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European Commission

MEMO

Brussels, 10 October 2012

Industrial revolution brings industry back to Europe

Europe needs its real economy now more than ever to underpin the recovery of economic growth and jobs and it needs to reverse the decline role of industry in Europe for the 21st century. If Europe does not keep up with investment in new technologies, its future competitiveness will be seriously compromised.

Industry - 20% of GDP by 2020

The Communication outlines a policy to lay the foundations for Europe's industry of the future. Currently, industry accounts for about 16% of the EU's GDP. Strengthening the industrial base of the Union would require reversing the declining industry trend observed for a long period of time, to approach 20% of GDP by 2020.

To that end, the Communication defines objectives to increase investment in equipment and the internationalisation of our firms, and to facilitate our SMEs' growth.

Needed: investment in innovation, better access to markets and capital

Pillars of the reinforced industrial policy

Investments in innovation

As a first step, six priority lines for short term actions are proposed to be taken in cooperation with industry and Member States. Measures for the speedy development of production and markets are:

  • markets for advanced manufacturing technologies for clean production

  • markets for key enabling technologies,

  • bio-based product markets

  • sustainable industrial policy and construction and raw materials

  • clean vehicles

  • smart grids.

Dedicated task forces will be created before the end of 2012 to define roadmaps for each action line.

For example, markets for clean production technologies are expected to grow strongly with the world market almost doubling up from some € 380 bn in 2007 to € 765 bn in 2020. For example, very fast growth is expected in automatic waste separation, a sector where Europe has dominant market share: the world market is expected to grow by the factor of five by 2020.

Better access to Internal Market and international markets

The Commission will concentrate on selected themes where significant improvement can be achieved quickly:

  • Improving the Internal Market for goods. Half of the internal market is regulated by national technical regulations or not at all1. Improvement, such as wider use of standardisation, would help EU companies to be more successful internationally.

  • Fostering entrepreneurship with regards to the digital single market which is expected to grow by 10% a year up to 2016. More than 75% of the value added created by the Internet is in traditional industries. For every job destroyed by the internet, 2,6 new jobs were created (IP/12/1025). Moreover an ambitious action plan to boost entrepreneurship at all levels will be presented in November 2012 (IP/12/797),

  • Protecting and promoting intellectual property rights (e.g. the unitary patent will remove barriers for SMEs enabling them to fully exploit the market of trading intellectual property). New IPR helpdesks will be established and become operational in 2013 to support SMEs.

  • Further promoting the internationalisation of EU SMEs around the world, reaching 25% (from 13%) in the medium term. Exports have been by far the most dynamic component of EU economy in the past years.

  • Undertake fitness checks of EU legislation on the aluminium and petroleum refining sectors starting before the end of 2012.

  • Improve access to raw materials: Further develop the “raw materials diplomacy” and promote international regulatory cooperation and convergence, notably vis-à-vis neighbouring countries, in order to accompany the creation of markets for new products and technologies. Implementation and development of agreements signed in previous missions and new missions starting in November 2012 with Morocco and Tunisia.

Access to finance and capitals

  • to improve lending to the real economy by better mobilising and targeting public resources, including a good part of the lending capacity that will result from the 10bn euros increase in the capital EIB and the benefits that may follow from the new orientation of the Structural Funds

  • by unlocking private funds through the elimination of remaining obstacles for venture capital funds and the facilitation of cross-border operations by smaller companies.

The crucial role of human capital and skills

In this area, the Commission will in particular further promote cooperation of employers, workers and relevant authorities through the creation of European Sector Skills Councils and of Knowledge and Sectors Skills Alliances.

Industry's active role is crucial in the success of the proposed actions

In order to be successful in achieving the proposed objectives, industry's active role and engagement is crucial. It must seize the opportunity to play its part in carrying out the necessary investments to give us that competitive lead.

This Communication creates an alliance between public authorities and industry to deliver growth and jobs. Following the adoption of the Communication, the Commission will work with stakeholders to define roadmaps and targets to ensure the faster adoption and industrial diffusion of new and cleaner technologies for which a dedicated working group will be set up.

