EC proposes new indicator of innovation output to benchmark national innovation policies and monitor EU’s performance against its main trading partners

16-9-2013 — /EuropaWire/ — This MEMO explains the objectives of the new indicator of innovation output and provides an overview of the performance of EU Member States, other European countries associated to the EU’s research Framework Programme, and some of the EU’s main trading partners.

More information is contained in the Staff Working Document accompanying the Communication, including performance charts for all countries.

Why is the Commission proposing a new indicator of innovation output?

Innovation is key for Europe’s competitiveness, growth and jobs, and is therefore at the heart of the Europe 2020 strategy for smart, sustainable and inclusive growth. The European Union has set itself the goal of becoming an “Innovation Union”.

The new indicator of innovation output was developed at the request of the European Council to benchmark national innovation policies and monitor the EU’s performance against its main trading partners. It measures the extent to which ideas stemming from innovative sectors are capable of reaching the market, providing better jobs and making Europe more competitive.

In March 2013, the Heads of State and Government requested a discussion on innovation in October 2013, calling on the Commission to deliver the indicator by that date. The indicator also fulfils a commitment under the Innovation Union flagship initiative to “launch the necessary work for the development of a new indicator measuring the share of fast-growing innovative companies in the economy”.

How will this indicator be used?

The Europe 2020 strategy is underpinned by five headline indicators. One of these is to improve the conditions for Research & Development (R&D), with the aim of raising combined public and private investment levels for R&D to 3% of GDP.

Within the European Semester cycle, the European Council assesses Member States’ progress towards these targets, on the basis of monitoring performed by the European Commission.

The proposed new indicator complements the one on R&D intensity by zooming in on innovation output. It will support policy-makers in establishing new or reinforced actions to remove bottlenecks preventing innovators from translating ideas into successful products and services.

How was this indicator developed?

Innovation output is wide-ranging and differs from sector to sector. A broad set of options for the new indicator were explored using Eurostat’s framework for quality indicators and state-of-the-art statistical analyses.

To advise the Commission, a High-Level Panel of leading innovators and economists was set up in 2010. In parallel, cooperation was undertaken with the OECD to develop sectoral innovation coefficients, as part of the indicator component measuring the employment of fast-growing firms in innovative sectors.

Member States were also associated to the discussions on the scope and definition of the indicator during dedicated workshops in 2012 and 2013.

In order to refine the indicator and bring it to its full potential, the Commission identified four further areasfor future analyses including improving its data on fast-growing firms in innovative sectors, analysing how the innovation coefficient datasets could be improved to ensure larger sets of observations across sectors and over time, and enlarging its international dimension.

What are the components of the new indicator?

The new indicator on innovation output is based on four components chosen for their policy relevance, data quality (international availability and cross-country comparability) and robustness of results:

1) technological innovation, as measured by the number of Patent Cooperation Treaty PCT patent applications per billion GDP. This shows the ability of an economy to transform knowledge generated by investing in R&D into marketable innovations.

2) employement in knowledge-intensive activities (KIA) as a percentage of total employment. This focuses on how a highly skilled labour force feeds into the economic structure of a country. Investing in people is an opportunity for Europe, because education and training provide workers with the skills to generate innovations.

3) competitiveness of knowledge-intensive goods and services. This is based on both the contribution of the trade balance of high-tech and medium-tech products to the total trade balance, and knowledge-intensive services as a share of the total services exports. It reflects the capacity of a country to reach global markets with its innovations.

4) employment in fast-growing firms of innovative sectors. This provides an indication of the dynamism of fast-growing firms in innovative sectors as compared to all fast-growing business activities. It captures the capacity of a country to transform rapidly its economy to respond to new needs and to take advantage of emerging demand.

What are the links between the new indicator and the Innovation Union Scoreboard?

The new indicator of innovation output complements the Commission’s Innovation Union Scoreboard (IUS) and Summary Innovation Index (SII) (IP/13/270). These assess the innovation performance of Member States and the EU more widely, against a broad set of 24 innovation indicators including inputs, throughputs and outputs.

The novelty of the proposed indicator is that it focuses on innovation output.

To do so, it uses three output measures from the Innovation Union Scoreboard

1. PCT applications per billion GDP (IUS 2.3.1)
2. Employment in knowledge-intensive activities (KIA) in business industries as a % of total employment (IUS 3.2.1)
3. Trade with two sub-components:

• The contribution of the trade balance of high-tech and medium-tech products to the total trade balance (IUS 3.2.2) and
• Knowledge-intensive services as a share of the total services exports (IUS 3.2.3).

In addition, it adds a new component on employment in fast-growing firms of innovative sectors. This new component will be integrated in the future into the IUS.

From 2014, results for the new indicator are planned to be published simultaneously with the IUS results, supported by analyses of the performance of each Member State.

Main results of the new indicator

Sweden, Germany, Ireland and Luxembourg are the EU Member States getting the most out of innovation according to the new indicator.

ountries’ scores for 2011 are shown in red and for 2010 in blue, with respect to the EU average, set to 100 in 2010. In 2011, the components reflect the situation in 2009 (patents), 2010 (jobs in fast-growing firms) or 2011 (KIA, competitiveness). In 2010, they are based on 2008 (patents), 2009 (jobs in fast-growing firms) or 2010 (KIA, competitiveness) data.

Are Member States improving their innovation performance?

The EU has increased its performance in 2011 by 4.4 score points compared with 2010.

Progress in this period was strongest in knowledge intensive service exports.

Most Member States have likewise increased performance. However, given that longer time series are not yet available, it is too early to say something about trends.

In the 2014 edition of the Innovation Union country profiles, the European Commission will include a detailed analysis of the performance of each Member State.

How does the EU fare in comparison to its international partners?

Data are currently only available for the key non-European partners USA and Japan and for some Associated Countries (Switzerland, Iceland, Norway, Turkey).

Japan is outperforming all EU countries and is the number one performer in the new innovation indicator. Japan performs well in all components of the indicator. It performs particularly well in the contribution of medium and high tech products to trade balance and in PCT patent applications. The U.S. score is similar to the one of the EU. The U.S. performs particularly well in employment in knowledge-intensive activities and near the EU average in the other components.