global value chain storybook digital singles

XX2

ERT is a forum bringing together around 50 Chief Executives and Chairmen of major multinational companies of European parentage covering a wide range of industrial and technological sectors. Companies of ERT Members are widely situated across Europe, with a combined turnover exceeding €1,300 billion, sustaining around 6.8 million jobs in the region. They invest more than €51 billion annually in R&D, largely in Europe; which is equivalent to 18% of total EU R&D expenditure.

European industry cannot flourish unless it can compete in a global economy. This capacity to compete cannot be determined solely by the efforts of individual companies. The prevailing economic and social policy framework is crucially important and must be flexible enough to adapt swiftly to changes in global conditions. ERT aims to strengthen and support key enabling conditions which trigger innovation and entrepreneurship in the European economy.

ERT advocates policies, at both national and European levels, which help create conditions necessary to improve European growth and jobs.

A PDF version of this report is available at www.ert.eu

INVESTING IN COMPETITIVENESSA GLOBAL VALUE CHAIN PERSPECTIVE

JANUARY 2015

A PDF version of this report is available at www.ert.eu

4 Index

INDEX

CHAPTER 1: The rise of Global Value Chains

• Interconnected economies

• Drivers of Global Value Chains

• Automotive industry value chain

• Base chemicals industry value chain

• Electronics industry value chain

• Brewing industry value chain

CHAPTER 2: Key challenges for EU industry in Global Value Chains

• Emerging economies climbing the value chain

• Increased competition for global innovation leadership positions

• The rise of State Owned Enterprises

• Europe’s cost competitiveness in global markets

CHAPTER 3: Keeping a broad and competitive industrial base in the EU

• Strengthening European industrial clusters

• Co-location of innovation and production within companies

• Embracing collaborative and open innovation

• Interdependency of industry and services sectors

CHAPTER 4: A perspective for a competitive EU industry in global value chains

• Unleash the Single Market & open foreign markets

• Accelerate the digitisation of the European economy

• Invest in skills

• EU climate and energy policy to enhance industrial competitiveness

05

19

27

33

5Foreword

While other regions of the world continue to grow, Europe struggles to stave off a new recession. Europe can only produce robust growth if it takes decisive and strategic actions to urgently address its competitiveness challenges.

Increasing global competition is not a new fact, but both developed and emerging economies are rapidly advancing and are targeting innovation leadership positions. This trend becomes more and more important as economies around the world are interconnected via global value chains.

Europe as a high-cost region with only limited access to natural resources is particularly challenged by these global dynamics. The shale gas revolution in the US, giving companies an energy-cost advantage for decades, has added further competitive pressure.

Another example is the communications sector, which has fallen behind North America and Asia Pacific in terms of investment, which in turn will reduce productivity in Europe and negatively impact Europe’s position in global value chains.

This booklet explains how companies operate within global value chains, providing examples across industry sectors. ERT hopes that the reader will gain a better understanding of the competitive challenges EU industries face.

This is not only a topic of individual companies or certain industry sectors. These challenges are also posing a significant risk to the entire European industrial network, as industries are interdependent and companies typically operate within regional clusters consisting of suppliers, SME networks and service providers.

Due to this interdependency, European prosperity is strongly linked to a broad and competitive industrial base within the EU. Europe thus needs to address the long-term competitiveness challenges of its industries so that they can successfully compete in the global economy and find innovative solutions to the challenges society is facing – increased cross-industry collaboration will play a key role in this connection.

ERT Members are committed to support public policies and private practices that boost EU productivity. European industries are worldwide leaders in low-energy intensive production, but need a European energy policy that safeguards its cost competitiveness.

Europe needs to reprioritise the completion of the Single Market, in particular the Digital Single Market, which is dependent on a regulatory environment that incentivises investment in digital infrastructure.

Improving the EU’s labour, resource and energy efficiency will also be crucial to the EU’s competitive edge in a globalised economy. Therefore, we have to invest more in innovation and new technologies. A skilled workforce and first-class infrastructure will lay the groundwork for permanent and high-value jobs and growth in the EU.

It is of vital interest for Europe’s prosperity that the growth and strengthening of the European industrial base remain at the heart of the political agenda, both in Brussels and in Member State capitals.

Kurt BockCEO, BASFChairman, ERT Competitiveness Working Group

THE EUROPEAN ECONOMY STANDS AT A CROSSROAD

FOREWORD

Interconnected economies 06

Drivers of Global Value Chains 08

Automotive industry value chain 10

Base chemicals industry value chain 12

Electronics industry value chain 14

Brewing industry value chain 16

THE RISE OF GLOBAL VALUE CHAINSCHAPTER 1

7

8 Interconnected Economies

The international fragmentation of production processes in global value chains has dramatically changed the nature of globalisation. Companies have located different value chain activities, including research and development, raw materials processing, sub-and final assembly, distribution, marketing, sales and after-sales service across different countries through a network of independent suppliers and affiliates.

Globalisation made a giant leap when technological progress in transportation through containerised shipping radically lowered shipping costs. This made it possible to ship goods made in one nation to customers in another nation. However, because of economies of scale and scope, manufacturing plants and industries initially remained geographically concentrated.

Most companies were directly involved in all stages of the production process, as the coordination of activities across great physical distances remained difficult and costly.

This changed with a strong decline in communication costs in the 1990s and rapid advances in ICT that facilitated the international coordination of value chain activities, including between high-wage and low-wage nations. Economies of scale remained important on the level of individual activities rather than industries.

Today, the pace, scale and complexity of global value chains are rapidly changing. More countries, sectors and activities are becoming part of the process of globalisation making economies more interconnected. As a result, international trade today largely

consists of imports and exports of raw materials and intermediate goods, in addition to trade in final goods.

As a mirror to the flow of goods, the flow of information is becoming more relevant than ever. Today’s possibility to build and access large business networks, combined with information technology, advances offer compelling benefits. This includes the reduction of latency times between demand signals and supply, reaction of shortages in production materials in real time, optimising prices via access to large supplier network platforms and a higher degree of automation in supply processes. The increasing reach and interconnectivity of global value chains will therefore only be mastered by leveraging the potential of digital business networks and information flows.

INTERCONNECTED ECONOMIES

9Interconnected EconomiesSource: Baldwin 2011 - OECD

International investment is a basic building block of global value chains. Because of increased competition in domestic and international markets, many companies have already relocated or outsourced certain production activities abroad to improve the cost competitiveness of their operations and to benefit from the competitive advantages of other regions of the world.

Companies have typically offshored labour intensive assembly activities, outsourced the production of certain components and parts to specialised suppliers abroad, or have relocated production facilities to access critical natural resources at a more competitive

price. Meanwhile, lead companies focus on maintaining control over high value added functions and activities.

