ESIC European Service Innovation Centre REPORT
Summary Assessment of Luxembourg
Prepared by:
Henri Lahtinen (Ramboll Management Consulting)
Kimmo Halme (Ramboll Management Consulting)
Emmanuel Muller (Strasbourg Conseil)
November 2013
ESIC in Brief Increasingly service innovation plays an instrumental role in the transformation and upgrading of traditional economic sectors and industries into more productive, competitive and high value-added business eco- systems. Considered as being multi-dimensional in nature, service innovation comprises innovation in services, service sectors or service industries that are provided by service entrepreneurs and service firms. It also takes place in manufacturing industries, adding further value and contributing significantly to overall productivity and profitability. There is a growing need to assess, analyse and demonstrate what impact service innovation has on industrial change and to assist Member States and regions towards a greater understanding of service innovation as a driver of industrial transformation and future competitiveness. The European Service Innovation Centre (ESIC) is a two-year initiative commissioned by the European Commission’s Directorate-General for Enterprise and Industry to capture and demonstrate the dynamics and large-scale impact of service innovation as well as to assess how service innovation impacts on competitiveness, industrial structures and regional development. It will also focus on assessing the implications and impacts of service innovation on employment structures, economic patterns and on value creation. Primarily, ESIC will provide customised advice to six selected model demonstrator regions (the Canary Islands, Emilia-Romagna, Limburg, Luxembourg, Northern Ireland and Upper Austria). The initiative will also help other Europe’s regions and Member States to make better use of the transformative power of service innovation in strengthening existing and emerging industries and markets and to develop better industrial policies and smart specialisation / cluster strategies. The goal of creating a favourable eco-system for service innovation will boost supportive infrastructures and business conditions that, in turn, will facilitate the take-up of innovative services throughout the economy.
This work is a part of a service contract for the Enterprise and Industry Directorate-General of the European Commission.
The views expressed in this report, as well as the information included in it, do not necessarily reflect the opinion or position of the European Commission and in no way commit the institution.
Table of Contents
1. The Challenge 1
2. Regional Performance and Potential 2 2.1. Socio-economic context for service innovation 2 2.2. Regional benchmarking 7 2.3. Opportunities and demands for service innovation 9 2.4. Assessment of regional performance 15
3. Regional Policy and Policy Mix 17 3.1. Innovation policy and institutional background 17 3.2. The policy mix 18 3.3. Assessment of the regional policy mix 26
4. Large-Scale Demonstrator: Strategy for the Future 30
5. Conclusions 35
Appendix A – Bibliography 37
Appendix B - Stakeholders consulted 41
Appendix C - Regional benchmarking analysis 42
Appendix D - Institutional fabric relevant for service innovation 46
Appendix E - Policy measures for service innovation 47
This work is a part of a service contract for the Enterprise and Industry Directorate-General of the European Commission.
The views expressed in this report, as well as the information included in it, do not necessarily reflect the opinion or position of the European Commission and in no way commit the institution.
Introduction A strong, healthy, high value-added services sector is essential for the efficient operation of a modern economy, for facilitating commercial transactions and for enabling the production and delivery of other high value added goods and services. Service innovation represents the systematic development, design and testing of new and/or improved service offerings, processes and business models, using multidisciplinary social science, engineering and technology-enabled models, methods and tools. As it addresses the whole economy and not only the service sector, service innovation is very relevant to achieving the EU2020 goals of smart, sustainable and inclusive growth. In this context, the European Service Innovation Centre is instrumental in pointing up the innovation potential of service activities across Europe and supporting the assessment of how regions can both unlock their service innovation potential and increase their economic performance significantly. The purpose of this summary assessment report is to assess whether the regional policy mix of Luxembourg is conducive to the emergence of new business sectors/models or the transformation of existing sectors/models, via the application of service innovation processes and concepts. This includes a mapping of the economic change induced by service activities and service innovation and also an assessment of policy options and policy support measures. Based on the analysis, the report provides policy recommendations for a systemic approach to policies and better support for innovative companies, which offers a favourable business environment conducive to structural change. The report was prepared by Henri Lahtinen ([email protected]), Kimmo Halme ([email protected]), and Emmanuel Muller ([email protected]). The contents and views expressed in this report do not necessarily reflect the opinions or policies of the Member States or the European Commission. The copyright to this document belongs to the European Commission. Neither the European Commission, nor any person acting on its behalf, may be held responsible for the use to which information contained in this document may be put, or for any errors which, despite careful preparation and checking, may appear.
This work is a part of a service contract for the Enterprise and Industry Directorate-General of the European Commission.
The views expressed in this report, as well as the information included in it, do not necessarily reflect the opinion or position of the European Commission and in no way commit the institution.
Executive Summary Luxembourg is a wealthy region, as well as a state that has enjoyed political and economic stability for a long period of time. The steel industry laid the foundation for economic growth in the past which has been, for the most part, replaced by financial services. Dependence on a relatively few industries that have provided wealth to Luxembourg is also a challenge for the region. Luxembourg no longer can afford to rely only on a few cornerstones of the economy and therefore, it has chosen a diversification strategy built on knowledge-based services. In addition to its many attributes, Luxembourg hosts one of the most expensive healthcare systems in the world. For several years, investments have been made in the supportive infrastructure, focusing especially on life sciences and bio-health. The investments indicate a governmental level of commitment, as well as an acknowledgement of the need for a change in approach from treating illnesses to preventing them. Hence the Large-Scale Demonstrator (LSD) strategy of Luxembourg emphasises a more personalised and integrated approach to healthcare in a system comprising three dimensions – the patient, the service and the national healthcare system - interlinked by a common data platform. The chosen strategy is expected to decrease the impact of diabetes on the healthcare system, whilst boosting related health services and service innovations, stabilising the costs of the system and maintaining quality. Ultimately, learning from the pilot on diabetes will help to scale up the fight against other diseases that add a burden to the healthcare system, not forgetting the related business opportunities that might be developed. Currently, life sciences and biotechnology do not contribute significantly to Luxembourg’s economy and it is not certain if the investments already made are adequate to trigger a more systemic change in Luxembourg. In line with the European Service Innovation Centre’s analytical framework, the Luxembourg LSD approach has been assessed in relation to the following systemic elements of the innovation system: entrepreneurial activities, knowledge development and transfer, innovation and business model generation, financing innovation and growth, as well as collaboration and networking. The evaluation has also been compared with the results of the self-assessment or SAT conducted with the regional stakeholders. The assessments were aligned in a number of respects, although the local respondents were even more critical and called for improvements in, for instance, entrepreneurs’ awareness of service innovation, technology transfer offices, involvement of services-oriented SMEs in large collaborative research and innovation, as well as new forms of financial engineering mechanisms such as crowd-funding and microfinance. The overall business environment is both start-up-friendly and SME-friendly and it has been further improved over the years. Consequently, setting up a business in Luxembourg has been made relatively easy. Other supportive factors are relative stability and a rather central location in Europe. The generic conditions designed for SMEs are less applicable to service innovation intensive companies, which require more than traditional R&D support and an understanding of the needs of the end-users, or businesses in the field of life sciences, in which clinical trials and thus, laboratory space are often prerequisites. The current policy mix in Luxembourg contains a few support measures with embedded elements that do not discriminate between technology and services, but is mainly characterised as assimilated. In other words, service innovation is supported by adapting policy measures developed for manufacturing and technological innovation. Luxembourg’s research system is relatively young, for instance the University of Luxembourg was established in 2003, and the system is not yet mature enough to generate a significant critical mass. However, considerable investments have been, and still are being, made in the related infrastructure and these can be expected to have a larger impact in a few years’ time. Knowledge transfer is more critical and should be improved, particularly in the light of the new LSD approach in which access to data will be one of the key elements. Innovation and business model generation is the weakest of the five systemic elements of the innovation system. In terms of the former, new innovations are mainly technology-based. Despite the existence of a large number of service companies, the service offering is not often transformed into new innovations. Furthermore, the policy mix contains only a few measures targeting business model generation, and this is also reflected in the decreasing international competitiveness of local SMEs. Financing innovation and growth has received more attention since the implementation of the law for promoting RDI, in 2009. Support measures developed following the adoption of the law mainly concern direct funding for RDI activities, and do not adequately address new forms of financing, such as crowd- funding. Although there is more venture capital available in Luxembourg, access to it remains a challenge, especially in life sciences, as well as in service innovation intensive industries. This challenge is not only
This work is a part of a service contract for the Enterprise and Industry Directorate-General of the European Commission.
The views expressed in this report, as well as the information included in it, do not necessarily reflect the opinion or position of the European Commission and in no way commit the institution.
characteristic of Luxembourg, as venture capitalists often consider service innovations to contain a higher risk and can struggle to see their related growth potential. The sector of healthcare selected for Luxembourg’s LSD strategy is relevant for several reasons, not least because it is one of the largest segments of public expenditure, which requires the introduction of further efficiency measures. It is also a sector that is largely driven by services and is heavily controlled by government policies. The Luxembourg Government has indicated its general commitment to the implementation of the strategy. In addition, significant shortcomings in the framework conditions, apart from transparency of, and access to, data, were not identified in the assessment. Several challenges, however, have been encountered within the healthcare sector, including the following: There is no incentive for any other actor besides the government to change the current system, as most key players would lose should the system be changed; The income of doctors is relative to the number of patients that they treat; Personalised medicine can be the game changer, but this approach requires identifying the kind of treatment and related medicine that is the best for each individual; Hospitals are not ready to embrace new services and/or business models; The interoperability of various IT systems presents problems; There is no systematic monitoring and evaluation of the performance of the actions that are taken, and therefore no evidence of their positive or negative impact
On one hand, the Luxembourg large-scale demonstrator concept offers a good start for the transformation process, as well as a good analysis of the current situation in health sector and as a concept, it correctly identifies areas in which services can play an important transformative role. On the other hand, no indication is provided about how the change process will be structured, for example: What are the key phases of the change process? How are these phases to be organised and financed? Who is leading the process? and What is the anticipated vehicle of change - a platform, programme or a cluster initiative? In other words, the LSD concept has not yet been fully transformed into an operational strategy. In addition, no significant progress can so far be detected in the five ESIC LSD assessment dimensions that reflect the performance of systemic innovation policies in Luxembourg.
This work is a part of a service contract for the Enterprise and Industry Directorate-General of the European Commission.
The views expressed in this report, as well as the information included in it, do not necessarily reflect the opinion or position of the European Commission and in no way commit the institution.
1. The Challenge The Grand Duchy of Luxembourg is one of the smallest, as well as one of the most prosperous, regions in Europe. The economy has benefited from its strong steel industry in the past and continues to benefit from financial services like banking and insurance today. Due to scarcity of raw materials and increasing competition, resource-intensive industries have lost their place as the most important contributors to the GDP and have been replaced in this role by financial services. However, financial services are also in danger of losing their competitive advantage due to the possible introduction of laws to combat bank secrecy. Therefore, Luxembourg needs to reduce its dependence on the single sector of financing and diversify its economy to include more knowledge-based services. The relatively high level of income enabled Luxembourg to maintain a healthcare system that was expensive. Now, however, the ageing of the population and continued economic hardship means that Luxembourg cannot afford to continue with such a system. For example, normal expenditure on health and maternity insurance has increased from € 1069.4 million in 2000 to € 2217.2 million in 2011, whereas normal expenditure on long-term care insurances has risen from € 223.1 million in 2000 to € 582.0 million in 20111. In addition, the approach of the current healthcare systems of dealing mainly with acute illnesses will be challenged by the rise of chronic diseases. Therefore, Luxembourg is investing in personalised medicine in an effort to systemically change the nation’s healthcare system. The focus is on the prevention and early treatment of lifestyle-related chronic diseases that are considered to be an ever- increasing burden on Luxembourg’s healthcare system. The Luxembourgish model demonstrator strategy relies on a more personalised and integrated approach to healthcare which is expected to increase effectiveness, especially in respect of chronic diseases such as diabetes. To address this issue, the demonstrator approach suggests a system comprising three dimensions: the patient, the service offer and the national health care system. The key link between the three dimensions is transparent public data, which is currently inaccessible to most stakeholders in the healthcare system. The creation of a transparent, yet controlled, environment is proposed to test the hypothesis with the objectives of: a) Preventing or slowing down the occurrence of diabetes in high-risk individuals; b) Boosting the economic impact of related health services and service innovation; c) Stabilising the healthcare system's costs while maintaining good services; d) Learning from the demonstrator approach and then scale up/transpose it to other chronic diseases;
Key points: Luxembourg’s strong economy has been built on steel in the past and financial services today, but there is a need to diversify the economy and reduce its dependence on only a few strong sectors; The healthcare system in Luxembourg is relatively expensive and the approach is based on reactive, rather than proactive, activities. Therefore, Luxembourg has chosen to invest in personalised medicine, as one means of stimulating a systemic change in the healthcare system; The new approach comprises the following three dimensions: the patient, the service offer and the national health care system. The key link connecting these dimensions is access to public data.
1 Statistics portal. Grand Duchy of Luxembourg. Luxembourg in figures 2012
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2. Regional Performance and Potential
2.1. Socio-economic context for service innovation Measured by its population of around 0.5 million, the Grand Duchy of Luxembourg is the smallest of the six ESIC demonstrator regions. It is also a wealthy region, with a three times higher regional GDP per capita than the EU27 average. The industrial sector has traditionally been based on steel, but this sector has been replaced by the financial sector as the most important source of income. Information technology, telecommunications, cargo transportation, chemicals and engineering are other branches diversifying the economy from its steel-based beginnings. Luxembourg is one of the founder members of the EU, and houses several EU institutions and agencies. Luxembourg has also been able to maintain a stable economic climate, although some of its advantages as a favourable tax haven have been lost due to pressure from the EU and OECD. Stability is considered to be one of the assets of Luxembourg, accompanied by the small size of the region as well as its good communications connections. Employment and productivity have not, however, remained unaffected by the continuing economic crisis. Labour productivity has decreased more in Luxembourg during 2007 -2010 than in other EU nations and, based on simulations, is not expected to return to the level preceding the crisis, before 2015. The change has been explained by reduced activity in the two prominent sectors of the economy: banking and the steel industries. Another factor is the lack of skilled individuals, which has led to ‘labour hoarding’. 2 The use of foreign labour is common in Luxembourg as 43% of population is foreign, mainly Portuguese, French, Italian, Belgian and German3. The mobile workers have been very important to Luxembourg’s economy and so the people of Luxembourg are used to speaking several languages. The native language, Luxembourgish is similar to German, which is the first foreign language for most Luxembourgers and is also used in the media, whilst French is the language of administration. English is also commonly spoken. It remains to be seen if Luxembourg can continue to use foreign labour in the future. Unemployment has not been an issue in the past but in 2011, the unemployment rate was below 5% and then it rose to 7.0% in July 20134.
