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IRIMA Report Summary

Project ID: 310242
Funded under: FP7-COH
Country: Belgium

Final Report Summary - IRIMA (Industrial Research and Innovation Monitoring and Analysis)

Executive Summary:
The Industrial Research and Innovation Monitoring and Analysis (IRIMA) project has aimed at generating science based evidence to support policy making in areas related to the Commission's priority on Jobs, Growth and Investment. The EUROPE 2020 strategy puts research and innovation at the core of policies contributing to job creation and sustainable economic growth. It establishes the level of R&D investment in the EU economy as one of the five headline targets: 3% of the EU's GDP to be invested in R&D. In this context and more concretely, the project has aimed at informing policy makers on the reasons for the EU investment gap in business research and development, as well as in other intangible assets related to companies' innovation processes.
The project has provided evidence and additional insights on the main reasons lying behind the lower levels of business R&D investments performed in the EU. One key finding is the fact that most of the EU R&D investment gap (in relation to its main benchmarking industrial competitors, such as the US and Japan) comes from an insufficient number of large and leading innovative companies in key high-tech sectors headquartered and investing in EU Member States (and more particularly in ICT manufacturing and services segments). To respond to this, the European research and innovation policy agenda (Innovation Union) has set a number of commitments related to the support of business R&D investments with an emphasis on increasing the number of so-called "fast-growing innovative firms".
Getting a better understanding of the main determinants and barriers for research and innovation investments in Europe and of their impacts in terms of productivity, growth and employment will help policy makers in their design and implementation of a proper set of measures to support business R&D investments in Europe. In addition, evidence on innovative companies' performance and dynamics should help to design proper policies to promote the growth of innovative companies in key knowledge intensive sectors. This is a crucial issue in which policy makers are still striving to find the appropriate set of policy measures. An important challenge is how to address the high heterogeneity of firms, sectors and places, as illustrated in the results of this project. Key factors underlying firms R&D investment location decisions are related to local conditions such as knowledge capital endowments (including proximity to excellent universities and research personnel) and regulatory aspects (such as product market regulation, which evidence shows is closely interlinked to employment protection regulation, hence the need of comprehensive and well-coordinated reforms agendas).
In order to meet its objectives, the IRIMA project has ensured the collection of data and information concerning the world top industrial R&D investors on a regular basis and has used these data analytically in order to provide insights into the economics of R&D. A very important breakthrough of the IRIMA project has been the collection of patent and trademark data of world top R&D investors, opening new analytical possibilities related to firms technological portfolios and to the location of firms' innovation activities (using the location of inventors as a proxy). When needed and possible, this dataset has been complemented with other sources of company data. This company data complements official territorial statistics (such as BERD) in the study of important questions related to companies' innovation behaviour in a global context. The outputs from the statistical and econometric analysis has taken the form of working papers, technical reports, journal articles and policy briefs, with the project’s findings being disseminated through a variety of channels and media.

