Erkki LIIKANEN Member of the European Commission responsible for Enterprise and the Information Society Entrepreneurship in the e-Economy European Forum on Entrepreneurship for the Future Växjö, Sweden, 19-20 March 2001

SPEECH/01/138

Erkki LIIKANEN

Member of the European Commission responsible for Enterprise and the Information Society

Entrepreneurship in the e-Economy

European Forum on Entrepreneurship for the Future

Växjö, Sweden, 19-20 March 2001

Minister, Ladies and Gentlemen,

I must begin by thanking the Swedish authorities for organising this Forum, with its stimulating programme which has brought together some of Europe's best expertise on the issues before us.

The region of Småland has long been known as one of Sweden's most entrepreneurial areas and it is appropriate that we should be addressing the question of Entrepreneurship for the Future here.

Ladies and Gentlemen, our purpose at this Forum is to examine some important features of the emerging 'knowledge' economy and to see how public authorities can react, in terms both of broad policy and practical detail. Our aim is to achieve a clear insight into what it means to promote Entrepreneurship for the Future.

To achieve this aim, we have to start from a clear understanding of where we are with the 'knowledge' economy.

1) Economic prospects in the 'knowledge economy'

The discussion of the so called 'new' economy has received a lot of attention. Only a year ago, much of the coverage was of the exaggerated prospects and the extravagant life-style of the latest dot.com company. Now, in some quarters after the inevitable stock market corrections, the exaggeration is in the opposite direction and the story is all doom and gloom.

Here we must take a more balanced view of how the economy is developing and how new features are contributing to this development. We can afford to be confident, but we must also act decisively in order to seize the opportunities that are available to us.

In developing this theme, I should like first to comment on 1) the nature of the challenges we face and the general approach that has been agreed under the new 2) Multi-annual Programme for Enterprise and Entrepreneurship (2001-2005). 3) I shall then return to the issues that are the particular concern of this Forum.

In terms of the general environment, the European economy continues to show some of the most encouraging signs for a generation:

• We have a very stable macro-economic environment with low inflation, low interest rates and the prospect of growth at a steady rate.

• In the last year, employment in Europe has increased noticeably, with around 2.5 million new jobs being created.

• We have a strong external trade position.

Next year, the euro - as a circulating currency in 12 countries of the EU - will bring greater transparency to markets across Europe and a further impulse for greater efficiency.

This favourable macro-economic situation has been created by a lot of effort by the European institutions and the Member States. It is an achievement of which we should be proud. But we cannot stop there. Now we need to make further progress on the detail. We need to bring about a parallel transformation of the micro-economy.

2) The Transformation of the Micro-economy

A year ago, the Lisbon European Council set us the goal of becoming " the most competitive and dynamic knowledge-based economy in the world" during the course of this decade. To achieve this it laid emphasis on preparing the transition to a knowledge-based economy and society by better policies for the information society and R&D, structural reform for competitiveness and innovation and by completing the internal market.

Since then, most recently at the informal ministerial meeting in Manchester, the message from Lisbon has been elaborated and emphasis placed on:

• an EU framework for enterprise

• improved market functioning and better regulation

• risk capital and financial services,

• furthering innovation and research,

• promoting the digital economy (ICT and e-commerce).

We expect that the Stockholm European Council will continue to develop and refine this strategy.

Our primary concern here is developing the framework for enterprise by gaining a good understanding of how to support those enterprises that are active in the knowledge economy. So, how is this to be done ?

The European Commission has responded to the challenge of Lisbon.

• First, scoreboards have been established for Enterprise and Innovation. With this instrument, it is possible to get a clear overall picture of the performance of each individual Member State and the EU as a whole in relation to a range of indicators in the areas of entrepreneurship, innovation and market access.

• Secondly, a strategy has been developed and launched to remove the remaining barriers to services in the Single Market. A Communication on an Internal Market Strategy for Services was published in December last year.

• Thirdly, under the new Multi-annual Programme for Enterprise and Entrepreneurship a new impetus and focus have been given to the processes of benchmarking and best practice exchange, notably through a series of projects that have been agreed with the Member State authorities.