Key points: Luxembourg is a small and wealthy region in which stable economic and political conditions have provided a good basis for the growth of financial services; Although Luxembourg has not been hit by the recession as severely as many other regions, it has not remained unaffected: labour productivity has decreased more than in many other Member States and unemployment has risen considerably.
Sectoral structure and innovation orientation The structure of the Luxembourgish economy can be seen as being very specific, in particular, when considering the relative weight of services. The number of active enterprises increased in three years from 27,481 in 2006 to 30,459 in 2009. Of all enterprises, 86.8% were associated with services, whereas the shares of construction and industry were 9.9 and 3.2% respectively. However, the majority of service companies employ 1-4 people, while one third of construction and industry enterprises had more than ten employees. The largest employer by far is the Luxembourg Government with 25,278 employees. Groupe Arcelor Mittal in manufacturing has 5,960 employees, BGL BNP Paribas in financing has 4,110 employees and Groupe Cactus in retail has 3,920 employees and these three firms were amongst the largest private
2 A comparative analysis of Luxembourg’s apparent labour productivity with respect to the Euro area since the beginning of the crisis 3 Statistics portal. Grand Duchy of Luxembourg. Luxembourg in figures 2012 4 Statistics portal. Grand Duchy of Luxembourg. Unemployment rate in July 2013
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sector employers in January 2012. Two hospitals, the Centre Hospitalier de Luxembourg and the Centre Hospitalier Emile Mayrisch, were the 11th and 12th on this list.5 It is worth keeping in mind that Luxembourg’s dependence on financial services has increased significantly over the last 50 years and the sector currently contributes 30% to the national GDP.6 The share of agriculture has slowly decreased from 1.0% in 1995 to 0.3% in 2011. At the same time, the share of the iron, steel and metal processing industry dropped from 3.9% to 2.0%, followed by other manufacturing industry from 10.0% to 4.9%. Construction has been able resist this decreasing trend better, and its share has only dropped by less than a percentage point in sixteen years. 7
Tourism is currently small, but is a potential growth sector for the future, generating a direct and indirect contribution of 5.7% to the GDP, 17,500 jobs and 1.6% of exports. Luxembourg’s location makes the region a reasonably good choice for business travellers. Furthermore, the number of leisure travellers, especially those from outside Europe, is on the rise. 8 The need to diversify the economic structure of Luxembourg has been presented in several policy documents, including the Concept Note. Consequently, Luxembourg adopted an economic diversification strategy, which focuses on knowledge-based services, in particular, oriented towards the transformation of the health economy. The quasi-slogan “Use the power of service innovation to turn Luxembourg into the healthiest country on Earth, one person at a time” reflects the philosophy of the policy approach adopted. In other words, service innovations should foster a transformation in the health economy towards personalised approaches to treatment and prevention.9 From a more general perspective, it is worth noting that government action on the national public research objective, in 2011, focused - amongst other issues - on the implementation of a strategic partnership initiative with three U.S. research institutes of world renown in the area of molecular diagnostics, with the objective of establishing a technological skills centre in personalised medicine. In 2011, the three entities involved in the action plan, the Integrated Bio-bank of Luxembourg (IBBL), the CRP-Santé and the University of Luxembourg developed a joint strategy for the future development of their activities by setting up the Personalised Medicine Consortium (PMC). PMC coordinates insurance interests with research priorities in the selected areas of cancer, diabetes, Parkinson's disease and also cohort studies, under a personalised medicine framework, to organise joint seminars and to use available resources and infrastructure efficiently.10
Key points: (Financial) services are very significant to the Luxembourgish economy; 86.8% of all companies are associated with services, 9.9 with construction and 3.2% with industry, the government is also an important employer; In terms of GDP, services account for 30%, whereas the figures for iron, steel and metal processing at 2.0%, other manufacturing industry at 4% and agriculture at 0.3% are notably lower. The contribution of tourism to the national GDP is not yet significant, but demonstrates future potential; Action has been taken in the public sector to add a focus on healthcare and related infrastructures, for example, by establishing strategic partnerships and creating joint strategies.
5 Statistics portal. Grand Duchy of Luxembourg. Luxembourg in figures 2012 6 OECD (2010) 7 Statistics portal. Grand Duchy of Luxembourg. Luxembourg in figures 2012 8 Luxinnovation/Luxembourg for business. Focus on Research and Innovation in Luxembourg. 7/2013 9 Meisch, Trauffler & Dentzer (2013). Large Scale Demonstrator Luxembourg. Concept Note 10 Le Gouvernement du Grand Duché de Luxembourg (2013) : National plan for smart, sustainable and inclusive growth Luxembourg 2020
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Strengths and weaknesses of the innovation system The innovation system of Luxembourg can be reviewed according to the five functions of innovation systems, as defined in the ESIC Concept Note. An overview of the five functions of entrepreneurial activities, knowledge development and transfer, innovation and business model generation, financing growth and innovation and collaboration and networking is presented in Table 1. Once these elements are in place and fully functional, they constitute an innovation system that is able to transform Luxembourg into a service based knowledge ecosystem. Table 1: The five functions of the innovation system of Luxembourg with indicator data from the European Service Innovation Scoreboard
Function of Structural indicators Regional EU 27 Dynamics/change innovation value system Share of self-employed people (2011) 8.1 15.1 Share of people who think it is important to try new N/A 0.42 N/A and different things Entrepreneurship activities Share of people who think it is important to be N/A 0.54 N/A
creative
Labour productivity growth 2.96 2.20 Increase 2000-2010
Total expenditure on R&D (GERD) (%age of GDP) 1.19 1.68 Decrease 2000-2010 Share of employees with a higher education degree 41.0 30.4 Proportion almost (in %age) doubled 2000-2011 Knowledge Share of researchers among employees (in %age) 0.77 0.34 development and business sector transfer EPO patent applications (per million of population) 566 115 (2008) EPO high-tech patent applications (%age patent 8.99 17.7 applications) (2008) Business expenditure on R&D (BERD) (%age of 68.5 61.3 - GDP) Employment share in medium-high-tech and high- 0.71 6.39 Decreased two-third Innovation and tech manufacturing 2000-2011 business model Employment share in knowledge intensive services 46.3 35.32 Decrease 2000-2011 generation Employment share in service innovation intensive 4.1 4.85 Light decrease 2000- industries 2011 Companies with service innovations (in %age) 29.5 8.1 - Gross Fixed Capital Formation (%age of GDP) 12.4 19.6 - Financing innovation Availability of seed and venture capital Rated as to and growth be improved on the SAT Share of innovators collaborating with others (in 16.1 9.9 - Collaboration and %age) networking Specialisation in service-oriented clusters 0.92 1.00 - As illustrated in Table 1, the share of self-employed people remains at a notably low level compared with the EU27 average. Regarding entrepreneurial activities, investments have been made during the past few years to improve support for SMEs. One of the main features has been minimising the bureaucracy for start- ups. The objective is to allow anyone to establish a business within ten days, assuming the applicant fulfils the basic conditions. Additional initiatives have been established to support these new companies in their various phases such as start-up, growth or internationalisation. However, a closer look indicates that most of these new support instruments target enterprises in the start-up phase rather than during their growth or their penetration into global markets. The changes made with the support measures have not, however, been reflected in the R&D expenditures of SMEs or in the amount of spin-offs. Therefore, firm investments in R&D can be seen as a relative weakness, as well as the steep decline in non-R&D innovation expenditures. Out of the objective of developing nine spin-offs between 2011 and 2013, which was a priority in the Luxinnovation 2011-2013 performance
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contract with the Luxembourg Government, none had been established by the end of 201111. Overall, entrepreneurship is less common in Luxembourg than elsewhere in Europe12. Based on the interviews conducted during the study visit, there are also not enough facilities for companies specialising in bio-health, and this makes growth for start-ups in this field more problematical. There is also a lack of clinical trials, which are very important in the process of creating new biomedical products and services. In terms of knowledge development and transfer, Luxembourg is in a catching-up phase. Notable differences can be detected when looking at the related indicators. Luxembourg exceeds the European average levels in the share of employees with a higher education degree, as well as in the share of researchers among employees. This, at least partly, results from the establishment of the Luxembourg University, in 2003, as well as investments made to increase the attractiveness of the research system. Attractiveness is backed up by competitive salaries and an abundance of resources invested in the research infrastructure. According to an article in the Times Higher Education Supplement, the University of Luxembourg has been able to hire a few leading scientists/researchers and, if the trend continues, Luxembourg is expected to be a highly competitive university in 10-15 years13. In addition, and according to the Innovation Union Scoreboard 201314, if Luxembourg is one of the innovation followers, with an above average performance, it has experienced the highest growth rates for international scientific co-publications and R&D expenditures of all Member States. Also most of the cited publications have grown quickly.
The OECD,15 on the other hand, describes the Luxembourgish science base as being poorly developed, which is reflected in the lack of critical mass. In 2010, public R&D expenditure was 0.48% of GDP and publications in scientific journals were both below the OECD median. The gross expenditure on R&D, as a %age of GDP, was also below the EU27 average in 2010, and exhibiting a decreasing trend. Innovation and business model generation is not the strongest asset of the Luxembourgish innovation system, although business expenditure on R&D (BERD), as a %age of GDP, is above the EU27 average. The share of employment in medium-high-tech and high-tech manufacturing is significantly below the EU27 average and demonstrates a decreasing trend over the period 2000-2010. There are a great number of service jobs and the services’ share of employment clearly exceeds the EU27 average, but they are not the type that contributes to innovation16. Although Luxembourg wishes to diversify its economy and has started to invest in activities targeting the healthcare sector, there is not that much focus on support for the creation and implementation of new business models. Service innovation can be considered as a suitable means to redress this balance because of its non-technological and interdisciplinary nature. Service innovation has not, however, been used to its full potential in Luxembourg, and support measures targeting service innovation do not currently exist. Also, there has been a decrease in local SMEs’ international competitiveness due to insufficient investment, particularly in R&D and innovation17. According to the Gross Fixed Capital Formation (%age of GDP), which is below the EU27 average, as well as the ‘to be improved’ level of Venture Capital and seed funding, developments could be made in Luxembourg in relation to financing innovation and growth. Since 2009, new support measures have been implemented, with the introduction of the law promoting RDI. These measures mainly support companies in the start-up phase and are not directly linked with financing, as such. This is also illustrated in the categorisation of regional policies (Figure 5). Furthermore, during the past few years Luxembourg has witnessed a decline in non-R&D innovation expenses18, which is not a good indicator in terms of service innovation intensive industries like knowledge-intensive business services. Development of service
11 Le Gouvernement du Grand Duché de Luxembourg (2013): National plan for smart, sustainable and inclusive growth Luxembourg 2020 12 European Commission. DG Enterprise & Industry. SBA Fact Sheet 2012 Luxembourg. 13 Health begets wealth in the little land of opportunity 14 Innovation Union Scoreboard (2013) 15 OECD (2012): OECD science, technology and industry outlook. 16 European Commission. DG Enterprise & Industry. SBA Fact Sheet 2012 Luxembourg. 17 Ministry of the Economy and Foreign Trade (2007): Objectif « Compétitivité régionale et Emploi » 2007-2013, Programme opérationnel. 18 Innovation Union Scoreboard (2013)
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innovations requires investments in intangibles such as expertise, feedback from experience, advice and thinking outside the box, which are not often associated with traditional R&D. Due to the specific structure of the Luxembourgish healthcare sector, the suitability of the generic support measures for financing innovation and growth can be questioned. Additionally, despite Luxembourg attracting significant amounts of venture capital, which is more accessible in Luxembourg than in the EU overall19, access to capital has been mentioned as a challenge to enterprises operating in the field of life sciences. It was also pointed out that organic growth is not enough to support the future growth of the Luxembourgish economy and thus, attracting foreign companies should be one of the priorities in the healthcare sector. In this respect, it should be acknowledged that two new funds - one for biomedical technologies and the other for the diversification of Luxembourg’s economy - were established a year ago, and these are also referred to in section 3.2. It is too early to evaluate the impact that these funds have had but they represent a much-needed addition to the overall business support ecosystem, in terms of financing innovation and growth, as well as entrepreneurial activities. Luxembourg is the smallest of the model demonstrator regions in terms of population and geographical size. The key players in the innovation ecosystem know each other which should, in principle, enhance collaboration and networking, and which should also affect flows of knowledge and decision-making. As has already been mentioned, the various actors in the healthcare sector have collaborated closely and have established the Personalised Medicine Consortium (see also Box 2). Public-private partnerships are, however, less common. Based on the study visit and its interviews, it appears that the challenges associated with access to data had already been acknowledged a decade ago. Despite increasing awareness of the need for this data as well as deeper collaboration, concrete actions to increase the transparency of data have not been implemented by the government. Therefore, it could be argued that a certain resistance to change exists in Luxembourg. However, there seems to be increasing interest in (open) data and how it could be used, and Luxembourg needs to capitalise on this interest. Currently there are obstacles hampering the use of data for developing the large-scale approach further and Chapter 4 discusses these in more detail.
Table 2: Strengths and weaknesses per function of Luxembourg’s innovation system
Function of innovation system Strengths Weaknesses
Entrepreneurial activities - Stability - Weak R&D efforts by SMEs21 - Location/port to Europe for non- - Lack of suitable facilities European companies20 - Low number of spin-offs from public research organisations
Knowledge development and - Rapid quantitative and - Relative youth of the science transfer qualitative growth of scientific base24 activities22 - Lack of highly-skilled individuals - Development of the Cité des Sciences23
19 European Commission. DG Enterprise & Industry. SBA Fact Sheet 2012 Luxembourg 20 Luxinnovation/Luxembourg for business. Focus on Research and Innovation in Luxembourg. 7/2013. 21 Ministry of the Economy and Foreign Trade (2007): Objectif « Compétitivité régionale et Emploi » 2007-2013, Programme opérationnel. 22 Innovation Union Scoreboard (2013) 23 Ministry of the Economy and Foreign Trade (2007): Objectif « Compétitivité régionale et Emploi » 2007-2013, Programme opérationnel. 24 OECD (2012): OECD science, technology and industry outlook.
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Innovation and business model - Mutating service sector25 - Lack of targeted funding for generation service innovation
Financing innovation and growth - New support instruments - Access to VC funding implemented since 2009 - Decline of non-R&D innovation expenses
Collaboration and networking - Relatively small number of key - Access to data players who know each other
Stability is one of the greatest assets in Luxembourg. Financial services, such as banking and insurance, are drawn to such an environment, which is safe from political instability and radical changes. There is, however, increasing pressure from the EU and OECD on banking secrecy, which led to the adoption of OECD standards on the exchange of information26. Other important factors are also the location, combined with the IT infrastructure and language skills. The former is especially important in terms of logistics, whereas the latter makes communicating with both domestic and foreign enterprises easier. These factors have contributed to relocation decisions made by large internet start-ups such as Amazon and Skype, which can be considered early signs of the potential diversification of the economic structure of Luxembourg.
