ICT Strategic Study Part 1 Sectoral Outline May 2015

Transcription

1 ICT Strategic Study Part 1 Sectoral Outline May 215

2 Summary SUMMARY SYNTHESIS... 6 CHAPTER 1 - ECONOMIC IMPORTANCE THE GLOBAL MARKET THE MARKET PER REGION THE MARKET IN EUROPE WEIGHT OF EUROPE IN ICT SALES ICT SECTOR AS PERCENTAGE OF GDP EMPLOYMENT R&D ICT R&D /R&D TURNOVER HEADCOUNT EXPENSES CHAPTER 2 - ECONOMIC PERFORMANCE MAIN TRENDS IN ICT SECTOR ECONOMIC PERFORMANCE AFTER THE CRISIS THE NUMBER OF ICT ENTERPRISES IN EUROPE STAGNATES AFTER THE CRISIS ICT SECTOR TURNOVER SHOWS MODEST RECOVERY EUROPE S SHARE IN THE GLOBAL ICT MARKET HAS PLUMMETED SINCE THE CRISIS THE ICT SECTOR ACCOUNTS FOR THE LESS THAN 5% OF THE VALUE ADDED IN THE EUROPEAN MANUFACTURING INDUSTRY MORE THAN 25, JOBS LOST IN THE EUROPEAN ICT SECTOR SINCE HIGH DISPARITIES IN AVERAGE PERSONNEL COSTS AMONG EUROPEAN COUNTRIES THE SHARE OF PERSONNEL COSTS IN PRODUCTION HAS INCREASED IN THE LAST YEARS PRODUCTIVITY INDICATORS HAVE ALSO SUFFERED DURING THE CRISIS GROSS OPERATING RATE OF THE ICT SECTOR BELOW MANUFACTURING AVERAGE INVESTMENT IN THE EU ICT SECTOR DOES NOT SHOW SIGNS OF GROWTH R&D EXPENDITURE IN THE ICT SECTOR INCREASING SLOWER THAN THE INDUSTRY AVERAGE ICT Study Sectoral Outline

3 CHAPTER 3 - INDUSTRIAL STRUCTURE GLOBAL VIEW OF ICT MANUFACTURING TRENDS IN EUROPE VIEW BY SECTOR STRUCTURE EMPLOYMENT BY SECTOR VALUE ADDED BY SECTOR VIEW BY COUNTRY OVERALL VIEW EMPLOYMENT EVOLUTION SINCE STRUCTURAL FACTORS MNC IMPORTANCE WEIGHT OF GROUPS IN THE INDUSTRIAL FABRIC COMPANY SIZE AND INDUSTRIAL FABRIC GEOGRAPHICAL LOCALISATION AND THE CLUSTER ISSUE FOCUS ON THE DIFFERENCES BETWEEN FRANCE AND GERMANY IN TERMS OF MID-CAP COMPANIES SME TRANSMISSION AND FINANCIALIZATION OWNERSHIP STRUCTURE CHAPTER 4 - TECHNICAL STRUCTURE AND TECHNOLOGIES EUROPE APPEARS TO BE THE MOST ADVANCED REGION IN ICT DEVELOPMENT DISCREPANCIES ARE STILL NEVERTHELESS HIGH BETWEEN EUROPEAN COUNTRIES ICT ACCESS Advanced 3G mobile broadband G mobile broadband ICT USE E-commerce E-government use Regular Internet users R&D SPECIALISATION GENERAL VIEW PUBLIC ICT R&D EFFORT PRIVATE ICT INVESTMENT ICT SPECIALISATION ANALYSED AS SHARE OF PRIVATE INVESTMENT ICT SPECIALISATION ANALYSED AS PATENT PRODUCTION CHAPTER 5 - SKILLS MOST EUROPEAN COUNTRIES ARE LAGGING BEHIND IN TERMS OF HIGHER AND SCIENTIFIC EDUCATION PERFORMANCE WITHIN EUROPE, SIGNIFICANT DISCREPANCIES BETWEEN MEMBERS FOR BASIC COMPUTER SKILLS DECLINING NUMBERS OF EUROPEAN COMPUTER SCIENCE GRADUATES AND WORRISOME SHORTAGE OF IT SPECIALISTS... 7 ICT Study Sectoral Outline 3

4 3.1. THE NUMBER OF COMPUTER SCIENCE GRADUATES LACKS DYNAMISM SINCE THE MID-2S AND THIS WEAKNESS HAS LED TO A SHORTAGE OF ICT SPECIALISTS ON THE EUROPEAN JOB MARKET THE GAP BETWEEN ICT SKILLS SUPPLY AND DEMAND NOT EXPECTED TO CURB IN THE MID-TERM ICT Study Sectoral Outline

5 Synthesis The European ICT economy is losing ground against the US and Asia ICT market value was estimated at 3,625bn in 214 by IDATE and has been growing for the last four years. It should continue doing so in the years to come, exceeding 4,bn in 217. However, the European ICT market has been declining after the crisis of 28-29, though it did slightly rebound in 214. The European trend is clearly opposite to the significant growth experienced in the US and especially Asia. As a consequence, since 211, the EU s weight in the global market has been shrinking by almost 3%, and 5% for the Consumer electronics sub-sector. Among the main contributing factors, we can mention the growth of huge consumer markets (China, India, etc.), increased outsourcing to Asia due to cost competitiveness and the rise of Asian electronic champions (TSMC, Huawei, Samsung, etc.). Likewise, the EU share in Computer, electronic and optical product exports was only 18% in 213, down from 24% in 27. Both employment and revenues have been affected by the weakening of Europe According to Eurostat, the EU ICT sector represented 4.8% of total GDP in 21 but only 2.5% of employment, decreasing respectively from 5.% and 2.7 % in 24. Narrowing the perimeter, ICT Manufacturing sector turnover (NACE codes 26 and 95.1) amounted to 3bn in 213, down from 363bn in 27 (-17%). The sector s weight in total manufacturing has followed suit, decreasing from 5.2 % in 27 to 3.8 % in 213. Analysis in terms of employment gives very similar results. ICT Manufacturing companies reduced their number of employees by 25, between 27 and 213 (-16%), dropping to 1.25 million employees in 213. The main countries for ICT employment are Germany with twice as many employees as the second country within the EU, which is France, followed by the UK and Italy. Industrial sub-sectors prove to be more resilient The Electronic components and boards, and the Communication equipment sub-sectors declined most significantly in terms of turnover and employees, while growth in industrial sectors using electronics (user sectors such as aircraft, automotive, railway, mechanical industries, etc.) could only partially compensate for the global downturn. In 213, these three sub-sectors represented almost 7% of ICT Manufacturing employees and 75% of the total value added. Also the case for some European countries where the dynamic is nevertheless slightly better ICT Study Sectoral Outline 5

6 Most EU countries were strongly hit by the crisis in 29 and recovered slightly until 213. The countries most affected since 28 were Ireland, Spain, Italy and Finland. Conversely, Germany has experienced limited jobs cuts thanks to very dynamic user sectors, while a few countries have seen growth, such as Denmark, the Netherlands and Poland. The structure of industrial fabric and innovation capabilities are key elements for a dynamic ICT market Among the several explanations available, sector specialisation and the dynamism of certain MNCs (multinational companies) appear to be significant. This is the case for Finland - strong focus on the Telecommunication equipment sector around the Nokia group (experiencing major difficulties in the last few years) can explain the majority of job cuts in the country over the last five years. When analysing distribution of the decrease in employment according to company size, the bulk of job cuts are concentrated within companies with more than 25 employees, whereas SMEs have generally maintained their level of employment in most countries. The presence of ICT MNCs in Europe is often thought to be a competitive advantage and protection for employment This does not seem to be the case however, with France being a good example of the contradiction. France has the most ICT MNCs but was nevertheless strongly hit in terms of employment between 28 and 212. Some other structural factors have a significant impact on ICT dynamism, such as: - Public/private R&D efforts, key to ICT development. In this regard, the EU is lagging behind some Asian countries and the US, despite high investments recorded in Northern European countries; - Concentration of ICT companies is another way to promote ICT innovation - through positive externalities - and then strengthen the industry s competitiveness. When analysing ICT dynamism in terms of patents filed, EU clusters seem to have lost ground, compared to South Korea, Japan and the United States; - A dynamic SME industrial fabric (even outside the ICT perimeter) seems to be a material advantage that is at least as important as concentration of ICT specialists (see clusters), Germany probably being the most obvious example with its dynamic industrial SMEs; - Transmission conditions as well as ownership structure may influence SME development, thanks to a longer-term vision in family-owned businesses. Beyond the poor state of the ICT economy, Europe still ranks fairly high in terms of ICT use and access Despite this rather negative picture, one should nevertheless keep in mind that European countries are well placed as regards to ICT use and access. While ICT development relies on public/private network investment, it also highly depends on the ICT skills and usage of 6 ICT Study Sectoral Outline

7 every stakeholder (individuals, governments and companies). The European Union seems well placed in most international comparisons. Though major geographical fractures appear within the European Union The issue of ICT use and access also encompasses huge discrepancies across the EU between northern countries with advanced ICT development and southern/eastern countries, lagging behind on most indicators. This digital divide is relevant for most ICT issues, including ICT importance (% of GDP; % of total employment) and ICT skills, and goes hand in hand with the discrepancies seen in social and economic development. This is even more relevant and worrisome when analysing the level of ICT skills of the European population As a whole, the EU is still an important region in the world in terms of ICT development, innovation and market size, but this observation does not give any guarantee on the location of both ICT production and employment, which has clearly been following a downward trend. One of the main levers to strengthen competitiveness remains ICT skills and in this field, Europe seems again to lag behind world top class states. As an example, in 212, most EU countries (excluding Northern Europe) were under the OECD average for spending on higher education (as a percentage of GDP) and were falling behind most advanced countries (mainly Asian countries) for scientific proficiency of 15-year old pupils in 29. In particular, the number of computer science graduates has been stagnating since the 2s while industry needs have been growing significantly. This has led to a paradoxical situation whereby a large number of jobs have been cut over the last five years, but ICT specialists have become more scarce and will probably continue to be so (with a shortage of 274, ICT specialists in 212 rising to 913, in 22, according to Empirica). This is all the more important as the increase in ICT skills and innovation in Europe might represent an opportunity to stimulate European ICT companies and employment This ICT skills issue, jointly with the public effort in ICT R&D investments, are all the more important at present. Indeed, industry digitalisation offers promising prospects and could enable relocation of ICT production jobs in high-cost countries. Nevertheless, the European Union (except perhaps Germany) is already lagging behind certain Asian countries regarding robotisation (especially Japan). A large-scale effort in investment and education/training would be necessary not to miss out on the opportunity to move ICT manufacturing jobs back within the EU. Another promising element is that economic changes happen so quickly that they allow new players to emerge through innovation. The Internet of Things and other hot new technologies might be the key to a European comeback. ICT Study Sectoral Outline 7

