Rationale and Background
The role of the techno-economic analysis of key sectors is to take a bottom-up sector focus. The R&D information from the Scoreboard and Survey is validated and complemented with main sector trends and drivers and a bottom-up view via personal dialogue with key R&D players, so that feedback is captured directly. The focus of these interviews is a high value-added exchange of information to address the role of R&D (and innovation) for competitiveness, assess R&D capacities of EU vs. non-EU companies, identify supply and demand factors in the value chain and factors determining attractiveness for locating manufacturing, pilot and R&D facilities, and assess the competitiveness position of EU industry vs. main competitors like the US, Japan, or emerging Asian countries. Due to the focus of the sector studies and the limited resources, in addition to the interviewees, these activities rely on the involvement of external experts and stakeholders.
For reasons of data protection, all information provided during the company interviews is presented in an anonymous fashion. It should be kept in mind that the findings presented here are subject to the limitations of the approach both in terms of resources and sample size and do not represent an official position of the European Commission. Being a stocktaking exercise, the sector studies may include sometimes partial views, but this is rather typical of such bottom-up approaches and reflects the dynamic nature of the sectors and their market environment.
Scope and Approach
The EU automotive sector has been selected for a techno-economic analysis because of its importance for EU competitiveness and employment overall. This sector is especially suitable for the analysis of industrial research investment under a sectoral perspective. The automobiles sector constitutes a significant proportion of EU GDP and employment, is the largest R&D investing sector in the EU, a major actor regarding grand challenges such as climate change, energy and resource efficiency (both as part of the problem and the solution), and there is EU leadership in the sector facing increasing competition from emerging countries.
There is a large availability of data and information for this sector, including the R&D Scoreboard and other IRMA activities, which observed the following trends:
- Most of the worldwide biggest car producers have shown similar levels of R&D intensity in recent years. Companies significantly below the sector average and those much above have shown to lose competitiveness over time, which suggests that there is an optimal level of R&D investment which maximizes company performance.
- On average, Scoreboard companies in the automobiles & parts sector treat R&D and fixed assets (capital) as complementary types of investment. However, under pressure conditions to reduce investment, companies seemed more reluctant to change R&D investment levels than capital expenditures.
- Companies in the automobiles & parts sector have been hit hard by the recent economic crisis in terms of sales, market capitalisation and particularly operating profit. However, distinct effects were perceived across main world regions, Asian companies are clearly less affected, followed by EU companies and US companies showing the worst performance.
- Worldwide competition in the automotive sector is expected to continue to increase, in particular as Chinese and Indian manufacturers join the South Korean companies in global markets.
- Main emerging technologies integrating value into the car concern applications of electronics, information and communication technologies that come from different subsystems of the supply chain. Promising applications will be also based on the forthcoming EU Galileo satellite navigation system (up to 70% of Galileo applications are expected in road transport). The provision of adequate conditions for innovation and research in such subsystems could yield important benefits in economic and employment terms.
- Automotive R&D is mainly driven by stricter standards on vehicle emissions and fuel consumption; product differentiation to meet customer satisfaction and cost reduction due to tougher worldwide competition.
- There are sector-specific issues that may need dedicated policy action by understanding how innovation phenomena take place within the sector and through the main sector interactions; the contribution of technology to the sector performance; and the role of R&D and which factors determine sector's R&D investment.
The automotive therefore provides an interesting and relevant case for addressing important research and policy questions.
Methodological considerations and limitations
The present study addressed the following questions:
- What is the role of technology, innovation and R&D for the performance of the automotive sector?
- Who are the main stakeholders driving technology, innovation and R&D in the automotive sector?
- Which sector-specific factors determine R&D investment? Is there an optimal level of R&D investment to maximise performance?
- Concerning the structure of the sector with different levels of the supplier network, what are the critical suppliers in terms of the source of competitive advantage, share of value-added, and jobs?
- What are the critical technologies of the sector over the medium-long term?
- How is the EU industry positioned on the world scene in terms of technology and economic performance? Which challenges will be posed to the EU industry over the medium-long term?
- What is the role of individual countries and world-regions, especially the EU compared to its main competitors (US and Japan) and emerging countries (China, India, Brazil, etc)?
- What are the main policy-challenges resulting from the present picture?
Given the wide scope of these issues it was necessary to synthesise a wide range of existing information, combine these with additional information generated in the study, and present all together in a concise format.
The approach of this study was to gather existing information and complement these with bottom-up information directly generated from companies. This assured that both the state-of-the-art is well represented and that the above research questions are addressed. The study comprised three main steps:
- Collecting bottom-up company data, analysing market supply and demand factors, addressing the regulatory and institutional frameworks, and comparing EU industry against main competitors.
- Undertaking personal interviews with 5-10 key industrialists from this sector to generate first-hand feedback from companies.
- Validating the information generated in the previous steps and proposing policy conclusions. For this purpose, a workshop was held on 29 March 2012 with a selected group of study participants, industrialists and policymakers.
The main advantage of this approach is that it takes maximum benefit from related work on R&D not only inside the IRMA project, but especially within the European Commission. It was therefore necessary to screen a wide range of sources, prepare existing information and complement that with additional information in the three steps above. The approach however had to maintain a certain focus and excluded detailed analyses on related industries in the value chain, therefore concentrating on the main issues regarding the main EU automotive manufacturers.