Key points: The range of support provided to entrepreneurial activities is quite large in Luxembourg and, for instance, setting up a business has been made relatively easy. Support targets the start-up companies especially, and less attention is paid to growth companies or those aiming to internationalise. This is also reflected in the weak R&D performance of the SMEs. The overall business climate can be considered to be SME-friendly; Luxembourg’s science base is relatively young, as the university was established in 2003, but it is also catching up quickly in terms of growth rates for international scientific co-publications and R&D expenditure; According to the Innovation Union Scoreboard, Luxembourg is in the innovation followers’ category, and despite a range of support measures, does not seem to be a European hot spot for innovation. The current support instruments do not encourage companies to embrace the various forms of non- technological innovation and new business models; Despite the adoption of the new RDI law in 2009 that has led to increased support to companies, especially to SMEs and start-ups, non-R&D innovation expenses have decreased indicating also a diminishing interest in service innovation and other non-technological innovation. However, access to Venture Capital financing that was identified as a challenge, has been, and is being, improved via new funds; Despite the small size of the region and relatively low number of players, it has not been easy to agree on the changes to be made in the Luxembourgish healthcare system. The related challenges are discussed in more detail in Chapter 4.
2.2. Regional benchmarking Luxembourg has been compared with the other demonstrator regions, most similar regions in Europe and the EU27 average. Related indicator data has been derived, for instance, from the European Service Innovation Scoreboard (ESIS). Table 2 presents a number of indicators illustrating structural change in
25 Ministry of the Economy and Foreign Trade (2007): Objectif « Compétitivité régionale et Emploi » 2007-2013, Programme opérationnel. 26 Luxembourg makes progress in OECD standards on tax information exchange
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Luxembourg, according to the five elements of the regional innovation system, while Figure 2 illustrates the comparison between Luxembourg, the other demonstrator regions and most similar regions. Luxembourg is in a league of its own when compared to the other demonstrator regions. Measured by GDP per capita Luxembourg ranked second among European regions in 2010, being clearly above the EU27 average as well as the most similar regions in Europe. The share of R&D expenditures as a percentage of GDP is below that of the EU27 average, as well as being below the shares of the demonstrator and the most similar regions. However, Luxembourg’s R&D expenditures are to a large extent from the private business sector, as about 68% of the regional GERD can be attributed to business R&D expenditures. This share is above that of the demonstrator and the most similar regions, as well as that of the EU27. 27
Figure 1: Regional benchmarking Luxembourg
Labour productivity growth (%)
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Compared to the EU27, Luxembourg is highly specialised in knowledge-intensive services, which is close to that of the most similar regions, while the average of the demonstrator regions is close to the European average. On the other hand, data shows a below-average specialisation in service-oriented clusters when
27 Benchmark analyses based on data from the European Service Innovation Scoreboard (Appendix D)
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compared to the most similar regions. Equally, Luxembourg has a below-average share of employment in service innovation intensive industries compared to the EU27 and, particularly, with respect to the most similar regions.28 In the same way as the EU27, Luxembourg witnessed an increasing share of employment in knowledge- intensive services between 2000 and 2010 although it started from a slightly lower level in 2000, compared to the EU27 average. This trend does not differentiate Luxembourg from the demonstrator regions that also have higher employment shares in knowledge-intensive services. At the same time, Luxembourg shows a negative development of the employment share in service innovation intensive industries between 2000 and 2010, while the most similar regions and the EU27 have positive figures, but these are below 1%. Luxembourg is well ahead in its labour productivity growth in the period 2000-2010, compared to other demonstrator regions, most similar regions and the EU27 average.29 Between 2000 and 2010, labour productivity growth in Luxembourg increased more quickly than in the EU in general. As discussed in the previous chapter, businesses invest less in R&D in Luxembourg than they do elsewhere in Europe. Finally, the investments made in the education and research system are paying off, as the share of employees with a higher education degree has nearly doubled in ten years.
Key points: Luxembourg is different to the other five model-demonstrator regions not only because it is also a state but also because it has a significantly higher GDP per capita, as well as higher labour productivity growth and lower expenditure on R&D than the EU27 and the other regions; While knowledge-intensive services are well represented in Luxembourg, specialisation in service- oriented clusters and the share of employment in service innovation intensive industries are below the average of most similar regions. Furthermore, the employment shares in service innovation intensive industries have decreased between 2000 and 2011. The latter differentiates Luxembourg from the other demonstrator regions and indicates insufficient input into innovation and business model generation in the policy mix.
2.3. Opportunities and demands for service innovation
The Government of Luxembourg started to pay more attention to research and transfer activities in particular to medical, or ‘red’, biotechnologies30 a few years ago. This can be interpreted as a recognition, at government level, of an urgent need for Luxembourg to diversify its economy due to its strong dependence on financial services.31 Also the decision to allocate € 140 million for a five year period of time to the development of strong competences related to molecular medicine and, more generally, to new advances in personalised medicine represents a concrete financial commitment in this context. Significant investments have also been made in infrastructure. The government has allocated approximately € 600 million to build a new campus home for the University of Luxembourg, in Belval, that will house a new science park, with sizeable resources available to recruit top-level staff32. This major investment is to be used for erecting altogether 20 new buildings to the old industrial site (Belval). The Luxembourg Centre for Systems Biomedicine (LCSB) already operates there, and once the new facilities are ready, the University of Luxembourg, which is currently spread across a number of sites, will move to Belval.33
28 Ibid. 29 Ibid. 30 Luchetta, P. (2009) : Sciences et technologies de la santé au Luxembourg - Contexte et essai de prospective. In: Forum online für Politik, Gesellschaft und Kultur in Luxemburg, n. 290, pp. 18-20. 31 Le Gouvernement du Grand Duché de Luxembourg (2013). Press releases. 04/2009 32 Health begets wealth in the little land of opportunity 33 Campus Belval
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Figure 2: Luxembourg’s largest steel foundry is being transformed into a research hub (Source: University of Luxembourg/Michel Brumat)
Complementary indications can also be found relating to funding opportunities at the National Research Fund (FNR) for service innovation projects.34 The objective of the FNR CORE programme is to raise the scientific quality of Luxembourg’s public research by funding projects in identified priority domains. When it comes to innovation in services, in particular, and for the year 2011, the budget available for innovation in services projects is € 4.5 million. Altogether, 24 research projects were financed by FNR in that field, with a total volume of € 8.5 million. Based on available funding, there are opportunities for service innovation in Luxembourg as long as individuals, researchers and entrepreneurs are able to identify and use them. As highlighted in section 3.2, many of the funding instruments and policies contain embedded elements of service innovation, but do not target service innovation, in particular. Awareness of service innovation has been increased in Luxembourg by the organisation of events and workshops. This is important, since change takes time and grasping the mere concept of service innovation can be a struggle for civil servants who studied at a time when industry formed the basis of the economy. A seminar devoted to the promotion of service innovation in Luxembourg represents the newer way of thinking35. The seminar “Understand, measure and promote service innovation in Luxembourg” was organised, in October 2011. It brought together various important stakeholders such as the Ministry of Economics and Foreign Trade, the National Agency for the Promotion of Innovation and Research (Luxinnovation), the Observatory on Competiveness and the National Institute for Statistics and Economic Studies (STATEC) as well as academics, experts and policy-makers to discuss the definition of innovation and services, their specificities and the roles of government and the actors in the national innovation system. In addition to presenting two case studies on service innovation (see Box 1), it was pointed out during the seminar that Luxembourg is quite active in terms of public policy schemes in innovation. This is via innovation actors like Luxinnovation and research institutions like FNR36, the University of Luxembourg and
34 Ministry of the Economy and Foreign Trade - Observatoire de la Compétitivité (2012): Understand, measure & promote service innovation in Luxembourg, pp. 78-83 35 Ministry of the Economy and Foreign Trade - Observatoire de la Compétitivité (2012): Understand, measure & promote service innovation in Luxembourg, pp. 78-83 36 FNR: Fonds National de Recherche (National Research Fund)
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CRP37 Henri Tudor. The Ministry of Economics and Foreign Trade also provides extensive public aid schemes for companies. It turns out however, that the interest of companies in service innovation schemes is not as it should be, and that most of the innovation activities happen more in the traditional areas like the technology and manufacturing industries. As a consequence, the degree of service innovations achieved by Luxembourgish companies seems lower than that of neighbouring countries, in particular, Germany, France and Belgium.38
Furthermore, as far as the Luxembourg State aid for research, development and innovation39 is concerned, there was an increase of 145 % in 2010 of demands submitted by companies. A total of 76 demands were submitted in 2010, but only 2 of them concerned service innovation.40
BOX 1 - CASE EXAMPLES IN (SERVICE) INNOVATION
Lindab SA Lindab, formerly known as Astron Buildings, specialises in building and selling pre-engineered industrial and commercial buildings. The company has consistently added more features to the software that helps their sales team to calculate the total cost of a building and simulate some compliance issues, as well as streamlining the design process for the building. Lindab’s approach has been built on a combination of an incremental process and marketing innovation, contributing to increased productivity in the proposed building process and creating additional value for the potential customer. The customer can quickly see what the building will look like, various simulations in lighting and heating conditions can be demonstrated and the price can be announced immediately. Jilbee The company has developed a platform for hosting online academies. Jilbee has a versatile client base and helps these clients to develop their e-learning processes. The company has developed a Production Process with which it has delivered a number of customised e-learning videos to support business processes, sales and industrial processes. The process contains the following phases: learning engineering; script; storyboard with film, animation, voice over and sound design in parallel; and the post production; and delivery. There are also other examples. For instance SES S.A that was established in 1985 provides satellite communications and broadcasting services and reaches 99% of the world’s population via 40 satellites. Goodyear Innovation Centre in Luxembourg develops car, truck and farm machinery tyres and has created the BioIsoprene tyre, rubber compounds for which have been derived from renewable raw materials. For other examples, please visit http://www.clusters.lu/Innovative-Luxembourg/Innovation- %22Made-in-Luxembourg%22
In a report41 that followed the seminar, nine specific propositions were formulated. At least five of them can be seen as forming a starting point for supporting service innovation as a catalyst to regional development and economic transformation, these are:
37 CRP: Centre de Recherche Public (Public Research Centre) 38 Ministry of the Economy and Foreign Trade and Luxinnovation (2009): State Aid for Research, Development and Innovation for the Benefit of Luxembourg’s Economy 39 This aid is based on the law of 5 June 2009 relating to the promotion of research, development and innovation. http://www.luxembourg.public.lu/catalogue/economie/luxinnovation-state-aid-research/li-state-aid-research- EN.pdf 40 Ministry of the Economy and Foreign Trade - Observatoire de la Compétitivité (2012): Understand, measure & promote service innovation in Luxembourg, pp. 78-83
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“Proposition 2: Activities beyond funding itself (...) could be further developed on top of the existing bunch of rather diverse activities. These enable the awakening of more targeted and multichannel interest and communication between the different target groups;
Proposition 3: There seems to be no clear focus in priority domains for service innovation. Luxembourg should therefore further define clear priorities in this area;
Proposition 7: The selection criteria for funding service innovation projects should be reconsidered and more outside-in criteria, such as market feedback and the customer centricity of service solutions, for example, should be integrated. (…) This could also serve as a basis for defining service innovation input and output measures from a macro-economic point of view;
Proposition 8: A lot has been said about the importance of different types of transformative services like smart cities and intelligent transport, as well as home care and telemedicine. Whether these areas should be a priority for Luxembourg needs further investigation, as far as capabilities and opportunities are concerned;
Proposition 9: supporting and creating demonstrators once the policy priorities have been set also seems to be an interesting and potentially effective way of supporting service innovation, but the priorities should be carefully chosen and planned.”
The report mentioned above and related propositions indicate a demarcation approach to service innovation within the Ministry of the Economy and Foreign Trade. The peculiarities of services and service innovation are identified and analysed, but are not yet supported in ways that are fundamentally distinct from manufacturing-based approaches, for instance in the changes to the funding criteria have been called for. It is not certain if the Ministry of the Economy and Foreign Trade has been able to improve the understanding of service innovation in other ministries as well. The Ministry of Health acknowledges the potential to improve health that exists in research. The goal of establishing Luxembourg as a world leader in the adoption of new advances in personalised medicine is coherent with a vision of the country as having high potential in terms of testing and implementing such advances in its health care system. Not to be forgotten in this respect, is the fact that Luxembourg has one of the three most expensive healthcare systems in world.42 This might imply that there is an incentive from the government’s side to change the healthcare system. It is, however, less certain that the other stakeholders share this view. The example presented in Box 2 illustrates a way of combining life sciences research and IT whilst Box 3 describes how decisions and investments have been made in Luxembourg to build a world-class bio-health cluster.
41 Ibid. 42 IBBL (2012): The personalised medicine consortium of Luxembourg: driving innovation in healthcare for Luxembourg.
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BOX 2. CASE EXAMPLE: COMPUTER SUPPORTED MANAGEMENT OF FOOD ALLERGIES This example demonstrates how research results can be transformed into devices that help people suffering from food allergies to cope with their situations. The need for this help was based on several studies indicating that the prevalence of food allergies in Western Europe was around 4% and was expected to increase further. Due to a lack of therapeutic alternatives, food allergy patients have to avoid individual allergens in their daily food intake by carefully reading ingredient lists, which are based on less structured free text that is often in several languages and contains various synonyms and expressions. As a response the Luxembourg MENSSANA (Mobile Expert and Networking System for Systematical Analysis of Nutrition based Allergies) project developed a mobile device called the Personal-Allergy- Assistant (PAA) that can read the EAN barcode of food packages. The consumption of non-packaged food such as fruits and vegetables, pharmaceuticals like antihistamines and predefined food-related symptoms can also be recorded. Automatic timestamps contribute to the computer-supported analysis by calculating the time relationships between the products consumed and the symptoms experienced. Taking this information into account, the allergist can subsequently define a personalised allergy profile and the PAA then has the ability to warn the patient, prior to consumption, if the scanned food contains individual allergens. The use of PAA diaries reduces the patients’ ‘time-per-data-entry’ enormously and leads to more significant datasets, as handwritten paper diaries are shown to be of poor diagnostic value. In addition, the www.wikifood.eu community of volunteers and food producers has been founded, but not as part of this project, with the goal of developing and enhancing a reliable database of food-products, ingredient lists and nutritive values. There are future opportunities in disease and diet management in using the combination of the PAA and WikiFood, which will be addressed in a follow-up project.