8 Economic importance This study is based on available statistics. One should keep in mind that although it may resemble a scientific approach, several limits are to be considered. Not all statistics are available. Gaps appear in some series. Evolution and differences cannot always be explained. The reliability of some sources is not always certain. Each reader should handle these statistics with kid gloves. This said, the state of the European ICT industry is of concern. And the trend is even more alarming. 1. The global market An initial approach to assessing ICT importance is to have a look at the market. In B Consumer elctronics TV/video services Computer hardware Software & computer services Telecom equipment Telecom services ICT market definition according to IDATE includes: Fixed and mobile telecom services Telecom equipment (networks, devices, software and associated services) IT software and services IT hardware (computers, printers, etc.) TV and video Consumer electronics. The entire ICT market has been growing in recent years. 3.2 % growth was registered in 213 after 2.8% growth in 212. The market almost reached 3,5bn in 213 and more than 3,6bn in ICT Study Sectoral Outline

9 Almost every sub-sector is in this situation. The only exception is the consumer electronics market that has not enjoyed growth. This is due to lower TV sales as well as the cannibalisation aroused by smartphones and tablets (cameras, TV, MP3 players, etc.). The Telecom equipment market has been growing steadily due to higher smartphone sales. Growth in the Computer hardware market has been fuelled by higher tablet sales. 2. The market per region In B North America Europe Asia/Pacific ROW While the global picture may seem satisfactory, a deeper look at the market per region gives some interesting indications about differentiated growth dynamics. While North America still enjoys growth, the situation in Europe is less clear: the market has declined in 212 and data shows an upturn. And growth can be anticipated in forthcoming years. 3. The market in Europe In B Consumer elctronics TV/video services IT Computer hardware IT Software & computer services Telecom equipment Telecom services ICT Study Sectoral Outline 9

10 The picture in Europe is not pleasing. Spain, France and Italy have been declining. The UK is stagnating. Germany is enjoying slow growth. These trends reflect relatively well the overall economic situation of the above-mentioned countries. Due to European regulations (roaming, termination fees, etc.) as well as fierce competition, NSPs in Europe have been losing revenue and EBITDA these last years. This contrasts strongly with the US situation. TV/video services are stagnating. IT Software & computer services are the only services enjoying growth. On the hardware side, the consumer electronics market has significantly declined by 12% and 14% in 212 and 213. Some countries such as Spain and France have been strongly affected. IT computer hardware sales have been stagnating. Growth in sales of tablets has more or less compensated for the decline in PC sales. Telecom equipment sales have been robust due to higher smartphone sales. 4. Weight of Europe in ICT sales The weight of Europe in every sector is declining. This relates to the slow economic growth in Europe, as well as the declining industrial ICT sectors. Weight of Europe (% of sales) 31,% 29,% 27,% 25,% 23,% 21,% 19,% 17,% Telecom services Telecom equipment IT Software & computer services IT Computer hardware TV/video services Consumer elctronics Total 15,% 13,% The decline is most severe in consumer electronics. And the trend should continue to 217. This decline should persist to 217 in every sub-sector. 1 ICT Study Sectoral Outline

11 5. ICT sector as percentage of GDP EU (28 countries) EU (27 countries) 5,3 5,2 4,97 3,93 4,38 Euro area (18 countries) Euro area (17 countries) Belgium 5,85 5,84 5,7 5,4 5,18 5 4,88 4,56 4,64 Bulgaria 4,63 6,14 5,91 6,33 5,81 5,98 5,31 5,17 Czech Republic 4,62 Denmark 5,83 4,94 5,9 5,24 4,99 4,75 Germany 4,45 4,55 4,5 4,81 4,63 4,65 4,72 4,11 4,3 4,2 Estonia 4,91 4,88 4,64 4,57 4,48 5,13 4,94 Ireland 9,6 Greece 3,9 3,5 2,75 2,71 2,71 Spain 4,32 4,59 3,97 3,96 3,91 3,84 3,8 3,86 3,62 3,51 3,54 France 5,25 4,53 4,52 4,55 4,5 4,44 4,42 4,18 4,12 4,18 Croatia Italy 4,3 4,54 4,1 4,7 3,93 3,9 3,94 3,86 3,54 Cyprus 3,6 Latvia 3,45 3,49 Lithuania 4,17 3,22 2,84 2,7 2,18 2,45 Luxembourg Hungary 5,91 6,44 5,82 6,71 6,63 7 6,41 5,84 5,96 5,93 5,79 Malta Netherlands Austria 5,27 5,82 5,64 4,6 4,47 4,47 4,41 3,76 3,25 3,22 3,17 Poland 3,15 3,28 Portugal 4,57 4,67 4,64 3,84 3,98 3,62 3,54 3,61 Romania 4,29 3,72 3,59 3,34 3,33 3,17 Slovenia 3,98 4,11 4,8 3,41 3,58 Slovakia 4,28 4,9 4 3,92 4,74 4,81 4,51 3,75 4,78 Finland 1,16 1,53 8,94 9,37 7,88 8,6 8,21 9,13 7,1 5,32 5,47 Sweden 8,13 6,73 5,37 6,82 6,95 6,89 6,54 6,31 6,4 United Kingdom 8,26 7,92 7,41 6,64 6,44 6,65 6,37 6,65 6,37 5,85 ICT s weight varies highly depending on country. The EU 27 average was 4.38% in 21. Many European countries are within this area: Belgium, Denmark, France and Germany, among others. France and Germany have been following the same trend with the percentage of GDP of the ICT sector declining in the 2s. Spain, Austria, Poland and Romania are closer to 3%. The United Kingdom still has an important ICT sector even though it significantly decreased in the 2s and finally dropped to 5.85% in 21. Finland is slightly behind the UK. Finland has suffered a lot due to Nokia s difficulties. And one might add that the trend has been extended after 21 given Nokia s heightened crisis. Sweden has the highest percentage of ICT. Beyond Ericsson and its subcontractors, Sweden has been enjoying a very dynamic and efficient ecosystem that has permitted the emergence of many new start-ups. ICT Study Sectoral Outline 11

12 6. Employment EU (28 countries) EU (27 countries) 2,7 2,72 2,7 2,53 Euro area (18 countries) Euro area (17 countries) Belgium 3,96 4,11 2,96 2,98 2,97 2,86 2,99 2,86 2,84 Bulgaria 1,94 2,6 1,86 1,89 1,71 1,69 1,55 1,81 Czech Republic 2,74 Denmark 5,8 3,61 3,69 3,64 3,1 3,18 Germany 2,88 2,88 2,5 2,52 2,57 2,59 2,69 2,36 2,29 2,28 Estonia 2,49 2,96 3,2 3,23 2,91 3,7 3,19 Ireland 3,86 Greece 1,42 1,45 1,44 1,39 1,4 Spain 2,57 2,79 2,1 2,4 1,96 1,92 1,95 1,99 2,1 1,95 2,11 France 4,27 3,42 3,24 3,17 3,11 3,1 3,17 2,82 Croatia Italy 3,1 3,27 2,8 2,7 2,67 2,68 2,64 2,63 2,46 Cyprus 1,71 Latvia 2,11 1,51 1,61 1,71 1,64 1,71 1,68 1,77 1,86 Lithuania 2,15 1,81 1,84 1,59 1,45 1,66 Luxembourg Hungary 2,78 3,87 3,67 3,57 3,62 3,64 3,65 3,71 3,5 3,35 3,54 Malta Netherlands 4,9 3,44 3,36 3,28 3,16 3,9 Austria 3,91 3,88 3,9 2,92 2,86 2,82 2,81 2,54 2,32 2,32 2,29 Poland 1,58 1,65 Portugal 1,88 1,92 1,87 1,1 1,45 1,4 1,5 1,54 Romania 1,21 1,31 1,45 1,65 1,55 1,47 1,45 Slovenia 2,68 2,83 2,72 2,5 2,32 Slovakia 2,76 2,49 2,45 2,58 2,74 2,92 2,48 2,2 2,72 Finland 5,5 5,77 4,98 4,8 4,76 4,79 4,61 4,53 4,8 4,8 3,95 Sweden 6,38 6,9 4,83 4,51 4,82 4,76 4,79 4,39 4,41 United Kingdom 4,78 3,96 3,73 3,74 3,48 3,6 3,34 3,26 3,31 It seems that employment has never recovered to its 2 level. The EU average for ICT sector employment in 21 was 2.53% of total employment. Southern European countries (Cyprus, Spain, Italy, Portugal and Greece) have the lowest share of ICT jobs. Some Baltic states (Lithuania, Latvia) and others (Austria, Poland and Romania,) are under 2%. France has a 2.8% workforce employed in ICT. Germany is below this level. And Denmark, Estonia, Finland and Sweden enjoy the greatest share of ICT jobs in total employment, along with the United Kingdom. Unfortunately, this data is already quite old and some countries may have lost ground. This might be the case for Finland, due to heavy Nokia restructuring. It must also be the case for France; Germany may have held onto its position. 12 ICT Study Sectoral Outline

