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COMMISSION STAFF WORKING DOCUMENT First annual report on key findings from the European Monitor of Industrial Ecosystems (EMI) Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions “The 2024 Annual Single Market and Competitiveness Report"

SWD/2024/77 final

Brussels, 14.2.2024

SWD(2024) 77 final

COMMISSION STAFF WORKING DOCUMENT






First annual report on key findings from the European Monitor of Industrial Ecosystems (EMI)

Accompanying the document

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions

“The 2024 Annual Single Market and Competitiveness Report"

{COM(2024) 77 final} - {SWD(2024) 78 final}


   EN

Table of Contents

Executive Summary    

1. Introduction    

2. Uptake of green and digital technologies    

2.1. Presence of digital tech startups in the industrial ecosystems    

2.2. Adoption of green and digital technologies by SMEs across industrial ecosystems    

2.3. Environmental impact of industrial ecosystems    

2.4. Private investments and funding per ecosystem    

2.5. Supply and demand of skills to support the twin transition    

3. Position of EU industry in the global technology race    

3.1. The EU’s innovation capacity in green and digital technologies    

3.2. EU capacity to produce technology-based products    

3.3. Scaling-up capacity in the EU    

ANNEX    

Executive Summary

The European Monitor of Industrial Ecosystems (EMI) aims to inform EU policymakers, industry, and Member States about the evolution of the twin transition across individual industrial ecosystems 1 , notably by looking at some of its key enablers, and about EU competitiveness in key technologies for the twin transition, also compared to other foreign competitors.

This annex provides a first annual report on EMI findings, first as regards the progress of the twin transition by individual ecosystem, and then as regards the position of EU industry in the global technology race.

On the progress of the twin transition by individual ecosystem, the initial results show the following:

·Uptake of digital and green technologies

EMI finds that basic digitalisation 2 is still taking place across all industrial ecosystems, with only 69% of Small and Medium-Sized Enterprises (SMEs) having at least basic level of digital intensity in 2022, below the 2030 EU target of 90% 3 . However, there is evidence of a serious commitment by industry to speeding up: e.g., 49% of SMEs reported increasing their investments in digital technologies 4 . This trend is particularly visible in the aerospace and defence and the cultural and creative industries ecosystems. Similarly, 42% of SMEs reported increasing their investments in green technologies, with energy-intensive industries, aerospace and defence, and agrifood leading this.

·Supply and demand of green and digital skills

EMI also finds that the availability of digital skills remains limited, especially in some service-based ecosystems like tourism. These low levels of supply contrast with the high demand for such skills, and this gap is particularly high in cultural and creative industries, construction, and tourism. The availability of green skills also remains limited, with no ecosystem having a share of professionals with such skills over 7%. Demand also remains low, with the exception of the Energy-Renewables ecosystem, but is increasing with an average annual growth rate reaching 40% from 2019 to 2022.

·Private equity and venture capital

European private equity and venture capital investment in green and digital tech firms have consistently increased since 2016, with significant increases in 2021 and 2022, followed by a drop in the first quarters of 2023. The ecosystems that attracted the most investment in digital firms in 2021 were electronics, retail, and mobility. The latter two were also the ecosystems that captured the most investment in green tech firms, along with agrifood. Despite this, EU businesses are still constrained by the limited availability of private financing, with the US having a much larger number of scale-ups than the EU across all industrial ecosystems, though this gap is narrowing in certain ecosystems, such as mobility, electronics, tourism, and energy-intensive industries.

On the position of EU industry in the global technology race, EMI shows the following:

·Capacity to innovate

EMI finds that EU innovation is concentrated in climate change technology, but that the EU is giving way in digital competitiveness, with the EU retaining a leading position on transnational patent applications in Renewable Energy Technologies, but lagging behind China and the US in Artificial Intelligence and Big Data. China has caught up with the EU on solar power. On the other hand, the EMI provides further evidence that the EU is still in the lead worldwide in terms of transnational patents in Advanced Manufacturing technologies.

· Capacity to produce technology-based goods

EMI shows that the EU produces more than it imports in advanced manufacturing and robotics, renewable energy technologies, advanced materials and nanotechnology, and biotechnology 5 . However, the positive balances between production and imports which were found in the advanced manufacturing and renewable energy technologies have recorded a decrease. Moreover, the analysis shows that the EU produces much less than it imports in Artificial Intelligence and Big Data, both of which are key for industrial competitiveness and to deploy Industry 5.0 solutions. 



