Lead markets – gateway to growth?

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Lead markets are markets in which EU industry can develop a global competitive advantage provided that it gets support from the public sector as regulator, customer and facilitator.

Lead markets are high-growth potential markets for research and innovation-rich goods and services. EU initiatives focus on areas where public authorities can facilitate industry-led innovation by creating favourable legal and regulatory frameworks, setting standards, improving access to risk capital, providing support for research and acting as a launch customer.

The concept was introduced into EU terminology by the 'Aho report' (January 2006) on Creating an innovative Europe. The report was the outcome of a small expert group chaired by the former Finnish prime minister, Esko Aho, and appointed by the October 2005 Hampton Court European Council to consider what new efforts are needed in the field of research and innovation to achieve the Lisbon goals. 

One of the Aho report's main points is the creation of an innovation-friendly market in which businesses can launch new products and services, with public procurement driving demand. The concept was taken on board by the Commission in a communication published in September 2006 Innovation: putting knowledge into practice. This ten-point programme seeks to encourage innovation on both the supply and demand side by "developing a strategy for innovation friendly lead-markets". Member states backed the idea in December 2006 and invited the Commission to present an initiative on lead markets in 2007. 

A Commission working document (July 2007) on a European strategy in support of innovation in services states that member states are in a unique position to support service innovation "by acting as launch customers". It argues that better trans-national cooperation between regional and national procurement agencies at European level is needed to contribute to the further development of an internal market for services.

Policy areas for action, identified by the Commission, to be addressed in the creation of a lead market include developing an anticipatory approach to product market regulation; stimulating and facilitating the timely development of standards by stakeholders, using public procurement in markets where public authorities can act as launch customers; improving and optimising IPR regimes; concerted actions between EU and member states, and co-operation with industry.

The Commission adopted a Communication on the lead market initiative for Europe on 21 December 2007, but this adoption was not announced until 7 January 2008. The first six lead markets in which innovative solutions will be supported are: 

  • eHealth, as ICT solutions for patients, medical services and payment institutions can help deliver better care for less money; 
  • Sustainable construction, as buildings account for the largest share (42%) of the total EU final energy consumption and produce about 35% of all greenhouse emissions;
  • Technical textiles for intelligent personal protective clothing and equipment, as the EU market has a growth potential of 50% over the next few years and can generate important spillover effects to other market segments of the textile sector; 
  • Bio-based products, as Europe is currently well placed in this market, but perceived uncertainty about product properties and weak market transparency hinder the fast take-up of products; 
  • Recycling, as the sector has a significant market potential and plays a key role in the move towards sustainable consumption and production;
  • Renewable energy, as the development of renewable resources is held back by high costs, low demand, market fragmentation as well as administrative and market barriers.  

The Commission will, in the future, consider lead market initiatives for other market areas if "the identified criteria appears to be ripe for a similar initiative" and co-operation between member states and other stakeholders on the first six initiatives proves successful. 

An action plan for the coming years is set out for each of the six markets in an annexe to the Communication. They detail how legislation will be improved in each area to foster innovation and how public procurement, standardisation, labelling and certification will be encouraged. The impact assessment annexed to the communication estimates that "supported by the focused approach of the lead market initiatives, the combined market volume of the six markets could more than double by 2020 and some 1 million new jobs could be created".

An expert report on 'pre-commercial procurement of innovation' published in March 2006 suggests that national administrations should come together to share the risks and benefits of pursuing novel services and products with the providers themselves (see EURACTIV 31/03/2006).

European dimension to pre-commercial procurement would build critical mass on the demand side, stimulate competition and exploit economies of scale and scope. According to the report, "it would contribute to solving pressing European issues such as interoperability and coherence of solutions across borders and stimulate the uptake of European research. Finally, co-operation on a European level would reduce the risks for the individual procurers of purchasing yet-to-be proven technologies." 

The expert group explains how this can be done in line with WTO rules by the Europe-wide publication of tenders  and acceptance of Europe-wide offers, and by using, for example, the Competitiveness and Innovation Programme (CIP) as an incentive for procurers of pre-commercial innovation.