These 'Best Procedure' projects, as they are known, address areas where improvements can be made, principally by learning from existing good practice. They include:

• Benchmarking the administration of start-ups

• Promoting entrepreneurship amongst women

• Education and training for entrepreneurship

• Top-class business support services

• Benchmarking the management of incubators and

• Benchmarking national policies in support of e-commerce for SMEs.

This particular Forum is intended to make a distinctive contribution to the Best Procedure project on business support services. It will help identify good practice for those who are responsible for providing the modern and efficient business support services that will help the launch and subsequent growth of 'knowledge economy' enterprises.

To this extent, the Forum will be contributing to the creation of the 'top-class business support services' that is one of the objectives of the Charter for Small Enterprises, endorsed at the Feira European Council.

This is part of a continuing process that began in 1998 and that has already identified much good practice in the provision of business support services.

The intention with this Forum in Växjö is to help us face up to the challenges in supporting entrepreneurship in the future by looking at how policy and business support measures are responding to the requirements of to-day's 'knowledge economy'.

3) The 'Knowledge Economy'

As we are reminded in Charles Leadbeater's book on the knowledge economy, 'Living on Thin Air' :

"The knowledge-driven economy is not made up by a set of knowledge-intensive industries fed by science. This new economy is driven by new factors of production and sources of competitive advantage innovation, design, branding, know-how which are at work in all industries from retailing and agriculture to banking and software"

Central to this new economy, therefore, is the exploitation of human knowledge and skills rather than the exploitation of plant and machinery or physical labour that characterised earlier phases of economic development.

This change partly explains the growth and increasing importance of the service sector in modern economies, but it has also brought other changes that we must go on to consider.

First:

• Information and Communications Technologies have not only provided us with products that are innovative in themselves, but they are among the principal motors for change in the modern economy. In particular, they provide us with the means for transferring knowledge rapidly into practical results.

Second:

• We need the forces of creativity and entrepreneurship to drive the changes in technology and the economy.

Third:

• The increased emphasis on knowledge and creativity has created new problems. They are all intangibles which are difficult to measure, but which need to be understood if we are to know how the economy functions.

These are among the themes that we have to address.

4) Elements of the ' Knowledge Economy' - ICT

To-day's economy is clearly being driven by developments in Information and Communications Technology. Already at the Helsinki Forum in September 1999 we were looking at the implications of these developments for the interaction of the public authorities and support organisations with both new and established businesses.

However, it is worthwhile reminding ourselves of some of the important features and opportunities presented by this technology.

• The B2C (business-to-consumer) aspects of this have had most visibility and it is the reversal of fortunes in this area that have had most publicity. However, it has been calculated that B2C only accounts for some 20% of all e-commerce.

• More fundamental are B2B (business-to-business) communications. These are more significant both in terms of their extent and in their impact on the way that business is conducted. They are leading to a re-engineering of corporate structures and a re-structuring of purchasing, logistics, manufacturing processes, marketing, distribution, and communications.

• These in turn are promoting changes in human resources deployment and in communication in all directions within an organisation. Again, the way business is conducted is being revolutionised and considerable increases in productivity and cost savings are envisaged.

• The important consideration with B2B applications of Information and Communications Technology in Europe is that they have not been subject to the same boom and bust cycle as the B2C markets. Progress has been steady, although undoubtedly slower than in the United States.

We now need, in Europe, to quicken the pace of the exploitation of these new technologies and release their potential across the economy.

5) Elements of the ' Knowledge Economy' - Entrepreneurship

And then on EU entrepreneurship.

A recent Eurobarometer survey on this showed some very interesting results. It asked a number of questions on attitudes to risk-taking. These showed that our general attitudes to risk-taking are unfortunately still not as robust as those in the United States.

One question asked if people supported the statement "One should not start a business if there is a risk it might fail". In the E.U. 45% agreed with the statement, whereas in the U.S. only 27 % did so.