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BOX 3. A SYSTEMIC APPROACH TO BIO-HEALTH Life sciences have been systematically developed in Luxembourg since 2008, if not earlier. An important step was made when the Luxembourg Government decided to focus research and transfer activities on medical biotechnologies, in particular. The increased interest in life sciences originated from the needs: to diversify the local economy, in order to reduce its dependency on financial services; to develop fields of activities that would at the same time be knowledge-intensive and promising in terms of sustainable economic growth; and to play an important role in the emerging new industrial revolution based on the combination of ICT and biosciences. An additional priority was to increase the health of the nation by introducing personalised medicine and prevention. Political commitment was backed up by the launch, in 2008, of an initiative to develop Luxembourg into a centre of excellence in molecular diagnostics, with personalised medicine as its cornerstone. The initiative was granted € 140m for five years. The vision entailed taking an active role in tackling future healthcare challenges, and investing in knowledge-based and sustainable healthcare services. The means to achieve this vision included: boosting R&D activities; encouraging technical and scientific cooperation and technology transfer between the public and private sector; and focusing on molecular medicine and molecular diagnosis. These all aimed to transform the healthcare system for the people of Luxembourg and to promote economic growth in biotechnology. Although the initiative was launched in 2008, the origins of the key founding institutions are older. The public research institute, CRP Santé, was established in 1988, and 15 years later the University of Luxembourg became a reality. Meanwhile, in 2000, the government published a new strategy to develop biomedical sciences, and has since then multiplied its public expenditure on public research tenfold with the ultimate goal of attaining 1% of GDP. The establishment of the Integrated Biobank of Luxembourg (2008) and the Luxembourg Centre for Systems Biomedicine (2009) represent other important additions to the bio-health cluster. The main focus of the cluster for 2013 is on the internationalisation and increased promotion of cluster members and of the branding of the national biomedical sector. To also back up the investments made in biomedical research from an economic point of view, the government has established a fund targeting biotechnological companies. The funds are channelled via the National Society of Credit and Investment (SNCI).
Key points: The Luxembourg Government’s commitment to the development of life sciences and biotechnology has been continuous over, at least, the last five years, and has been followed up by infrastructure investments; The key motivation has been to diversify Luxembourg’s economy as well as to change the healthcare sector’s practice from a reactive to a preventative approach; Some research funding has been allocated to innovation in services although it is not certain if this opportunity has been used to the fullest possible extent. Awareness of service innovation has been raised through various events, and there is still a demand for increased awareness, since the innovation activities undertaken are more traditional than those that have the capacity to change business models and value chains; It seems that the stakeholders at the decision making and funding level are becoming more aware of service innovation, and the need to support it. This is not, however, reflected in the current policy mix and consequently, the selection criteria for funding service innovation projects require to be reconsidered.
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2.4. Assessment of regional performance The results of the structural indicators are summarised and illustrated in Figure 3 as a spider diagram, in which values of data from Luxemburg are contrasted against the best score among all EU regions. In addition, the results of the ESIC Self-Assessment Tool (SAT), a small-scale survey of key stakeholders in Luxembourg, have also been added to the graph, where the grey line represents the regional perception of the five innovation system functions. Respondents were asked to assess, according to specific questions and on a scale from 1 to 5, if the regional innovation system and its elements were conducive to a transformative shift in the regional economy towards higher value added products and services. As indicated in Section 2.1, Luxembourg’s performance measured by indicators is close to the European average within all of the five functions of the regional innovation system, although significant variation was detected regarding individual indicators. Luxembourg outperforms other European regions, for instance, in labour productivity growth, EPO patent applications, and companies with service innovations. However, it lags behind in the share of self-employed people, GERD (change in the % of GDP), the employment share in medium-high-tech and high-tech manufacturing, as well as gross fixed capital formation.
Figure 3: Luxembourg differs from the best performing regions in terms of service innovation related structural indicators
Notes: Data for the indicators are from 2010/2011 - For the exact year please see Table 1.
Notes: The blue line is interrupted due to unavailable data Figure 3 illustrates the results of the self-assessment tool compared with the structural indicators and the best performing regions in Europe and it highlights some discrepancies. The regional stakeholders’ views of entrepreneurial activities are not supported by the structural indicators. According to the SAT results, the
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tax and regulatory framework designed to help the establishment of new companies is considered to be at a fair level. Despite this, the regional stakeholders gave better scores to entrepreneurship than the structural indicators suggest, as the entrepreneurs’ awareness of service innovation needs to be improved to use the opportunities for service innovation in Luxembourg. A need to create new businesses in the region was also acknowledged. The educational and research landscape supportive to the cross-fertilisation of ideas in Luxembourg as well as human resources with service-oriented higher education degrees were described as fair in the self- assessment. The measures to attract skilled migrants and international students to Luxembourg should be improved, whereas even more needs to be done in terms of technology transfer offices providing various support functions, as these were considered to be poor. The physical and virtual infrastructures supportive of service innovation, however, were given a more positive rating of strong. Overall the SAT results related to knowledge development and transfer were more critical than the scores based on the structural indicators. The same applies to the SAT results concerning innovation and business model generation. According to the structural indicators, Luxembourg is among the best regions in Europe measured by the percentage of companies with service innovation. Based on the SAT results, the internationalisation of firms and an IPR regime favouring service innovation were considered fair. There is, however, room for improvement in terms of knowledge-intensive service providers in Luxembourg and creative industries within, or connected to, Luxembourg, as well as the involvement of services-oriented SMEs in large collaborative research and innovation. The responses from the region scored financing innovation and growth higher than the structural indicators imply. Nevertheless, new forms of financial engineering mechanisms, such as crowd-funding and microfinance, were called for in the SAT. In addition, seed and venture capital for (knowledge intensive) service industry companies and hybrid innovators, as well as the activity of business angels in Luxembourg need to be improved. Indirect funding for business R&D/innovation was rated fair while the overall framework conditions, including the fiscal, legal and regulatory framework related to the private and public funding of R&D and innovation, is seen to be strong when based on the SAT results. In terms of collaboration and networking, the situation is the opposite. According to the structural indicators, Luxembourg scores higher than the views of the regional stakeholders. In the SAT results improvements were proposed in: the culture of collaboration between firms across industries as well as between services, industry firms and academia; the involvement of users, user communities and employees in innovation networks and innovation projects; and the physical and social environment favouring creativity and cross-sectoral encounters. Only the level of specialisation of clusters that cut across manufacturing and service sectors was considered to be fair.
Overall, there seem to be increasing awareness about service innovation, as well as significant potential in Luxembourg. The structural indicators imply vast opportunities related to knowledge development and transfer and innovation and business model generation, as well as collaboration and networking. However, the data also indicates underlying obstacles linked to entrepreneurs and the financing of innovation and growth that should be explored and better understood in order to harness the full potential of service innovation for regional transformation.
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3. Regional Policy and Policy Mix
3.1. Innovation policy and institutional background This section is devoted to the analysis of the ways in which structural changes in Luxembourg, particularly those related to innovation and services, are favoured and fostered by the current regional innovation policy and innovation governance structure.43
According to the OECD44, the overall science, technology and innovation (STI) strategy of Luxembourg can be summarised as follows: “the objectives of the EU Horizon 2020 figure in the national reform programme, Luxembourg 2020, which was approved in 2011. The main objectives are to foster R&D and innovation in the public and private sectors by increasing R&D efforts, human capital supply, and encouraging and facilitating the creation of innovative new companies.” It should be borne in mind that, due to its size, Luxembourg is at the same time a ‘state’ from a policy perspective and a ‘region’ from an operational perspective, as compared for instance to neighbouring countries. Political decisions are taken at the government level and can be executed quite directly and quickly at an operational or local level. In this context, the national programme ‘Luxembourg 2020. Plan national pour une croissance intelligente, durable et inclusive’ (2012),45 defined five objectives, one of which is devoted to research and development. Key measures are also included for public research, private research, and innovation and productivity in public administration. 46 As a consequence, allocations in the nation's budget benefiting research-development-innovation (RDI) in both the public and private sectors have continued to grow, moving from € 28 million in 2000, which then represented 0.13% of GDP, to € 280 million in 2012, or 0.66% of the budget. The change in budget allocations alone demonstrates the government's resolve to develop RDI investments and to make continued investments in a long-term policy for the country's development and diversification. Public budget allocations for 2013 and 2014 benefiting RDI are expected to increase annually by around 5%.47 In this respect it is worth noting that, according to analyses conducted by the OECD, the service sector represents more than 80% of Luxembourg’s GDP and innovation in services has been a research priority.48 Other policy challenges include collaboration between public research and private companies and attracting and keeping highly skilled workers. One development has been turning Luxembourg into an attractive destination for intellectual property. To reduce dependence on the banking sector, the government is accelerating the diversification of the economy into key technologies such as biotechnologies and green technologies.
Key points: The main objectives of the overall STI strategy include fostering R&D and innovation in the public and private sectors by increasing R&D efforts, human capital supply and encouraging and facilitating the creation of innovative new companies; As Luxembourg is both a national state and a region, it is possible to execute governmental level decisions directly and quickly at the operational level; The government’s investments in RDI have increased from € 28 million (2000) to € 280 million (2012);
43 In addition, appendix F displays - in a synoptic approach - the main policy measures for service innovation currently active in Luxembourg. 44 OECD (2012): OECD science, technology and industry outlook. 45 Le Gouvernement du Grand Duché de Luxembourg (2013): National plan for smart, sustainable and inclusive growth Luxembourg 2020 46 Benchmark analyses based on data from the European Service Innovation Scoreboard (appendix D) 47 Ibid. 48 OECD (2010)
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Innovation in services is a research priority and biotechnology and green technology have been identified as potential industries to diversify the Luxembourgish economy.
The regional policy with regard to the promotion of structural changes in the regional economy With regard to the national private research objective, government action over recent years has focused on promoting RDI efforts throughout the innovation chain49. This followed a rise in new RDI aid applications in 2010 of 83.3% when compared to 2009, which was quite spectacular in light of the financial crisis. New applications have followed a more normal increase and are up 4.5% compared to 2010. The trend continues to move along the right path, with an average of 80 cases per year entering into performance contracts with Luxinnovation. An increase of 65% in applications was registered in the 2010 figures for the new aid schemes under the RDI law, the objective of which is essentially to stimulate an innovation process amongst companies with no experience in the area, which are primarily SMEs. This includes aid for feasibility studies, for protecting technical intellectual property rights, for young innovative companies, for innovation consultancy services and support of innovation and for process and organisation innovation in departments. In addition, 85.7% of these applications come from SMEs. At the same time, significantly greater participation in international programmes and initiatives and related financial returns on these stakeholdings were experienced in Luxembourg. This involved investing in the 7th Framework Programme on research and Development (PCRD) and also in the Competitiveness and Innovation Framework Programme (CIP).
Key point: Since 2009, the government has supported SMEs to implement changes in the value chain through the new aid schemes under the RDI law.
3.2. The policy mix
Key actors involved in service innovation policy-making and implementation The structure of Luxembourg’s research and innovation system is divided into two main groupings of bodies at the political/operational level and at the research performance/researchers level.
49 Le Gouvernement du Grand Duché de Luxembourg (2013): National plan for smart, sustainable and inclusive growth Luxembourg 2020
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Figure 4: Structure of Luxembourg’s governance and R&D support (source: Erawatch database)
At policy level, R&D is coordinated by two ministries. The Ministry of the Economy and Foreign Trade (Ministère de l’Economie et du Commerce Extérieur) is in charge of research in the private sector and had a € 20.4 million budget in 2007 and the Ministry of Culture, Higher Education and Research (Ministère de la Culture, de l’Enseignement Supérieur et de la Recherche) is responsible for research in the public sector with a € 111.2 million budget, also in 2007. In addition, the Inter-ministerial Coordination Committee organised by the Ministry of Research has the mission to submit proposals for R&D budget allocations in the public sector. The newly-formed Higher Research and Innovation Committee contributes to the development of national R&D policy by advising the government on its implementation. The National Research Fund (FNR) allocates funds in the public sector through calls for proposals. Three major financial intermediaries support the private sector: the SNCI, a banking institution that grants innovation loans; CD-PME which seeks to increase the financial strength and equity base of Luxembourg- based SMEs; and EUREFI, the cross-border Development Fund, supporting SMEs in setting up business in the border regions of Luxembourg, Belgium and France and developing cross-border activities. Last but not least, Luxinnovation, the National Agency for Innovation and Research, also gives information and support to private and public organisations. PRC Gabriel Lippmann, PRC Henri Tudor, PRC Santé and CEPS/INSTEAD are public research centres. Figure 4 will become outdated as the public research centres Gabriel Lippman and Henri Tudor merge in 2015 to promote internationally competitive R&D and innovation in Luxembourg. Consequently, pure scientific research and academic teaching will remain the responsibility of the University of Luxembourg, while the new public research centre will be charged with mission-driven fundamental and applied research, as well as knowledge and technology transfer. The picture below is a synoptic view of the Luxembourgish research and innovation system and is an adaptation of the heuristic model of innovation systems developed by Kuhlmann and Arnold (2001).
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Figure 5: Synoptic view of the research and innovation system of Luxembourg
One actor not present in either of Figures 4 and 5 is the Ministry of Middle Classes, Tourism and Housing (Ministère des Classes Moyennes, du Tourisme et du Logement), which is responsible for small companies and especially craft companies, such as construction companies, restaurants and catering businesses, in sectors with a potential for service innovation. However, when such companies are looking for public sector subsidies or grants, they turn to the Ministry of the Economy and Foreign Trade rather than the Ministry of Middle Classes. Fragmentation in the nature of businesses has been seen to cause confusion, as it is becoming increasingly difficult to distinguish between an industrial company and a crafts company. That is the interface in which the technology world merges with the ‘old fashioned’ crafts world and where new products and services emerge. As mentioned above, there are several actors in the Luxembourg research and innovation system that provide various forms of support to enterprises and public sector organisations. Figure 6 provides an analytical overview of the overall regional policy mix (see Appendix F for references to individual policy measures and more detailed information). The current policy measures are plotted on a matrix in which the horizontal axes indicates the extent to which a certain measure is specific to the domain of goods or the domain of services. In the case of a measure, which is not particularly dedicated to either of them, the vertical axes enable a distinction to be made between measures that are simply not specific to any sector at all and are ‘neutral’ and measures that explicitly address goods or technology and services activities or sectors, at the same time, and are ‘specialised’. The axes in Figure 6 correspond to a great extent with common classifications of the way service innovation is addressed by innovation policies that are designated
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by the letters T, E, A, D, and S50. These classifications will be adhered to in the presentation of Luxembourg’s innovation policy measures. The colours, in turn, refer to the earlier mentioned functions of the innovation system to which a particular measure is relevant.