The expansion of the middle class and rapid growth in emerging markets has also prompted a shift in global investment flows. Companies seek to establish a local presence in these growth markets by locating new production, distribution and sales activities in these economies. Increasingly they also establish local R&D facilities for example to improve the customisation of products to local market needs or to access local research talent.

10 Drivers of Global Value Chains Source : fDi report 2014

DRIVERS OF GLOBAL VALUE CHAINS

12

R&DProduct Design

Raw Materials Individual Parts Major Component Systems & Complete Subsystems

2nd Tier suppliers

Assembly

Lead Firm Operated

Branding & Marketing Distribution & Customer Services

1st Tier suppliers Lead Firm

1. Above: Responsiveness to changing consumption & demand trends (connect to retail)

2. Supply chain security: Increased collaboration with raw material suppliers (between brewing and raw materials)

3. Supply chain efficiency: Distribution cost-optimisation (between brewing, bottling, packaging and distribution)

AluminiumSteel

PlasticsGlass

RubberCopper

Chemicals

Shock absorbers, stabilisers & struts, control arms and springs Suspension

Brakes

Axle, driveshafts & components

Engine

Transmission

Fuel Systems

Pistons, bearings, valves, timing chains, oil pumps etc.

Transmissions, clutches, gears

Other (e.g. battery; lighting; dashboard; windows; airbags; seat belts; wheels; tyres; catalytic converters etc.)

Other (e.g. electronics & electrical; audio & telematics; suspension; exhaust; tyres; wheels, interior; body & structural)

Complete subsystems (e.g. dashboard)

Mechanical parts (e.g. calipers & brake pads) and electronic components (e.g. actuators & sensors)

Automotive Industry

VALUE CHAIN EXAMPLE: AUTOMOTIVE INDUSTRY

Famously called the industry of industries, the car industry consumes output from just about every other manufacturing industry. A highly complex product, the typical car contains about 2,000 functional components, 30,000 detailed parts and 10 million lines of software.

Fragmentation of production has already taken place for decades and resulted in a complex, multi-tiered supplier structure. However, lead car manufacturers remain responsible for production of key performance components, including powertrain technologies and engine systems as well as final assembly for quality control

purposes. They also operate high value added activities such as branding and after-sales service.

They work closely with a limited number of specialised first-tier suppliers who produce major components and complete subsystems including unit dashboards and brake-axle-suspensions, and therefore have to cooperate with a large network of lower-tier suppliers and subcontractors.

Notwithstanding, the global activities of lead firms assembly and parts production remains predominantly regional and near major markets. High transportation costs make intercontinental

shipping very costly, in particular for cars and main parts such as engines, seats and body panels.

The industry-wide implementation of just-in-time and just-in-sequence production systems also requires tight coordination with suppliers and machine tool developers. The geographic proximity of those suppliers of just-in-time parts not only keeps inventory costs low but also provides for short feedback loops to meet design needs, for example when testing specialty metals. These include high-strength steel and aluminium alloys, which are respectively used to improve the crash protection of the

13Automotive Industry

vehicle and to lower the weight of various car components.

European car manufacturers face unrelenting pressure from competitors in low-labour cost emerging economies that seek to develop a stronghold in the EU. These competitors may also develop a cost competitive advantage, benefiting from bigger and rapidly growing home markets.

At the same time, prevalence of governmental support for local production and the need for proximity to the market limits globalisation of the car industry and has also contributed to overcapacity within the EU. The ‘world’ car remains an elusive

goal, given differences in safety and emission standards, driving conditions and consumer purchasing power across regions. For example, cars on both sides of the Atlantic generally have a very high level of safety, but there are different standards for things such as turn signals, airbags and mirrors. These divergent standards require that carmakers design and build different model variations for each market, which ultimately leads to higher prices for consumers.

Conclude an ambitious Transatlantic Trade and Investment Partnership (TTIP), including mutual recognition of car safety standards and continued cooperation on future regulatory issues. This would strengthen the position of EU and US as worldwide auto standard setters and create a sizeable common market that can compete with that of emerging economies.

Trade Policy Recommendations:

R&DProduct Design

Raw Materials Individual Parts Major Component Systems & Complete Subsystems

2nd Tier suppliers

Assembly

Lead Firm Operated

Branding & Marketing Distribution & Customer Services

1st Tier suppliers Lead Firm




AluminiumSteel

PlasticsGlass

RubberCopper

Chemicals

Shock absorbers, stabilisers & struts, control arms and springs Suspension

Brakes

Axle, driveshafts & components

Engine

Transmission

Fuel Systems

Pistons, bearings, valves, timing chains, oil pumps etc.

Transmissions, clutches, gears

Other (e.g. battery; lighting; dashboard; windows; airbags; seat belts; wheels; tyres; catalytic converters etc.)

Other (e.g. electronics & electrical; audio & telematics; suspension; exhaust; tyres; wheels, interior; body & structural)

Complete subsystems (e.g. dashboard)

Mechanical parts (e.g. calipers & brake pads) and electronic components (e.g. actuators & sensors)

14 Base Chemicals Industry

VALUE CHAIN EXAMPLE: BASE CHEMICALS INDUSTRY

The base chemical industry is a supplier to nearly all manufacturing industries. A capital-intensive industry, manufacturing plants are generally located close to customer markets, unless easy access to infrastructure allows for the inexpensive transport of bulky commodity chemicals or an ample availability of feedstock at attractive conditions compensates for higher transportation costs.

With the strong growth in emerging countries, the balance of production is shifting towards these economies, tracking the build-up of infrastructure, housing and local industries.

In addition, by-products from one plant can be used as raw material elsewhere. By contrast, both primary feedstock materials such as crude oil and naphtha and many end-products from the chemical industry, including polymers, can be transported easily and at competitive cost.

Petrochemical companies in the Middle East have begun to leverage their advantageous feedstock and their proximity to growing markets in Asia, with a build-up of significant capacities for base chemicals. The next high-impact market change occurs

Another factor forcing the local nature of the base chemical industry is the strategic consideration by certain countries that this may enable national infrastructure development and supply materials to a wide variety of downstream higher value-added industries.

The production of base and downstream chemicals is typically closely linked. Production sites are often connected through pipelines, enabling the rapid and safe exchange of liquid and gaseous chemicals, which are difficult and costly to transport.

