Innovation and Competitiveness clusters Policy in France Thierry VAUTRIN Mexico, March 6th 2009

French industrial situation Too small number of SMEs Too large proportion of very small enterprises (more than 85 % of companies have less than 10 people); low specialization of industry; small and medium enterprises (less than 500 staff) are representing only 16 % (2004) of industrial research expenses; Strategic positioning : To fight against low wages countries, the solution is to increase competitiveness of the economy by promoting breakdown technologies, therefore to encourage innovation.

French industrial situation The aim: increase research and development expenses in companies in order to reach the Lisbon agenda objectives: 3% GDP for R&D in But French SMEs are underperforming regarding their European competitors: 19,7 % of French SMEs are investing in R&D in house (32 % in Germany and 30 % in Sweden); 35,9 % of French SMEs are investing in non technologic innovation (53,9 % in Germany and 44 % in Sweden). To increase the industrial R&D expenses is mandatory : Lisbon objective: 3 % of GDP in 2010, French situation 2,11 % (European Innovation Scoreboard 2007) French Private expenses in R&D are too small ( 1,32 % of GDP, vs1,76 % in Germany, 1,87 % in the States et 2,40 % in Japan) 0,1% increase in R&D intensity leads to the creation of 0,3 to 0,4 % growth points regarding the GDP per capita » (European commission, 2005)

The tools for a performing innovation policy The innovation policy is a mix of : tax relieve measures for innovative enterprises and investors direct financing for projects involvement of all level of public authorities: the central government, the regional authorities,…

Tax measures :a main reform the research tax credit (CIR) CIR is a tax rebate for companies investing in R&D, with the objective to increase the private R&D expenses Benefit of reduction of 30% of their expenses up to 100 millions euro, 5% after this threshold For companies investing for the first time in R&D, the level of rebate is upgraded to 50% the first year of application, 40% the second year. The reimbursement can be immediate (and non during the year following the expenses) if companies are considered as young innovative enterprises or growing companies (more than 15% growth/year) In 2005, 5400 companies, investing 13.5 billion euro in R&D were benefiting of the scheme, for a public cost of 981 million euro. 40% of this amount was dedicated to companies of less than 50 staff For the coming years the estimate cost of the scheme is 3 billion euro/year.

Performing measures for SMEs : the young innovative enterprise and the young university enterprise status The young innovative enterprise status: 5 criteria of which : less than 8 years old, more than 15% of total expenses dedicated to R&D Advantages: Tax rebates Exemptions of social contributions for the employees taking part in research A significant result (2006) : 1700 companies, staff concerned : 9600 budgetary cost for the State: 110 million euro The Young university enterprise status: own for more than 10% by a student or a searcher, for the valorization of research works of high grade education bodies (universities, high schools) the JEU is benefiting the same advantages than the JEI The scheme started in January 2008

Direct financing : the new OSEO Agency January 2008: merging between two agencies: AII and OSEO : to give a new impulse to R&D in high potential SMEs and allow the creation of more intermediate enterprises (staff between 250 and 5000) in breakdown technologies sectors, To promote the partnership in innovation projects To simplify the innovation financing frame, with a single financing point To offer companies an unique interlocutor all along their life A new unit has been created within OSEO Innovation Dedicated to cooperative projects For aid amount of up to 10 million Euros This unit is in charge of managing, since the beginning of 2009, the financing of “poles de compétitivité” projects The industrial strategic innovation (ISI) scheme allows to focus on collaborative projects concerning the more risky innovation

The National Research Agency Under the responsibility of the ministry in charge of research: from a structural to a project based research financing The scope: to finance research projects from the scientific community, on the basis of call for tenders and with a peer evaluation of the projects A particular focus is put on private-public partnership and involvement of enterprises in the projects, with an objective of technology transfer and valorization of public research by the companies. Some figures Number of projects selectivity27 %25 %25 % Financing amounts (ME) % of SMEs 8,2 %7,8 %7,4 % % of large companies9,2 %9,9 %7,7 % Number of poles projects Amount for poles projects

THE COMPETITIVENESS CLUSTER POLICY

Policy basis The premises of a new industrial policy : the Aglietta-Boyer report (1982) Networking and transactional capacity is replacing isolated actors and informational capacity Competitiveness clusters are at the crossroad of scale economies, experience effects, diffusion of information on all the value chain, and new products creation The Christian Blanc Report and DATA report (2004) Horizontal cooperation can improve innovation ecosystem Local level of development is essantial University should be an essential player in R&D, not only national public labs R&D support should be given on the basis of competition calls Private financing should play a role in the development of innovation Networks of companies and public research bodies are the key conditions for success

Policy basis The benchmark theoretical analysis : Porter, but also Becattini models in the US (Silicon Valley and others), but also in Scandinavia, Canada, Italy the value of a cluster is due to networking effects and has to be greater than the sum of members value 4 elements are favorising clusters competitiveness complete ecosystem competition to stimulate members good quality resources (skills and competences) good quality local market the need and type of public policy depends on national situation