Project Context and Objectives:
The overall purpose of this project has been to monitor and analyse industrial R&D and innovation activities in order to support the implementation and monitoring of the European research and innovation agenda (the Innovation Union flagship, set in the context of the Europe 2020 strategy aiming at a smarter, greener and more inclusive economy). The evidence gathered also contributes to policy-making related to other relevant Europe 2020 flagship initiatives, in particular to the "Industrial Policy" one. In the context of the priorities set by President Juncker during his term of office, the project has contributed to provide evidence and analysis to support the priority on Jobs, Growth and Investment.
The IRIMA project has served as a reference for policy support, based on monitoring, data gathering and analysis in the field of private research and innovation. It has focused on the economic and policy analysis of patterns and trends in industrial R&D and innovation and their contribution to the competitiveness position of the EU industry by benchmarking it against main competitors, and in particular for industrial sectors of interest.
Empirical research on the impact of private sector investment in research and innovation is hampered by a lack of microeconomic time series of data that are strictly comparable across companies, sectors and regions. The IRIMA project has contributed to build and make available a consistent set of company data, including on R&D and innovation investments, including a panel dimension of more than 12 years. The analysis undertaken in the context of this project has also taken into account and has contributed to the state of the art of the research on this topic. Since at sectoral, national and even global levels a relatively limited number of companies account for most of the R&D, it is practicable to gain insight into the individual motives of these companies to invest in R&D and innovation.
Starting from the collection of company level data on R&D investment and other economic and financial indicators (mainly through the EU Industrial R&D Investment Scoreboard and the Survey, see below description), it has made use of complementary data and economic research methods (quantitative economic techniques in particular, such as econometrics, economic modelling, input-output matrices and panel data analysis), exploiting the existing knowledge on research and innovation and developing new insights. A closer link to the policy agenda has been established through the publication of policy briefs and reports accessible to a policy audience, aimed at promoting and informing policy debate.
The core activities of the IRIMA project have included:
• The monitoring and analysis of top corporate R&D investors (WP1), based on rigorous data collection and analysis. Building on past experience, the objective has been to ensure a high quality and reliability of the company data collected, while trying to continuously increase its coverage (notably for innovation-related data) and representativeness (in particular for the non-EU sample) and its comparability. Efforts have continued to deepen the analysis of R&D investment trends (at company, sector and regional levels) and specific thematic analyses have been incorporated in the annual editions of the EU Industrial R&D Investments Scoreboard report (2012, 2013, 2014 and 2015). The Scoreboard has been complemented by a Survey undertaken on the companies of the European Scoreboard sample. The Survey has provided a forward-looking perspective as well as insights directly from the companies on important issues such as location strategies, perception of current drivers and barriers and of the effectiveness of policy support measures and information on technological development (key technologies).
• The elaboration of analytical reports and policy briefs on specific topics connected to the implementation of the European research and innovation agenda (WP2). Based on the establishment of research agendas for a limited number of key policy relevant topics, the scientific results and the evidence gathered has been presented on a series of well-targeted thematic reports, accessible to non-academic audiences. When appropriate, the reports have been complemented by policy briefs seeking to promote policy debate. The results of the research agendas have been also presented in the form of academic articles that continue to be published as working papers in the JRC Working Papers series on Corporate R&D and Innovation, incorporating proper acknowledgement of the support received from this project. A good number of Working Papers have been subsequently published in leading academic journals, following its revision and improvement.
• Activities to validate and disseminate the project's research results (WP3) among policy makers and other interested stakeholders (including industrial representatives and experts) and to discuss its policy implications and follow-up. This has included the organisation of thematic workshops where the results of the research (presented in a "non-academic" format, such as policy briefs) is contrasted and validated with other experts and presented to policy makers and industrialists.
The research has mainly been undertaken on the basis of already available sources of data, public and commercial. In some cases, the outsourcing of targeted data gathering exercises has been performed.

Project Results:
The IRIMA project has achieved its main objectives as summarised in the previous section:
1. It has ensured the continuation of collection of high quality data on main corporate R&D investors, covering a sample of companies representing about 90% of the total R&D investments financed by the business sector worldwide. The dataset has been enriched with extremely valuable data on subsidiaries (overall the total company sample includes more than 600.000 individual companies) and with novel data on the IP portfolios (patents and trademarks) of these global leading players. This data is open to the public (the data on IP portfolios has been jointly developed with the OECD and is available on-line upon request –COR&DIP database) and covers a period of more than 12 years. This offers enormous possibilities for analysis and better understanding of major innovation industrial activities and dynamics.
2. Based on this data collection, the project has delivered four new editions of the EU R&D Investment Scoreboard and of the EU Industrial R&D Survey. Detailed summaries of the reports are available in the project first and second interim reports as well as on the relevant project webpages. The reports have continued to receive attention from policy makers as shown by the number of press releases and presentations from relevant Commissioners responsible for research and innovation (in 2012 the report was presented by Commissioner Geogeghan-Quinn and in 2014 by Commissioner Moedas).
Both the Survey and the Scoreboard show that main industrial players with headquarters in Europe consider R&D and innovation as crucial strategic investments to keep and improve their current and future competitiveness. Most performing sectors in Europe in this respect are the automobile and pharmaceutical. Evidence continues to show that Europe lacks leading innovators in crucial high R&D sectors such as ICT and health care equipment and services. An analysis of the performance of Scoreboard companies over the last twelve years shows that best performers are concentrated in these sectors, in which companies based in the US dominate. Evidence also shows that employment trends in the high-tech sectors, during and at the exit of the crisis, are better than in medium and low ones. In line with the objectives of the project, the use of company data has been analysed as a complement of territorial official statistics (BERD indicator), demonstrating the need to improve the information on companies' cross-border activities (for production and for R&D) if one has to grasp the diverse sectoral origin and policy implications of the EU R&D gap. The European companies surveyed perceive public support as a positive driver of their R& and innovation efforts, particularly direct support in the form of tax incentives and national and EU grants. Companies also attach great importance to vertical collaborations with suppliers and clients and also value projects promoting public-private cooperation.