R&D Feedstock Raw Material Base Chemical Base Chemicals Key Product Categories

Low R&D Intensity

Bio Ethanol

Naphtha

Natural Gas

Ethane Ethylene

Ethoxylate

Polyethylene glycol

Ethyl acetate

Lubricant Additives

Inks And Adhesives

Paints

Plastics

Coatings

Coolant & Antifreeze

Key Customer Industries B2B Marketing

Automotive Industry & Metal Production


Automotive Industry & Metal Production & Textile

Packaging Industry & Electronics

Metal Production

Petroleum Industry

Lead Firm Operated

15Base Chemicals Industry

from the discovery of giant supplies of natural gas in shale rock in the United States, which is providing a growing and low-cost supply of raw materials for ethylene-based products.

Most of Europe’s ethylene capacity is produced from naphtha, an intermediate refined form of crude oil. This is less advantageous to US shale gas ethane. A high volume industry, characterised by high price competition, poses a competitiveness challenge not only to the European base chemical industry but also to customer industries.

Ensure a secure and affordable supply of energy within the EU and adapt a value chain perspective when pursuing improvements to the impact of energy prices and climate change policies on EU industrial competitiveness.

Energy Policy Recommendations:

R&D Feedstock Raw Material Base Chemical Base Chemicals Key Product Categories

Low R&D Intensity

Bio Ethanol

Naphtha

Natural Gas

Ethane Ethylene

Ethoxylate

Polyethylene glycol

Ethyl acetate

Lubricant Additives

Inks And Adhesives

Paints

Plastics

Coatings

Coolant & Antifreeze

Key Customer Industries B2B Marketing



Automotive Industry & Metal Production & Textile

Packaging Industry & Electronics

Metal Production

Petroleum Industry

Lead Firm Operated

16

Branding & Marketing Assembly Distribution

Lead Firm Operated

Customer ServicesR&D / Product Design Raw Materials Individual Parts Major Components

2nd Tier suppliers 1st Tier suppliers

MetalsPlastics

CompositesGlassSilicon

Camera lens modules/ primary and secondary cameras

E-compass, audio codec, gyroscope, accelerator, touchscreen controller

Baseband receiver, radio frequency modules

Application processor

Display, touchscreen

GPS, WiFi, Bluetooth

Battery

Flash

Camera

Connectivity

Display

Interface & Sensors

Memory

Power Management

Radio Frequency

Electronics Industry

VALUE CHAIN EXAMPLE: ELECTRONICS INDUSTRY

Due to rapid product cycles, the ability to innovate in the early value chain stages namely product design and development can be critically important in the electronics industry. For example, in many semiconductor segments, only the company that gets to the market first makes a profit, because it can dominate sales on the early stages of the product lifecycle, when prices are highest.

The electronics industry has gone through a phase of unbundling and fragmentation. For example, PCs and mobile phones have become increasingly sophisticated and it is virtually impossible

for a single manufacturer to retain leading expertise across the rapidly evolving spectrum of hardware and software technologies.

Fragmentation of the production process has enabled economies of scale for the most standardised hardware and electronics components. This has been followed by market consolidation as suppliers need to match the scale and speed of production required by brand buyers.

At the same time, the high modularity of standardised electronic

parts and components enables activities to be undertaken across large distances. This is facilitated by relatively low transportation costs. Therefore, electronics products and components are often delivered by air transport.

Despite global production networks, the value captured in the electronics industry is highly concentrated within a few countries and companies that control R&D, design and production of key technology components.

17Electronics Industry

Boost investment in R&D and key enabling technologies to build and maintain strategic technological innovation positions and support EU-led standardisation efforts globally.

Asian economies have a stronghold in the production of commoditised electronic components and the final assembly of electronic products, whereas mainly American and Asian companies are leading on the design and production of key components including display, battery and processors.

Therefore, Asian economies seek to leverage their position over suppliers from other regions to move up the value chain, including engagement in R&D and product design activities as they relate to electronic products. In response, branded manufacturers from

advanced economies consider buying themselves back into the manufacturing of key performance components such as processors, to maintain their technological leadership.

European companies are losing ground in many segments of the ICT industry, including the smartphone market. They lack the necessary scale of a Digital Single Market and face declining innovation leadership. This affects the EU’s overall industrial competitiveness, as a well functioning ICT sector is a prerequisite for the digitisation and transformation of European industry.

Energy Policy Recommendations:

Branding & Marketing Assembly Distribution

Lead Firm Operated

Customer ServicesR&D / Product Design Raw Materials Individual Parts Major Components

2nd Tier suppliers 1st Tier suppliers

MetalsPlastics

CompositesGlassSilicon

Camera lens modules/ primary and secondary cameras

E-compass, audio codec, gyroscope, accelerator, touchscreen controller

Baseband receiver, radio frequency modules

Application processor

Display, touchscreen

GPS, WiFi, Bluetooth

Battery

Flash

Camera

Connectivity

Display

Interface & Sensors

Memory

Power Management

Radio Frequency

18 Brewing Industry

R&D Raw Materials Brewing Packaging Distribution Marketing RetailWarehousing

Responsiveness to changing consumption & demand trendsProduction mainly local to market due to low value vs weight ratio

Supply chain security: Increased collaboration with raw material suppliers

Supply chain efficiency: Distribution cost-optimisation




Lead Firm OperatedVALUE CHAIN EXAMPLE: BREWING INDUSTRY

Brewing is one of the oldest manufacturing industries. The advent of refrigeration and modern transportation in the late 19th century allowed the industry to expand beyond village breweries with larger industrially modern regional breweries springing up in the EU and the US.

The majority of beer sales are still on local brands, as customers remain loyal to national brands and preferred tastes may differ across markets. Global brewers have focused their expansion strategy on the acquisition of local brands. This also creates economies of scale for branding and marketing as a result of which markets become increasingly receptive to global brands.

and relatively high transport costs. As a result, global brewers have gradually changed their strategy from the export of mainstream beers to the local production of global brands across continents.

Increased cost competition has led to a steady process of consolidation of the global beer industry over the last decade. Brewing is a high-volume industry with mergers and acquisitions focused on achieving economies of scale with respect to the procurement of agricultural ingredients, distribution as well as marketing of final products.

Market saturation in much of the developed world has forced many brewers to acquire attractive local brands in emerging

Producers of global beers typically source their hops and malting barley internationally when operating across different markets. This guarantees a consistency of taste. Conversely, spring water is sourced at the local level and determines the style of beer brewed. For example, Dublin’s hard water is excellent for stout, whereas the Plzen region has soft water well suited to make lager.

Beer is distributed at the wholesale level and stored in warehouses, which are strategically placed to minimise transport costs to stores and retailers. Brewers may decide to distribute their beers worldwide. However, this may only be a viable option for beers marketed as premium given the high degree of cost competition

19Brewing Industry

markets in order to boost their companies’ growth potential. At the same time, EU competition authorities consider the relevant geographic market for the production and distribution of beer to be national. As a result, EU beer producers have limited room to expand their presence within the EU through mergers and acquisitions.