13 ISR KOR FIN JPN SWE CHE DNK DEU USA AUT SVN ISL OCDE EST FRA CHN BEL AUS UE28 IRL CZE GBR LUX CAN NLD NOR HUN ESP PRT ITA RUS NZL ZAF TUR SVK POL MEX CHL IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 7. R&D BERD intensity (in % of GDP) 4, ,5 3, 2,5 2, 1,5 1,,5, R&D is key to ensuring a strong private sector and robust ICT companies. The EU seems to be lagging behind the OECD average in terms of R&D/GDP ratio. Israel - the start-up nation - is the leading country in terms of R&D/GDP ranking. This is reflected in the many start-ups developed (Waze, Viber, etc.) and very often acquired by American high tech companies (Cisco, Intel, Google, PayPal, etc.). South Korea, without surprise, is also well ranked due its high tech companies (Samsung, LG, SK Telecom, etc.) as well as other chaebols (Hyundai, Posco, Kia, etc.). Finland did not lose ground in the 2s as regards to its R&D effort and is still very well ranked. Japan is just behind Finland due to numerous kereitsu and a strong industrial structure. The US and Germany are closely ranked and above the OECD average. France and Belgium are ranked between the OECD average and the EU 28 average. Ireland, the United Kingdom, Holland, Hungary, Spain, Portugal, Italy, Slovakia and Poland are all under the average. As a whole, the Lisbon Strategy has not been achieved as regards to the R&D share of GDP. Beyond Sweden and Finland, most EU countries are closer to 2% than to 3%. ICT Study Sectoral Outline 13

14 DE UK ES SE FR IT NL BE DK FI AT CZ IE PL EL PT HU SI LU RO SK HR LT EE BG LV CY MT IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 8. ICT R&D /R&D R&D ICT spendings (in M ) in % of total R&D public spendings % 11% 1% 1% 11% 1% 9% 9% 7% 7% 6% 6% 7% 6% 6% 5% 4% 5% 6% 6% 5% 5% 4% 4% 4% 1% 2% % A glance at ICT R&D spending shows that Germany has the highest expenditure, followed by the UK, Spain, Sweden, France and Italy. This ranking seems logical except for the intriguing level of expenditure in Spain. Even though Finland is smaller than Sweden as regards to population, the ratio between the two countries seems quite significant. After Finland and Austria, all other EU countries have low R&D ICT spending. Sweden, Spain, Belgium, Finland, Denmark and Ireland have the highest share of ICT R&D. In the case of Germany, due to the large industrial base, it is understandable that the ICT share is around 5%. Spain seems to enjoy quite a significant ICT sector based on these figures. In the case of the UK and France, the ratio relates to smaller amounts of ICT R&D in proportion to overall R&D spending. 14 ICT Study Sectoral Outline

15 9. Turnover In M European Union (28 countries) European Union (27 countries) Belgium Bulgaria Czech Republic Denmark Germany (until 199 former territo Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom TOTAL The sector s turnover listed as NACE 26 with a portion of has been decreasing in recent years at EU level and in many European countries. These overall trends can be linked to the market data detailed above. In the case of the European market, Consumer electronics have been decreasing and Computer hardware has been flat. The Telecom equipment market has been growing due to the rise in smartphone sales. Returning to the mid-2s, the decline was particularly severe in Belgium and Spain. In the latter, it seems that the high amount of ICT R&D is not related to industry, given the low turnover registered. Germany and France are the biggest countries in terms of turnover (- 16%). They have suffered a large decrease since 25, - 18% and -16% respectively. Finland enjoys a slightly bigger sector than the United Kingdom. Finland has been strongly impacted, especially by Nokia s difficulties: a 21.4% decrease in turnover and it might not be over yet. Sweden has enjoyed an upturn since 211. Data for Sweden shows that beyond global ICT data, the industrial part is comparable to Finland even though the population is 1 Turnover has been calculated including part of the 95.1 NACE code ICT Study Sectoral Outline 15

16 3% smaller. It implies that in the case of Sweden, a huge part of the ICT sector is related to services. Some countries have enjoyed growth since the mid-2s. This is case of Estonia, a country considered very dynamic as regards to ICT. The country has enjoyed six-fold growth in less than a decade. Poland and Hungary have also enjoyed growth during the same period. 1. Headcount expenses In M European Union (28 countries) European Union (27 countries) Belgium Bulgaria Czech Republic Denmark Germany (until 199 former territory of the FRG) Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom TOTAL ICT Study Sectoral Outline

17 Note Economic performance This chapter analyses the results of the ICT sector s economic activity. Due to statistical limitations, we have taken two NACE categories as reference: NACE 26 Manufacture of computer, electronic and optical products NACE 95.1 Repair of computers and communication equipment Where comparisons are made between the sector and Total manufacturing, only NACE 26 is taken into consideration. 1. Main trends in ICT sector economic performance after the crisis As shown by the indicators in this chapter, the financial crisis had a particularly negative impact on the European ICT sector, compared to other manufacturing industries. Despite some signs of recovery, the main indicators of ICT sector economic performance remain below pre-crisis levels. With key indicators such as number of enterprises and turnover volume stagnating, Europe has lost ground on global ICT markets, mainly to Asian competitors, but also to the United States and other global players. The value added generated by the ICT industry remains above manufacturing average. On the other hand, the gross operating rate fell under manufacturing average due to relatively high labour costs and decreased productivity indicators, despite a reduction in headcount by almost 25, between 27 and 213. Europe is also marked by high disparities in productivity indicators, average personnel costs and share of personnel costs in production among different countries. Capital investment in the ICT sector has not recovered to pre-crisis levels. R&D expenditure rose less than the manufacturing industry average. Compared to other regions, the European ICT sector shows multiple signs of weakness. The value added at factor costs generated by the American ICT sector is more than twice higher than the EU average. The relative importance of the ICT sector in manufacturing employment, gross investment and R&D expenditure is also higher in the US and among the main Asian competitors. ICT Study Sectoral Outline 17

18 Germany United Kingdom Italy (212) Czech Republic France Poland Spain Sweden Netherlands Hungary Romania Slovakia Austria Finland Croatia Belgium Bulgaria Greece (212) Slovenia Portugal Latvia Lithuania Estonia Ireland Denmark Luxembourg ,6%,4% 1,3% 1,4% 2,% 1,8% 1,4% 1,2% 1,8% 1,3% 1,3%,9% 1,7% 1,5% 1,7% 1,4% 1,5% 3,% 2,7% 2,3% 3,1% 2,6% 2,5% 2,6% 3,8% 4,7% IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 2. The number of ICT enterprises in Europe stagnates after the crisis Since 29, the total number of ICT companies in Europe grew, driven by a double digit increase in companies classified as Repair of computers and communication equipment, whereas the number of ICT manufacturing companies fell for five consecutive years, from 28 to 212. In 213, the number of ICT manufacturing companies rose by 8.5%, but the share of the sector in total manufacturing remained lower than before the crisis. Germany, the UK and Italy are the countries with the highest number of companies in the sector. The UK, Germany and Sweden are the only countries in which ICT companies represent more than 3% of the total number of manufacturing companies, whereas in Latvia, Greece and Portugal, ICT companies represent less than 1% of the total ,3% Evolution of the number of ICT enterprises in the EU ,2% 2,2% ,1% 2,% 2,% 2,% Total ICT (NACE ), in thousands 2,3% 2,2% 2,1% 2,% 1,9% 1,8% Manufacture of computer, electronic and optical products (NACE 26), in thousands Share of "Manufacture of computer, electronic and optical products" in "Total manufacturing" Source: Eurostat data, indicators derived by Syndex Number of enterprises by country, % 5% 4% 3% 2% 1% % -1% Manufacture of computer, electronic and optical products (NACE 26) Share of "Manufacture of computer, electronic and optical products" in "Total manufacturing" Source: Eurostat data, indicators derived by Syndex 18 ICT Study Sectoral Outline

19 Germany France Finland United Kingdom Italy Sweden (212) Netherlands Hungary Ireland Czech Republic Poland Slovakia Austria Denmark Spain Belgium Estonia Portugal Romania Slovenia Croatia Greece (212) Bulgaria Lithuania Latvia 68,7 34,3 25,9 23, 19,9 17,3 12,5 11,2 1,9 1,3 8, 5,8 4,7 3,8 3,5 3,3 1,8 1,7 1,6,5,5,4,3,2,1 3,7% 3,8% 3,7% 2,2% 3,9% 3,% 2,7%,8% 1,2% 3,9% 2,2% 2,4% 2,2%,7% 2,8% 1,2% 1,% 2,2% 7,9% 7,2% 8,9% 11,9% 1,9% 16,2% 19,2% IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 3. ICT sector turnover shows modest recovery ICT sector turnover in the EU fell by 2% in 29 and has not entirely recovered since the worst year of the crisis. From 29 to 213, sector turnover rose by 11%, but in spite of the increase, the sector is still more than 1% below the level registered in 28. The sector s share in the manufacturing industry fell from 5.2% in 27 to 3.8% in 213. Total turnover of the ICT sector in Germany, highest in Europe, is twice higher than in the second-placed country, France. In both countries, the ICT sector represents around 4% of the manufacturing industry. In relative terms, the ICT sector has the highest importance in the manufacturing industry of Finland (19%), Estonia (16%), Hungary (11%) and Ireland (1%) ,2% Turnover of ICT sector in Europe (source : Eurostat) ,7% 4,6% 4,5% 4,3% ,% 3,8% Total ICT (NACE ), in bn EUR Manufacture of computer, electronic and optical products (NACE 26), in bn EUR Share of "Manufacture of computer, electronic and optical products" in "Total manufacturing" 6% 5% 4% 3% 2% 1% % Source: Eurostat data, indicators derived by Syndex Turnover of ICT sector by country, 213 Manufacture of computer, electronic and optical products (NACE 26), in bn EUR Share of "Manufacture of computer, electronic and optical products" in "Total manufacturing" 8 25% % 15% 4 1% % % -5% Source: Eurostat data, indicators derived by Syndex ICT Study Sectoral Outline 19