Goals and monitoring of progress

In order to ensure the proper implementation of the proposed actions, the Commission will closely monitor a number of new key variables:

1. Investment

Gross fixed capital as a share of GDP was 18.6% in 2011. Before the crisis, it reached 21.25% of GDP in 2007. The investment effort needed to improve our productivity would require pre-crisis investment levels by 2015 and average levels of above 23% until 2020. Investment in equipment is currently between 6 and 7% of GDP. To improve of productivity and introduce new technologies it should recover pre-crisis levels and grow sustainably at rates above 9% of GDP until 2020.

2. Internal market trade

Trade in goods in the Internal Market is currently just below 21% of GDP2. In a reinvigorated Internal Market, this share should reach 25% by 2020.

3. SMEs –Small and medium sized enterprises

In line with Commission aspirations for the Digital Agenda flagship market, the number of small firms engaging in e-commerce selling should increase to reach 33% by 2015. The proportion of SMEs exporting inside the Internal Market was 25% according to the 2009 survey3. In the medium term the proportion of SMEs engaged in extra EU exports should also be 25% (from 13% currently).

There is substantial potential for reinforcing the industrial base

It seems that it becomes more interesting in investing in Europe again as the advantages of cheap labour are gradually diminishing. In recent years wages in industrial areas in China have been growing at a 20% rate per year in industrialised regions (substantially exceeding improvements in productivity) making them less and less cost attractive locations for manufacturing facilities.

In addition, labour costs seem to be becoming a diminishing part of total production costs. When accounting for logistics, duties, industrial real estate and other costs, the advantages of manufacturing in China could therefore be relatively less important than in the past. While improvements to and automation of production in China will lead to higher productivity, they are likely to challenge what has been up to now China's primary attraction, i.e. its low labour costs.

Furthermore, companies that located their production sites in Asia will to a larger extent serve the increasing local demand for goods. This may encourage companies to bring some of their production capacities serving the European market back to Europe, especially considering increasing risks and costs related to the management of global value chains. Companies would need to balance the diminishing cost benefits with persisting localised risks linked to high density of production in one geographical area. These risks include for instance natural catastrophes, socio-political disruptions and security issues (counterfeiting, sabotage, misappropriation).

New technologies will open new possibilities

New technologies that are about to appear on the market will open new possibilities. The European orientation towards sustainable growth will help us to gain the lead in energy and resource savings of production processes. Customised production will gain importance and favour closeness to the customer rather than mass standardised production.

These trends will complement more current European strengths i.e. strong micro-economic environment, high productivity, a large, integrated market, and a qualified, flexible labour force. One should not forget that Europe is an extremely important market, accounting for some 30% of global personal consumption expenditure in 2010, which is more than double that of the combined BRICS (around 14%). Besides, despite the skills mismatch problems reported by industry, Europe also leads in the number of graduates in natural science and engineering, respectively accounting for 18% and 17% of the world's total.

Challenges for EU industry

The protracted consequences of the crisis have placed European industry in a difficult economic position to carry out the necessary efforts to increase competitiveness via technological change and innovation. Nonetheless, in order to grasp these opportunities, European industry needs also to deal with several challenges. As the cost structure in industry changes, cost competitiveness will continue to be the key factor of industrial location and cannot be ignored by policy makers. Emerging economies are moving towards more knowledge-intensive sectors and start to compete not only with lower costs but also with increasingly qualified labour and improved infrastructures. Finally,

There are good reasons to be optimistic about the capacity of European industry to respond to this challenge: Europe is a world-leader in many strategic sectors such as automotive, aeronautics, engineering, space, chemicals, and pharmaceuticals; it accounts for 4/5 of Europe's exports and 80% of private R&D investment comes from manufacturing.

Future growth sectors address societal challenges

A variety of radical new industrial technologies are emerging in the course of a "new industrial revolution" that will lead to the formation of new goods, services, and business models that will reshape EU industry. Some prominent examples include:

Customised production in smaller quantities

The deployment of advanced manufacturing technologies will allow customised production in much smaller quantities than is currently economically feasible. So-called 3D printing technologies are increasingly used to make plastic and metal production parts by carmakers, aerospace firms and consumer-products companies. These “printers” use very thin layers of powdered materials fused by lasers or electron beams enabling the production of precision products whilst saving energy and raw materials4. The wide availability of low-cost small production runs will increase opportunities for innovative SMEs to develop new niche products and business models.