The Scoreboard reports in 2013, 2014 and 2015 have included specific analytical chapters on topics relevant to the policy agenda. In addition more intensive use has been used of the available panel information (more than ten years of R&D and financial indicators for a large number of companies). The analytical chapters included:
- In 2013, an analysis of the health and biotech sector, showing the dynamics across time and comparing the EU and US cases and an analysis of Scoreboard companies FDI.
- In 2014, an analysis of Scoreboard companies patent portfolios and an analysis of so-called "potential leading innovators in the EU", based on an identification of good performers in R&D intensive sectors among the low ranks of the EU-1000 sample.
- In 2015, a new analysis to identify high-performing companies among the EU R&D driven innovators was included, as well as an analysis of firms' economic and innovation activities based on additional information (e.g. inventors location, as reflected in patent data).

These reports have contributed to monitor and assess the progress towards the 3% R&D investment intensity target. One important contribution from the IRIMA project in this respect is to reinforce the evidence showing that for reaching such target, Europe needs faster structural change towards more knowledge-based economic activities. A better understanding of the growth determinants of these companies and on the factors influencing individual's and companies' decisions to invest into new high-tech ventures, should help policy makers to identify measures aiming at promoting the growth of innovative companies based in Europe and in attracting and retaining in Europe more foreign direct investments from global international players. An analysis of the companies populating the lower reaches of the EU-1000 sample of top R&D investors show that there is a good number of companies performing well (in terms of R&D investments, sales, employment growth and profits) in R&D intensive sectors. Policy measures targeting the growth of such companies as well as the creation of new ventures should help the European industry to become more knowledge intensive and to increase its contribution to employment creation and economic growth.
3. The IRIMA project has further exploited and analyse the data collected in view of gathering empirical evidence to support policy making in the areas of research and innovation and industrial policy. For this purpose, the analysis has been focused on a series of priority thematic areas agreed with the Directorate General in the European Commission responsible for research and innovation policy, the partner in the conception and implementation of this project. As reflected in the project technical specifications these priority areas were set-up at the beginning of the project in order to cover the first two years (2012-2013) and then revised mid-term in view of the second period (2014-2015).
The priority areas for 2012-2013 were:
- Topic 1: Business R&D and innovation investments and firm’s economic performance.
- Topic 2: The role of intangibles (beyond R&D investments) in the innovative performance of firms.
- Topic 3: Technological profile and innovation patterns of European top R&D investors.
The priority areas for 2014-2015 were slightly revised as follows:
- Topic 1: The impact of corporate R&D and other innovation drivers on firm’s productivity gains, economic performance and job creation.
- Topic 2: Internationalisation of Corporate R&D and Innovation.
- Topic 3: Technological profiles of top R&D investors.
A detailed account of the results of this analytical work can be found in the corresponding annual reports (deliverables of Work Package 2). The results of this analytical work have been reflected in 24 Working Papers, 6 Technical reports and 11 Policy Briefs (in total 41 publications).
Results from this analytical work confirms the positive impact of R&D investments on firms' performance, measured in terms of different variables such as labour productivity, technical efficiency, sales growth or employment. The link with profits has also been analysed showing higher levels of average profit growth for more knowledge intensive companies. Beyond the impact of R&D investments on firms' performance, the analyses have provided evidence of the positive impact on firms' performance of investments in other intangible assets, such as investments in design, marketing and training. Particular focus has also been put in better understanding how firms' heterogeneity affects these relations between firms' innovation investments and performance. Firms R&D intensity, size, age and location are key factors explaining these differences and concrete evidence has been provided. R&D investments have higher impact (both in productivity and in employment) in knowledge intensive companies, while lower knowledge intensive ones benefited more from embodied technological change (investments in physical capital). Another important factor analysed has been the degree of firms' internationalisation (measured in terms of numbers and location of subsidiaries): the results show that while multinationality always increases incentives for investing in R&D, only multinationality at its intensive margin (number of international subsidiaries) contributes to greater productivity (geographical dispersion appears at some point to be detrimental).
The project has also contributed to the conceptualisation and data gathering of innovation related investments on intangible assets. For this purpose, cooperation with the DG responsible for industry was established to design, implement and analyse a specific Innobarometer survey on intangible assets.
In relation to the determinants and the impact of firm's R&D and innovation internationalisation, evidence suggests that innovative enterprises integrated in global production and innovation networks are likely to drive the European innovation based-growth in the next decade. Results from this research, based on Scoreboard companies and on other available data sources (e.g. data on foreign direct investments from the fDi Intelligence service of Financial Times and data from EFIGE), aim at supporting the design of research and innovation policies in an international context. Results obtained from the project Survey on European top R&D investors on firms' internationalisation strategies and location drivers have also been exploited and presented in a policy brief. Evidence shows that knowledge intensive companies value most the proximity to strong human capital and knowledge sources (such as excellent universities) when deciding where to locate their R&D investments. This has strong policy implications, calling for integrated policy agendas paying attention to the reinforcement of the knowledge endowments of territories to attract firms' investments in high added-value segments.
In relation to the analysis of the technological profiles of top R&D investors, a very important breakthrough of this project has been the collection and analysis of the patent and trademark portfolios of Scoreboard companies. The results have been published in a joint OECD and JRC report: "World Corporate Top R&D investors: Innovation and IP bundles". The underlying company data on patents and trademark has been made publicly available in a dataset called COR&DIP and accessible upon request via the EC and OECD websites. The objective is to allow practitioners to make intensive use of these data to contribute to the advancement of knowledge and empirical evidence on companies' innovative activities and performance.
The analysis on the patent portfolios of Scoreboard companies has been extended to further exploit information available in patent data, particularly the one related to inventor's location. Particular analysis has also been performed to understand the impact of KETs and emerging technologies in attracting investments from top R&D investors. The data has also been used to analyse the impact of patent boxes on the innovation activities of the Member States that put in place such measures. Evidence shows that the tax advantage of patent boxes does not foster local innovative activities, thus confirming public concerns on the dominant tax motivation of patent boxes. Nevertheless, the working paper published also suggests that the imposition of local R&D development conditions in the patent box regime has the potential to attenuate these adverse fiscal effects.
Another important aspect analysed has been the role of leading R&D investors in the development and dynamics of local innovation ecosystems. A policy brief presents the results of the analysis and of discussions with representatives of some relevant industrial players. Based on the exploitation of new data related to firms' innovation location (using information on inventors location from patent data) this is an area of analysis that will be further developed in the next stage of the project.