20 Germany France Czech Republic Italy Poland Belgium Austria Spain Romania Estonia Lithuania Bulgaria Greece Croatia 114,1 7,2 37,2 35,8 24,1 18,9 16,6 15,7 15,1 14,9 13,3 11,9 11, 6,8 5,7 3,5 3,4 2,4 2,4 1,1 1,1 1, 1, 1,,7,6,5,2-2% -4% -4% -12% 6% -3% -2% 28% 17% -22% -14% -48% 2% -9% -35% -78% 33% -43% -2% -24% -8% -11% -36% -21% -3% 4% 161% 135% IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 4. Europe s share in the global ICT market has plummeted since the crisis Value of exports of computer, electronic and optical products % 24% % % 21% % 18% 29% 27% 25% 23% 21% 19% 17% 29% 27% 25% 23% 21% 19% 17% Share in the global exports of computer, electronic and optical products % 15% EU, in bn USD Source: OECD data, indicators derived by Syndex EU as share in the world EU other OECD countries China other Asia In 213, the European Union accounted for 18% of the global trade in computer, electronic and optical products, down from 24% in 27. The region lost market share due to stagnation of its exports, while exports from China and other Asian countries rose rapidly. China s market share rose from 2.2% in 27 to 28.2% in 213. The United States account for 8.2% of global exports in 213, down from 9.4% in Value of exports of computer, electronic and optical products 25% 2% 15% 1% 5% % -5% -1% -15% 7% 6% 5% 4% 3% 2% 1% % Share in the global exports of computer, electronic and optical products , bn USD Evolution 213 vs. 28 Source: OECD data, indicators derived by Syndex Germany France Czech Republic Netherlands United Kingdom Hungary Among European countries, the biggest exporters in 213 were Germany (4.8% of the global market), the Netherlands (2.9%), France (1.6%), the UK (1.5%), the Czech Republic (1%) and Hungary (.8%). In spite of the crisis, many Central and Eastern EU countries have managed to increase exports of computer, electronic and optical products. Most notably, Estonia and Latvia 2 ICT Study Sectoral Outline

21 have managed to more than double their exports since 28. Bulgaria (+4%), Romania (+33%), Slovakia (+28%) and Poland (+17%) also registered significant increases. On the other hand, Finland s exports plummeted by 78%, and the country s share in the global market fell from.8% in 27 to.1% in 213. Ireland was the second most affected country, its exports nearly halved since 27 and its share in the global market fell from 1.3% to.5%. ICT Study Sectoral Outline 21

22 Germany France United Kingdom Italy Sweden Netherlands Ireland Austria Denmark Hungary Spain Czech Republic Poland Belgium Slovakia Romania Finland Portugal Slovenia Greece Estonia Bulgaria Croatia Lithuania Latvia EU (21) USA (21) Korea (21) 22,9 1,7 9,7 6,8 4,2 3,3 2,6 2,1 1,7 1,7 1,5 1,3 1,3 1,2,7,4,4,3,2,2,1,1,1,1,1 1,6% 3,4% 2,4% 2,5% 1,6% 1,9% 1,3% 4,8% 4,3% 4,1% 3,2% 2,8% 2,5% 1,7% 2,5% 2,9% 1,9% 5,5% 5,4% 5,5% 4,9% 6,% 7,9% 7,9% 7,1% 6,2% 6,2% 9,3% IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 5. The ICT sector accounts for the less than 5% of the value added 2 in the European manufacturing industry The ICT industry has yet to recover from the very negative impact of the crisis in 28 and 29, when the value added generated by the sector fell by more than 3% in two years. As a result, the share of ICT in total manufacturing fell from 5.4% in 27 to 4.6% in 29 and 212. However, the sector s share of value added in manufacturing is higher in Europe than in the United States, where it represents only 1.9%. In smaller and more specialised countries, such as South Korea (6.2%), the ICT sector provides a higher contribution. In 212, Germany accounted for 31% of the total value added generated by the ICT sector in Europe, followed by France with 15%, the United Kingdom with 13%, Italy with 9% and Sweden with 6%. In relative terms, the ICT sector generates the highest proportion of manufacturing value added in Hungary (9.3%), Ireland, Sweden (7.9% each), Slovakia (7.1%) and Estonia (6.2%). 1 Value added at factor cost, by country, ,4% Value added at factor cost - EU 89 5,% 7 4,6% ,9% 79 4,7% 4,6% Total ICT (NACE ), in bn EUR Manufacture of computer, electronic and optical products (NACE 26), in bn EUR 5,6% 5,4% 5,2% 5,% 4,8% 4,6% 4,4% 4,2% 4,% % 8% 6% 4% 2% % -2% Manufacture of computer, electronic and optical products (NACE 26) Share of "Manufacture of computer, electronic and optical products" in "Total manufacturing" Source: Eurostat data, indicators derived by Syndex 2 Value added at factor cost is the gross income from operating activities after adjusting for operating subsidies and indirect taxes. It can be calculated as the total sum of items to be added (+) or subtracted (-): turnover (+); capitalized production (+); other operating income (+); increases (+) or decreases (-) of stocks; purchases of goods and services (-); other taxes on products which are linked to turnover but not deductible (-); duties and taxes linked to production (-). 22 ICT Study Sectoral Outline

23 1,35 1,28 1,15 1,14 1,1 1,14 1,1 United Kingdom Denmark Austria Croa a Spain Greece Latvia Bulgaria Germany Netherlands Lithuania France (211) Belgium Italy Slovenia Sweden Romania Ireland Portugal Poland Hungary Slovakia Czech Republic Estonia Finland Norway (211) Korea (21) United States (21) 29,5 26,5 28,6 25,5 27,7 26,6 3,, 31, 25,2 46,1 44,1 43,7 41,5 4, 38,4 37,8 37,5 35,8 35,3 34,5 33,9 32,6 32,6 32,5 31,1 26,2 25,4 21,6 15,4 14,4 11,9 11,4 8,4 3,2 34,8 22,1 68,6-8,8-6 -7,5-4,3-11,1-15,6-18,5 4 3,5 3,9,5 1,6 15,8 13,9 14,8 1,7 17,8 15,8 13,4 19,2 8,3 14,1 19,1 8,8 14,1 9,7 1,2 34,9 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector Value added at factor cost in production value (%) - EU Value added at factor cost in production value (%) EU, , 3,1 1,1 5, Manufacture of computer, electronic and op cal products (NACE 26) Total manufacturing Manufacture of computer, electronic and op cal products (NACE 26) Difference between NACE 26 and "Total manufacturing", in pp Source: Eurostat and OECD data, indicators derived by Syndex The ICT sector traditionally has a higher ratio of value added in production value than the global manufacturing sector. The premium has even increased since 29, and in 212 the European average of the ICT sector s value added in production value reached 31%. As of 212, 16 EU countries have a ratio above 3%, the best performing countries being the UK (46.1%), Denmark (44.1%), Austria (43.7%), Croatia (41.5%) and Spain (4%). At the other end of the scale, the value added generated by companies in Finland and Estonia are surprisingly low, at 3.2% and 8.4% of production value. Despite improving indicators in most countries, Europe lags far behind levels recorded in the United States in 21, when the value added in production value reached as high as 68.6%. 6. More than 25, jobs lost in the European ICT sector since 27 Employment in the European ICT sector fell by more than 16% during the crisis, the total number of persons employed decreasing from almost 1.5 million in 27 to 1.25 million in 213. According to the most recent available data, Germany accounts for 29% of EU ICT sector employment, France and the UK for 13% each, Italy for 1%, followed by Poland, Hungary, the Czech Republic and Sweden, with 4% to 5% each Number of persons employed - EU 1,5 4,% 1,42 1,31 1,3 1,25 1,29 1,25 3,9% 3,8% 3,8% 3,8% 3,7% 3,7% Total ICT (NACE ), in millions 4,% 3,8% 3,6% 3,4% Since 28, France lost almost 25, jobs in the sector, Italy lost 22,, Finland lost 18, and Hungary and Spain lost almost Manufacture of computer, electronic and optical products (NACE 26), in millions Source: Eurostat data, indicators derived by Syndex ICT Study Sectoral Outline 23

24 France (NACE 26 only) Italy Finland Hungary Spain Poland Belgium Czech Republic Ireland Slovakia United Kingdom Sweden (212) Germany Greece Croatia Austria Netherlands Bulgaria Portugal Estonia Lithuania Romania Latvia Slovenia Denmark -43% -5% -34% -4% -15% -15% -21% -23% -14% -17% -23% -27% -3% -7% -9% -1% -24,6-21,9-18,2-13,9-13,9-11,6-11,6-1% -5% -9% -9% -12% -8% -2% -1% -9,8-7,9-5,3-4,9-3,5-3,4-2,8-2,5-2,2-1,4-1,1-1,1 -,6 -,6 -,6 -,2 4%,, ,8% 2,4% 1,6% 4,5% 4,7% 3,5% 2,3% 3,9% 3,5% 3,6% 2,1% 1,4% 1,6% 2,1% 2,8% 1,7%,9% 1,3% 3,8% 5,5% 7,5% 6,3% 5,8% 5,6% 7,5% 9,% 9,3% IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 14, each. In relative terms, the impact of the crisis was most significant in Belgium, where the total number of employed persons halved between 28 and 213. Other countries have also registered significant reductions in employment, with Finland at -43%, Greece at -4%, Ireland at -34%, Spain at -23% and Hungary at -21%, all within five years. Denmark is the only EU country that registered an increase in headcount, however limited, during the crisis. In relative terms, the ICT sector has the highest share of total manufacturing employment in Ireland (9%), Finland and Hungary (7.5%). At European level, the ICT sector accounted for 3.7% of total manufacturing employment, much lower than the 9.3% share registered in the United States in 211 (latest available data). Number of persons employed, % 1% 8% 6% 4% 2% % -2% -4% -6% Manufacture of computer, electronic and optical products (NACE 26) Share of "Manufacture of computer, electronic and optical products" in "Total manufacturing" Evolution of ICT employment in EU countries, 213 vs. 28 2% 1% % -1% -2% -3% -4% -5% -6% -7% -8% 213 vs 28, in thousands of persons 213 vs 28, in % Source: Eurostat and OECD data, indicators derived by Syndex 24 ICT Study Sectoral Outline

