Fostering incremental innovation in high manufacturing areas (information report)

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Background

The European Union is greater than the sum of its Member States operating within the single market.

Since the Bratislava Declaration and Roadmap, and even more since the Rome Declaration, EU firms' and citizens' support for the EU has improved, thereby helping the EU leaders to achieve their essential objective of regaining business and citizens' trust: new sound ideas to foster incrementalinnoation in EU manufaturing must be elaborated and tested before the special summit on the Future of Europe debate, due to take place in the Romanian city of Sibiu on 9 May 2019.

In the Euro Area, the Market Manufacturing Purchasing Managers' Index measures the performance of the manufacturing sector and is derived from a survey of 3,000 manufacturing firms. the large majority of newly created firms in the EU-28 were born in non-ICT industries. Namely, the ICT sector (ICT manufacturing, ICT services, ICT wholesale and online retail trade) accounted for only 7.9 % of all EU-28 enterprise births during this period. All but 0.2 % of enterprises which operated in the EU-28 non-financial business sector in 2016 were SMEs. These SMEs employed 93 million people, accounting for 67 % of total employment in the EU-28 non-financial business sector, and generating 57 % of value added in the EU-28 non-financial business sector. Almost all (93 %) of the SMEs were micro SMEs employing less than 10 persons.

The average enterprise birth rate stood at around 10 % over the period 2010 to 2014 – the most recent years for which harmonised data was available - with about 70 % of newly created firms having had no employees.

The manufacturing sector includes a vast range of activities and production techniques, from small-scale enterprises using traditional production techniques such as the manufacture of musical instruments to very large enterprises sitting atop a high and broad pyramid of parts and components suppliers collectively manufacturing complex products such as aircrafts. An analysis of the manufacturing sector as a whole gives an idea of the scale of this sector, it should be noted however that indicators of its inputs (for example, labour or capital goods), its performance, or its size structure are effectively an average across very different activities. Firm's success in technology-driven industries critically depends on the ability to invent and commercialize innovative technology.

However, numerous challenges and crises looming on the horizon pose a great number of threats to the welfare, prosperity, security and freedoms of firms and citizens. We have to apply an integrated approach and find sustainable answers simultaneously to numerous and distinct dilemmas and transitions: how to make Europe stronger in a global geopolitical context which threatens our open market economic principles, and at the same time how to maintain and increase our level of innovation, and international competition toghether with a sound protection of the environment and mitigation of climate change.

In this respect, firms with the ability to create new technological knowledge have been praised for generating knowledge internally and combining it with external knowledge sources.

However, the process of identifying knowledge to be integrated into the organization’s own knowledge base requires that firms deliberately search for and reach out to promising knowledge sources.

Search has been characterized as the fundamental mechanism enabling firms to learn, evolve and refocus the organizational knowledge base. In fact, the search strategy, defining direction and priority of boundary-spanning search activities, has been found to substantially impact innovation performance. EU policy implications for new strategy and instruments, can be directly derived based on these findings:

  • strategy focusing narrowly on customers and competitors cannot be expected to provide  radically new innovations outside of the service sector.  Market-driven search strategies provide incremental innovations which may still be profitable without entailing the increased risk of the radical ones.
  • innovation firms have strong incentives to broaden their portfolio of promising sources of knowledge outside of the firm and new skills training to human resources. This perspective this may require increased resource commitments at procurement and R&D units to generate the necessary channels for assessing and transferring their particular knowledge
  • firms and workers benefit strongly from their own investments in knowledge production with R&D, especially when engaging continuously and benefitting from accumulated knowledge. Hence, open innovation search strategies appear to be complementary with in-house knowledge production instead of substitutive in nature.

Analysis shows that in the year since the Rome Declaration, and a year before the special summit on the Future of Europe debate, due to take place in the Romanian city of Sibiu on 9 May 2019, substantive progress has to be made regarding the debate itself and implementation of the policy priorities on fundamental mechanisms enabling firms to learn, evolve and refocus the organizational knowledge base and to reach and maintain EU high levels of manufacturing competition on the global open market.