1.Introduction

The European Monitor of Industrial Ecosystems (EMI) 6  project was launched in 2022 to support EU policymakers, industrial stakeholders, and Member States in assessing the performance of the 14 industrial ecosystems in terms of their green and digital transition. To this effect, based on an established monitoring framework, the project will deliver 14 industrial ecosystem reports on a yearly basis, starting this year, allowing for an assessment of progress over time. This will be complemented annually by 27 Member State reports, several international reports, and one EU report, to provide insights both at country level and vis-à-vis other foreign competitors. In this way, EMI complements other monitoring exercises undertaken by the Commission, such as the Annual Single Market and Competitiveness Report (ASMCR) and the multiple observatories developed by industrial ecosystems. It also helps the monitoring of the implementation of transition pathways 7 .

First, EMI has a strong focus on technology generation and uptake as key drivers of competitiveness and of the twin transition. Second, in addition to relying on traditional data sources such as transnational patents and trade, EMI uses novel metrics such as private equity and venture capital based on data from Crunchbase, supply and demand of skills based on data from LinkedIn and Cedefop 8 . In doing so, it is able to address gaps in traditional data sources and deliver findings on a more regular basis.

This is the first annual report and sets out results in five areas: uptake of green and digital technologies, environmental impact, investments and funding, supply and demand of skills, and position of the EU in the global technology race. Although EMI is still in its first year, it presents trends where data has been available for more than 5 years.

2. Uptake of green and digital technologies

2.1. Presence of digital tech startups in the industrial ecosystems

KEY MESSAGES:

- The industrial ecosystems that attract the highest share of digital tech startups are health, mobility, and cultural and creative industries.

- Artificial Intelligence-based tech startups are the most common in health and cultural and creative industries.

- Internet of Things plays the most important role in electronics, healthcare, mobility, and construction.

- Robotics plays the most important role in aerospace and defence and mobility.

- Augmented and virtual reality and blockchain are still considered as niche technologies, but both have been intensifying.

- There is a strong increase in digital tech used for environmental protection across all ecosystems, but most importantly in mobility, electronics, and proximity and social economy.

The uptake of digital technologies can be partially assessed by the presence of digital tech startups in each industrial ecosystem, as such companies can disrupt existing models, push the boundaries of industrial activities and encourage the broader industrial ecosystem to embrace digitalisation. Digital tech firms have become an integral part of various industries (providing, e.g., online booking and recommendation platforms in tourism or connected vehicles in mobility) and new start-ups are providing a diverse and dynamic nature of solutions shaping industrial futures.

This section identifies which ecosystems have more digital tech startups and which type of technologies (basic or advanced) they adopt. The exercise builds upon the analysis of data from Crunchbase and NetZero Insights.

As found by the analysis of startup data 9 , in Europe, a high share of tech startups across all industrial ecosystems offer basic digital solutions such as online platforms (like online marketplaces) and software services or digital applications that are specific to each ecosystem.

This suggests that the more basic forms of digitalisation such as going online and leveraging digital tools are still taking place. Overall, the analysis identified more startups in these fields compared to advanced digital technologies such as Artificial Intelligence (AI), Big Data, Internet of Things (IoT), robotics, blockchain or Augmented and Virtual Reality (AVR). Figure 1 below provides an overview of the intensity level of technology startups using different digital technologies within industrial ecosystems.

It should be noted that in many cases, more basic forms of digitalisation are more transformative for industrial ecosystems than deep tech. Basic software services provide essential functionality to industrial firms and enable them to manage their operations more effectively. For example, in service ecosystems, emerging cloud-based solutions bridge the gap between the physical and digital world and help these companies to reach out to customers in new ways.

That said, advanced digital technologies provide more innovative functionalities to industrial firms and allow them to be more competitive. As shown by Figure 1 below, some industrial ecosystems have leveraged specific technologies to that end. Such is the case of certain service ecosystems like health and cultural and creative industries, where both AI-based and Big Data-based tech startups are found to be particularly common.

Figure 1: Number of digital tech startups (business creation) per EU industrial ecosystem

 

Source: Technopolis Group, Crunchbase and Net Zero Insights, for the European Monitor of Industrial Ecosystems (EMI) project 2023

On the other hand, in some manufacturing and device-based ecosystems such as electronics, healthcare, mobility, and construction, IoT plays the most important role. Agri-food is following close. Emerging IoT-based products and services include for example, connected elderly care solutions in healthcare, and smart farming and real time monitoring in agri-food.