25 % 71% 71% 6% 127% 95% 5% 98% 67% 43% 49% 14% 15% 84% 87% 77% 89% 195% 136% 157% 16% 263% 217% % 26% 34% 25% 17% 11% 6% % 9% 8% 4% 4% -5% 5% 24% 16% 21% 41% 39% 37% 49% 5% 44,5 33,6 44,2 34,5 45,6 35,8 47,7 37,7 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 7. High disparities in average personnel costs among European countries Traditionnaly, personnel costs are higher in the ICT sector compared to the manufacturing industry average. The average personnel costs in the EU ICT sector, calculated in thousands of euros per employee rose by 7.9% between 29 and 212, while during the same time, the indicator rose by 9.3% for EU manufacturing. As a result, the ICT sector s premium over the manufacturing industry fell from 32% in 27 to 27% in 212 (this means that, according to latest available data, personnel costs are 27% higher in the ICT sector compared to the manufacturing average). 6, 4, 2, Average personnel costs (personnel costs per employee) (in thousands of 32% euros) 28% 27% 27% 35% 3% 25%, 2% Manufacture of computer, electronic and optical products (NACE 26) Total manufacturing Premium of NACE 26 to "Total manufacturing", in percentage points As of 212, disparities between personnel costs among EU countries were very significant. Personnel costs per employee were more than ten times higher in Belgium than in Bulgaria. This situation stems from the different levels of economic development in European countries and is not unique to the ICT sector. In fact, in many countries where ICT sector personnel costs are among the lowest in Europe, the sector s costs are much higher than manufacturing averages for the respective countries, especially in Bulgaria, Romania, Latvia and Lithuania. 8 6 Average personnel costs (personnel costs per employee) (in thousands of euros), 212 7% 5% 4 2 3% 1% -1% -3% Labour costs per FTE employee, 212 ( k) % 1 5 5% -15% Manufacture of computer, electronic and optical products (NACE 26) Premium of NACE 26 against total manufacturing Source: Eurostat and OECD data, indicators derived by Syndex ICT Study Sectoral Outline 25

26 France (211) Spain Denmark Germany Croatia Austria Sweden Slovenia United Kingdom Italy Belgium Lithuania Netherlands Greece Finland Bulgaria Portugal Romania Latvia Ireland Poland Hungary Czech Republic Estonia Slovakia Korea (21) Norway (211) United States (21) ,5-6,1-5,7 2,5 1,1-1,1-2 -3,4 1,6,3 -,9 7,4 6,8 5,9 5,7 7,6 9,2 8,2 9 6,6 5,4 8,3 11,2 1,7 11,5 11,1 14,4 15,5 18,4 16,4 21,3 18,9 22, 16,6 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 8. The share of personnel costs in production has increased in the last years Unlike the manufacturing industry in general, the share of personnel costs in the manufacturing of computer, electronic and optical products has increased during the crisis. Between 27 and 212, the share of personnel costs in NACE 26 activities rose from 18.4 percentage points to 22 percentage points. During the same period, the manufacturing average remained at 16.6 percentage points in 212, close to the level registered before the crisis. Disparities among European countries regarding share of personnel costs in production are also significant. While personnel costs account for more than one fourth of production value in France, Spain, Denmark, Germany, Croatia, Austria and Sweden, their share is lower than 1% in Ireland, Poland, Hungary, the Czech Republic, Estonia and Slovakia. At the same time, the share of personnel costs is lower in Europe than in the United States, where as of 21, these costs represent one third of production value. Share of personnel costs in production (%), Share of personnel costs in production (%) 2, 2,4 5, Manufacture of computer, electronic and optical products (NACE 26) Total manufacturing Premium of NACE 26 to "Total manufacturing", in percentage points Manufacture of computer, electronic and optical products (NACE 26) Premium of NACE 26 against total manufacturing, in percentage points Source: Eurostat and OECD data, indicators derived by Syndex 26 ICT Study Sectoral Outline

27 Latvia Slovakia Ireland Bulgaria Hungary Greece Romania United Kingdom Netherlands Estonia Poland Lithuania Czech Republic Austria Denmark Portugal Croa a Belgium Slovenia (211) Spain Germany Italy Sweden France (211) Finland % -28% 8% 1% 4% 2% 13% 7% -8% -2% 5% 9% -2% -2% -3% -7% -9% -8% -3% -3% -7% -12% 35% 71% 14% Ireland Netherlands Belgium Sweden Austria Denmark United Kingdom France (211) Germany Italy Spain Greece Slovakia Latvia Portugal Slovenia (211) Hungary Czech Republic Estonia Lithuania Poland Croa a Romania Bulgaria Finland % -1% 42% 14% 24% 27% 4% 6% 18% 7% 21% % 35% 38% -2% 16% 9% 12% 46% -4% 18% 41% 6% 93% 139% Finland Ireland Netherlands Sweden Slovakia Belgium Estonia Czech Republic Hungary France (211) Austria Germany Portugal Italy Denmark United Kingdom Poland Greece Spain Slovenia (211) Latvia Croa a Lithuania Romania Bulgaria % 16% 16% 25% -16% -18% -21% 139% 114% 77% 63% -18% -31% -3% 32% -28% -48% -18% 54% 11% -29% 17% -21% 156% 23% IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 9. Productivity indicators have also suffered during the crisis Turnover per person employed - EU 3% 22% 6% 35% 3% 25% 2% 15% 1% 5% Turnover per person employed - EU, % 2% 15% 1% 5% % -5% -1% -15% % Apparent labour produc vity (Gross value added per person employed) - EU 35% 29% 27% 2% 4% 35% 3% 25% 2% 15% 1% 5% Apparent labour produc vity (Gross value added per person employed), % 2% 15% 1% 5% % -5% -1% -15% % Wage adjusted labour produc vity (Apparent labour produc vity 18 by average personnel costs) 6% 16 3% (%) 4% 14 1% 2% 12 % 1-3% -2% 8-6% -4% 6 4-6% 2-8% % Wage adjusted labour produc vity (Apparent labour produc vity by average personnel costs) (%), % 1% 5% % -5% -1% -15% Manufacture of computer, electronic and op cal products (NACE 26) Total manufacturing Premium of NACE 26 to "Total manufacturing" Manufacture of computer, electronic and op cal products (NACE 26) Premium of NACE 26 against total manufacturing Source: Eurostat data, indicators derived by Syndex Labour productivity indicators fell in Europe as a result of the economic slowdown and loss of global market share. Between 27 and 212, the turnover per person employed in the EU ICT sector fell by 7.1% (while the indicator rose by 14% for the EU manufacturing industry). Apparent labour productivity, or the gross value added per person employed, of the ICT ICT Study Sectoral Outline 27

28 sector fell by 5.8% (compared to an increase of 5.9% for the manufacturing industry), while wage adjusted productivity fell by 12.8% (whereas the indicator fell by only 5.3% for total manufacturing). Turnover per person employed and apparent labour productivity were still above manufacturing average, but the premiums decreased significantly during the period. As a result, wage adjusted labour productivity (apparent labour productivity divided by labour costs) is, since 211, lower in the ICT sector than the manufacturing industry average. There are also significant disparities in productivity indicators among EU countries. The turnover per person employed in NACE 26 activities is twenty times higher in Finland than in Bulgaria. On the other hand, high turnover per person does not mean high apparent labour productivity. The example of Finland is extreme in 212 the country had the highest turnover per person, but the lowest apparent and wage adjusted labour productivity in Europe. Sadly, due to fierce competition on several key markets, Finland saw the apparent labour productivity of its ICT sector shrink from 195, EUR per employee in 27 - among the highest in Europe - to just 12,5 EUR per employee in 212. Ireland has by far the highest apparent labour productivity indicator, while Slovakia and Latvia join it for the highest wage adjusted labour productivity in Europe. Apparent labour productivity of the ICT sector is higher than the manufacturing average in most of the countries (with the exception of Finland, Ireland, Poland and Slovenia), with especially high levels above average recorded in Latvia, Slovakia, Bulgaria and Lithuania. However, due to the higher than average labour costs, wage adjusted labour productivity of the ICT sector in many European countries (such as Germany, France, Ireland, Sweden, Spain and Italy) are under the average level of the manufacturing industry in these respective countries. 28 ICT Study Sectoral Outline

29 9,7 9,4 5,6 7, 9,2 9, 8,6 8,7 7,4 7,9 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 1. Gross operating rate 3 of the ICT sector below manufacturing average Probably counterintuitive to some, the European ICT sector registered lower than manufacturing average gross operating rates in 29, 211 and 212. The fall in gross operating rate between 21 and 212, from 9.2% to 7.4%, is partially explained by a general decline in the manufacturing industry and partially by a relative loss of market share and competitive advantages of some ICT sub-sectors. In 212, Latvia, Greece and the United Kingdom registered gross operating rates above 2%, followed by Bulgaria, Austria, Ireland and Denmark not far behind. In all these countries with the exception of Ireland, the ICT sector has much better gross operating rates than the manufacturing average. At the other end of the scale, Finland is the only EU country that registered a negative gross operating rate in 212, due to the profound crisis of some of its biggest companies. 12, 1, 8, 6, 4, 2,,,3 Gross operating rate (%) - EU -1,4,19 -,1 -, Manufacture of computer, electronic and optical products (NACE 26) Total manufacturing Difference between NACE 26 and "Total manufacturing", in pp,5, -,5-1, -1,5-2, 3 Gross operating rate is the ratio of gross operating surplus to turnover. Gross operating surplus or profits is defined as value added minus personnel costs. It is the surplus generated by operating activities after the labour factor input has been recompensed. It is the balance available to a unit which allows it to recompense the providers of own funds and debt, to pay taxes and to finance all or part of its investment. Income and expenditure classified as financial or extraordinary in company accounts is excluded from gross operating surplus. ICT Study Sectoral Outline 29