Potential Impact:
The IRIMA project has been peer-reviewed by external leading experts in the field, mid-term and at the end of the project. The final review statements have been transmitted as deliverables of the project. Both reviews are positive on the results obtained, which are found to be policy relevant, and both reviews insist that further efforts for exploiting and disseminating the results would be required. For this purpose, support from the policy DG in charge of the project is important.
Extract from mid-term review statement:
"In general terms, the assessment of the expert peer review panel of the work produced by the IRIMA Project is positive. The topics that have been addressed are important and relevant at the level of both the increased knowledge and understanding of key phenomena and the policy implications that such knowledge suggests (...). There seems to be a clear rationale for the IRIMA project. Most policy makers could benefit from a much more evidence-based RD and innovation policy. Against this background the IRIMA project is relevant, timely and very useful for policy makers and researchers."
Extract from final review statement:
"Our collected assessment of the IRIMA project is that it addresses relevant and important topics and the work performed is solid. We suggest that further work tries to close the Monitoring – Analysis – Policy making-loop, by a closer collaboration between policy makers and the project team. This was especially clear at the review workshop."
One important activity of this project has been the organisation of IRIMA Workshops, a way to confront and disseminate results with main project stakeholders: policy-makers, industry representatives and academic experts. Six workshops have been organised and all materials (summary reports, presentations, list of participants, agendas, background documents) are available at the project website. In addition annual reporting on the workshops have been sent as formal deliverables of this project.
Apart from these workshops, a wide range of dissemination channels have been used, including the following:
- IRI website;
- European Commission press releases and attendance/speeches to policy meetings
- IRI Working Papers Series and publications in peer-reviewed journals;
- IRI Seminars Series, which combines external presentations from academics and internal contributions ;
- Academics collaborations: co-publications & reports, external contributions and peer-review evaluation, participation to scientific events (including blind and/or peer-review based selection). Our aim is to continue and to the extent possible (giving the resources available) reinforce such interactions ;
- International cooperation (OECD) & inter-service collaborations (DG GROW, ECFIN);
- Participation in Editorial Boards of scientific publications, and other scientific conferences, lectures at Universities.
- Organisation of CONCORDi conferences: these are bi-annual European Conferences on Corporate R&D and Innovation organized by the IRI team of the DG JRC. They rely on a double peer-review based selection of papers and an external scientific committee composed of highly recognized academics experts. CONCORDi conferences bring together scientific expertise, practitioners and policy makers at the forefront of research and innovation policymaking. CONCORDi 2015 had a special focus on the role of scientific analyses in the design and implementation of an EU industrial policy based on research, innovation and technological advancement. A related policy brief has been published online at Industrial Research and Innovation: Evidence for Policy.
The project has been successful in building a good network of relevant experts, particularly from the academy. IRIMA intends to maintain and if possible increase its visibility among this community, including its role as an open data provider of very relevant company data (Annual Scoreboards, EC JRC-OECD's COR&DIP dataset, IRI Data Warehouse (panel data on Scoreboard companies since 2000 - forthcoming).
The project has also been successful in terms of its impact in policy-making. In fact, the origin of the activities (which started back in 2004) responds to a precise mandate related to the 3% R&D investment target. This "headline policy target" has been retained in the Europe 2020 strategy, which continues to underpin the "Investment, growth and employment" priority of the current Commission.
One important contribution of the IRIMA project(s) has been to put this investment target into perspective and to provide data and analysis contributing to a better understanding of its nature and origin, very much linked with Europe's industrial structure. This is crucial information to guide policy responses.
