1. 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

2. © AFII 2005 2, avenue Vélasquez 75008 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

3. © AFII 2005 2, avenue Vélasquez 75008 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

4. © AFII 2005 2, avenue Vélasquez 75008 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

5. © AFII 2005 2, avenue Vélasquez 75008 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.

6. © AFII 2005 2, avenue Vélasquez 75008 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 10 000 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

7. © AFII 2005 2, avenue Vélasquez 75008 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, 2002-2005 Source : AFII

8. © AFII 2005 2, avenue Vélasquez 75008 Paris A quantitatively limited market : 5,4 % of projects, 3,9 % of jobs Source : AFII Breakdown of projects by function, 2002-2005 Breakdown of jobs created by function, 2002-2005

9. © AFII 2005 2, avenue Vélasquez 75008 Paris Small average size of R&D projects Source : AFII Taille moyenne des projets en emplois, 2002-2005 Average size of projects by function, 2002-2005

10. © AFII 2005 2, avenue Vélasquez 75008 Paris Main R&D projects in Europe 2002-2005 (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

11. © AFII 2005 2, avenue Vélasquez 75008 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

12. © AFII 2005 2, avenue Vélasquez 75008 Paris A high concentration on some industries, for projects… Source : AFII Breakdown of projects by industries, 2002-2005

13. © AFII 2005 2, avenue Vélasquez 75008 Paris … as well as for jobs Source : AFII Breakdown of job created in R&D centers in Europe by industry, 2002-2005

14. © AFII 2005 2, avenue Vélasquez 75008 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

15. © AFII 2005 2, avenue Vélasquez 75008 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, 2002-2005 Source : AFII

16. © AFII 2005 2, avenue Vélasquez 75008 Paris … as well as for jobs Source : AFII International jobs in R&D centers by home region, 2002-2005

17. © AFII 2005 2, avenue Vélasquez 75008 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

18. © AFII 2005 2, avenue Vélasquez 75008 Paris Host countries : domination of western Europe... Source : AFII Job created and international projects in R&D by host region 2002-2005

19. © AFII 2005 2, avenue Vélasquez 75008 Paris But the market share of east-european countries is increasing Job created in R&D centers projects in Europe 2002-2005 Source : AFII Projects in R&D centers in Europe 2002-2005

20. © AFII 2005 2, avenue Vélasquez 75008 Paris The average size of projects is larger in east-european countries Source : AFII Average size of projects by host region 2002-2005

21. © AFII 2005 2, avenue Vélasquez 75008 Paris East-european countries are attractive for global development centers Source : Sachwald, AFII meeting on R&D localization strategies in Europe, oct.2006

22. © AFII 2005 2, avenue Vélasquez 75008 Paris Merci pour votre attention Thank you for your attention fabrice.hatem@afii.fr