Fully capture global market dynamics in the determination of the relevant market for the purpose of EU merger control decisions.

Competition Policy Recommendations:

R&D Raw Materials Brewing Packaging Distribution Marketing RetailWarehousing

Responsiveness to changing consumption & demand trendsProduction mainly local to market due to low value vs weight ratio

Supply chain security: Increased collaboration with raw material suppliers

Supply chain efficiency: Distribution cost-optimisation




Lead Firm Operated

KEY CHALLENGES FOR EU INDUSTRY IN GLOBAL VALUE CHAINS

CHAPTER 2

20

Emerging economies climbing the value chain 20

Increased competition for global innovation leadership positions 22

The rise of state owned enterprises 24

Europe’s cost competitiveness in global markets 25

KEY CHALLENGES FOR EU INDUSTRY IN GLOBAL VALUE CHAINS

CHAPTER 2

21

22 Emerging Economies Climbing the Value Chain

Low-tech Manufacturing

1 9 5 01 9 0 0 1 9 1 0 1 9 2 0 1 9 3 0 1 9 4 0 1 9 6 0 1 9 7 0 1 9 8 0 1 9 9 0 2 0 0 0 2 0 1 0

SHARES OF WORLD MANUFACTURING (VALUE-ADDED) - 2003 | 2010

CHINA CLIMBING THE VALUE CHAIN

0

%

5

10

15

25

20

30

35

Medium-tech Design & Manufacturing High-tech Branding, Design & Manufacturing Services

South Korea RoWJapan ChinaEU US

EMERGING ECONOMIES CLIMBING THE VALUE CHAIN

Global value chains offer new opportunities for industrialisation and economic development worldwide. Countries like China can plug into global value chains according to their competitive advantage.

Approaching middle-income levels, emerging economies like China seek to reduce their dependence on low-technology exports and focus more on high-technology manufacturing and domestic consumption. Thus climbing the global value chain is the only way to further their economic development.

This has created a new type of international competition that is increasingly vertical in nature. Earlier phases of globalisation were characterised by horizontal competition between companies at the same stage. Today, companies also have to compete with upstream suppliers that want to capture a larger share of the value added and profits.

One strategy has been for companies to take control of more processes before and during the supply chain. For example, many Asian companies have climbed the value chain starting from the mere assembly of consumer electronic products, to

support in designing the client’s supply chain, the initiation of original designs and sometimes the successful development and marketing of own branded products.

Chinese companies’ acquisition of foreign companies has also levelled up their capabilities within global value chains, as they obtained brands, distribution and marketing networks, technologies and know-how embodied in the acquired companies.

As global competition intensifies, European rules need to be competitive, flexible and outward looking for European companies to succeed in global markets.

23Emerging Economies Climbing the Value Chain Source: World Bank, Bruegel

Low-tech Manufacturing

1 9 5 01 9 0 0 1 9 1 0 1 9 2 0 1 9 3 0 1 9 4 0 1 9 6 0 1 9 7 0 1 9 8 0 1 9 9 0 2 0 0 0 2 0 1 0

SHARES OF WORLD MANUFACTURING (VALUE-ADDED) - 2003 | 2010

CHINA CLIMBING THE VALUE CHAIN

0

%

5

10

15

25

20

30

35

Medium-tech Design & Manufacturing High-tech Branding, Design & Manufacturing Services

South Korea RoWJapan ChinaEU US

24

INDUSTRIAL DESIGN(direct and via The Hague System)

5

4

3

2

1

0

%

TOTAL PATENT APPLICATIONS(direct and national PCT entries)

GROSS R&D EXPENDITURE AS A % OF GDP (2012)

Gross R&D expenditure in billions of US dollars

0

100

200

300

400

500

600

700

US Japan EU China US Japan EU China000’s

Total registrations Foreign registrations

USA

$397*

EU

$281*

China

$256*

Japan

$133*

South Korea

$60*

R&D spending targets

Increased Competition for Global Innovation Leadership Positions

INCREASED COMPETITION FOR GLOBAL INNOVATION LEADERSHIP POSITIONS

The competition for global innovation leadership positions is intensifying, as nations try to incubate, grow and attract high value added sectors and activities, and the associated quality jobs. Europe’s major competitors are all establishing national innovation agencies and strategies.

A key attribute is countries’ increased investments in research and development (R&D) and innovation. In fact, the EU faces an R&D funding gap with the US, Japan and South Korea. Emerging economies are also rapidly catching up and China overtook the EU in terms of absolute R&D spending in 2014.

Ambitious R&D targets of South Korea, Japan and China also translate themselves in a sharp rise of international (PCT) patent and industrial design filings, in turn reflecting the reality of increased competition for global innovation leadership positions.

The EU needs to boost investments in industrial R&D and key enabling technologies to build and improve long-term competitive European industries.

Source: OECD, World Bank, IMF, Batelle & WIPO

0100200300400500600700

R&D expenditure as a % of GDP GERD, PPP, Bil US$US 2.8% 465$China 2.0% 284$Japan 3.4% 165$South Korea 3.6% 92$India 0.9% 44$Russia 1.5% 40$Brazil 1.3% 32$ EU (2012 data) 2.06% 257$


2011

19%*

7%*

2000

0100

5

4

3

2

1

0

%

200300400500600700


GROSS R&D EXPENDITURE AS A % OF GDP(2012)R&D spending targets

*Gross R&D expenditure in billions US dollars

Japan

USA

EU

China

Japan

USA

EU

China

000’s

000’s

Total Registrations

Foreign Registrations

South Korea Japan China EU USA

$397*$281*$256*$133*$60*

% of Fortune 500 Companies

25Increased Competition for Global Innovation Leadership Positions

China: In 2011, China became the largest patent applicant in the world, accounting for 24.6% of total patent applications. China contributed to 72.1% of growth in total patent applications worldwide from 2009 to 2011. China’s share of international patent filings has also been increasing.


