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RETHINKING INDUSTRIAL POLICY IN THE DIGITAL AGE: CHALLENGES FOR EUROPE Some introductory stats

RETHINKING INDUSTRIAL POLICY IN THE DIGITAL AGE: CHALLENGES FOR EUROPE Some introductory stats. Reinhilde Veugelers. The top corporate R&D investors and the growing importance of digital/ICT. EC-JRC-IPTS Industrial R&D Scoreboard (Largest R&D spenders worldwide).

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RETHINKING INDUSTRIAL POLICY IN THE DIGITAL AGE: CHALLENGES FOR EUROPE Some introductory stats

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  1. RETHINKING INDUSTRIAL POLICY IN THE DIGITAL AGE: CHALLENGES FOR EUROPE Some introductory stats Reinhilde Veugelers

  2. The top corporate R&D investors and the growing importance of digital/ICT EC-JRC-IPTS Industrial R&D Scoreboard (Largest R&D spenders worldwide) Full list of 2500 JRC Scoreboard companies by size of R&D expenditure, 2015

  3. The rise of digital & China-US and how EU missed it • Layer I: Network element providers (e.g. Cisco, Samsung, Alcatel, Ericson, Nokia, Apple, Huawei, ZTE…), • Layer II: Network operators (fixed and mobile) (e.g. AT&T, BT, DT, Vodafone..), • Layer III: Software & ICT service providers; Platform, application providers (e.g. Google, Facebook, Alibaba, SAP…). US strength in ICT-I and especially ICT-III; China specializing in ICT-I & ICT-III; EU’s strength (?) in ICT-II, EU especially weak in ICT-III Source: Bruegel calculations based on JRC-R&D Scoreboard 2018

  4. Size and incumbency in the platform based new digital landscape: winner take all ? Big tech? • Having large scale is an advantage in new platform-based digital sectors. The benefits mostly emerge from network effects operating on the two sides of the market: a large user base and a large base of applications and equipment. • These two-sided network effects and large switching costs create a major barrier to entry for new entrants, and a strong advantage for established incumbents: ie advantage of scale and incumbency; • Bargaining power within platform for small new developers relative to large incumbent platform providers will be higher in open, compatible platforms • Nevertheless, as technology changes rapidly, incumbent advantages may also be quickly depreciated. New entrants offering radical innovations can quickly surpass existing entry barriers. This feature of new digital sectors constantly challenges incumbent positions.

  5. R&D concentration trends in digital sectors: winners-take-all? • EC-JRC-IPTS Scoreboard: Sample of largest R&D spending firms in the world • The scoreboard firms cover >80% of Business spending on R&D (BERD) worldwide • We only characterizing the R&D distribution in the top parts of the R&D size distribution

  6. Persistency of R&D Leadership in Digital Next to Alphabet, Microsoft, Cisco, Oracle and Qualcomm as young persistent leaders, there is also in 2015 Huawei in 5th position, Apple in 6th, Facebook in 12th position. None of these young new R&D leaders in Digital are EU. To compare: Persistency of Leadership in BioPharma Source: Bruegel calculations on the basis of EC-JRC-IPTS R&D scoreboard data

  7. Europe’s position at the digital R&D frontier?

  8. Artificial Intelligence: concentrated in few (non-EU) The development of AI-related technologies, as measured by inventions patented in the five top IP offices (IP5), increased by 6% per year on average between 2010 and 2015, twice the average annual growth rate observed for patents in every domain. The development of AI technologies is concentrated. Top 2000 corporate R&D investors own 75% of the IP5 patent families related to artificial intelligence (AI). R&D corporations based in Japan, Korea, Chinese Taipei and China account for about 70% of all AI-related inventions belonging to the world’s 2000 top corporate R&D investors and their affiliates, and US-based companies for 18%. Source: OECD, STI 2017

  9. Questions for discussion • Is there still room in digital sectors for new leading firms to displace incumbent leaders? From EU? With the US, and more recently China, hosting most of the new R&D leaders, especially in digital sectors but also in other sectors, the EU has a weaker creative-destruction power. In need of an industrial policy support for EU digital ? How?

  10. Some references Veugelers, R., 2018, Are European firms falling behind in the global corporate research race? Bruegel Policy Contribution 18-06, Bruegel, Brussels. Veugelers, R., 2012, New ICT sectors: Platforms for European growth?, Bruegel Policy Contribution, 2012/745, Bruegel, Brussels; Downloadable at www.Bruegel.org

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