Fabrice Hatem, AFII OECD Meeting 16/17th of november, 2006 Location of R&D centres in Europe : a new kind of competition between host countries

© AFII , avenue Vélasquez Paris Summary A new kind of market : The location of R&D centres in Europe The demand side : home countries and industries The supply side : competition between host countries

© AFII , avenue Vélasquez Paris Location of business support functions : a major stake for host territories The firms’ activity relies on various functions : not only production, but also logistics, R&D, administrative services, etc. Transnational corporations organise their international network of sites in order to capture the specific advantages of various host regions This strategy regards all the business functions, which consequently become « internationaly mobile » There is thus a growing competition between host territories for the location of those functions

© AFII , avenue Vélasquez Paris The trend to internationalisation of R&D activities creates a « market » for the location of R&D centers The internationalization of R&D is motivated by three driving forces : access to scientific ressources (fundamental research), access to technico-industrial skills (development of new products), access to local market (product adaptation) It can take various shapes : alliances, research contracts and outsourcing, acquisition of foreign companies… But also greenfield projets for the creation/extension of R&D centers abroad….. This resulting in the apparition of a « market » for the location of R&D centers, especially in Europe

© AFII , avenue Vélasquez Paris A measurement tool : the invest in France agency « European investment observatory » The traditional FDI statistics are not well adapted to the measurement of greenfield investment projects. Thus, new economic intelligence tools are being developped to measure those projects. Ex : Ernst/Young EIM, IBM/PLI, Locomonitor, AFII observatories Method : census of mobile international investment projects based on various sources (WEB, press, etc.) « Mobiles » projects are those giving way to a competition between various potential home countries. They are generaly related to the production of an internationaly tradable good or service. Each project is described by about fifteen parameters (host and home country, industry, job created, amount invested, business function, etc.). Scope : Europe (+ Mediterannean countries through the Anima/Mipo spillover data base). Data collected since 2002 till.. yesterday.

© AFII , avenue Vélasquez Paris A interesting market for developped countries despite a relatively limited size limited size : 5,4 % of projects, 3,9 % of jobs between 2002 and 2005, less than jobs per year in Europe The average size of projects is lower than that of factories But strong structuring impact on the host country : innovation, hiring of highly qualified manpower, high added value per capita… The competition of emerging countries is less intense than in manufacturing activities This market is thus very interesting for developed countries

© AFII , avenue Vélasquez Paris R&D centers : between 130 and 140 international projects yearly in Europe, sharp rise in 2005 Number of international projects in R&D centers in Europe, Source : AFII

© AFII , avenue Vélasquez Paris A quantitatively limited market : 5,4 % of projects, 3,9 % of jobs Source : AFII Breakdown of projects by function, Breakdown of jobs created by function,

© AFII , avenue Vélasquez Paris Small average size of R&D projects Source : AFII Taille moyenne des projets en emplois, Average size of projects by function,

© AFII , avenue Vélasquez Paris Main R&D projects in Europe (more than 300 jobs) YearCompanyJobsHome countryHost country Op é ration Industry 2002 STMicroelectronics ; Philips ; Motorola984U.S.FranceCreation Electr., Electron. Equipment 2002Abbott Laboratories700U.S.IrlandCreation Pharmaceuticals, cosmetics 2005Samsung Corporation600South KoreaPolandExtension Software 2003Faurecia550FranceGermanyCreation Automotive 2002General Electric520U.S.HungaryCreation Pharmaceuticals, cosmetics 2004Siemens500GermanyPortugalCreation Software 2005Inverness Medical Innovations500 U.S. United KingdomCreation Biotechnologies 2005Delphi Corp.500 U.S. PolandCreation Automotive 2005 Motoraola inc. 500 U.S. GermanyExtension Electr.components 2005IBM corp.500 U.S. PolandCreation Software 2003Honeywell400 U.S. Tch. Rep.Creation Other Transport. Mat. 2005Sun Microsystems Inc.400 U.S. Tch. Rep.Creation Software 2005Volkswagen AG370GermanyTch. Rep.Extension Automotive 2002Dow350U.S.SwitzerlandCreation Chemicals & plastics 2005Tata Consultancy Services350IndiaGermanyCreation Software 2005General Motors Corp.350U.S.GermanyCreation Automotive 2003GlaxoSmithKline Biologicals300U.K.BelgiumExtension Pharmaceuticals, cosmetics Source : AFII

© AFII , avenue Vélasquez Paris Strong concentration on some industries Main industries : software, electric and electronic equipements, automotive, health products, electronic components, biotechnologies Those six industries alone account for more than 75 % of projects and job creation

© AFII , avenue Vélasquez Paris A high concentration on some industries, for projects… Source : AFII Breakdown of projects by industries,

© AFII , avenue Vélasquez Paris … as well as for jobs Source : AFII Breakdown of job created in R&D centers in Europe by industry,

© AFII , avenue Vélasquez Paris Important share of anglo-saxon firms in R&D projects in Europe Large share of US and UK companies in projects. Why? Important role of high tech industries in the home countries (US, UK) The globalisation of R&D involves locations outside the home continent of the company (Europe for US firms, US for European companies) for fundamental research as well as for adaptation centers In Europe, no strong need to create adaptation centres in neighbouring countries of the home country of the company Nevertheless, European companies amount for more than 40 % of international jobs creation in R&D centers in Europe

© AFII , avenue Vélasquez Paris International investment R&D centers: key-role of north-american investors, followed by west- europeans, in projects…. International projects in R&D by home region, Source : AFII

© AFII , avenue Vélasquez Paris … as well as for jobs Source : AFII International jobs in R&D centers by home region,

© AFII , avenue Vélasquez Paris R&D : the breakthrough of east-european countries Western European countries provide the best scientific clusters (for the attraction of fundamental research centers) and offer large-size markets (for the attraction of adaptation centers) Their market share thus remain dominant (Germany, UK, France), especially for fundamental R&D centers But East European countries offer a high-quality manpower at low costs Their market share thus is quickly increasing, especially for global development centers (Cz. Rep. Poland, Hungary) The average size of projects in terms of jobs is much larger in eastern- european countries

© AFII , avenue Vélasquez Paris Host countries : domination of western Europe... Source : AFII Job created and international projects in R&D by host region

© AFII , avenue Vélasquez Paris But the market share of east-european countries is increasing Job created in R&D centers projects in Europe Source : AFII Projects in R&D centers in Europe

© AFII , avenue Vélasquez Paris The average size of projects is larger in east-european countries Source : AFII Average size of projects by host region

© AFII , avenue Vélasquez Paris East-european countries are attractive for global development centers Source : Sachwald, AFII meeting on R&D localization strategies in Europe, oct.2006

© AFII , avenue Vélasquez Paris Merci pour votre attention Thank you for your attention