Figure 6: Categorisation of regional policies
A new law was passed on 5 June 2009 concerning the promotion of research, development and innovation. This law replaced the former law on State Aid for Research, Development and Innovation dating back to 1993. The update was considered necessary to address the challenges to the Luxembourgish innovation system in terms of the creation and development of innovative companies, particularly SMEs, and the promotion of cooperation between the public research and business. 51 Under the law, the government has a
50 The framework is largely based on the classifications by Den Hertog et al., (2000), ‘The Smart Guide to Service Innovation’ (EC Enterprise & Industry, 2012), and ‘Strategies, policies and rationale for service innovation’ (Dialogic/OECD, 2012). 51 Government of Luxembourg. State Aid for Research, Development and Innovation for the benefit of Luxembourg’s economy
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range of instruments, of which only a few are sector-specific. Therefore the majority of the support measures and policies are located on the neutral side of the horizontal axis. The number of support measures in Luxembourg is modest compared to many other European regions. They are also relatively young, which at least to a certain extent explains the low number of technology-focused (T) measures. One of the few support measures in this category, the ‘Technical feasibility studies’, is aimed at identifying risks and is therefore supposed to be conducted prior to an R&D project or programme. As an outcome, the advantages of a new product against competing products are evaluated or the potential of technology for the development of a new application is assessed. 52 Another technology-focused support measure is the ‘Technology Brokerage Services’ of Luxinnovation. The rationale for this instrument is to connect a company that lacks the technological solutions to implement an innovative project with a partner possessing the required know-how and technology. The resources of the Enterprise Europe Network are often used in the partner search phase. 53 The ‘aid scheme of the Ministry of the Economy and Foreign Trade’ is part of a set of support measures. One of the measures provides support to technical industrial property. SMEs are eligible for funding, which covers all costs preceding the granting of the property right in the first legal jurisdiction, translation and other costs incurred in order to obtain the granting or validation of the right in other legal jurisdictions, as well as costs possibly incurred in defending the validity of the right during the official examination of the application and possible opposition proceedings. Cooperation with other companies or with public research institutions is encouraged by granting extra support (15%) for effective collaboration. 54
The scheme mentioned above also contains a support scheme that does not distinguish between products and services. It pays additional attention to processes and organisational models. It does not discriminate between technological and service innovation and therefore is can be categorised as embedded (E). It is called ‘aid for research and development projects or programmes’ and it concerns experimental development, industrial research and fundamental research. Experimental development implies activities aimed at developing new, modified or improved products, processes, services, methods or organisational models, including the creation of prototypes. In terms of industrial research, the goal is to acquire new, not yet commercially exploitable, knowledge with the aim of enabling new products, processes, services, methods or organisational models to be created, possibly during a subsequent period of experimental development. 55 The same aid scheme also includes a support measure targeting the future growth of start-ups. The idea of ‘aid for young, innovative enterprises’ is to provide young companies with support during the development phase, which is often referred to as “the valley of death”. Despite the name, support can also be granted for small private research organisations, established less than six years ago. Both SMEs and research organisations are expected to develop new products, processes or services, which involve a significant risk of technical or industrial failure. Funding can also be granted if the organisation has used at least 15% of its operating expenses for R&D, during at least one of the three preceding years.56 Support is also provided for the initiation of innovation activities. This measure is intended for SMEs and research organisations established in Luxembourg. Support is granted for innovation advisory services and innovation support services. The former refers to management consultancy, technological assistance and technology transfer services, as well as the acquisition, protection and trade of technical intellectual property rights. The latter covers costs incurred by the temporary use of premises, databanks, technical libraries and laboratories, and costs associated with market studies, quality studies, testing and
52 European GNSS Agency. Funding opportunities. National Grants. Technical feasibility studies. 53 Luxembourg Portal for Innovation and Research. Research and innovation in businesses. 54 Luxembourg Portal for Innovation and Research. Financial support for your projects. Protection of technical industrial property. 55 Luxembourg Portal for Innovation and Research. Financial support for your projects. Research and development projects or programmes. 56 Luxembourg Portal for Innovation and Research. Financial support for your projects. Aid for young innovative companies.
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certification.57 The measure has a slightly different approach compared to the instruments listed above. Support is provided for the acquisition of mainly external services such as management consultancy, which can bring about a change in the approach towards innovation, management or the value chain. One of the instruments, called ‘process and organisational innovation in services’, provides support for a variety of innovations, and also contains the strongest embedded element of all the support measures in Luxembourg. This instrument, like most other instruments in the region, does not target any particular sector. The main aim is to encourage enterprises to make process and organisational innovations. Furthermore, the eligibility criteria require the end result to be a standard, a business model, a methodology or a concept that can be systematically reproduced. 58
The Luxinnovation Forum is an annual event showcasing the skills and know-how of public research in Luxembourg and is intended primarily for companies seeking a consultation with external experts. The new aspect of the 2011 event was the Innovation Matchmaking Concept, aimed at generating direct and effective contacts among participants. There is an initiative called ‘eXchange2Innovate’59 that also supports the flow of knowledge among enterprises. One day workshops on innovation are organised in hosting companies. The aim is to present and identify best practices cross topics, sectors and company sizes and provide an open and practice-oriented dialogue, which gives an embedded orientation towards service innovation policy. The initiative has been described as a concrete method of presenting the way the company is working in terms of new innovations. The enterprises involved range from banks through logistics companies to medical labs and this helps to create opportunities for cross-sectoral learning. Together with five commercial Luxembourg-based banks, SNCI runs an initiative entitled ‘development capital for SMEs’ with the objective of providing equity or equity participation to SMEs to strengthen their capital. Potential beneficiaries include SMEs active in the industry, crafts or service sectors that have been established with the status of joint-stock companies and are implementing innovative projects and generating new jobs. The innovative character of the projects can be found in the level of the services offered, the products, the production process or the commercial concept. The initiative is well-suited for service companies regardless of their sectors as the funding criteria recognise services and production processes, as well as commercial concepts. 60 One of the support measures, that is less important for businesses, as the beneficiaries include research units/centres in higher education institutions, acknowledges the importance of innovation in services. The ‘CORE-programme’, was launched in 2008 and is based on the results of a foresight study. It supports the development and performance of the financial systems, business service design, information security, trust management and telecommunications and multimedia, all under the theme of innovation in services. Another important theme is biomedical sciences’ regulation of chronic, degenerative and infectious diseases, covering, for instance, regenerative medicine in age-related diseases and translational biomedical research.61 The current programme was expected to end in 2013, and should it not be continued a very important question will be how the information generated under the two themes of innovation in services and biomedical sciences, will be made available for use by enterprises. The other initiatives are characterised as assimilated or (A) in which services and service innovation are supported by adapting policy measures developed for manufacturing and technological innovation to the needs and purposes of service innovation. One of these is the Cluster programme, which is an exception among the support measures, as a result of its sector-specific approach. The programme is set up around the following five thematic clusters: the Luxembourg Materials Cluster; the Luxembourg ICT Cluster; the Luxembourg Space Cluster; Luxembourg Bio-Health Cluster; and Luxembourg Eco-Innovation Cluster focus. Technoport offers support in the form of premises to technology-focused smaller businesses. The main objective is to reduce the risks associated with the starting up of a company. This is done via three programmes called Challenge, Launch and Grow. The ‘Challenge Programme’ offers help to complete a
57 Luxembourg Portal for Innovation and Research. Financial support for your projects. Innovation advisory services and innovation support services. 58 Luxembourg Portal for Innovation and Research. Financial support for your projects. Process and organisational innovation in services 59 Luxembourg Portal for Innovation and Research. News. September 2011. 60 Société luxembourgeoise de capital-développement pour les PME S.A. 61 Erawatch. Luxembourg. Support measure. CORE-programme
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business plan, feasibility study or proof of concept, by granting access to office infrastructure, to Technoport’s networks and to the use of its management team for four months. The ‘Launch Programme’ is rather similar, providing a start-up company with infrastructure, networks and support services. Finally, the ‘Grow Programme’ has been designed for companies that have passed through the incubation phase. These companies are offered the services of a network of other ‘alumni’ and access to Technoport’s management team and other services. Despite its name, there is no specific thematic focus or limit in these Technoport programmes. 62 Technoport is currently a home base for Trendiction, a company specialising in data collection, aggregation and web search technologies. Similar support is also provided by the ‘Ecostart Enterprise and Innovation Centres’, which were created to increase the number of hosting structures for young, innovative companies and to diversify the range of support services. The mission of the centres is to begin to nurture innovative projects while they are still at the ideas stage, to provide on-going assistance up to the start-up phase, and to offer temporary accommodation for domestic and foreign businesses seeking a temporary foothold in Luxembourg, at the development stage. 63 As mentioned before, the National Society for Credit and Investment (SNCI) provides ‘start-up or innovation loans for SMEs.’ The beneficiaries have been defined as “any crafts or commercial SME of any legal form which has either been recently incorporated or taken over”. The amount of aid ranges from € 2,000 up to € 250,000 and eligible costs include all expenses incurred during the realisation of a given business plan. 64 In 2012, the Ministry of Finance and the Ministry of the Economy and Foreign Trade introduced two new funds of which one, ‘the Life Science Fund’ targets biomedical technologies and the other, ‘the Luxembourg Future Fund’ supports diversification, as well as the sustainability of Luxembourg’s economy. The former invests specifically in existing biotech companies active in Luxembourg and also aims to help build the life sciences brand by financing interesting companies in this field. The latter contributes to attracting entrepreneurial activities to Luxembourg.65 Investments are made through the National Society for Credit and Investment (SNCI) in a venture capital fund. This Future Fund targets, for instance, companies operating in the ICT and cleantech sectors. In addition, SMEs can also apply for funding from EUREFI which supports companies in Germany (Saarland, Rhineland-Palatinate), the Grand Duchy of Luxembourg, the North-East of France and Wallonia, which want to expand beyond their national borders.66 There are also other forms of support for innovation activities, such as partnerships. The National Research Fund provides financial assistance for the implementation of projects in companies that are coordinated by PhD or post-doctoral researchers through the scheme ‘Aides à la Formation Recherche’ (AFR). In order to receive funding, cooperation needs to be based on an innovative project that creates new knowledge. The company must receive accreditation from the Ministry of the Economy and Foreign Affairs, in order to be eligible for funding. 67
Key points: The Ministry of the Economy and Foreign Trade and the Ministry of Culture, Higher Education and Research are responsible for the coordination of Luxembourg’s R&D policy while the LSD approach also encompasses the University of Luxembourg, the public research centres, the National Research Fund and Luxinnovation; The National Research Fund provides funding for research performed by the public research institutions while Luxinnovation supports both private and public organisations.
62 Erawatch. Luxembourg. Support measure. Technoport Business Incubator 63 Erawatch. Luxembourg. Support measure. Ecostart Enterprise and Innovation Centres 64 SNCI. Instruments. 65 Luxembourg Portal for Innovation and Research. News. January 2012. 66 EUREFI 67 Luxembourg Portal for Innovation and Research. Collaborations and partnerships.
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Policies at European level Finally, the Luxembourgish innovation system is supported by EU programmes, notably the European Regional Development Fund (ERDF) and the European Social Fund (ESF).
Table 3: Funds for Luxembourg in € million for the period 2007-201368
Objective Fund EU National National Total public private
Regional ERDF 25 43 17 85 competitiveness and employment
Idem ESF 25 25 50
Total regional - 50 - - - competitiveness and employment
Total European ERDF 15 - - 15 territorial cooperation*
Total - 65 68 17 150
Notes: Figures have been rounded up * Each territorial cooperation programme includes a minimum of 15% co-financing from each participating Member State.
The current ERDF programme is mainly devoted to regional competitiveness and employment.69 Two priorities are defined in the relevant operational programme: To contribute to the attractiveness of Luxembourg, in terms in investments and employment; To improve knowledge and innovation as growth factors. The first priority targets primarily investments in terms of infrastructures and also encompasses environmental issues (Göteborg strategy) but the second one is oriented towards the Lisbon strategy and focuses on issues related to R&D, innovation and knowledge. The second priority, “Boost knowledge and innovation, twin drivers of growth,” has a total financial allocation of approximately € 35 million, with 35% being financed by the ERDF, 58% by national public resources and 7% by national private resources. This priority is to support the creation and improvement of infrastructures and competences permitting the development and/or the reinforcement of R&D capacities. The maximum aid to activities in this priority area is set at 35% of the total eligible cost.
Key point: The contribution of knowledge and innovation to growth is supported through the ERDF.
68 European Commission. European Cohesion Policy in Luxembourg 69 The current program is defined for 2007-2013 and running from 2007-2015 if the eligibility of expenses is considered. Cf. Objectif “Compétitivité régioname et Emploi “ 2007-2013 Programme Opérationnel – Volet FEDER. REF : CCI 2007 LU 162 PO 001 (version finale).
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3.3. Assessment of the regional policy mix According to the classifications offered by ‘The Smart Guide to Service Innovation’ (EC Enterprise & Industry, 2012), and ‘Strategies, policies and rationale for service innovation’ (Dialogic/OECD, 2012), five ‘service innovation approaches’ can be distinguished: 1. The technological approach concerns policies that focus entirely on technological R&D; 2. The assimilation approach is used when policies for (technological) R&D are made service-inclusive such as by broadening criteria; 3. The demarcation approach involves policies which are specifically developed for service innovation, taking into account service peculiarities that are often sector-specific; 4. The embedded approach refers to neutral policies in which no distinction between sectors is made; and 5. Policies belonging to the systemic approach are characterised by their goal to combine goods-based and service-based innovation, also often in the context of a particular sector. The assessment of the policy mix by the ESIC team indicates that the innovation system of Luxembourg is not fully conducive to promoting service innovation and its potential role in transformation. Support to enterprises is still more traditionally R&D-oriented instead of focusing on new forms of innovation such as demand-driven and user-driven innovation, open innovation, service innovation and innovative public procurement. The businesses that should adopt new approaches to innovation are not sufficiently familiar with these new forms of innovation and there is also little public support for the creation of new business models. The research system in Luxembourg is relatively young and thus, cannot be expected to offer the same amount of critical mass as its older counterparts. More attention needs to be paid to knowledge transfer, especially in the form of public-private-partnerships, as well as at the interface of business-to-business services. The horizontal and multidisciplinary nature of service innovation has the potential to change traditional industries and sectors, only if the sectoral boundaries are crossed. However, when focusing on biotechnologies and biosciences it has been suggested that the Luxembourgish innovation system has become more and more able to tackle complex scientific problems thanks to its growing inter-disciplinary nature. It has also been suggested that the relative youth of its science base may favour knowledge churn effects.70 More generally, the operational programme related to the structural funds also provides hints about the strengths, weaknesses, opportunities and threats affecting Luxembourg in terms of innovation activities and economic development.71
It was pointed out in the section 2.1 that Luxembourg is not a hub for innovation and this is also reflected in the Innovation Union Scoreboard. It can be argued that neither innovation nor business model generation is the strongest asset of the Luxembourgish innovation system. The creation and implementation of new business models requires further support, as well as an acknowledgement of the importance of service innovation, as an origin of such development. Only a few support measures promoting new business models exist and their approach to service innovation varies between non-existent (technology-based) or embedded (no discrimination between technology and services). There also seems to be room for improvement in financing innovation and growth, as the ESIC team only identified two support measures targeting innovation and growth. According to the SBA Fact Sheet 2012 for Luxembourg, the region is attractive to venture capitalists and VC funding is more accessible in Luxembourg than in the EU overall. Access to funding has not, however, been adequately promoted in the field of life sciences and the same applies to service innovation across industries. In addition, access to funding is mainly supported through more traditional channels. Some platforms for collaboration and networking, such as the Luxinnovation Forum, exist and these are presented in section 3.2. However, the questions are whether these are enough and whether these events acknowledge the specific nature of service innovation. Bringing together the stakeholders from the public
70 Luchetta, P. (2009): Sciences et technologies de la santé au Luxembourg - Contexte et essai de prospective. In: Forum online für Politik, Gesellschaft und Kultur in Luxemburg, n. 290, pp. 18-20. 71 Ministry of the Economy and Foreign Trade (2007): Objectif « Compétitivité régionale et Emploi » 2007-2013, Programme opérationnel.