30 1,2 8,8 5,9 7,7 9,4 8,6 9, % -13% 7% 4% 32% 12% 26% 14% 4% 1% 5% -2% 19% 33% 11% 2% 1% 15% -8% 43% 4% 73% 57% 129% -6,9 25,7 2,2 2,2 19,1 16,9 16,5 16,2 13, 12,5 11,2 1,6 1,5 1, 8,4 8, 7,7 7,4 6,6 6,3 5,3 4,7 4,6 3,7 3,3-7,8-11,6 2,5,6 6,8 4,9 4,1 2,8 4,8 1,4 1,1-1,5-3,6-3,6-4,8-5,5-1,8-2,8-1,8 7,2 6,4 14,1 11,7 1,3 IndustriAll project "Strategic study on anticipation of changes in the European ICT sector Gross operating rate (%), by country, Manufacture of computer, electronic and optical products (NACE 26) Difference between NACE 26 and "Total manufacturing", in pp Gross value added per FTE employee, % 2% 15% 1% 5% % -5% -1% -15% Manufacture of computer, electronic and optical products (NACE 26), in k EUR per employee Premium of NACE 26 against total manufacturing 11. Investment in the EU ICT sector does not show signs of growth Since registering more than 1 billion EUR in 27, gross investment in European ICT tangible goods fell by more than 4% in the first years of the crisis and has not yet recovered to pre-crisis levels, despite recovering to around 9 billion Gross investment in tangible goods - EU 9,7 9,1 8,8 8, 6,2 4,% 3,8% 4,2% 3,8% 3,6% 3,3% 2,9% 8% 7% 6% 5% 4% 3% 2% 1% % 3 Total ICT (NACE ), in bn ICT EURStudy Sectoral Outline Manufacture of computer, electronic and optical products (NACE 26), in bn EUR Share of "Manufacture of computer, electronic and optical products" in "Total manufacturing"

31 Germany Ireland France United Kingdom Italy (212) Sweden (212) Czech Republic Austria Poland Hungary Netherlands Spain Romania Finland Denmark Slovakia Belgium Portugal Bulgaria Estonia Slovenia Croatia Greece (212) Lithuania Luxembourg Latvia EU (211) United States (211) ,6% 2,6% 3,9% 2,3% 4,1% 3,1% 3,3% 1,5% 3,5% 2,% 1,% 2,5% 3,5% 3,4% 3,2% 1,1% 2,% 1,5% 3,8% 1,3% 1,8%,4% 2,8%,8% 4,6% 4,2% 15% 43,% IndustriAll project "Strategic study on anticipation of changes in the European ICT sector EUR per year in With 2.7 billion EUR invested in 213, Germany is by far the country that spends most CAPEX in the European ICT sector. The next highest CAPEX in Europe was Ireland, with almost 1.6 billion EUR in 213, representing 43% of total CAPEX of the country s manufacturing industry that year. Ireland also has the highest investment per person employed, the ICT sector indicator being 2.6 higher than the country s manufacturing average. Austria, Germany and Belgium follow with high levels of investment per employee, while at the other end, Poland and Croatia register low level CAPEX. The share of ICT CAPEX in total manufacturing CAPEX in Europe was only 4.2% in 211, compared to 15% in the United States in the same year. Gross investment in tangible goods - EU, % 4% 3% 2% 1% % -1% -2% Manufacture of computer, electronic and optical products (NACE 26), in M EUR Share of "Manufacture of computer, electronic and optical products" in "Total manufacturing" ICT Study Sectoral Outline 31

32 44,6 18,2 1,9 7,9 7, 6,6 6,4 5,9 5,7 5,6 5,5 5,2 5,1 5, 4,9 4,1 4,1 3,7 3,7 3,6 3,4 3,3 3,1 2,5 1,3-51% -36% -35% 9% -5% -23% -43% -54% -59% -18% -3% -41% -42% -61% -7% -33% -43% -54% 3% 6% -11% 31% 73% 56% 162% IndustriAll project "Strategic study on anticipation of changes in the European ICT sector Investment per person employed - EU, % 15% 1% 5% % -5% -1% Manufacture of computer, electronic and optical products (NACE 26), in k EUR per person NACE 26 vs. "Total manufacturing" 32 ICT Study Sectoral Outline

33 % 16% 23% 17% 14% 16% 14% 12% 14% 11% 6% 6% 1% 6% 3% 2% 21% 2% 31% 56% IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 12. R&D expenditure in the ICT sector increasing slower than the industry average Expenditure on research and development in the European ICT sector rose by 18% between 29 and 212. This evolution is higher than the increase in the sector s turnover during the same period (+4%), but is still lower than the increase in R&D expenditure in the European manufacturing industry in general, which experienced a boost of 25% during the same period. As a result, the share of ICT sector R&D expenditure in total European manufacturing expenditure fell from 18.6% in 29 to 17.5% in 212. The share of European ICT R&D in total manufacturing R&D expenditure in Europe is comparable to China, but is significantly under the levels registered in the United States, Japan and South Korea. Germany, with 39%, and France, with 17%, account for more than half of EU R&D expenditure in the ICT sector. Despite the problems encountered, Finland has not ceased its research and development efforts and is in third position among European countries, with more than 1.6 billion EUR spent in 212, or 56% of all R&D expenditure spent in the country s manufacturing industry that year. High R&D intensity is also registered in Sweden, France, Ireland and Romania, these countries spending 2% or more of manufacturing R&D in the ICT sector % 55% 5% 45% 4% 35% 3% 25% 2% 15% 1% 18,6% R&D expenditure 18,2% 17,8% 17,5% Manufacture of computer, electronic and optical products (NACE 26), EU2, in bn EUR Share of NACE 26 in total manufacturing Share of R&D expenditure in computer, electronic and optical products in total manufacturing R&D (%) EU2 United States China Japan Korea % 17% 15% R&D expenditure in the manufacture of computer, electronic and optical products (NACE 26), 212 8% 6% 4% 2% % -2% Computer, electronic and optical products, in M EUR Share of NACE 26 in total manufacturing ICT Study Sectoral Outline 33

34 Industrial structure and employment 1. Global view of ICT Manufacturing trends in Europe The number of ICT Manufacturing firms increased by 3% in Europe between 28 and 212 while employment decreased by 11%. Number of enterprises in Europe - NACE % Number of employees in Europe - NACE % Source: Eurostat database This opposing evolution masks different dynamics between sectors: the number of NACE 26 firms has been greatly decreasing (-11%) jointly with employment (-11%) whereas the number of NACE 95.1 firms has strongly increased (+19%) although mainly a rise in very small entities since employment has only increased by 2% during this period. Number of enterprises in Europe - NACE 26 Number of employees Europe - NACE % % Number of enterprises in Europe - NACE 95.1 Number of employees in Europe - NACE % % Source: Eurostat database ICT Study Sectoral Outline

35 2. View by sector 2.1. Structure Regarding the number of ICT manufacturing firms, almost two thirds fall within NACE code 95.1 (Repairs of computers and communication equipment) for only 1% of the total employment of enterprises classified as NACE in Europe 28. On the contrary, NACE code (Manufacture of instruments and appliances for measuring, testing and navigation), which accounts for 3% of total ICT Manufacturing employment in Europe 28 for 212, only represents 3 % of the total number of firms. Number of firms per code NACE in Manufacture of electronic components and boards Manufacture of computers and peripheral equipment Manufacture of communication equipment Manufacture of consumer electronics Manufacture of instruments and appliances for measuring, testing and navigation Manufacture of irradiation, electromedical and electrotherapeutic equipment Manufacture of optical instruments and photographic equipment Manufacture of magnetic and optical media Repair of computers and communication equipment ,51 26,6 26, Source: Eurostat database Indeed in 212, NACE code presents the highest average number of employees per firm, confirming a higher level of concentration. Conversely, NACE code 95.1 companies only had an average of 3 employees. ICT Study Sectoral Outline 35

36 Average employees per firm - ICT Manufacturing Manufacture of electronic components and boards Manufacture of computers and peripheral equipment Manufacture of communication equipment Manufacture of consumer electronics Manufacture of instruments and appliances for measuring, testing and navigation Manufacture of irradiation, electromedical and electrotherapeutic equipment Manufacture of optical instruments and photographic equipment Manufacture of magnetic and optical media Repair of computers and communication equipment Total ICT Manufacturing ,51 26,6 26, ,1 Source: Eurostat database 2.2. Employment by sector Regarding employment dynamics within each sector, the main evolutions between 28 and 212 were: Major increase in NACE code with +17% during this period and a weight within total ICT Manufacturing firms reaching 3% in 212, Meanwhile, main decreases in absolute value relate to NACE codes 26.1 (Manufacture of electronic components and boards) with -15% and 26.3 (Manufacture of computers and peripheral equipment) with -24% Employees by NACE code - NACE 26+95, Manufacture of electronic components and boards 26.2 Manufacture of computers and peripheral equipment 26.3 Manufacture of communication equipment 26.4 Manufacture of consumer electronics 26,51 Manufacture of instruments and appliances for measuring, testing and navigation 26,6 Manufacture of irradiation, electromedical and electrotherapeutic equipment 26,7 Manufacture of optical instruments and photographic equipment 26.8 Manufacture of magnetic and optical media Repair of computers and communication equipment 36 ICT Study Sectoral Outline

37 Employees in % of total NACE 26+95,1-212 Europe 27 countries 4% 1% 24% 4% 26.1 Manufacture of electronic components and boards 26.2 Manufacture of computers and peripheral equipment 26.3 Manufacture of communication equipment 26.4 Manufacture of consumer electronics 3% 5% 15% 7% 26,51 Manufacture of instruments and appliances for measuring, testing and navigation 26,6 Manufacture of irradiation, electromedical and electrotherapeutic equipment 26,7 Manufacture of optical instruments and photographic equipment 26.8 Manufacture of magnetic and optical media Source: Eurostat database In terms of employment in 212, the three NACE codes 95.1, 26.1 and 26.2 together accounted for almost 7% of total employment within Europe Value added by sector After a huge decrease in 29, the value added by ICT Manufacturing firms in Europe 28 has slightly risen, but is still far from the level reached in 29. Nevertheless, the value added rate (in % of sales) is 2.4 pts higher in 212 than it was in 28. If this evolution seems odd at first sight, it can be explained by an evolution in sector weight. The growing NACE code presents the highest value added rate. Indeed, the different NACE code sectors have moved in opposite directions regarding value added: Value added in Europe - NACE Value-added (in M ) VA in % of sales 25,6% 24,8% 27,2% 26,9% 27,% NACE VA has increased by 16%, NACE 26.1 VA has decreased by 16% and NACE 26.3 has collapsed with -51 % in four years. ICT Study Sectoral Outline 37