5

4

3

2

1

0

%


GROSS R&D EXPENDITURE AS A % OF GDP (2012)

Gross R&D expenditure in billions of US dollars

0

100

200

300

400

500

600

700

US Japan EU China US Japan EU China000’s

Total registrations Foreign registrations

USA

$397*

EU

$281*

China

$256*

Japan

$133*

South Korea

$60*

R&D spending targets

0100200300400500600700

R&D expenditure as a % of GDP GERD, PPP, Bil US$US 2.8% 465$China 2.0% 284$Japan 3.4% 165$South Korea 3.6% 92$India 0.9% 44$Russia 1.5% 40$Brazil 1.3% 32$ EU (2012 data) 2.06% 257$


2011

19%*

7%*

2000

0100

5

4

3

2

1

0

%

200300400500600700


GROSS R&D EXPENDITURE AS A % OF GDP(2012)R&D spending targets

*Gross R&D expenditure in billions US dollars

Japan

USA

EU

China

Japan

USA

EU

China

000’s

000’s

Total Registrations

Foreign Registrations

South Korea Japan China EU USA

$397*$281*$256*$133*$60*


26

2011

19%*

7%*

2000


0

€/M

Wh

50

100

150

200

250

EU Lowest* EU AverageUSSouth KoreaJapanChinaIndiaBrazil

1 Total compensation costs include direct pay as well as additional employer costs including pensions, disability insurance, sick leave, health insurance, severance pay, other social insurance expenditures and taxes on payrolls or employment.2 2010 data | 3 2009 dataEU hourly compensation costs do not include all Member States

$11.20

$1.452

$1.743

$35.34

$20.72

$35.67

$8.25 Hourly Manufacturing

Compensation Costs (2012)1

Industrial Electricity Price Natural Gas Price for Industry

$54.77

EU Highest

The Rise of State Owned Enterprises

THE RISE OF STATE OWNED ENTERPRISES (SOEs)

State owned enterprises’ activities are highly concentrated in a limited number of upstream sectors, including oil and gas, utilities and energy, mining and steel industries. In addition to their sheer size, state owned enterprises as well as ‘national champions’ may benefit from a range of benefits including tax breaks and subsidies, cheaper loans and preferential treatment in public procurement contracts that are not available to the private sector.

Emerging economies may leverage the international competitiveness of state owned enterprises and ‘national champions’ in upstream

activities to build industrial clusters in downstream activities. This raises concerns about an unlevel global playing field for European companies, as emerging economies may for example link competition decisions to trade and industrial policy objectives. The EU should pursue the effective opening of markets in emerging economies via trade agreements as well as consider the appropriate use of EU trade defence instruments to address unfair foreign State Aid leading to competitive distortions in the EU.

Global markets are not only characterised by increased competition between companies but increasingly also between economies as both investment locations and export nations.

Over the past decade, governments have become significantly more important participants in the global economy, in particular through state-owned enterprises. Among the largest 500 companies in the world ranked by revenues, state-owned enterprises account for 19% of economic activity, up from around 7% in 2000.

27

2011

19%*

7%*

2000


0

€/M

Wh

50

100

150

200

250

EU Lowest* EU AverageUSSouth KoreaJapanChinaIndiaBrazil

1 Total compensation costs include direct pay as well as additional employer costs including pensions, disability insurance, sick leave, health insurance, severance pay, other social insurance expenditures and taxes on payrolls or employment.2 2010 data | 3 2009 dataEU hourly compensation costs do not include all Member States

$11.20

$1.452

$1.743

$35.34

$20.72

$35.67

$8.25 Hourly Manufacturing

Compensation Costs (2012)1

Industrial Electricity Price Natural Gas Price for Industry

$54.77

EU Highest

Europe’s Cost Competitiveness in Global MarketsSource: US Labor Bureau, European Commission | * EU Lowest does not include data for Bulgaria and Romania

EUROPE’S COST COMPETITIVENESS IN GLOBAL MARKETS

EU is also heavily dependent on imported raw materials, many of which come from emerging economies that have undertaken a number of national policy measures, including export taxes that put European companies at a competitive disadvantage. The EU should help to resolve the EU’s labour productivity gap by investing in skills and making greater use of digital technologies in the workplace. Furthermore, the impact of EU climate and energy policy on European industrial competitiveness should be improved.

European companies typically face higher energy and labour costs than their competitors operating in other economic regions, including the United States benefitting from its shale gas revolution. Over the past decade, increasing unit labour costs in the EU show that productivity gains could not compensate for higher costs.This has led to deterioration in competitiveness for the countries concerned. Therefore, labour productivity, traditionally one of the strengths of European industry, has deteriorated. In addition, the

KEEPING A BROAD AND COMPETITIVE INDUSTRIAL BASE IN THE EU

CHAPTER 3

28

Strengthening European industrial clusters 28

Linking innovation with production 29

Strengthening collaborative and open innovation 30

Interdependency of industry and services sectors 31

KEEPING A BROAD AND COMPETITIVE INDUSTRIAL BASE IN THE EU

CHAPTER 3

29

30 Strengthening European Industrial Clusters

Universities & Research Institutions

Standard-setting

Agencies

Related Industries

LEAD COMPANY

“38% of EU jobs are based in clusters“

Components

Raw Materials

MachinerySuppliers

Servi

ces

Start-ups & SME networks

Vocational Training Providers

Components

HQ

Product Customisation

Manufacturing Process

Development

Product Design &

Development Basic

Research

Lead Production Facilities

Customer Market Proximity

Public R&D Funds

Quality Universities

Research Talent

STRENGTHENING EUROPEAN INDUSTRIAL CLUSTERS

Even in today’s global economy, the economic map of the world remains dominated by regional clusters. They act as a catalyst for growth, connecting companies and institutions by common markets, technology or knowledge within close proximity.

Although location remains fundamental to competition, its role today differs vastly from a generation ago. In an era when competition was driven heavily by input costs, locations with some important endowment - a natural harbour or a supply of cheap labour - often enjoyed a comparative advantage that was both competitively decisive and persistent over time.

Competition in today’s economy is far more dynamic. Companies can mitigate certain input-cost disadvantages through global sourcing, rendering the old notion of comparative advantage less relevant. Instead, competitive advantage now rests on innovation, including through increased collaboration with other stakeholders alongside the value chain.

For example, companies in the automotive sector cluster around suppliers of raw materials, parts and components to ensure short feedback loops for the purpose of product design and innovation. Conversely, companies in high-tech industries cluster around cutting-edge research facilities, world-class universities to facilitate knowledge creation and transfer, as well as the commercialisation of R&D. Clusters also include a vast network of SMEs, which can internationalise their activities alongside those of lead firms.

Innovation and competitive success is in many sectors geographically concentrated, whether it is high-performance car companies in southern Germany or biotechnology companies in Cambridge. By making available public funding for R&D projects, promoting EU-led standardisation efforts globally or facilitating industrial use of research and training infrastructure, the EU can upgrade the competitiveness of its industrial clusters within global value chains, and therefore contribute to the objective of keeping a broad and competitive industrial and technological base within the EU.

Source: European Commission

31Linking Innovation with Production

LINKING INNOVATION WITH PRODUCTION

Industrial production is a core element of the value chain. When production plants move to a new location, they often take with them expertise in high value added activities including R&D, product design, sales and marketing.