Policy aims Identifying high-potential clusters and focus public aids on them avoiding scattering of public subsidies Strengthening the link between research & industry promoting industry-driven research programs developing the “triple helix relationship” between firms, research centres and higher education institutions Developing a full ecosystem Education, private financing (business angels, VC,…) IP management, entrepreneurship, international development

What are they A competitiveness cluster is : a gathering of firms, research centres & higher education institutions, working on joint projects (mainly R&D projects) with a dedicated governance body (non-profit organization), and with dedicated public oversight bodies All « clusters » are different : different strategies - different priorities (outside R&D) different organisations (1 to 10 dedicated staff)...but they all have to: define an innovation and development strategy, and implement a road-map to achieve it favour SMEs development Other priorities, depending on the cluster: education- Recruitment - international partnerships -service delivery toward SMEs...growth financing, … Priorities must depend on the strategy !

Key factors of success  Involvement of firms (as opposed to involvement of public authorities or to involvement of public research centres)  Public authorities have to help and support, but not decide  e.g. the cluster strategy must be decided by the cluster governance (i.e. firms)  Each cluster needs a specific support policy (at local level)  i.e. no « one size fits all » !  All local innovation services must be cluster-oriented  i.e. it may request changing pre-existing organizations approach  The cluster policy must be enforced in the long-term  e.g. time-to-market in R&D projects is a least 2 to 3 years  cluster policy needs 5-10 years to get a strong impact

The launch of the policy 1.Criteria used Industrial concentration Presence of technological industrial leaders Existence of a value chain ecosystem Strength of the R&D in the cluster ecosystem: number of searchers (both private and public) is a key criteria for classification as global clusters Numbers of key technologies targeted Need of global strategy Real networking effect is mandatory

The launch of the policy 2. Ongoing observation (1) An annual scoreboard Managed by public statisticians in dialogue with policy makers and clusters’ representatives The choice of indicators is driven by the nature of the policy, i.e. focused on labeled innovation projects. Clusters are required to fulfill every year: - the list of their members (establishments of companies, research centers and educational institutions) - some indicators

The launch of the policy 2. Ongoing observation (2) : The scoreboard is published on the Web It characterizes - each cluster and its members - the aggregate set of these clusters IT is still limited to one year of observation, but data on first evolutions will be added soon At end of 2006 (for 66 clusters): locations of companies, of which 4000 SMEs employees (3% of French employment) - Over representation of industry (11% of French industrial employment) and of technology intensive industries

Competitiveness cluster funding ( ) Financed by : French government (Single Interministerial Fund) € 830 million Agencies (ANR, OSEO-AII) and Caisse des depots € 520 million Tax breaks € 160 million Local authorities € 500 million Total € 1,500 million

Pôles 2.0 : the second stage of the policy End of 2007 and early 2008: national evaluation conducted by Boston Consulting Group and CM International. Evaluation of both the global policy and each cluster individually Methodology of evaluation of public policy Dedicated means Consistency with other public policies (R&D and innovation) Clusters selection process Financing support processes Policy management at national and local levels Synergy between actors First effects on local actors

Pôles 2.0 : the second stage of the policy Evaluation of each competitiveness cluster - 7 points of scope Economic and international strategy Cluster government and animation, evolution of the cluster population R&D projects and firms-public research-training synergy Territorial settlement and network strengthening, structural projects SME’s integration and new enterprises creation Human resources training Green development approach

Pôles 2.0 : the second stage of the policy The main conclusions of the evaluation At the global policy level Policy aims are validated The competitiveness clusters policy is recognized as successful Number of competitiveness clusters have created, during the first phase a dynamics of cooperation between actors of innovation (Enterprises, Research Centers, University) At the clusters level 39 clusters are fully in line with the aim of the policy 19 clusters have to improve some aspects of their operations to fulfill the objectives of the policy 13 clusters need a large reconfiguration of their action in order to fulfill the objectives of the policy.

Pôles 2.0 : the second stage of the policy Launched by president Sarkozy on 26th June 2008 (the Limoges Speech) A new 3 years period ( ) for growth of the clusters and to achieve world class clusters Financing by the state for innovation projects: 1.5 billion Euros for the 3 years period A stress on private financing involvement in the innovation process managed by the clusters A stress put on SME’s involvement in clusters A strengthening of contract based relationship between clusters and public authorities : Strategic roadmaps Development of a competitive ecosystem Contract of objectives (to be negotiated before end of march 2009 and signed before the end of June 2009)

Where are they The 71 Competitiveness Clusters in France. 17 are global 54 are national

Competitiveness clusters by economic sector 16 economic sectors : biotechnology : 7 health and nutrition : 2 cars and railways : 4 energy – propulsion : 5 aerospace and aviation : 3 chemistry and platics : 2 agriculture – food processing – horse industry : 14 household and personal good : 4 electronics – telecom : 5 financial industry : 1 textiles – materials : 7 marine technology : 2 industrial processes – risk management networks : 4 multimedia – 3D imaging : 4 logistics – mobility : 4 mechanics – microtechnology : 3

Fore more information on french Competitiveness clusters : Thank you for your attention