Key enabling technologies offer opportunity for EU upstream production

The development of advanced materials and nanotechnology may result in a reversal of the current tendency for basic production and processing in heavy industries to be outsourced to third countries. Advanced materials with special properties, such as heat-resistant or high-strength steel for aircraft and intelligent nano-materials such as corrosion-resistant steel for bridges, are being developed in Europe. This provides the opportunity for Europe to once more become a competitive location for the upstream part of the steel value chain. IP/12/685 

Intelligent products that do the job for elderly and disabled people

The development of "intelligent products that do the job" will improve assisted living and will be essential to allow elderly and disabled people maintain an active and healthy lifestyle. The development of such products including clean, safe and intelligent vehicles that combine electric power trains that reduce emissions with new safety and comfort features improve security and performance and allow the more intensive and efficient use of infrastructure.

New services and business models link manufacturing closer to services

New business models are emerging that link manufacturing closer to services. The development of smart phones that bundle internet services with equipment is a clear example. The development of RFID (Radio frequency identification) is another good example. It has resulted in a vast increase in timely information availability, allowing the closer integration of market research, logistics, and manufacturing businesses, and created in faster responsiveness to market demands and increased energy-efficiency in the transport sector. Such developments also have wide spill over effects including benefits for traditional sectors.

Societal challenges are economic opportunities

Technologies developed by industry will also be indispensable to find solutions to the major societal challenges facing the EU and the world. Over the next five to ten years, EU industry will:

  • Deliver clean production (resource and energy efficiency, use of renewable forms of energy, recycling, management of depleting raw materials). In particular, the environmental challenges triggered by the aspirations of a growing number of emerging market economies to match EU-levels of living standards will enormously increase the demand and opportunities for eco-technologies and services. EU industry is in a strong position to supply such demands.

  • Provide solutions for a healthily aging society. For example, the exploitation of the potential of the life sciences will enable the development of new medicines. This will be based on biotech and genomics and provide more targeted interventions, blurring the distinction between therapeutic and diagnostic interventions and leading to the availability of new treatments as well as the prevention of certain conditions such as asthma and diabetes.

  • Contribute to providing global security in the face of natural disasters and terrorist threats. For example, (once operational) GMES services will monitor and forecast the state of the Earth's subsystems, including information on climate change. GMES will also address emergency response e.g. in case of natural disasters, technological accidents or humanitarian crises, as well as security-related issues such as maritime surveillance, border control.

Background

This Communication builds on, and updates, the "Integrated Industrial Policy for the Globalisation Era" adopted by the Commission in 2010 as part of the Europe 2020 Strategy. It focused on strengthening industrial competitiveness to support economic recovery and to enable the transition to a low-carbon and resource-efficient economy. The strategic approach proposed in 2010 remains fully valid for achieving our longer term objectives and very good progress has been made in its implementation. However, the harsh impact of the economic crisis on several Member States, the subsequent economic stagnation in the EU and the deteriorating outlook for the global economy have given a new urgency to this Mid-term Review of the Industrial Policy.

This year's Annual Growth Survey has underlined that growth-enhancing measures are needed to strengthen the recovery, to keep pace with our main competitors and to move towards the Europe 2020 objectives. A series of European Councils in 2011 and 2012 called for action in areas addressed by this Communication, as announced in President Barroso's State of the Union speech on 12th September 2012. This renewed industrial strategy is part of the response to these calls, in particular following the "Compact and Growth and Jobs" at the European Council of June 2012.

1 :

Half of the internal market is regulated by national technical regulations or not at all. In the last 10 years Member States notified 6882 technical regulations on which the Commission and the other Member States reacted by delivering 1230 detailed opinions which prevented several obstacles to the free movement of goods from arising.

2 :

Source: Eurostat Statistics in Focus 3/2012.

3 :

DG Enterprise and Industry, "Survey on Internationalisation of SMEs", 2010.

4 :

Economist, 10 February 2011 http://www.economist.com/node/18114221


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