European companies have been slower to internationalise their R&D operations compared to their production, marketing and distribution activities. The primary reason is that site selection for a R&D facility is based on different location criteria.

The R&D footprint of a company is determined primarily by access to research talent. The location of R&D operations is also influenced by the phase of research and development. For example, both

product design and manufacturing process development typically require proximity to production facilities. The international competitiveness of European companies’ production facilities is therefore key for Europe’s innovation capabilities as well.

In many manufacturing sectors, innovative companies operate and collaborate within industrial clusters, as proximity of suppliers who can provide important product design input is key. The lack of competitiveness of one sector may have a knock-on effect on others.

The level of intellectual property protection may also guide companies’ R&D location decisions. For example, most pharmaceutical

R&D facilities are concentrated in advanced economies. Conversely, companies in other industries, operating in emerging economies, may decide to review their modular production strategies to better protect their intellectual property.

With increased global competition for innovation leadership positions, companies in other regions are leveraging their energy and labour cost advantages and rapidly building up innovation talent. Therefore Europe not only needs to invest in skills and human capital but also provide a framework for its industry to be competitive globally.

Universities & Research Institutions

Standard-setting

Agencies

Related Industries

LEAD COMPANY

“38% of EU jobs are based in clusters“

Components

Raw Materials

MachinerySuppliers

Servi

ces

Start-ups & SME networks

Vocational Training Providers

Components

HQ

Product Customisation

Manufacturing Process

Development

Product Design &

Development Basic

Research

Lead Production Facilities

Customer Market Proximity

Public R&D Funds

Quality Universities

Research Talent

32

TRADITIONAL INNOVATION STRATEGY MODERN INNOVATION STRATEGY /CIRCULAR ECONOMY

The Corporation

Human Resources

Start-ups

Customers

Suppliers

Competitors

Universities

Research & Technology

Organisations

Other Industries

Business Development

Legal

Procurement

Marketing

R&D

The Corporation

0

€/M

Wh

50

100

150

200

EU Lowest EU AverageU.S.South KoreaJapanChinaIndiaBrazil

Industrial Electricity Price Industrial Gas Price

1 Total compensation costs include direct pay as well as additional employer costs including pensions, disability insurance, sick leave, health insurance, severance pay, other social insurance expenditures, and taxes on payrolls or employment.2 2010 data | 3 2009 data

$11.20

$1.452

$1.743

$35.34

$20.72

$35.67

$8.25

Hourly Manufacturing Compensation Costs (2012)1

STRENGTHENING COLLABORATIVE AND OPEN INNOVATION

Increased global competition puts companies under increasing pressure to reduce time-to-market and the cost of introducing new products. As product lifecycles continue to decrease, compressing research and development cycles and accelerating new product introductions are becoming critical.

Therefore, companies increasingly engage in collaborative and open innovation projects. This allows companies to manage their R&D budgets more efficiently. Companies may also work together to ensure the interoperability of new technologies as well as the economies of scale needed for their successful deployment.

More generally, there has been an increase in the licensing of patents across industries, as companies decide to insource innovation as part of their business strategies.

ICT is enabling many industrial sectors to develop innovative business models and to co-create new product-service value propositions in cooperation with a network of suppliers, partners and even customers. For example, leading healthcare technology companies or engineering companies are increasingly collaborating with ICT companies to deliver new products and services, which not only creates new business ecosystems but also a new type of competition.

Companies may also collaborate with suppliers and other stakeholders in adopting a circular economy business model to drive innovation in the areas of material, component and product reuse, as well as innovation in business models including solutions and services that aim to make more effective and smarter use of natural resources along the supply chain. This offers a vast market opportunity across industries. EU governments could support circular business models through adopting green public procurement policies and addressing legal barriers, for example environmental legislation hampering refurbishment business.

Strengthening Collaborative and Open Innovation

33

INTERDEPENDENCY OF INDUSTRY AND SERVICES SECTORS

The industry and services sectors are closely intertwined. Manufacturing directly employs around 32 million people and indirectly accounts for an additional 20 million jobs in related sectors across Europe. Therefore, a broad and competitive EU industrial base is also important for a healthy services sector.

Agriculture Business Services Communication Construction Financial Services Logistics Mining Private and Public Services Utilities 0.2% 0.2% 0.2% 10.2% 0.4% 29.0% 20.4% 16.5% 22.9%

Industry

INDIRECT JOBS: 20 million

DIRECT JOBS: 32 million

%

8

7

6

5

4

3

2

1

World US Japan China India EU Euro area

Interdependency of Industry and Services Sectors

TRADITIONAL INNOVATION STRATEGY MODERN INNOVATION STRATEGY /CIRCULAR ECONOMY

The Corporation

Human Resources

Start-ups

Customers

Suppliers

Competitors

Universities

Research & Technology

Organisations

Other Industries

Business Development

Legal

Procurement

Marketing

R&D

The Corporation

0

€/M

Wh

50

100

150

200

EU Lowest EU AverageU.S.South KoreaJapanChinaIndiaBrazil

Industrial Electricity Price Industrial Gas Price

1 Total compensation costs include direct pay as well as additional employer costs including pensions, disability insurance, sick leave, health insurance, severance pay, other social insurance expenditures, and taxes on payrolls or employment.2 2010 data | 3 2009 data

$11.20

$1.452

$1.743

$35.34

$20.72

$35.67

$8.25

Hourly Manufacturing Compensation Costs (2012)1

Source: Eurostat and WIOD

A PERSPECTIVE FOR A COMPETITIVE EU INDUSTRY IN GLOBAL VALUE CHAINS

CHAPTER 4

34

Unleash the Single Market & open foreign markets 34

Accelerate the digitisation of the European economy 36

Investing in skills 38

EU climate and energy policy to enhance industrial competitiveness 39

A PERSPECTIVE FOR A COMPETITIVE EU INDUSTRY IN GLOBAL VALUE CHAINS

CHAPTER 4

35

36

%

8

7

6

5

4

3

2

1


THE STRUCTURE OF THE EU’S TRADE BALANCE

IMF GROWTH FORECAST

600

400

200

-48bn

+136bn

0

-200

-400

-600

800

Trade Balance

2005 2012

BIL

LIO

N €

Commercial Services Manufacturing Agricultural Products Energy and Industrial Materials

Unleash the Single Market & Open Foreign Markets Source: Mapping the cost of non-Europe 2014-2019, European Parliament Research Service

UNLEASH THE SINGLE MARKET & OPEN FOREIGN MARKETS

The EU continues to trail behind other major economic regions of the world in terms of economic growth. However, reprioritisation of the completion of the Single Market and investments in cross-border infrastructure networks would provide a significant boost to EU growth rates.