38 Value-added by NACE code (in M ) - NACE 26+95, Manufacture of electronic components and boards 26.2 Manufacture of computers and peripheral equipment 26.3 Manufacture of communication equipment 26.4 Manufacture of consumer electronics ,51 Manufacture of instruments and appliances for measuring, testing and navigation 26,6 Manufacture of irradiation, electromedical and electrotherapeutic equipment 26,7 Manufacture of optical instruments and photographic equipment 26.8 Manufacture of magnetic and optical media 95.1 Repair of computers and communication equipment Value-added in % of total NACE 26+95,1 Europe 27 countries % 5% 5% 6% 24% 26.1 Manufacture of electronic components and boards 26.2 Manufacture of computers and peripheral equipment 26.3 Manufacture of communication equipment 26.4 Manufacture of consumer electronics 37% 4% 13% 7% 26,51 Manufacture of instruments and appliances for measuring, testing and navigation 26,6 Manufacture of irradiation, electromedical and electrotherapeutic equipment 26,7 Manufacture of optical instruments and photographic equipment 26.8 Manufacture of magnetic and optical media 95.1 Repair of computers and communication equipment Source: Eurostat database The following chart highlights the significant differences in margin between sectors with: A rather high level value added rate for NACE codes 26.51, 26.7, 26.6 and even 26.1, Far lower rates for 26.1, 26.2 and The average for Manufacturing within Europe 28 was 24% in ICT Study Sectoral Outline

39 26.1 Manufacture of electronic components and boards 26.2 Manufacture of computers and peripheral equipment 26.3 Manufacture of communication equipment 26.4 Manufacture of consumer electronics 26.51Manufacture of instruments and appliances for measuring, testing and navigation 26.6 Manufacture of irradiation, electromedical and electrotherapeutic equipment 26.7Manufacture of optical instruments and photographic equipment 26.8Manufacture of magnetic and optical media 95.1 Repair of computers and communication equipment ICT Average IndustriAll project "Strategic study on anticipation of changes in the European ICT sector 28% Value added in % of sales by NACE codes % 41% Manufacturing average 33% 16% 16% 15% 22% 23% 32% Source: Eurostat database 3. View by country 3.1. Overall view In 212, four countries represented 64% of total employment in ICT Manufacturing within Europe 28: Germany with 27%, France with 14%, The UK with 13%, And Italy with 9%. 32 Employment split between NACE Code in Germany France United Kingdom Italy Poland Hungary Spain Czech Republic Finland Romania Netherlands Denmark Sweden Ireland ,51 26,6 26, Source: Eurostat database ICT Study Sectoral Outline 39

40 The following chart highlights sector specialisations for each country: In Germany, NACE Code represents almost half of all ICT Manufacturing jobs, possibly explained by the significant weight of industry (automotive, railway, mechanical industries, etc.), The situation is quite similar in France (railway and aircraft industries, among others), Sweden, Denmark and the Netherlands, The weight of NACE 26.3 is very high in Finland with almost two thirds of total ICT manufacturing employment, explained by the presence of Nokia which had around 5, employees in 212 (15 % of the total), If Ireland does not count among the most important countries in terms of employment in ICT Manufacturing, the country s high specialisation in NACE codes 26.1 and 26.2 (7% in 212 vs. 31% for the EU 28) can be linked to the presence of MNCs such as Intel for 26.1 (with the group s largest manufacturing plant outside of the United States) or IBM and Oracle for 26.2 (EMEA headquarters), Finally, of note is the major diversification of Hungary, the Czech Republic, Poland and Romania. 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 16% 9% 18% 18% 44% 5% 34% 43% 17% 14% 19% 23% Czech Republic 39% 9% 1% 8% 22% 8% 7% 7% 24% Employment split between NACE Code in % 36% 34% 34% 24% 12% 5% 16% 16% 13% 28% 7% 6% 7% 1% 11% 22% 6% 32% 8% 19% 37% 16% 18% 15% 1% 25% 24% 26% Denmark Germany Ireland Spain France Italy Hungary Netherlands Poland Romania Finland Sweden 17% 22% 11% 11% 33% 5% 16% 64% 7% 12% 51% 8% 18% ,7 26,6 26, Source: Eurostat database The average number of employees per company is obviously linked to the country s main sectors. In this regard, we have chosen to exclude NACE code 95.1 from the following chart since it could interfere with the comparison between countries (significant weight in Spain and France for example). The very high average number of employees in Ireland for NACE 26 is explained by the presence of a small number of MNC subsidiaries, concentrating a significant portion of employment. 4 ICT Study Sectoral Outline

41 131 Average number of employees per enterprise in NACE Source: Eurostat database 3.2. Employment evolution since 28 ICT Manufacturing employment decreased in most European countries between 28 and 212: The main decreases in percentage concern Ireland (mainly 26.2), the Czech Republic (26.4), Finland (26.3 with Nokia restructuring plans), Spain and Italy. In absolute terms, the decrease was also significant in France and Germany. Concerning France, most sectors have been decreasing with the rise in sector limiting damage, For Germany, the slight 3% decline is the result of a huge decrease in employment in Communication equipment and the concomitant rise in employment, Conversely, employment has risen in Denmark, the Netherlands and Poland. ICT Study Sectoral Outline 41

42 Employment evolution between 28 & NACE 26+95,1 1 12% 11% 5 3% -5-1 CZ DK DE IE ES FR IT HU NL PL RO FI SE UK -3% -3% -2% -6% -1% -13% -12% % -25% -22% in absolute value in % -23% Source: Eurostat database 4 Employment evolution between 28 & 212 by NACE codes ,7 26,6 26, CZ DN GM IE SP FR IT HU NL PO RO FL SW UK Source: Eurostat database 42 ICT Study Sectoral Outline

43 4. Structural factors Numerous structural factors can explain the differences in trends among European countries in ICT Manufacturing. We have chosen to distinguish in our report: the importance of local MNCs or local groups, company size (in terms of employees), type of ownership MNC importance While in 212, Europe represented a major share of MNCs with 26% of the 2, most important firms according to the Forbes 213 ranking, their weight in the ICT Manufacturing sector is lower with 22% and even 12% after excluding Telecommunication services. This ranking is obviously dominated by the APAC zone (47% of the main ICT MNCs) and countries such as Taiwan, Japan, South Korea and China. Within Europe, France has the most national MNCs with 4 ICT firms ranked (France Telecom, Vivendi, Alcatel-Lucent and Rexel). This dominance can be explained by the French national strategy (of the last fifty years and more) to promote the emergence of industrial champions in strategic fields. Then come the UK (Vodafone, BT Group and ARM Holdings) and Sweden (Ericsson, TeliaSonera and Tele2) with 3 ICT firms. Finally, it is quite unusual to find only two German ICT companies (Deutsche Telekom and Infineon Technologies) in this ranking, given the importance of the country for ICT in Europe. This apparent paradox could be explained by the large number of mid-cap companies in Germany (not necessarily concerning the ICT sector). ICT Study Sectoral Outline 43

44 Global ICT Source: Forbes 2, 213 edition ICT firms within the Forbes' top 2 - by zones Communications Equipment Consumer Electronics Electronics Telecommunica tions services Semiconductors Computer Hardware Europe Europe (non EU) Europe total in % of total 26% 22% 27% 8% 1% 34% 16% % 22% Asia-Pacific in % of total 36% 47% 36% 92% 67% 34% 32% 75% 47% Middle East in % of total 3% 4% % % % 9% % % 4% South America in % of total 4% 1% % % % 3% % % 1% North America in % of total 31% 25% 36% % 23% 19% 52% 25% 25% Africa in % of total 1% 1% % % % 1% % % 1% Total ICT firms within the Forbes' top 2 - by countries Communications Consumer Telecommunica Computer Global ICT Electronics Semiconductors Total Equipment Electronics tions services Hardware Belgium Denmark Germany Greece Spain France Italy Luxembourg Netherlands Portugal Finland Sweden United Kingdom Switzerland Turkey Russia Luxembourg Total Europe United states Japan China Taiwan South Korea Hong Kong-China India Malaysia Philippines Singapore Total Groups chosen for our ICT study 44 ICT Study Sectoral Outline

45 For our ICT study, we have chosen 2 groups representative (in our opinion) of their sectors trends in Europe. Among them, 14 are from Europe, 5 are from the US and 1 is from South Korea. Their cumulated revenue in Europe for 213 can be evaluated at around 25bn and their cumulated headcount amounted to near 85, employees. These groups show to be highly dispersed when analysing their revenue levels in Europe, with huge groups in Consumer Electronics, Industrials Electronics or Computers sectors and far smaller groups in the Components sector or Smart Cards. Only six of these groups make more than half of their sales in Europe (Siemens, Bosch, Prysmian, Nexans, G&D, and ARM). Some groups are presented as belonging to a specific sector whenever they could be classified in several, such as Siemens (Consumer Electronics and Industrial Electronics), Bosch and even Samsung. Please also note that the revenues and employees presented hereafter not only concern high-tech revenues (Bosch, Samsung, Siemens and General Electric) but also incorporate outlet sectors such as Automotive, Household equipment or Consumer goods % 54% Revenues in Europe (in m) and share of total group in % 72% 66% 55% 57% 48% 5% 41% 35% 32% 34% 31% 34% 24% 24% 28% 3% 17% Consumer Electronics Industrial Electronics Computers Connectors Smart Cards Telecom Components Cables Share of Europe Analysis is similar when looking at headcount, with only 8 groups counting more than half of their employees in Europe % 62% Headcount in Europe and share of total group in 213 Headcount in Europe and share of total group in % 46% 39% 4% 32% 34% 23% 27% 57% 5% 63% 36% 52% 51% 23% 71% 71%? Consumer Electronics Industrial Electronics Computers Connectors Smart Cards Telecom Components Cables % of group headcount ICT Study Sectoral Outline 45