Similarly, in response to a question on whether people would prefer self-employment to being employed, two thirds of Americans said they would prefer self-employment. European responses varied quite considerably.

• Later this morning, Prof Lundstöm and his colleague Prof Stevenson are going to present some of the results of their very interesting comparative study on Entrepreneurship Policy. Without stealing their thunder, I know that an issue to which they will draw attention is the speed at which policy makers in the advanced economies have specifically introduced an Entrepreneurship policy.

• Last October in Nice under the French presidency, a Forum similar to this one considered Training for Entrepreneurship as its central theme. It was a very encouraging event. The emphasis was all on identifying the practical steps to be taken to make a reality of entrepreneurship in the curriculum.

• This theme is being followed up here in Växjö with an examination of practical support that is being given for the new forms of entrepreneurship that are being stimulated by the knowledge economy.

These are important indications that we are moving in the right direction. We need to quicken the pace and identify new opportunities. We know that one way for a society to increase its overall level of entrepreneurial activity is to increase the extent of female entrepreneurship.

This liberation of the entrepreneurial spirit in new social groups is vital for the creation of the entrepreneurial society.

6) Elements of the 'Knowledge Economy' Design and Intellectual Capital

Design has been defined as the difference between doing something and doing it well. Increasingly in practice, design is becoming the difference between doing something that is commercially successful and not being able to do it at all.

• Design, as much as technological ideas, is part of the intellectual capital that is the basis of the knowledge economy.

• Increasingly in its application, design is being recognised as the essential final step in successfully transforming scientific and technical ideas into market winners.

• Design is an area where Europe enjoys important competitive advantages. This is evident not only in classic areas such as clothing and furniture, but also in some surprising new areas such as computer games.

Furthermore, with Europe's rich cultural diversity, it is a competitive advantage that is susceptible to much further exploitation.

The significance of design and related creative activities, therefore, can only grow with the knowledge economy. New and effective ways to promote design go hand in hand with the other measures that are putting in place the building blocks of competitiveness.

However, generating value through knowledge-based and creative activities also brings with it new issues that have to be addressed.

7) Elements of the 'Knowledge Economy' - Intangibles

The third issue for our Forum is, therefore, how to respond to the question of intangibles. Here is a classic example of how we can learn from existing good practice.

The Commission has initiated a certain amount of work in this area which has produced some encouraging results, notably in the form of the report of the high level expert group on the intangible economy, which sets out a conceptual framework and a strategy for making progress with this issue.

But there have also been some imaginative initiatives at a national level which are already beginning to be transferred elsewhere, as will be seen in the workshop on this issue.

• The problem with the issue of intangibles is that it can sound as if it is a very abstract issue, best left to theoretical accountants.

• But it can be a very concrete problem; for instance, for a growing software enterprise that needs to raise finance but can only point to the experience and knowledge of its staff as its principal assets.

• It was precisely the inability of the stock markets to evaluate correctly the intangible assets of the dot.com companies that led to the problems of soaring share prices. Now the danger is of under-valuation.

The issue of intangibles is clearly one that requires a response from the policy makers. It will increasingly feature across the economy and needs to be addressed. However, as the high level expert group noted in their report, regulation in this area is not appropriate, at least at this stage. The approach has to be to extend the adoption of existing good practice and promote further work on the questions that still have to be answered.

In bringing together some outstanding practice in this area, this Forum is playing an important part in encouraging its wider adoption.

8) Conclusion

Ladies and Gentlemen, we face a challenge in building the " the most competitive and dynamic knowledge-based economy in the world".

Europe's political leaders have set out what this means in terms of policy priorities and actions. We must, each of us, respond in our own way, in accordance with our own responsibilities.

For those who have a particular responsibility for business support measures, the challenge is to create 'top-class business support services'. We know this is an area where we face substantial change. The need now is to adapt existing structures and services to meet the challenges of the new environment.

Over the next two days you will be contributing to that process by identifying clear examples of good practice that will guide our individual response. I wish you every success in your ambitious task.