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and private sectors around the same table is a good start but, in itself, it is not sufficient to generate a deeper understanding of the underlying synergies that could be harnessed through service innovation. Coaching, mentoring and facilitator services that are specialised in all forms of innovation, rather than in simply the traditional R&D, should be used to improve cooperation and the cross-fertilisation of ideas. In summary, based on the number of measures, the policy mix pays most attention to entrepreneurial activities and knowledge development and transfer, followed by financing innovation and growth and collaboration and networking, in decreasing order. Only two measures to support innovation and business model generation have been identified. The entrepreneurial activities specifically target start-ups and SMEs, while less emphasis is placed on the growth of companies or internationalisation. The approach to service innovation can be described as being mainly assimilated, as it contains policy measures, which were originally developed for manufacturing and technological innovation, but have now been adapted to the needs and purposes of service innovation.
Self-assessment The regional stakeholders also assessed the extent to which service innovation is addressed by the regional policy mix, in relation to the five systemic functions, by replying to a set of statements in an online self- assessment tool (SAT). These responses have been compared with the ESIC team’s assessment of the policy mix, as well as with the regional stakeholder’s views of the regional performance and the variations are illustrated in Figure 7. In this figure, the dark blue line represents the ESIC team’s assessment, the light blue line the regional stakeholders’ perceptions of the policy mix (based on the SAT results) and the grey line portrays the stakeholders’ views of the regional performance. The regional responses were more critical than the assessment of the ESIC team. The local stakeholders believe that support for entrepreneurship is only oriented towards research spin-offs and technology- oriented start-ups. There is not much emphasis on the variety of innovations, nor have the support measures been adapted to the specific needs of service industry firms, which indicate that support for service innovation does not exist in the policy mix. The views of the ESIC team and the self-assessment were most aligned on knowledge development and transfer. The view of the regional stakeholders was that knowledge transfer schemes in Luxembourg included technological, non-technological and service innovation approaches and, for instance, enabled the testing of new services, although this is not the particular focus of such policy measures. This reply suggests that, at least, some of the policies targeting knowledge development and transfer have been assimilated. The regional stakeholders acknowledged the same challenge as the ESIC team related to innovation and business model generation - support for business innovation is primarily focused on fostering research activities in firms and the development, or the acquisition, of new technologies. According to the SAT results there is room for improvement in knowledge-intensive service providers, in creative industries within, or connected to Luxembourg and in the involvement of services-oriented SMEs in large collaborative research and innovation. The internationalisation of firms and an IPR regime favouring service innovation were considered to be fair. Overall the external (ESIC team) and internal (SAT results) assessments come to the same conclusion – Luxembourg’s policy mix does not support the creation of service innovations or the development of new business models. The situation also seems similar in terms of financing innovation and growth. Based on the SAT results, access to finance is supported through innovation funds, or enterprise/SME funds, where the target groups are mainly technology-oriented companies and new technological developments. This is very much in line with the categorisation of regional policies in which only two support measures were identified by the ESIC team. Correspondingly, new forms of financial engineering mechanisms were proposed in the SAT. The score for collaboration and networking is no better in the self-assessment, reflecting the lack of public- private partnerships and the inability to engender changes in Luxembourg’s economy that were identified by the ESIC team. Figure 7 reveals notable gaps in all of the functions when the ESIC’s assessment of the regional policy mix, regional stakeholders’ views on the policy mix and the perceptions of the regional performance are taken into account. The smallest dispersion concerns knowledge development and transfer, which received similar reviews from the ESIC and regional stakeholders. Regarding innovation and business model development, the assessments of the ESIC and the regional stakeholders are quite similar, while the regional performance
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based on the SAT differs significantly. The gap between the policy mix and regional performance is significant in all functions apart from knowledge development and transfer.
Figure 7: Comparison of ESIC’s assessment and the regional stakeholders’ assessment of the service-inclusiveness of the regional policy mix
No significant gaps in the framework conditions were identified in the assessment, apart from the transparency of, and the access to, data. However, several challenges for the healthcare sector will be discussed in the next chapter. Taking into consideration, the overall innovation system, no significant, systemic change can be expected to take place in Luxembourg in the foreseeable future. The main aspects of the system are: Based on the number of measures, support mostly addresses entrepreneurial activities and knowledge development and transfer, followed by financing innovation and growth and collaboration and networking, in decreasing order. Only two have been identified to support innovation and business model generation. The entrepreneurial activities specifically target start-ups and SMEs, while less emphasis is placed on the growth of companies or their internationalisation; A smaller share of the support measures are purely technology based. Most of them contain assimilated elements, where services and service innovation are supported by adapting policy measures, which had originally been developed for manufacturing and technological innovation, to the needs and purposes of service innovation. Some were also categorised as being embedded, as they do not discriminate
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between technological and service innovation. A systemic approach was not identified in the innovation policy mix of Luxembourg; The most notable differences between the ESIC team’s assessment and the regional stakeholders’ perceptions of the policy mix concern entrepreneurial activities and the financing of growth and innovation, and these reflect the need to support all forms of innovation, as well to provide access to (VC) funding across sectors.
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4. Large-Scale Demonstrator: Strategy for the Future The design of the Luxembourg Large-Scale Demonstrator (LSD) strategy is based on the assumption that a more personalised and integrated approach to healthcare can lead to increasing effectiveness, especially in the case of prevention and early treatment of life-style related chronic diseases that represent an ever increasing burden on Luxembourg’s healthcare system. This is a very important and relevant choice for Luxembourg because: The healthcare sector is one of the largest items, alongside education, in the budget of the national government; There are significant cost and efficiency pressures within the healthcare sector to make revisions and introduce rationalisation; The sector itself is heavily service-intensive and the government, through its regulation, procurement and service practices, can significantly influence this sector; Governmental commitment has been ensured, whilst the cooperation of other actors, such as the Integrated Biobank of Luxembourg, the CRP-Santé and the University of Luxembourg, has become more intense; Healthcare is a very complex and challenging sector and it faces significant cultural barriers and financial disincentives to the introduction of change. The following barriers have been identified at four levels, in Luxembourg72: The patient/public level includes the difficulty of changing widely-held beliefs. It is even more difficult to change the attitudes of individuals so that they will adopt a proactive rather than a reactive approach towards their own health. For example, despite increasing awareness the health risks involved, smoking has not significantly decreased and a growing number of Europeans are becoming obese; The physician level that would have to cope with multiple new guidelines for treatment; The hospital level that would have to cope with a radical redistribution of work and an evolution in its organisational structure that such changes would involve; The government level that might have concerns that radical change would cost too much and be too disruptive, thus making the re-election of members of the government more difficult. Within the healthcare sector, the LSD concept is focusing on strategies that can prevent chronic diseases and diabetes has been selected for the demonstrator. Diabetes is expected to be a major public health concern in the future, as its prevalence is rising. Also, diabetes can involve high costs both in terms of procedures and treatments and the major complications associated with disease. Although this concentration on diabetes is important and well-justified, the selection of one medical focus area for piloting within the healthcare sector has been seen to be somewhat controversial, as: Boosting industrial transformation with the help of service innovation is the overarching objective of the demonstrator. There are some concerns about whether direct health/medical objectives draw too much attention to potential health impacts rather than to the economic/industrial change process and the related impact indicators like systemic efficiency, the diversification of industry and the effectiveness of policy measures; It might have been wise to select several focus areas. This would provide different types of pilots, broader learning effects and perhaps a better chance of finding successful practices. In effect, it was suggested that such collaborative pilots could be initiated within each of the concept’s three key dimensions – Patient, Service Offer and National Health System. The transparency of public data, in general, and specifically health data is inherently valuable and can stimulate innovation and economic growth. There is emerging evidence that transparency may be a
72 IBBL (2012): The personalised medicine consortium of Luxembourg: driving innovation in healthcare for Luxembourg.
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precondition for service innovation and productivity in the healthcare sector.73 These data sets may provide information that is complementary to existing data such as medical records. Selective access to this data will only be granted to stakeholders in accordance with their specific roles within the demonstrator project. In terms of data: Transparency of information is a key issue in Luxembourg and the culture of secrecy, originating largely from the banking sector, is seen as being one of the main hindrances to cross-sectoral collaboration; The roles of data collection and data platforms were considered by some stakeholders as being key elements for measuring activities and identifying areas for improvement and, eventually, for building stronger systemic effects among actors; At the same time, some concerns were raised about whether the development of data collection is again drawing attention away from the ‘real challenges’, such as introducing more flexible funding structures, and reducing government bureaucracy. The Luxembourg LSD concept essentially comprises three interlinked dimensions: (1) a Patient dimension, (2) a Service Offer dimension, and (3) the dimension of the National Health System (see Fig. 1). Inter- relating these three dimensions through a specific set of data creates a transparent but controlled environment to test the hypothesis with the objectives of: 1. Preventing or slowing down the occurrence of diabetes in high-risk individuals; 2. Boosting the economic impact of related health services and service innovation; 3. Stabilising the healthcare system's costs while maintaining effective services; 4. Learning from the demonstrator and then scaling up/transposing the outcomes to the treatment of other chronic diseases.
73 Meisch, Trauffler & Dentzer (2013). Large Scale Demonstrator Luxembourg. Concept Note.
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Figure 8: Luxembourg’s LSD approach
Notes: In general, the ‘Triple Helix’ approach of the Luxembourg LSD concept has been well received and is considered to be both relevant and feasible for implementation. Each of the three dimensions represents stakeholders who have a role to play in initiating systemic changes in the health sector. However, the sole focus on diabetes and the central role of the data platform have been questioned; It is important that all three dimensions of the LSD development are well represented by key stakeholders, as this will ensure a balanced and sustained development; There are some concerns as to whether any of the three dimensions and particularly the service offer and the patient sides of the system will have sufficient incentives to initiate change. The suggested approach has been assessed taking into account the specificities of Luxembourg, the related background information and the insights acquired during the study visit. In addition to the challenges described above, another set of challenges has been discovered, and these can be divided into the four levels that have already been mentioned. There are currently very few (if any) incentives for an individual to change his or her use of the healthcare system. A person living in Luxembourg is free to choose the service provider, whether that is doctor in a hospital or in a private practice. If the patient is for some reason unsatisfied with the diagnosis, he/she can easily get a second opinion. The related costs are mainly covered by the insurance companies, and this makes it easier to seek a preferred diagnosis. The doctor on the other hand is being paid by the number of his/her patients. This introduces at least two additional problems:
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The patient needs to visit the hospital or other practice to enable the doctor to invoice for the work done. This applies to any kind of consultation and, for instance, in the case of diabetes, where blood sugar levels are constantly monitored, giving advice over the phone or online does not benefit the doctor even though it would be very helpful for the patient; and The quicker the patient gets well, the fewer visits and less income the doctor will receive. Treatment practices are not harmonised or structured despite the fact that tackling diabetes or any other life-style related chronic illness requires a standardised approach to be applied by all practitioners. This does not mean, however, that all cases are similar or should be treated with same kind of medication. Personalised medicine holds great promise in this respect. Realising the full potential of personalised medicine requires identifying what kind of treatment and related medicine is the best for an individual. Instead of prescribing large quantities of drugs to a patient, the healthcare system should focus on providing less medication but of a higher quality, thus having a much larger impact. At the level of hospitals, there is concern that new services and business models might endanger the current system. On the one hand, should the model demonstrator approach prevent, or significantly decrease the impact of, diabetes at the pilot stage and other life-style related chronic diseases at subsequent stages, this could reduce the need for the general services provided by the hospitals, with a consequent reduction in employment. On the other hand, there are several opportunities that could increase the demand for new services and bring in additional income, but these have not yet been recognised or acknowledged. An additional barrier that exists at both doctor and hospital levels is the variety and performance of the IT systems. It was pointed out during the study visit that hospital A has one IT system, while hospital B has a different system and the practitioners have all sorts of systems. Since the patient can choose freely between all service providers, medical doctors do not have access to all the necessary information such as which tests have been conducted and what the results have been. This means that occasionally unnecessary and expensive tests are being prescribed without them having a proper impact on the patient’s health. Also, some parts of the healthcare system only operate on paper, which is problematic for information exchange. A potential solution might be the national patient file, a concept that is currently being discussed. Such a file would also enable a doctor to see what medication or treatment the patient has already been prescribed, thus potentially decreasing the amount spent on unnecessary drugs and medical procedures. The Luxembourg Government has the biggest incentive to reform the expensive healthcare system, which is unable to tackle the increasing effects of life-style related diseases. However, other key players have quite a lot to lose if the system was to be changed. It should be in the interest of the government to increase business activities around healthcare, including those in life sciences and bio-health, and considerable investment has been made in developing a supportive infrastructure in Luxembourg. It seems, however, that despite its positive attitude to the large-scale demonstrator approach, the government lacks the necessary political will to change the overall healthcare system. The system contains too many players in terms of hospitals, insurance companies, private practitioners, medicine companies and pharmacies and this system that serves the interests of all other actors apart from the government cannot be altered without governmental action. There is also not much monitoring or evaluation of the healthcare sector and, therefore, it is impossible to assess the impact of any activity. The situation is different in the UK where the National Health Service (NHS) has developed guidelines and every five years evaluates whether these have been appropriately implemented. Such a monitoring and evaluation system will also be required for the large-scale demonstrator approach in Luxembourg to provide an assessment of the actions taken and the impact that these actions have generated. This could provide an opportunity for a pilot project within the LSD strategy, which would monitor the health of the patients on a regular basis. The information collected could be shared with these individuals. Additionally, the patients could be given guidance and instructions, based on harmonised guidelines, on how and what to eat and the exercise that they should take to improve their health. The main aim would be to see whether the actual results could motivate individuals to take better care of their health. The prerequisites for implementing a regional strategy within the proposed LSD concept can be summarised as follows: Within Luxembourg governance, there is certainly a strong rationale for, and a general commitment to, implementing the strategy. To a large extent, Luxembourg has the means, in terms of finance, competence, industrial fabric and services, to effect the necessary change;
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The Luxembourg LSD concept was considered to be good analysis of the current situation in the healthcare sector that correctly identified the areas in which services could play an important transformative role. However, at this point, the concept as such does not provide any indications about how the change process will be planned and organised. It would be useful to know the key phases of the change process, how these are to be organised and financed, who will lead the process and what will be the anticipated vehicle of change - a platform, programme or a cluster initiative; Numerous barriers to change still need to be addressed and these include: the inability to initiate change in the healthcare sector; the number of actors with different (and sometimes competing) interests; the lack of interoperability; and the lack of access to data; In light of the above, the main stumbling block to implementing a regional strategy in Luxembourg is the fact that the LSD concept has not yet been fully translated into an operational strategy.
