Dynamics of ICTs: industries, R&D, markets

PREDICT Workshop 2016

February 18-19, 2016, Seville

Session 1: ICT industries, R&D and ICTs in the economy

Challenge:

Sven Lindmark

1

Challenge overview• Raise some issues, questions (but few answers)

to: What evidence should be important for policy,

gaps, areas further research?

• Content

– ICT R&D dynamics in Europe (CIS)

– Digitalization

– Other

• Challenger background

– focus ICT industry, industrial and innovation

dynamics, competitive position of regions/nations,

impact of ICT innovation and disruptive

technologies

– Academia (Chalmers), ICT research Institute

(iMinds), JRC-IPTS (PREDICT)

Point of departure: Early PREDICT

• Why? – Importance of R&D (and innovation) for economic growth – Europe

lagging – the 3% (GERD/GDP) target

• Target: 2% BERD/GDP, from circa 1.2%

– Importance of ICT (sector) for R&D, innovation and economic growth

– Lack of systematic mapping of EU ICT R&D

• What? – Mapping and analysis of R&D investments in the EU ICT sector.

• How?– Combines three complementary perspectives:

1. National statistics (private and public R&D expenditures, other)

2. Company data EU Industrial R&D Scoreboard

3. Patent data (Patstat) and R&D center locations

…(embedded R&D, internationalization, innovation, etc)

ICT sector R&D in the mid 00s

“Mind the Gap”

• ICT

– Important part of Economy

• 4.8% of VA, 3% of employment

– largest R&D investing sector

• 25% of BERD (€34 Bn), 0.30% of

GDP

– But EU spent about half as much

as US (absolute and relative

terms) on ICT R&D

Half of R&D gap is an “ICT R&D

investment gap”

– No signs of closing

Source: Lindmark et al. (200) Mapping R&D Investment by the European ICT

Business Sector, JRC Reference Report

EU is lagging (increasingly) behind

Source: Turlea et al. (2010) The 2010 Report on R&D in ICT in the European Union, JTC-IPTS

Why gap?• National statistics: EU Level

– Partly because of smaller size (ICT VA/GDP)

• Sector composition roughly similar (Slightly higher share of manufacturing in the US)

– Partly (and more so) lower R&D intensity (ICT BERD/VA)

• Mainly because lower intensities some sectors the IT Equipment, Components, (measurement instr.), and CSS

– CSS only sub-sector with persistent R&D growth

• MS level: Very large differences between EU member states (ICT BERD/GDP ranging from

1.5%+ to ca. 0.02%),

– North-West /South-East

– Differences in presence of sub-sectors with high R&D intensity

• Company (R&D Scoreboard) data (EU companies vs US companies)

– A similar gap €28 vs €59bn ICT company R&D

– While R&D intensities across sectors were similar (EU vs US)

– However EU companies had a very low presence all ICT sub-sectors expect in telecom (equipment and

services), Not the least in the very dynamic “Software” and “Internet” sub-sub-sectors

– Large share of EU company ICT R&D (among major R&D spending companies) was conducted by a few

old companies, while the US had much larger share of fast growing relatively young companies (many

from Silicon Valley)

– EU ICT companies do not invest less in R&D

• The gap was, according to company data, because of weak and less dynamic ICT-industry,

also in the fast growing SW and Internet segments, hence it might widen

• Implications: Grow the industry? Foster attractive conditions for establishment, growth and

internationalization of (new) of R&D intensive activities in Europe? Innovation? Support

entrepreneurship? Strengthen clusters?

What happened since?• ICT sector redefined (as well the

EU)

• ICT BERD/GDP stayed flat at

around 0.22%

• Decline in ICT Manufacturing (and

telecoms) R&D

• Continued growth in Computer and

information services (CIS).

Source: Mas et al. (2015) The PREDICT 2015 Report, JRC-IPTS

Dynamic CIS

sub-sector

• CIS growth in absolute and

relative terms, BERD, VA

and BERD/VA

• What is behind the CIS

dynamics?

– Sub-sectoral level?

– Differences new/old, small/large

companies. Entrepreneurship.

– MS and regional differences?

– Why is the BERD/VA level still

low in Europe?

BERD dynamics by industry in major players, 2006-2013, PPS bn

R&D intensity, 2006-2013

Source: de Panizza (2016), PREDICT workshop presentation

Another step back in time:

CIS sector R&D investments: Company-data (old)

• Dynamics (growth) in large SW industry and

smaller Internet industry – mainly in the US

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

EU Japan RoW US RoW US EU RoW US

Computer services Internet Software

2004 2005 2006 2007

Source: Source: Turlea et al. (2010) The 2010 Report

on R&D in ICT in the European Union, JTC-IPTS

Top 10 R&D investors in CIS sector (2007)

• Young US Internet firms, with rapidly growing R&D investments

US EU

Cy RD exp. 07 Age Cy RD Exp 07 AgeMicrosoft 5584 35 SAP 1458 38

IBM 3931 114 Dassault Syst. 292 29

Oracle 1875 33 UBIsoft 226 24

Google 1450 12 Amdocs 158 28

Yahoo! 818 15 Sage 152 29

Symantec 612 28 Fujitsu-Siemens 145 25

CA 430 34 Indra 141 89

Adobe 419 28 Business Obj. 133 20

Intuit 356 27 Symbian 128 29

Cadence

Systems

354 28 Misys 98 31

Total 15829 Total 2931

Source: Source: Turlea et al. (2010)

The 2010 Report on R&D in ICT in the

European Union, JTC-IPTS

TOP R&D investing CIS companies 2014(In red – author’s assessment = Internet services companies)

“Internet”

companies

accounts for a

large and

growing share

New breed of

R&D intense,

innovative,

rapidly

growing

platform

leaders

Captured by

indicators?

