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