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5. Conclusions The rationale behind the Luxembourgish LSD approach to improving the health of its citizens and the performance of its healthcare system is both well-justified and relevant. Most nations, not only Luxembourg, will face increasing costs as larger percentages of their populations become old and chronic diseases become more common. Healthcare is also a sector in which costs can be reduced, for instance, through intelligent procurement, and effectiveness can be increased by implementing integrated IT systems and providing better services. Also, the government can influence the sector significantly through regulation. The healthcare sector is, however, considered to be very complex and challenging and it contains significant cultural barriers and financial disincentives to change. As part of the European Service Innovation Centre’s process and services, the LSD approach and innovation system of Luxembourg have been assessed in relation to their service inclusiveness against the systemic elements of: entrepreneurial activities; knowledge development and transfer; innovation and business model generation, financing innovation and growth; and collaboration and networking. The results may be summarised as follows: Entrepreneurial activities: Despite increased attention and support, entrepreneurial activities in the main are oriented towards traditional R&D. Entrepreneurs should be encouraged to embrace all forms of innovation; Knowledge development and transfer: Suitable physical and virtual infrastructures to promote knowledge development and transfer exist, but information exchange should be increased, for instance, via initiatives supporting public-private partnerships, as well as the cross-fertilisation of ideas; Innovation and business model generation: Luxembourg is not amongst the innovation leaders in Europe and the potential of service innovation remains, to a large extent, untapped. More attention should be paid to the means of generating new business models and to how service innovation can help create them; Financing innovation and growth: A variety of support measures have been implemented since the adoption of the RDI law in 2009. The majority of them focus on start-ups and SMEs, leaving growth- oriented enterprises or companies aiming to internationalise their business with less support. The possibilities to establish new forms of financing mechanisms, such as crowd finance, should be explored; Collaboration and networking: The Luxembourgish RDI system has a relatively small number of players who know each other and this makes collaboration and networking easy in the public sector. The same applies to the healthcare sector in which cooperation has been built systemically. There is, however, less collaboration between firms across industries or between industry, firms and academia. This makes it difficult to capitalise on the increasing interest in open data and its related, potential applications and services. The Luxembourg Government has demonstrated its willingness and commitment to implement the new approach to healthcare and it seems that it has the means in terms of finance, competence, industrial fabric, and services to carry out the change. Thus, the Luxembourg LSD approach represents a promising start for the transformation process. The LSD and the industrial transformation process in Luxembourg should, however, be seen both as a sectoral and horizontal initiative of the government. In order to initiate and facilitate such a significant transformation, a true commitment will be required from several sector ministries and their agencies with responsibilities ranging from Education, Science and Research (RDI policies) to Health (healthcare system), Trade and Industry (entrepreneurship, commercialisation) and possibly from others responsible for financial incentives. In order to successfully design, initiate and manage the industrial transformation process, Luxembourg needs to launch smart policies and to address a number of governance challenges. A number of questions, however, remain unanswered: What are the key phases of the change process; how they are to be organised and financed? Who is leading the process and what would be the anticipated vehicle of change - a platform, programme or a cluster initiative? How can the engagement of enterprises in the field of life sciences be ensured, as the presence of the public sector is very strong and the number of active companies is limited?
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How can public-private collaboration best be fostered? Healthcare, in general, is very conservative and the uptake of innovation is slow. An increased use of IT would benefit the field, but most doctors are reluctant to even use IT to write bills or prescriptions. So, in such a situation, how can the uptake of innovations be accelerated? How does an individual fit into this approach and is the patient a mere recipient of medical assistance rather than being an active stakeholder in a process that improves his or her health?
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Appendix A – Bibliography
A comparative analysis of Luxembourg’s apparent labour productivity with respect to the Euro area since the beginning of the crisis http://www.statistiques.public.lu/catalogue-publications/economie-statistiques/2012/60-2012.pdf
Campus Belval. http://wwwen.uni.lu/university/campus_belval
Erawatch. Luxembourg. Support measure. CORE-programme http://erawatch.jrc.ec.europa.eu/erawatch/opencms/information/country_pages/lu/supportmeasure/support _mig_0014?country=lu&avan_type=support&tab=template
Erawatch. Luxembourg. Support measure. Ecostart Enterprise and Innovation Centres http://erawatch.jrc.ec.europa.eu/erawatch/opencms/information/country_pages/lu/supportmeasure/support _mig_0013?avan_type=support&matchesPerPage=5&orden=LastUpdate&searchType=advanced&intergov=a ll&tab=template&index=Erawatch+Online+EN&sort=&avan_other_prios=false&searchPage=2&subtab=&rev erse=true&displayPages=10&query=&country=lu&action=search
Erawatch. Luxembourg. Support measure. Technoport Business Incubator http://erawatch.jrc.ec.europa.eu/erawatch/opencms/information/country_pages/lu/supportmeasure/support _mig_0024?tab=template&avan_type=support&country=lu
Euraxess (2012): Foreign researcher’s guide to Luxembourg http://www.euraxess.lu/var/ezwebin_site/storage/images/home/guide_euraxess.pdf
EUREFI. http://www.eurefi.eu/
European Commission. DG Enterprise & Industry. SBA Fact Sheet 2012 Luxembourg. http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance-review/files/countries- sheets/2012/luxembourg_en.pdf
European Commission. European Cohesion Policy in Luxembourg http://ec.europa.eu/regional_policy/sources/docgener/informat/country2009/lu_en.pdf
European GNSS Agency. Funding opportunities. National Grants. Technical feasibility studies. http://www.gsa.europa.eu/gnss-funding-guide/national-grants/%E2%80%9Ctechnical-feasibility- studies%E2%80%9D-luxembourg
Government of Luxembourg. State Aid for Research, Development and Innovation for the benefit of Luxembourg’s economy. http://www.luxembourg.public.lu/catalogue/economie/luxinnovation-state-aid-research/li-state-aid- research-EN.pdf
Health begets wealth in the little land of opportunity. http://www.timeshighereducation.co.uk/420381.article
IBBL (2012): The personalized medicine consortium of Luxembourg: driving innovation in healthcare for Luxembourg. http://www.eurobioforum.eu/ul/cms/fck- uploaded/documents/Presentations%202012/EBFPhillips18042012.pdf
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Innovation Union Scoreboard (2013) http://ec.europa.eu/enterprise/policies/innovation/files/ius-2013_en.pdf
Kuhlmann, S., Arnold, E. (2001): RCN in the Norwegian Research and Innovation System. Background report No. 12 in the evaluation of the Research Council of Norway. Karlsruhe, Brighton: Fraunhofer ISI, Technopolis. http://www.isi.fraunhofer.de/isi.../isi01b52/rcn-norway.pdf
Le Gouvernement du Grand Duché de Luxembourg (2013): National plan for smart, sustainable and inclusive growth Luxembourg 2020 http://www.odc.public.lu/publications/pnr/2013_PNR_Luxembourg_2020_avril_2013.pdf
Le Gouvernement du Grand Duché de Luxembourg (2013). Press releases. 04/2009 http://www.gouvernement.lu/salle_presse/actualite/2009/04-avril/21-etat-nation/index.html
Luchetta, P. (2009): Sciences et technologies de la santé au Luxembourg - Contexte et essai de prospective. In: Forum online für Politik, Gesellschaft und Kultur in Luxemburg, n. 290, pp. 18-20. http://www.forum.lu/pdf/artikel/6660_290_Luchetta.pdf
Luxembourg Portal for Innovation and Research. Collaborations and partnerships. http://www.innovation.public.lu/en/collaborations/collaborations-publiques-privees/afr-ppp/index.html
Luxembourg Portal for Innovation and Research. Financial support for your projects. Aid for young innovative companies. http://www.innovation.public.lu/en/financer-projets/creation-entreprise/aide-jeunes-entreprises/
Luxembourg Portal for Innovation and Research. Financial support for your projects. Innovation advisory services and innovation support services. http://www.innovation.public.lu/en/financer-projets/rd-entreprise/conseil-soutien-innovation/
Luxembourg Portal for Innovation and Research. Financial support for your projects. Process and organisational innovation in services. http://www.innovation.public.lu/en/financer-projets/rd-entreprise/innovation-procede-organisation- services/index.html
Luxembourg Portal for Innovation and Research. Financial support for your projects. Protection of technical industrial property. http://www.innovation.public.lu/en/financer-projets/rd-entreprise/propriete-industrielle/index.html
Luxembourg Portal for Innovation and Research. Financial support for your projects. Research and development projects or programmes. http://www.innovation.public.lu/en/financer-projets/rd-entreprise/projets-programmes-rd/
Luxembourg Portal for Innovation and Research. Financial support for your projects. Temporary secondment of highly qualified personnel. http://www.innovation.public.lu/en/financer-projets/rd-entreprise/detachement-temporaire- personnel/index.html
Luxembourg Portal for Innovation and Research. News. January 2012. http://www.innovation.public.lu/en/actualites/2012/01/fonds-investissements/index.html
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Luxembourg Portal for Innovation and Research. News. September 2011. http://www.innovation.public.lu/en/actualites/2011/09/exchange2innovate/
Luxembourg Portal for Innovation and Research. Research and innovation in businesses. http://www.innovation.public.lu/en/ir-entreprise/transfert-technologies/index.html
Meisch, Trauffler & Dentzer (2013). Large Scale Demonstrator Luxembourg. Concept Note.
Luxinnovation/Luxembourg for business. Focus on Research and Innovation in Luxembourg. 7/2013.
Ministry of the Economy and Foreign Trade (2007): Objectif « Compétitivité régionale et Emploi » 2007- 2013, Programme opérationnel. http://www.feder.public.lu/programme_reconversion/competitiviteregionale_emploi/documentations/po.pdf
Ministry of the Economy and Foreign Trade - Observatoire de la Compétitivité (2012): Understand, measure & promote service innovation in Luxembourg, pp. 78-83 http://www.eco.public.lu/documentation/etudes/2012/odc_service_innovation_21.pdf
Ministry of the Economy and Foreign Trade and Luxinnovation (2009): State Aid for Research, Development and Innovation for the Benefit of Luxembourg’s Economy http://www.innovation.public.lu/en/publications/financements/rdi-entreprise/aide-publique-rdi/index.html
OECD (2010) http://www.oecd.org/science/inno/46665252.pdf
OECD (2012): OECD science, technology and industry outlook. http://www.oecd.org/luxembourg/sti- outlook-2012-luxembourg.pdf
SNCI. Instruments. http://www.snci.lu/en/instruments.php?catid=1187
Société luxembourgeoise de capital-développement pour les PME S.A. http://www.snci.lu/en/pme.php
Statistics portal. Grand Duchy of Luxembourg. Luxembourg in figures 2012. http://www.statistiques.public.lu/catalogue-publications/luxembourg-en-chiffres/luxembourg-figures.pdf
Statistics portal. Grand Duchy of Luxembourg. Unemployment rate in July 2013. http://www.statistiques.public.lu/en/news/population/labour/2013/08/20130823/index.html
Further web resources: http://biohealthcluster.lu/Portrait/Health-Sciences-and-Technologies-in-Luxembourg http://www.euraxess.lu/eng/R-D-in-Luxembourg http://www.gouvernement.lu/salle_presse/actualite/2009/04-avril/21-etat-nation/index.html http://www.innovation.public.lu/en/financer-projets/creation-entreprise/index.html http://www.innovation.public.lu/en/financer-projets/creation-entreprise/aide-jeunes-entreprises/index.html
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http://www.innovation.public.lu/en/ir-luxembourg/panorama/index.html http://www.innovation.public.lu/en/ir-luxembourg/panorama/politique/index.html http://www.legilux.public.lu/leg/a/archives/2009/0150/index.html
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Appendix B - Stakeholders consulted a) Mr Gilles Schlesser, Director, Luxinnovation 23/05/2013. b) Dr Robert Lemor, Director, CR SANTEC 23/05/2013. c) Dr Jean-Claude Schmit, CEO, CRP-SANTÉ 23/05/2013. d) Prof Bernard Weber, CEO, Laboratoires Réunis 23/05/2013. e) Mr Raymond Wagener, Director, IGSS 23/05/2013. f) Dr Francoise Berthet, Director of curative medicine division, Ministry of Health, 24/05/2013. g) Mr Mike Schwebag, Attaché de Gouvernement, Ministry of Health, 24/05/2013. h) Mr Dominic Allen, COO, IBBL, 24/05/2013. i) Dr Léon Diederich, Conseiller de Gouvernement, Ministry of Research, 24/05/2013. j) Mrs Josiane Entringer, in charge of biomedical research programmes, Ministry of Research, 24/05/2013. k) Mrs Patrizia Luchetta, Ministry of Economy and Foreign Trade, 28/05/2013. l) Ms Carine de Beaufort, 10/06/2013.
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Appendix C - Regional benchmarking analysis
GDP per capita (Euros)
90.000 80.000 70.000 60.000 50.000 40.000 30.000 20.000 10.000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Most similar regions Luxembourg Demonstrator regions EU27
Luxembourg’s GDP per capita increased steadily until 2007, when the current economic crisis became visible. However, the decrease in the per capita GDP was relatively modest and it then showed an uptake in 2010. The 2010 figure even slightly exceeded the previous peak in 2007. Though the demonstrator and the benchmark regions, as well as the EU, have witnessed a similar development in the period considered, Luxembourg’s figures are consistently higher than those of the benchmark regions.
Long-term unemployment (% total employment)
4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Most similar regions Luxembourg Demonstrator regions EU27
Between 2001 and 2006, Luxembourg’s long-term unemployment showed an upward trend, before witnessing some variences with a peak in 2008 and a decrease in 2009. It then started to increase again and, in 2011, had a similar level as in 2006. However, the general level of long-term unemployment is low at below 1.7% and constantly below the figures of the benchmark regions.
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Labour productivity (Euros)
160.000
120.000
80.000
40.000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Most similar regions Luxembourg Demonstrator regions EU27
Labour productivity follows a similar trend as per capita GDP. After an upward trend between 2001 and 2007, it decreased slightly and then strongly in 2008 and 2009, before a new increase became apparent. The 2010 figure was about 98% of that in 2006, however, about € 38k higher than in 2000. The decrease in productivity figures at the end of the 2000s is more intense than in the benchmark regions considered, but on a higher level: in 2010, Luxembourg’s labour productivity was about twice as high as that of the demonstrator regions’ average.