Source: Author’s elaboration of data from The 2015 EU Industrial R&D Investment

Scoreboard data available at http://iri.jrc.ec.europa.eu/scoreboard15.html

CIS Rank Rank Name Country Sector R&D (€mn) Growth (3y, ( RDI (%) Capex 2014 Prof. (%)

1 3 MICROSOFT US S&CS 9 921,7 5,1 12,9 4 895,8 29,9

2 6 GOOGLE US S&CS 8 098,2 15,3 14,9 9 026,4 25,0

3 22 ORACLE US S&CS 4 549,9 4,4 14,5 1 145,7 37,4

4 25 IBM US S&CS 4 335,7 1,4 5,7 3 445,3 22,7

5 50 SAP Germany S&CS 2 307,0 5,6 13,1 737,0 24,7

6 55 FACEBOOK US S&CS 2 195,9 53,9 21,4 1 508,1 40,1

7 84 FUJITSU Japan S&CS 1 384,1 -2,4 4,3 1 359,4 3,8

8 116 YAHOO! US S&CS 1 064,3 -1,7 28,0 308,7 5,3

9 131 BAIDU China S&CS 939,7 43,9 14,2 649,8 26,1

10 132 TENCENT China S&CS 934,4 23,9 8,8 578,3 39,5

11 136 SYMANTEC US S&CS 917,6 2,3 17,1 313,8 21,5

12 137 NEC Japan S&CS 916,3 -4,1 4,6 289,9 4,1

13 144 ELECTRONIC ARTS US S&CS 872,3 -1,7 23,5 78,2 20,9

14 167 ADOBE SYSTEMS US S&CS 695,5 3,9 20,4 122,2 10,4

15 174 SALESFORCE.COMUS S&CS 657,5 23,9 14,9 343,4 -2,7

16 175 INTUIT US S&CS 657,3 5,3 19,0 215,0 17,6

17 182 TWITTER US S&CS 605,8 97,5 52,4 166,1 -38,4

18 185 AUTODESK US S&CS 597,3 2,6 28,9 62,2 4,9

19 186 SYNOPSYS US S&CS 595,0 10,8 35,1 413,1 12,1

20 200 AMADEUS Spain S&CS 568,4 11,9 16,6 77,8 28,0

Other interesting "non-Internet" companies

18 APPLE US Tech HW 4 975,7 22,6 7,0 8 082,5 28,7

206 AMAZON.COM US Retailer 528,0 23,7 19,5 4 030,1 0,2

266 NETFLIX US Retailer 389,0 13,5 25,8 57,4 7,3

Internet platform companies

• E.g. Google, Amazon, Microsoft, Facebook, Apple

• Scale economies: low marginal costs, network effects

very rapid growth and high margins for a few very

large “almost monopolies” platform leaders

• Complementarities + partly personal information-driven business

models + strive to create switching costs and to be the main

access point for everything

expansion of functionality & offers, new

product and service launches, acquisitions

– Cf Google: Search engine “everything”

• Disrupting other sectors and posing challenges to measure

See e.g. Exhibit 14, “Product launches across sectors by major digital platform

providers” (1998–2015), by McKinsey Global Institute, available at, available at

http://www.mckinsey.com/industries/high-tech/our-insights/digital-america-a-

tale-of-the-haves-and-have-mores

Product launches across sectors for major platform players

Source: McKinsey: Digital America, December 2015

Digital everything? • Digitalization for a long time and gaining pace

– Early (1960s and onwards): ICT products (computers, calculators, partly replacing

‘analog’ ones typewriters, etc) and in business e.g. enterprise software for managing

operations

– Mid-90s onwards: massive adoption of Internet, mobile connectivity, social media,

smartphones

– Several industries already largely digitized, e.g. media and content industries

– New opportunities with Big data analytics, IoT, AI, etc.

– Indications that digitized sectors display higher profitability and productivity growth

• Policies has largely focused on e.g. R&D, infrastructure availability and

digitalizing public services, change in attention (Cf. WEF, Sweden Digital

strategy initiatives, Digitalization commission, etc.)?

• How to enable to companies grab the opportunities of digitalization?– Improve operational efficiency, to organize more effectively, to expand market, to innovate more

• But also consider potential downsides (e.g. privacy issues, job displacement?)

• And to measure better across countries, sectors, firm size, type of digitalization

• See e.g. McKinsey MGI Industry Digitalization Index, for inspiration. Shows

digitalization across industries, according to how digital are assets, usage, labor,

identifies opportunities etc. • See Exhibits E2 & 7, “The MGI Industry Digitization Index”, by McKinsey Global Institute, available at,

available at http://www.mckinsey.com/industries/high-tech/our-insights/digital-america-a-tale-of-the-

haves-and-have-mores

Other issues• Definition of the sector?

– Excluding some parts (measurement/input?, including trade etc.)?

• Innovation

– Vagueness and broad scope of concept

– Problems to measure, capturing some important aspect e.g. “media

and content innovation” not well covered

• Competitiveness

– How do we measure?

• Indicators for new emerging potentially disruptive ICTs.

– Are we really capturing some of the interesting disruptive aspects of

new ICTs and their impact (platforms, the rise of the app economy,

entrepreneurship, digitalization, automation)?