Robotics have been transforming the aerospace and defence ecosystem, particularly the application of drone technologies and unmanned aerial vehicles. Robotics startups are also active in the mobility ecosystem, contributing to automating car assembly and other production processes.

AVR and blockchain are still considered as niche technologies with fewer specialised startups across all industrial ecosystems. However, they are becoming more popular, especially AVR, which is naturally the more present among start-ups specialised in cultural and creative industries. Blockchain is also gaining ground: for instance, it is used in the cultural and creative industries to manage digital rights.

Digital technologies are increasingly interlinked with clean technologies and environmental solutions, as the growing number of startups that combine both fields demonstrate. Examples include big data analytics and AI-based software that provide solutions for waste management or material optimisation in specific industries.

2.2. Adoption of green and digital technologies by SMEs across industrial ecosystems

KEY MESSAGES:

- On average, 42% of SMEs surveyed reported increasing their investments in the green transition, and 49% claimed to have increased their investments in digital technologies;

- The lowest levels of uptake of digital technologies are in the proximity and social economy ecosystem, whereas the highest are in aerospace and defence;

- On average, 20% of surveyed SMEs reported investing into energy-saving technologies, with agri-food, tourism, and textiles accounting for most of the investments;

- On average, 25% of European SMEs have adopted cloud technologies, predominantly in aerospace and defence and in textiles;

- The adoption rate of AI among European large enterprises was 28%, while for SMEs, it was 9%, with the highest rates being recorded in the health and aerospace and defence ecosystems.

The technological uptake of green and digital solutions by SMEs offers a snapshot of how the European economy is transforming at large, beyond big companies that have more resources to dedicate to this process. This section details the results of a dedicated survey among SMEs and explores their level of investments and adoption of green and digital technologies 10 .

Investments and adoption of Green Technologies by SMEs

According to the business survey conducted under EMI 11 , 42% of SMEs on average across all industrial ecosystems have increased their investments aimed at the green transition and plan to continue investing. In general, service ecosystems 12 have a more diverse green technology uptake than manufacturing ecosystems. The latter mainly focus on energy saving and recycled materials. Technologies related to carbon capture or the use of green hydrogen have been taken up the least.

In terms of the specific green technologies 13 that these companies have invested in, on average 20% of SMEs across industrial ecosystems invested into energy-saving technologies. Similarly, the use of recycled materials has been an emerging practice, with an adoption rate of 21% among SMEs, particularly by manufacturing ecosystems such as textiles and agri-food (see Table 1 below).

However, there is a lower take up - 11% - of circular business models. The most popular business practices and business models are the product-as-a-service and leasing models, where customers obtain temporary access to a product via leasing or pay-per-use schemes. The ecosystems using this the most are health with 22.3%, aerospace and defence with 14.3%, and construction with 13.4%. However, remanufacturing, which increases a product’s lifetime and allows the revaluation of products, is still very limited, which may be due to the related complexities, software restrictions, and high costs.

There is a mixed uptake of clean production technologies, including waste and water reduction technologies. Ecosystems such as tourism, health, and agri-food show a high degree of clean production technologies with 23.3%, 24.3% and 28.6% respectively, whereas electronics and cultural and creative industries show lower levels.

Figure 2: Share of SMEs that have reported increasing their expenditure in green technologies per industrial ecosystem in the EU27 over the past 5 years

Source: Technopolis Group and KAPA Research, for the European Monitor of Industrial Ecosystems (EMI) project 2023

Investments and adoption of Digital Technologies by SMEs

On average, 49% of surveyed SMEs across all industrial ecosystems have increased their investments in digital technologies. However, the share varies across the ecosystems with higher levels in aerospace and defence (68.8%), and cultural and creative industries (65.3%) and mush lower levels in textiles, retail, and electronics.

Figure 3: Share of SMEs that reported increasing their expenditure in digital technologies per industrial ecosystem in the EU27 over the past five years

Source: Technopolis Group and KAPA Research, for the European Monitor of Industrial Ecosystems (EMI) project 2023

As regards the adoption of advanced digital technologies more specifically, Figure 4 indicates the share of SMEs in each industrial ecosystem that have adopted each technology. The results show that cloud technologies have overall the most relevance for SMEs, corroborating Eurostat data 14 . Similarly, the data suggests that adoption is increasing, but use is mainly limited to communication systems and data storage. Textiles (32.3%), health (31.0%) and aerospace and defences (30.4%) are the ecosystems that are using the most cloud computing technologies.

Figure 4: Share of SMEs that have adopted advanced digital technologies per industrial ecosystem in the EU27