Employees with ISCED 5-6 (% all employees)
55,0 50,0 45,0 40,0 35,0 30,0 25,0 20,0 15,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Most similar regions Luxembourg Demonstrator regions EU27
Except for short-term decreases in 2003, 2006 and 2010, the share of employees with a completed tertiary education exhibited a general increasing trend in the period considered. In 2011, 41% of all employees had an ISCED 5 or 6 education level. This share was nearly 20% higher than that in 2000. In the period considered, the Luxembourg figures are constantly below those of the most similar regions’ average, but, since 2004, they have been above the figures for the demonstrator regions and the EU.
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Total expenditure on R&D (GERD) (% GDP)
3,5
3,0
2,5
2,0
1,5
1,0
0,5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Most similar regions Luxembourg Demonstrator regions EU27
The total expenditures on research and development, measured as share of the gross domestic product, show a downward trend between 2000 and 2010, with a short-term increase in 2009. The 2010 figure of 1.19% is below the average of most similar and demonstrator regions, as well as the EU. However, Luxembourg’s expenditures on R&D increased between 2000 and 2008, in absolute terms, but this trend is overlaid by increasing GDP figures.
Business expenditure on R&D (BERD) (% GERD)
100,0
90,0
80,0
70,0
60,0
50,0
40,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Most similar regions Luxembourg Demonstrator regions EU27
Luxembourg witnessed a continuous decrease in the share of business enterprises’ R&D expenditures of GERD, between 2000 and 2010, with an accelerated downward trend after 2007. Generally, Luxembourg’s figures are on a comparatively high level and are constantly higher than the figures of the most similar and the demonstrator regions, as well as the EU. While Luxembourg’s R&D structure in 2000 was very dominated by private businesses that provided almost 93% of total R&D expenditures, this share declined to 68% in 2010 and this was caused by the decreasing volumes of business R&D expenditures since 2006.
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Employment in knowledge-intensive services (% total employment)
45,0 43,0 41,0 39,0 37,0 35,0 33,0 31,0 29,0 27,0 25,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Most similar regions Luxembourg Demonstrator regions EU27
Employment in knowledge-intensive services shows an overall decline between 2000 and 2011, however, with two upward trends of about two percentage points in 2001 and about one percentage point in 2007/2008. In 2011, about 29% of the total employment is in knowledge-intensive services, whilst this share was nearly 32% in 2000. Since 2002, these figures have been below the shares of all benchmark regions.
Employment in service innovation intensive industries (% total employment) 14,0 12,0 10,0 8,0 6,0 4,0 2,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Most similar regions Luxembourg Demonstrator regions EU27
Employment in service innovation intensive industries remained relatively stable between 2000 and 2007, before it dropped from about 5.6% in 2007 to about 4.1% in 2010. While Luxembourg’s figures do not show significant variations compared to the demonstrator regions and the EU, the most similar regions have constant had shares on a higher level. Note: Demonstrator regions: AT31 Oberösterreich (Upper Austria), ES7 Canarias (Canary Islands), ITD5 Emilia- Romagna, LU Luxembourg, UKN Northern Ireland, NL42vLimburg (NL).
Most similar regions: BE1 Région de Bruxelles-Capitale, BE31 Prov. Brabant Wallon, DK01 Hovedstaden, FR1 Île de France, NL31 Utrecht, NL32 Noord-Holland, SE11 Stockholm, UKI1 Inner London, UKJ2 Surrey, East and West Sussex
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Appendix D - Institutional fabric relevant for service innovation
Service innovation actors at regional level Annual Name of Type of Principal activity budget Number of employees (FTE) organisation organisation related to SI (in euro) and of which SI specialists Ministry of the Policy- Responsible for € 46m 15 N/A Economy and maker private sector (2011, Foreign Trade research funding, for has designed most private of the RDI aid sector schemes in research) Luxembourg, monitores RDI activity via performance contracts with Luxinnovation Ministry of Policy- Responsible for € 111.2m N/A N/A Higher maker public sector (2007 for Education and research funding public
Research sector research)
Luxinnovation Innovation Gives information € 3.9m 34 N/A support and support to (2011) private and public organisations, implements many of the RDI aid schemes designed by the Ministry of the Economy and Foreign Trade National RDI funder Allocates funds in € 60.2m 24 N/A Research Fund the public sector (2010) through calls for proposals (e.g. the CORE – programme)
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Appendix E - Policy measures for service innovation
Title (in English) Start End year Public funding (latest Private co- Short description year (if applicable) figure available) financing System function
Research and 1. Knowledge 2009 N/A Varying between 25% Yes, is Three types of R&D activities are eligible : development development and (e.g. experimental required (the projects or transfer development in large exception 1. Experimental development (including services, methods or organisation programmes enterprises) and being models). 2. Collaboration and 100% (e.g. situations 2. Industrial research: (including services, methods or organisation models). network fundamental research where 100% carried out by of the costs 3. Fundamental research (activities aimed at broadening scientific and technical research organisations are covered). knowledge not associated with industrial or commercial objectives). for SMEs).
Technical 1. Knowledge 2009 N/A Varying between 40% Yes, is All enterprises are eligible (including service firms). feasibility studies development and (large enterprises) and required. transfer 75% (SMEs). The eligible costs are the same as those for R&D projects or programmes, i.e. costs directly associated with the technical feasibility study: 2. Innovation and business model 1 .Personnel expenses. generation 2. Costs for the use of instruments, equipment, machines, tools, installations, land and buildings.
3. Materials and other consumables.
4. Subcontracting expenses.
5. Overhead expenses.
6. Any other type of costs directly associated with the study.
Protection of Innovation and 2009 N/A Varying between 25% Yes, is This aid is reserved for SMEs (including service firms). The eligible costs cover : technical business model (for expenses required (the industrial property generation following an exception 1. All costs preceding the grant of the right in the first legal jurisdiction. experimental being 2. Translation and other costs incurred in order to obtain the granting or validation development activity) situations of the right in other Legal jurisdictions. and 100% (for where 100% expenses following a of the costs 3. Costs incurred to defend the validity of the right during the official examination fundamental research are covered) of the application and possible opposition proceedings. activity).
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Aid for young 1. Entrepreneurial 2009 N/A All of the enterprise’s Yes, is The measure targets SMEs (including service firms) or small private research innovative activities expenses are eligible. required. organisations, which were created less than six years before the aid is granted enterprises This aid can only be 2. Knowledge awarded once and it AND:
development and cannot exceed e 1 transfer which will, in the foreseeable future, develop new products, processes or services million. which involve a significant risk of technical or industrial failure 3.Innovation and The aid can be OR business models combined with other generation aid allowed under the which have used at least 15% of their operating expenses for R&D over at least 1 4. Financing RDI promotion of the 3 years preceding the granting of the aid, or over the current year. schemes, as long as innovation and growth the aids do not cover the same expenses.
Innovation 1. Knowledge 2009 N/A The maximum Yes, is This aid is reserved for SMEs (including service firms). advisory services development and intensity of the aid required. and innovation transfer corresponds to 75% of The following costs are eligible for aid : support services the eligible costs (and 1. For innovation advisory services : 2. Innovation and potentially up to 100% business model if the expert is Costs associated with management consultancy, technological assistance, generation certified). The aid is technology monitoring and technology transfer services, consultancy for the limited to € 200k over acquisition, protection and trade of technical Intellectual Property Rights and for 3 years. licensing agreements, and consultancy on the use of technical standards.
2. For innovation support services : The costs for the temporary use of premises, databanks, technical libraries and laboratories, the costs associated with market studies, quality studies, testing and certification.
Temporary 1. Knowledge 2009 N/A The maximum Yes, is This aid is reserved for SMEs (including service firms). This measure facilitates secondment of development and intensity is set at 50% required. access to highly qualified human resources from public research organisations or highly qualified transfer of the eligible costs large enterprises who can contribute knowledge and expertise. “Secondment” is personnel which include : understood to be the temporary posting of a person to a private research 2. Collaboration and organisation or to an enterprise, including a right of return to the establishment networking 1. The salary expenses releasing the person on secondment at the end of the posting period. for the seconded
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personnel for a maximum period of 3 The following conditions must be met : years. 1. The person is released on secondment by a large enterprise or a research 2. Recruitment organisation and does not replace another salaried employee. expenses. 2. The person is assigned to a newly created post.
3. Any moving 3. The person must have been working in the original establishment for at least expenses of the two years. seconded personnel and their families. 4. The person must carry out RDI activities for the enterprise receiving the aid.
Process and Basically all 5 2009 N/A Varying between 15% Yes, is The aid is open to all enterprises (including service firms) on the understanding organisational system functions (large enterprises) and required. that large enterprises must collaborate with at least one SME. innovation in (but with the 35% (SMEs). services entrepreneurial The following conditions must be met : The eligible costs function 1. Organisational innovation must be related to the use and exploitation of ICT. nevertheless to a include : lesser extent). 1. Personnel 2. The project or programme must be managed by an identified and qualified
expenses. project manager, and the costs of the project or programme must be budgeted.
3. The project or programme must lead to the development of a standard, a 2. Costs for the use of instruments, business model, methodology or concept that can be systematically reproduced. equipment, machines, 4. The innovation must be a novelty or a significant improvement on the state-of- tools, installations, the-art in the relevant sector within the European Union. land and buildings.
5. The project or programme must involve a genuine risk of failure. 3. Materials and other
consumables.
4. Subcontracting
costs
5. Overhead expenses.
6. Any other type of costs directly
associated with the project.
In the case of an organisational innovation, only the
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costs associated with the use and exploitation of ICT are eligible.
The Luxembourg 1. Collaboration and 2002 N/A The cluster initiative Yes, is Five innovative clusters are supported : cluster initiative network appears as a platform required for networking based mainly for Luxembourg BioHealth Cluster 2. Knowledge mainly on the use and public-private Luxembourg EcoInnovation Cluster development and coordination of further partnerships transfer innovation-supporting Luxembourg ICT Cluster measures such as : Luxembourg Materials Cluster - National Funding for Companies Luxembourg Space Cluster
- National Funding for (activities such as logistics could constitute new cluster developments in the Public Research future) Organisation
- European Funding Opportunities
- Public-Private Partnerships.
The Luxinnovation 1. Innovation and 2007 N/A Managed by Presence of Events encompassing thematic workshops, bilateral face-to-face meetings with Forum business model Luxinnovation, no enterprises at representatives of companies and public research laboratories (called “Innovation generation information available their own Matchmaking”) and presentations during two days. Some 450 participants in 2013. See also: on the overall yearly costs. http://www.luxinn 2. Knowledge budget of the event. ovation.lu/Service development and s/Promotion-de- transfer l'innovation-et- de-la-recherche
eXchange2Innova Knowledge 2010 N/A Managed by four Price per Programme which offers one-day workshops in hosting companies. Takes the form te development and cooperating (public person per of an open and practice-oriented dialogue about innovative strategies, processes transfer and private) partners : workshop is € and technologies. 280 VAT excl.
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For - Ernst & Young Luxembourgis - FranklinCovey h small companies (up - CRP Henri Tudor to 50 employees) - ProCompany Luxinnovation reimburses up No information to 80% of the available on the participation overall yearly budget fees. of the event.
Ecostart Entrepreneurial 2004, N/A Managed by the Yes (mainly 1,600 m2 of office space and 6,300 m2 for assembly and production activities Enterprise and activities extens private company under the (initial-prototype or small-factory workshop) are available for three types of Innovation ions in Technoport S.A. form of rents) companies :
Centres 2007 but details are - young innovative entrepreneurs; and Supported by the N/A 2013 Luxembourgish - technology based companies already at a start-up stage; Ministry of the - innovative companies seeking to establish a temporary foothold for their Economy and Foreign operation in Luxembourg. Trade and by EU funds (ERDF). Soon the respective available spaces should become 2,300 m2 and 10,000 m2
Start-up/takeover Entrepreneurial N/A Medium or long-term The personal This loan is intended for newly created or bought out SMEs, regardless of their loan activities loans granted by joint and legal form, and which: a) have a valid business permit issued by the Ministry of (SNCI Société Nationale de several Small and Medium-Sized Businesses present a business plan and; b) can present a See also: was Crédit et guarantee of business and a financing plan evidencing funding from the beneficiary of at least create d’Investissement the 15% of eligible costs (Already established business founders may not benefit from http://www.snci.l d in u/ (SNCI) ranging promoter(s) is the start-up loan). 1977) between €5,000 and required. The €250,000 per project. interest rate is fixed throughout the duration of the loan. This net interest rate is in line with the market rate for loans without guarantees;
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no additional fees or commissions are due.
Advent Life Entrepreneurial 2011 Life span of 10 Advent Venture Venture ALSF I is the 5th fund established by Advent. It is the group’s first fund exclusively Sciences Fund I activities years. Partners (London) and capital. dedicated to biomedical technologies. The fund targets around 15 investments of (ALSF I) SNCI. Approximately which approximately 10 will focus on the creation of young enterprises and the €20 million rest on project funding. 70% of the investments will take place in Europe. See also: invested by http://www.adven SNCI. tventures.com/ab out-us/news- events/news- lifesciences/41- press- release/239- advent-life- sciences-fund-i- welcomes- additional- investor
Luxembourg Entrepreneurial 2012 Life span of Managed by European Venture The Future Fund aims at supporting the diversification and the sustainable Future Fund activities 15-17 years. Investment Fund (EIF) capital. Target development of the Luxembourg economy by helping to attract innovative and SNCI. size of entrepreneurial activities. It is supposed to invest in innovative SMEs active in approximately various areas of technology including ICT €150 million. Approximately €120 million invested by SNCI and approximately €30 million by EIF.
AFR (Aides à la Knowledge 2000 N/A Managed by FNR. The AFR Grant The grant scheme supports PhD and postdoctoral research training projects in Formation development and Scheme Luxembourg and abroad, up to 4 years for PhDs and up to 2 years for post Recherche - transfer For AFR beneficiaries supports doctorals. The main objective of the scheme is to improve the general working research training with work contracts, researchers conditions and career perspectives of researchers, by giving early stage support) the FNR pays a who carry out researchers access to work contracts and supplementary training opportunities. contribution to the their PhD annual salary costs of
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the Host Institution as and/or follows. PhDs: max. postdoctoral AFR contribution training in (including employers’ collaboration charges) € 38,220 per with a private year; postdoctorals: € company in 54,231 per year. Luxembourg. Topping up: in order to further support To benefit their candidates, host from the AFR institutions may offer supplement, up to e 53,862 EUR private per year gross salary companies for PhDs and up to € need to be in 80,793 per year gross possession of salary for an postdoctorals. accreditation by the Ministry For AFR beneficiaries of Economics, without work certifying their contracts, the FNR R&D activities pays a fellowship in (bourse) to the Luxembourg. recipients. Max. AFR If the contribution company is (fellowship) for PhDs: the AFR € 18,000 per year; for beneficiary’s postdoctorals: e main host 25,200 per year. institution, a work contract is established and the grant will be paid directly to the company.
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