Analyses have also put on the table data and analysis amenable to challenge long standing pre-conceptions and aiming at raising policy debate around the interpretation of the 3% target and the options concerning policy responses (e.g. role played by SMEs).
In this context, it is important to stress the relevance and representativeness of the Scoreboard/IRI company data which allows capturing main trends and dynamics of industrial R&D investments, from a company perspective and with a worldwide scope. Both elements (micro level and global level) provide fundamental insights which complement and enrich traditional / geographically based statistics (such as BERD). Equally important is to remind the limitations of the data, in order to use it properly in the future and avoid wrong interpretations:
- Very high coverage in terms of business R&D (equivalent to more than 90% of BERD worldwide)
- Very low in terms of turnover, especially in services sectors
- Good coverage in manufacturing sectors, especially in innovative sectors
- Good coverage in employment terms (more than 50 million employees worldwide and more than 20 million by the EU companies)
- Low coverage of SMEs, but current works attempts to better exploit the subsidiaries of the SB parent companies which include more than half a million of firms.
The IRIMA project should be put in perspective, in terms of dimension and resources, within the very extensive mapping of research and policy support projects in the area of innovation policy. In this respect it is important to reinforce the efforts to exploit its complementarities with other related research and analytical projects (both inside and outside the European Commission), while keeping its focus and added-value.
The main activities of this project will continue during 2016-2017 under a second stage (IRIMA II). As recommended in the final review statement, there is a need to extend the scope of research questions and to adapt to the new realities and new policy challenges. The endeavour is to make of IRIMA a dynamic project mainly because of the issues it deals with: knowledge creation and innovation. Along with the efforts to improve data coverage and scope (e.g. through matching with other data sources such as patents and trademarks) the IRIMA project is gradually extending its analytical capabilities and topics. Just to mention some examples:
(a) Gradually adopt a comprehensive/broader view of innovation by looking at a broad range of innovation investments and input and output variables (corporate IP bundles, intangible assets).
(b) Better capture the international and interactive dimension of innovation activities, also by integrating the role of technological/human capital locational drivers at the country level (see e.g. Ciriaci et al 2016, Alstadsæter et al. 2015, Dosso and Vezzani 2015, EC JRC/OECD report (Dernis et al 2015), and through more analysis and or insights on the innovation networks and cooperation/ecosystems patterns (Coad et al forthcoming, Dosso et al 2015, Amoroso 2014, etc.)
(c) Better capturing the complexity of innovation processes by relating specific R&D-related performances (Amoroso et al forthcoming, Castellani et al 2015, Vezzani & Montresor 2015,etc.) with observed patterns of R&D behaviours, returns, productivity (contribution by Hervás and Amoroso).

In addition it is of crucial importance to address in the future questions such as:
- Public and private collaboration in the area of research and innovation to address societal challenges (e.g. decarbonisation, health, demographic change...). What instruments and framework conditions should be put in place to promote business engagement and commitment towards common/shared visions (through, among others, higher levels of R&D investments).
- Analysis of specific barriers for bringing specific (key) technologies and innovative solutions (products, services) to the market (valley of death). Overcome the limitations of sectoral analyses and get into specific technologies and products, in order to find tailor-made policy responses.

As stated in the final review statement, closing the policy loop is crucial and for this timing is key. Ideally, some results and recommendations should feed into the policy discussions which will lead to the next generation of EU support funds (next Framework Programme, structural funds etc.). Available results from this project can already been exploited in this context.

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