At the same time, economic growth will largely take place outside the EU, especially in emerging countries with high barriers to trade. Therefore, companies’ export and growth opportunities also depend on the effective opening of those markets. This will ultimately impact the economic strength of EU industries in

an increasingly highly competitive global economy. Trade policy should also fully account for global value chains and pursue the elimination of tariff and non-tariff barriers. A globally competitive EU industry is also important for Europe to maintain a trade surplus.

“A genuine Single Market could add €990 billion or 7.5% to EU GDP.”

37Unleash the Single Market & Open Foreign Markets

%

8

7

6

5

4

3

2

1


THE STRUCTURE OF THE EU’S TRADE BALANCE

IMF GROWTH FORECAST

600

400

200

-48bn

+136bn

0

-200

-400

-600

800

Trade Balance

2005 2012

BIL

LIO

N €

Commercial Services Manufacturing Agricultural Products Energy and Industrial Materials

Source: WTO, Eurostat

38

Advanced Logistics

Cloud Computing Cyber Security

Rapid Prototyping | Scrap Elimination | Mass Customisation Real-time Autonomy

Fully Integrated Supply Chain

Zero Default/ DeviationTraceability

Advanced Robotics3D PrintingSuppliers

Advanced Manufacturing Systems

BIG DATA

Big Data Business Model: Innovation | e-Healthcare | Smart Grids | e-Mobility

WEB OF

THINGSIntegrated IT System

Sensors

Advanced Materials

Internet to object communication

Real time data capturee.g. driverless car

“Digital Single Market can increase EU GDP with €340 billion”ACCELERATE THE DIGITISATION OF THE EUROPEAN ECONOMY

Digital technologies are radically changing manufacturing industries’ processes and capabilities. They will enable further productivity leaps for companies, having a profound change on cost structures, the skills landscape and production sites. A number of digital technologies are converging. Computer aided design and simulation compresses the time and cost of bringing new goods to the market. Advanced manufacturing systems, such as machine-to-machine (M2M) technologies, will increase automation within companies. Advanced robotics makes automation cheaper and more flexible.

This automation process is brought to life by many enabling technologies including sensors and actuators, wireless networks, high-performance cloud computing, big data analytics and cyber security. Together they will accelerate the arrival of the Factory of the Future. Data will be gathered from suppliers, customers and the lead company itself, and be evaluated before being fed into production processes which can be fine-tuned to allow for customisation of products. Digital technologies will also significantly contribute to the optimisation of energy and raw material consumption, as supply

chains will become fully integrated. For example, the repair, reuse and recycling of car components may be facilitated by the use of automatic alerts and tracking.Overall, the Digital Enterprise will speed up production by linking drive technology and automation with industry software. This will increase production flexibility and shorten time to market. It will facilitate personalised mass production and will increase energy and resource efficiency. A digital twin will accompany both the engineering and the production process, and allow for testing any changes to the product or the production in the virtual world

Accelerate the Digitisation of the European Economy

39

Advanced Logistics

Cloud Computing Cyber Security

Rapid Prototyping | Scrap Elimination | Mass Customisation Real-time Autonomy

Fully Integrated Supply Chain

Zero Default/ DeviationTraceability

Advanced Robotics3D PrintingSuppliers

Advanced Manufacturing Systems

BIG DATA

Big Data Business Model: Innovation | e-Healthcare | Smart Grids | e-Mobility

WEB OF

THINGSIntegrated IT System

Sensors

Advanced Materials

Internet to object communication

Real time data capturee.g. driverless car

“Digital Single Market can increase EU GDP with €340 billion”

prior to implementing them in the real world. Together with Web of Things technologies, the digital twin will drive the emergence of cyber-physical production systems. The resulting Digital Enterprise will open up possibilities to rapidly adjust machinery and plants to new products and to fully integrate a production lifecycle from product design to production and service. Big data analytics will also drive innovation across industries, underpinning new business models and services offerings. For example, the success of e-healthcare depends on access to data, but only 4% of hospitals provide online access to medical data.

Conversely, the uptake of e-mobility and smart grids depend on standardisation efforts. Digital capabilities will increasingly determine which companies will stay ahead of global competition. For European companies to participate in the value creation of the Industrial Internet as well as new business models based on Big Data and Cloud, Europe needs to lead the discussion on enabling factors like standardisation, openness of platforms, confidentiality and security. It is therefore critical that on the one hand the EU increases investments in digital infrastructure and facilitates the wider adoption of digital

technologies through the creation of a Digital Single Market and on the other hand provides for a global playing field among all players in the digital value chain, in particular to ensure that every company is subject to the same data protection and consumer rules, regardless of where their servers are based.

Accelerate the Digitisation of the European EconomySource: Mapping the cost of non-Europe 2014-2019, European Parliament Research Service

40

INVESTING IN SKILLS

Europe’s future depends largely on its people. With the EU competing for high value added activities, having access to the right mix of skills is essential to staying ahead of global competition.

Technological advances in most manufacturing industries and other parts of the economy have transformed the nature of the tasks most employees engage in, as well as their responsibilities. The manufacturing jobs of the future will require more people with skills in science, technology, engineering, mathematics (STEM) and ICT.

However, the EU citizens’ skills base has declined over the past decade, while the OECD PISA tests show Asian countries leading achievements in international rankings on mathematics and science.

Several Asian countries are also producing larger numbers of scientists and engineers, while tertiary education levels in

science and technology fields in Japan, China and South Korea are significantly higher than that of the EU. Europe’s major competitors clearly consider this a crucial part of their strategy in the race towards technological leadership.

At the same time, evidence shows a skills shortage in certain sectors and regions, despite a high unemployment level in the EU. It is stated that the EU will face up to 700,000 unfilled ICT jobs by 2015, whereas in total, there are around 2 million job vacancies across the EU, including a large part in STEM related professions. At the same time, between now and 2025 two-thirds of STEM job openings will be to replace people who retire.

There is a strong need to get more young people into science and technology careers as a prerequisite for fostering innovation. It is also important for adult workers to update their STEM and ICT skills throughout their life to meet the demands of fast changing workplaces. For example, whereas the car industry used to

employ mechanical engineers 20 years ago, now it increasingly looks for engineers who can combine this with an understanding of electronics and material science.

Member States should promote closer business-education interactions to ensure that the skills being taught are pertinent for today’s employment. This could for example be achieved through the establishment of national STEM platforms, the rapid modernisation to work-based vocational training, targeted programmes to immediately boost the number of ICT knowledge workers and integration of basic ICT skills in vocational training and lifelong learning programmes.

