. Finance will also be required. Difficult choices may have to be faced by the entrepreneur, who has to arbitrate between keeping the business healthy in the short term and investing in innovation for the long term.

Creativity enters the process. There will be problems that cannot be resolved in-house. The firm may turn to other firms with knowledge to fill in the gaps, or it may turn to Research & Development.

With the expanding importance of the service sector, and of business models built on new methods of organisation, innovations with far-reaching consequences are often not research-related.

Even when a new technology is involved, the key issues are often not of a technological nature. That this is so is demonstrated by the dynamics of many Internet-related firms and industries.

This area has been examined by Professor Lee McKnight, who will be speaking to us later this afternoon.

What is the focus now at this Third European Forum for Innovative Enterprises?

The main focus of the conference is: How can public authorities encourage the emergence of successful innovative firms?

Entrepreneurs are responsible for innovation and growth of their companies. But public authorities can help.

Let me start by showing the evidence of the European Commission's Innovation Scoreboard (of 2001).

The Scoreboard gives a picture of innovation potential and performance by combining statistics on four areas: framework conditions, the research environment, the behaviour of firms, and the output of innovative products.

• The innovation scoreboard shows that all Member States have raised their performance over recent years, although at very different rates. Some countries with low scores nevertheless show strongly positive trends - they are catching up. Greece is the prime example.
• Other countries, already with high scores, also show above-average positive trends they are forging ahead. This applies to Finland and Denmark.
• Sweden emerges with the highest overall score, but with an upward trend that is close to the average for the Union.
• For some of the indicators, the leading countries of the Union show significant advances over the United States and Japan.
• We know that differences in innovation performance are also present at the regional scale. Stockholm, for example, is at the top of the rankings of EU regions in terms of the percentage of R&D personnel in its workforce a strong indicator for innovation building on research.
• The Commission is exploring how the scoreboard can be developed to give it a regional dimension, looking at innovation in more detail than the country level.
• At the same time, we are also planning to extend coverage to include the candidate countries, which have applied for EU membership. They must be part of our efforts to boost innovation right from the start.

The scoreboard highlights the existence of big differences in innovation performance in Europe. It is interesting to note that countries with the most developed knowledge base are not the same as those, such as Italy, where the entrepreneurial drive is strongest.

There is clearly enormous potential for learning from each other.

However, it is not a simple matter to discern exactly what mix of factors are critical for success.

The conference today and tomorrow will focus on what the local and regional authorities can do to provide the right conditions for entrepreneurs to create innovative start-ups, and for them to thrive and grow.

What is the role of cities in particular?

Cities are important in this context since they are home to 80% of Europeans. As we will see during tonight's award ceremony, at present some of Europe's most successful innovative areas are cities, or are linked to cities.

Cities have to continually reinvent themselves. Fifty years ago, many were still highly industrialised. Since then we have seen the often painful decline of heavy industry in cities, but also the parallel growth of the service sector. Growth in higher education has helped maintain the role of cities as sources of knowledge and skills.

They have much to offer as centres of innovation. The larger cities can encompass many different business specialisations, they have good transport links and they offer a highly qualified workforce.

We will be discussing these and other issues in the workshops tomorrow.

Apart from the regional and local level, what are the main priorities for a European-level approach to innovation in the future?

• Firstly, we are currently renewing our thinking about the way innovation works in the European context. So far most studies of the operation of innovation systems have their focus at the national level.

We must grasp the opportunities offered by the European market and the euro, and develop a truly European model a European dimension linking the multiple national innovation systems.

There are examples world-wide of successful innovation systems which will provide inspiration for this endeavour. We should learn from these examples, but use them to develop an approach to innovation for the European Union that builds on the diversity of cultures at the root of our national systems.

• Secondly, we must develop a more complete and inclusive view of innovation.

The past decade saw a wave of innovation inspired by different components.

Most importantly, the introduction of new information and communication technologies as I mentioned before. It has already brought immense changes to our daily lives, and it will bring even more in the future.

Another important area is biotechnology. We are just beginning our ride on that wave. In January this year the Commission proposed an Action Plan on Biotechnology to develop sustainable and responsible policies in this area.

These technologies are revolutionary, but often we do not extract the full benefit from them.

Take the field of information and communication technologies. They have reduced the meaning of distance and opened up vast amounts of information and knowledge for public use.

But often, technological innovation is not being matched by the organisational innovation that is necessary to extract the full advantage for the customer.

"Good" innovation requires innovators with a vision of the real benefits they can bring to their customers, and the skills to offer products and services to match that vision. And firms buying an innovative product or service from their suppliers require the skills to absorb the innovation and extract the maximum benefit from it.

A more complete view of innovation is one that stresses those special skills of organisation and entrepreneurship that are essential in order to innovate successfully, whether as a supplier or as a receiver of innovation.

As the balance of our economies swings towards the service sector, we need these skills of entrepreneurial innovation there as much as in manufacturing.

We need entrepreneurship in large firms as well as in Small and Medium sized Enterprises (SMEs). And we need the same spirit and skills in the public service, which should be as open to innovation as the private sector.

In conclusion.

The Barcelona European Council called for a more favourable environment for entrepreneurship and competitiveness. The Commission will respond by publishing a Green Paper on entrepreneurship in time for next year's Spring Council.

Barcelona also highlighted the importance of knowledge as a contributor to a competitive economy. By next Spring, the Commission intends to propose measures to better integrate innovation into a European Knowledge Area.

These will focus on further developing and strengthening private investment and the use of risk capital in research, on increasing networking between business and research, and on improving the use of intellectual property rights across Europe.

In this respect the Barcelona Council reaffirmed the importance of the Community Patent, aiming for a common political approach to this important question to be reached in May.

The Commission will continue its work to activate a European dimension to the innovation process. This is done through networking, awareness-building, and provision of specific services.

The objective is to encourage trans-national exchanges and partnerships. National innovation systems 'networked' into a European innovation system will make a greater contribution to European competitiveness than national innovation systems alone.

The Commission intends to publish a Communication later this year on a European innovation policy to foster entrepreneurial innovation.

We also propose to encourage the staging of European entrepreneurship days, in cooperation with some of the cities represented at the Forum today.

I look forward to discussing these concepts during the forthcoming round-table discussion.

Thank you for your attention.