46 4.2. Weight of groups in the industrial fabric 1% 8% 6% 4% 2% Number of firms by position within a groupin Manufacturing industry % Belgium Denmark Estonia Ireland France Romania Finland Sweden Norway Independant firm Head office Subsidiary with Global group head in own country Subsidiary with Global group head in EU27 Subsidiary with Global group head in extra-eu27 Source: Eurostat database These figures highlight the significant number of firms belonging to national groups in France, Denmark, Sweden and Finland. In the French case, concentration is even higher as these firms are part of a smaller number of groups. Please also note the high proportion of foreign group affiliates in Ireland and conversely, the high percentage of independent firms in Romania. Unfortunately, information is not available for Germany Company size and industrial fabric According to the Eurostat database, the decline in ICT Manufacturing jobs between 28 and 212 has been concentrated within companies with more than 25 employees (in absolute terms, but also in percentage) as shown in the following chart Employment evolution between 28 & 212 according to company size (EU 27) - NACE 26-6% -1% -7% -6% -14% to 9 1 to 19 2 to 49 5 to 249 more than 25 in absolute in % Source: Eurostat database Regarding the split of NACE 26 firms in terms of employment size, it clearly appears that Germany and Denmark hold the main weight in Medium Firms (39% of firms have between 46 ICT Study Sectoral Outline

47 1 and 249 employees in Germany; 36 % for Denmark). And these two countries saw some of the best evolution in employment between 28 and 212 in NACE 26. Number of firms by employment size in NACE Germany United-Kingdom Italy Poland Spain France Sweden Netherlands Romania Finland Denmark to 9 1 to 19 2 to 49 5 to 249 more than 25 Source: Eurostat database 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Number of companies by employment size in NACE 26 3% 1% 1% 1% 7% 5% 4% 3% 1% 3% 3% 1% 1% 5% 3% 3% 3% 1% 9% 9% 5% 7% 9% 4% 5% 5% 1% 6% 11% 4% 6% 7% 7% 9% 8% 11% 8% 1% 13% 11% 11% 17% 1% 7% 21% 14% 19% 17% 85% 82% 85% 81% 73% 73% 69% 74% 73% 58% 61% 37% more than 25 5 to to 49 1 to 19 to 9 Source: Eurostat database Please note again the significant number of large groups in Ireland and the very slight weight of very small ICT manufacturing firms explaining the high average of employees per company. Yet, SMEs are the most balanced during the period, with a decrease in employment in large companies in most European countries. ICT Study Sectoral Outline 47

48 Employment evolution (28-212) - NACE 26 to 9 1 to 19 2 to 49 5 to 249 more than 25 Germany France Finland Poland Source: Eurostat database 4.4. Geographical localisation and the cluster issue Geographical localisation may also be significant, especially in the case of industries which demand both high levels of investment and a strong dynamic in innovation. Indeed, the majority of innovations and patents originate from few regions of the world, as shown in the chart hereafter. Innovation hotspots in ICT, biotechnologies and nanotechnologies, and 28-1 Bio & nanotechnologies patents (region share) 2, 1,5 Total number of patents 1 patents 5 patents 5 patents Maryland (USA) (.9-3.5) Massachusetts (USA) West-Nederland (NLD) Pékin (CHN) Hovedstaden (DNK) Nord du Kanto, Koshin (JPN) 1,,5 Pennsylvanie (USA) Rhénanie-du-Nord- Westphalie (DEU) Toukai (JPN) Caroline du Nord (USA) New Jersey (USA) Illinois (USA) Floride (USA) Texas (USA) New York (USA) Kinki (JPN) île de France (FRA) Région de Séoul (KOR) Bade- Wurtemberg (DEU) Sud du Kanto (JPN) Bavière (DEU) Ontario (CAN) Stockholm (SWE) Californie (USA) Zuid-Nederland (NLD) Washington (USA) Guangdong (CHN),,,5 1, 1,5 2, Bio & nanotechnologies patents (region Total number of patents by region (1998-2) Total number of patents by region (28-21) share) Source: OECD Science, Technology and Industry Scoreboard ICT Study Sectoral Outline

49 The main regions for patents filed are the US, Japan and Germany. But the weight of the US has been decreasing since the end of the 199s, while Japan, China and South Korea have been gaining in importance. In Europe, the most active countries are mainly northern (Denmark, Sweden and Denmark), Germany and France. Number of patents by region 5% 34% 17% 29% 18% 14% % 8% 7% 2% 3% 5% 3% 3% 2% 1% 2% 1% 1% 1% Source: OECD Science, Technology and Industry Scoreboard Focus on the differences between France and Germany in terms of midcap companies Comparing German and French industries has become a common-place activity. Our aim is not to tackle the entire issue but to focus on the situation for mid-cap companies. In this report, we have seen that employment in ICT Manufacturing in Europe seems to have been secured more in SMEs during the period. The dynamism of the SME industrial fabric (even outside the scope of ICT) is a material advantage that seems as important as the concentration in ICT specialists (see clusters). As such, we have chosen not only to focus on ICT companies but to Comparison between French and German company size (number of employees) Source: Bpifrance_ETUDE ETI 22 TRAJECTOIRES DE CROISSANCE_JUIN 214 ICT Study Sectoral Outline 49

50 analyse the situation for all mid-cap companies. Indeed, France demonstrates a large gap in firms with between 1 and 1, employees but is similar to Germany for very small and very large companies SME transmission and financialization The transmission issue can also be key in the development of SMEs and implies financial constraints. As highlighted in the following chart, in 26, France had the lowest rate of inter-family transmission among the European countries analysed in the Tranregio Report. Inter-family transmission (completed) Austria 75% Poland 64% Germany 51% France 32% Source: CNCFA EPSILON Barometer / Transregio Report 26 / BPCE L Observatoire As a consequence, the SME sale market (< 5m) appears to be the largest in Europe with 28% of the Euro zone in value and the small caps LBO market is the most developed in Europe (with 47% of the Euro zone total during the period!). Weight of countries in Euro zone sales ( <5m) - YTD 213, volume Weight of countries in Euro zone LBO small caps ( <15m) market , value 29% 7% 8% 27% 28% France Germany Italy Spain Others 22% 7% 1% 15% 47% France Germany Italy Spain Others Epsilon Research/EVCA Epsilon Research/CorpfinDeals 5 ICT Study Sectoral Outline

51 This financialization may have impacts on companies mid-term strategy (and growth potential) since a company under LBO has higher financial constraints and often has to choose between debt reimbursement and investment/hiring Ownership structure 1 Firms split by type of ownership in 21 (in %) Denmark Germany Ireland Spain France Italy Netherlands Poland Finland Sweden UK Others Sole Proprietorship Partnership Limited liability company, not publicly listed Limited liability company, publicly listed Source: Eurostat database Lastly, the type of ownership may have an impact on the way a company is managed. According to the 21 Eurostat survey, Germany has the highest percentage of sole proprietorship with 26% of companies, while all other countries have fewer than 1% (3.1 % in France for example). We would also like to highlight the following facts: The high level of publicly-listed companies in Ireland and in the UK (9.1 % for both), The huge amount of companies classified in the category Others in Poland (74.2 %). Part of the explanation could be the very developed system of independent contractors in Poland with companies pushing employees to accept such contracts. ICT Study Sectoral Outline 51

52 Technical structure and technologies 1. Europe appears to be the most advanced region in ICT development While ICT development relies on public/private network investment, it also highly depends on ICT skills and ICT access and uses by all stakeholders (individuals, governments and companies). 63,8 Ac ve mobile broadband subscrip ons (per 1 inhabitants) 59,1 48,9 Percentage of households with internet access 78 57, , ,9 11,1 43,6 Europe The Americas CIS Arab states Asia-Pacific Africa Europe The Americas CIS Arab states Asia-Pacific Africa source ITU : Measuring the informa on society 214 World average source ITU : Measuring the informa on society 214 World average 74,8 Europe Individuals using the Internet (in %) 65,5 The Americas 55,9 source ITU : Measuring the informa on society 214 4,6 32,4 19 CIS Arab states Asia-Pacific Africa World average 4, Europe ICT Development Index by regions in 213 7,14 source ITU : Measuring the informa on society 214 The Americas 4,86 5,33 4,55 4,57 CIS Arab states Asia-Pacific Africa Range Region average World average 2,31 Europe is still the most advanced region for both ICT access and ICT use indicators, as highlighted by the last ITU report (Measuring the information society 214): 78% of households have Internet access, while the average is 57% in the Americas or 36% in the APAC zone; Almost two thirds of inhabitants have subscribed to mobile broadband; Internet users represent 75% of the population, while this figure is 66% for the Americas. Each year, ITU establishes an index representing countries ICT development, calculated on a composite basis (ICT access, ICT use and ICT skills). This index highlights the advance in Europe, but also the narrower range between EU countries. 52 ICT Study Sectoral Outline

53 Finland Singapore Sweden Netherlands Norway Switzerland United States Hong Kong United Kingdom Korea, Rep. Luxembourg Germany Denmark Taiwan, China Israel Japan Canada Australia Iceland New Zealand Estonia Austria Qatar United Arab France Ireland Belgium Malta Bahrain Malaysia IndustriAll project "Strategic study on anticipation of changes in the European ICT sector Combining North and South Americas together in these comparisons does introduce a bias to the analysis. The World Economic Forum also produces a composite index ranking each year (the Network Readiness Index), adding to ICT use and access indicators environment variables, as well as economic and social impact estimations. According to the 214 edition of this NRI, Europe is still leading the ranking with 13 countries within the top 3, and even four countries among the five best ranked (Finland, Sweden, the Netherlands and Norway). Networks Readiness Index 214 (World Economic Forum) Source: The Global Information Technology Report 214 Network Readiness Index 214 6, 6, 5,9 5,8 EU 5,7 5,6 5,6 5,6 5,5 5,5 5,5 5,5 5,5 5,5 Non EU 5,4 5,4 5,4 5,4 5,3 5,3 5,3 5,3 5,2 5,2 5,1 5,1 5,1 5, 4,9 4,8 ICT Study Sectoral Outline 53