Investing in Skills Source: Pisa scores, 2012, US National Science Foundation

Quality of Math and Science Education: Top 5 Pisa scores for Maths & Science

University Degrees in Science & Engineering, 2010

Shanghai- ChinaSingapore

Hong Kong-ChinaTaiwan

South Korea

Shanghai- ChinaHong Kong-China

SingaporeJapan

Finland

China

%49.8

S. Korea

%40.1

Japan

%59.3

EU

%32.0

US

%31.5

Global ethylene cash costs by region USD/ton 2012

Middle East 485

United States 501

EU 1,201

Steel industry:Cumulative EU regulatory costs as a % of EBITDA*

2011 31%

2006-2008 9-15%

Aluminium industry:Cumulative EU regulatory costs as a % of EBITDA*

* Earnings before interest, taxes, depreciation, and amortisation

2011 242%

2006-2008 23%

41

Energy shares of production costs have been rising over the past decades. They may account for up to 40-80% of production costs for energy-intensive sectors such as chemicals, aluminium, steel and cement.

For these industries, energy prices and costs have a significant impact on Europe’s industrial competitiveness, especially amid the US shale gas revolution that has given ethylene producers in the US a significant cost advantage over the EU. As ethylene is the largest building block for the chemical industry, this shift in competitiveness impacts the entire petrochemical industry.

In addition, climate and energy policies may lead to higher costs, both direct and indirect, for energy-intensive industries. For example, the majority of EU regulatory costs incurred by EU aluminium smelters originate from passing through of energy costs and surcharges to support renewables and related grid costs, as well as indirect costs of the Emission Trading Scheme embedded in electricity bills.

These regulatory costs have exceeded profits of the EU aluminium industry in crisis years. This has made the EU aluminium industry globally uncompetitive, in particular as aluminium is globally priced on the London Metals Exchange.

Furthermore, the focus of any energy or climate policy needs to be on value chains – covering production all the way to the end-use phase – and not only specific sectors considered in isolation.

Assessing the impact of an energy or climate policy on the steel sector in isolation may not give a good idea of the real challenges the sector is facing. Suppliers to the steel industry may have to increase the price of their products due to energy or climate policy, which will have a knock-on effect on the steel industry.

Steel is globally one of the most traded products, hence it is considered an industry most exposed to international trade pressures. In consequence, their own energy consumption and CO2 emissions need to be eligible for exemptions or allowances.

Without sufficient safeguarding measures the European steel industry could suffer from direct and indirect regulatory CO2 costs of 70-100bn Euros.

30% of the cost of producing steel is the cost of industrial gases used in the production process. The production cost of industrial gases is 70-80% energy and CO2 emission costs. Therefore, if industrial gases rise in Europe due to energy and climate policies, European steel becomes less competitive. When a steel production site in Europe closes, the industrial gas industry is also negatively impacted.

Innovative solutions, such as those required for a low carbon society, are developed through close cooperation among actors within the value chain. If Europe loses the building blocks of its industrial base, it will impair the innovation capacity and competitiveness of its downstream industries. Therefore, any climate or energy policy needs to ensure that the objective to increase industry’s share of EU GDP to 20% is respected.

EU CLIMATE AND ENERGY POLICY TO ENHANCE INDUSTRIAL COMPETITIVENESS

EU Climate and Energy Policy to Enhance Industrial CompetitivenessSource: ICIS Consulting and CEFIC, CEPS (2013)

Quality of Math and Science Education: Top 5 Pisa scores for Maths & Science

University Degrees in Science & Engineering, 2010

Shanghai- ChinaSingapore

Hong Kong-ChinaTaiwan

South Korea

Shanghai- ChinaHong Kong-China

SingaporeJapan

Finland

China

%49.8

S. Korea

%40.1

Japan

%59.3

EU

%32.0

US

%31.5

Global ethylene cash costs by region USD/ton 2012

Middle East 485

United States 501

EU 1,201

Steel industry:Cumulative EU regulatory costs as a % of EBITDA*

2011 31%

2006-2008 9-15%

Aluminium industry:Cumulative EU regulatory costs as a % of EBITDA*

* Earnings before interest, taxes, depreciation, and amortisation

2011 242%

2006-2008 23%

42 Sources & Acknowledgements

SOURCES & ACKNOWLEDGEMENTS

This document has been prepared by the ERT Competitiveness Working Group, chaired by Kurt Bock. We are grateful to the ERT Member companies for their valued participation and contribution.

Lead Author: Roeland Van der Stappen, ERT | Design & Illustration: Luke Stephenson

43XXA PDF version of this report is available at www.ert.eu

Jean-Paul Agon L’OréalCésar Alierta Izuel TelefónicaPaulo Azevedo SONAEBen van Beurden Royal Dutch ShellKurt Bock BASFJean-François van Boxmeer Heineken Carlo Bozotti STMicroelectronicsSvein Richard Brandtzaeg Norsk HydroAntonio Brufau RepsolTon Büchner AkzoNobelPaul Bulcke NestléJean-Pierre Clamadieu Solvay Michel Combes Alcatel-Lucent Ian Davis Rolls-RoyceRodolfo De Benedetti CIRPierre-André de Chalendar Saint-GobainMarijn Dekkers BayerClaudio Descalzi EniJohn Elkann FCATom Enders Airbus GroupIgnacio S. Galán IberdrolaAntti Herlin KONE CorporationZsolt Hernádi MOLHeinrich Hiesinger ThyssenKruppTimotheus Höttges Deutsche TelekomFrans van Houten Royal Philips

ChairmanBenoît Potier - Air Liquide

Vice-Chairmen

Nils S. Andersen - A.P. Moller-MaerskVittorio Colao - Vodafone Group

Secretary GeneralBrian Ager

Pablo Isla InditexLeif Johansson EricssonJoe Kaeser SiemensJacek Krawiec PKN Orlen Bruno Lafont LafargeThomas Leysen UmicoreBill McDermott SAPGary McGann Smurfit Kappa GroupNancy McKinstry Wolters KluwerGérard Mestrallet GDF SUEZLakshmi N. Mittal ArcelorMittalDimitri Papalexopoulos Titan CementOlof Persson VolvoJan du Plessis Rio TintoPatrick Pouyanné TOTALNorbert Reithofer BMW GroupStéphane Richard OrangeGerhard Roiss OMVKasper Rorsted HenkelGüler Sabanci Sabanci HoldingSeverin Schwan F. Hoffmann-La RocheRisto Siilasmaa Nokia CorporationUlrich Spiesshofer ABBCarl-Henric Svanberg BPJohannes Teyssen E.ON Jacob Wallenberg Investor AB

ERT Members

XX44

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INVESTING IN COMPETITIVENESS

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IN C

OM

PE

TIT

IVE

NE

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A G

LO

BA

L V

AL

UE

CH

AIN

PE

RS

PE

CT

IVE

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