"Lead markets are not about protectionism, picking winners or creating national champions. The purpose is to enable innovation to emerge and come to market. In order to ensure success, an integrated effort is needed across all services and policy areas, as well as between public authorities and industry," said Commission Vice President Günter Verheugen.

"We are trying to create a demand push," said Research Commissioner Janez Poto?nik, adding that the creation of Europe-wide lead markets requires early prospective development of standards by stakeholders, anticipative product market regulation, an improved intellectual property rights regime and public procurement as the driver for the demand for innovative goods and services. 

The Council believes that lead markets can help bring innovative products to market and underlines that they are about "creating conducive frameworks for innovation in specific areas of the economy where European firms could have a globally leading role, but where due to reasons related to, for example, burdensome regulation and systemic failures in policy and legislative coherence, this potential remains currently unrealised". It also calls for a concerted approach to public intervention in the areas of product market regulation, standardisation, IPR, public procurement and removing legal obstacles.

European Health Telematics Association (EHTEL), in a letter to its members welcomed the Commission Communication and said that "it is noteworthy that the European commission has put eHealth on top of the list of the 6 potential lead markets, clearly before other markets."

Dr. Joachim von Heimburg from Procter & Gamble Service GmbH said that the concept of the 'lead market' is not very clear for business. "It is like all other innovation initiatives, just a concept. The question is what we are going to do concretely. If I go and present this concept to my boss, he will say 'great - so what'."

Business has also pointed to concrete management issues linked to the creation of lead markets and highlighted the importance of standardisation for the creation of lead markets. "Business needs regulation, not in the sense of for more laws but what comes to standardisation. If we get the standards right, for example on nanotechnology, we can create a really big market in Europe," argued Rüdiger Iden from German chemical giant BASF. "Thanks to our common GSM standard, we now have a lead market on GSM in Europe," added Jozef Cornu, chairman of a EUREKA cluster, MEDEA+.

As for the creation of lead markets as public-private partnerships (PPPs), some business representatives have expressed doubts as to the viability of such co-operation. Asked about the conditions of success and the critical success factors of PPPs, Rüdiger Iden from BASF said that "PPPs are not an answer to any consortia question, as it explodes in its complexity." Koenraad Debackere, professor at KULeuven Research & Development  added that "intellectual property rights may be complex to deal with from time to time." 

"Implementation of this type of initiative requires true project management. You need to manage research, follow markets and understand the competitive advantage of what you are developing, manage intellectual property rights and conduct market watch to be sure to not to reinvent the wheel," said Monica Beltrametti from Xerox, highlighting the importance of a clear division of responsibilities and accountability. 

With regard to lead markets, the European Association of Craft, Small- and Medium-sized Enterprises (UEAPME) has previously stressed that "all EU enterprises, not just a few 'national champions', must be able to access the innovation market and take advantage of it". 

UEAPME believes that: "While incentives for 'early movers' may be an effective feature in this respect, such markets should not become closed circles for one or a few winners, but should rather pave the way for a gradual improvement of the whole market sector involved. Obstacles to market access and opportunities for SMEs should be thoroughly assessed during the suggested pilot project on 'lead markets' in 2007."

According to the European Policy Centre (EPC), a Brussels-based think tank, lead or niche markets for innovative products and services "should be clearly identified and the rationale for intervention spelt out: environmental protection, rail transport, facilitating labour mobility energy security, public heath and mitigating population ageing are all areas where Europe has the potential to become a world leader."

  • 4 July 2007: Communication on mid-term review of industrial policy introduces lead markets as one of the horizontal initiatives.
  • 27 July 2007: Commission staff working document on fostering innovation in services.
  • Oct. 2007: Launch of a public consultation on fostering innovation in services (open until 31 December 2007).
  • 6 Nov. 2007: EURACTIV stakeholder workshop on 'Towards a lead market on eHealth'.
  • 14 Dec. 2007: The Commission adopted a Communication on Pre-commercial procurement.
  • 20 Dec. 2007: eHealth Taskforce issued a report in view of the Lead Market Initiative.
  • 21 Dec. 2007: The Commission adopted the lead markets initiative.
  • 7 Jan. 2008: The Commission published the Communication on the lead markets initiative.
  • Early 2008: Launch of the European Innovation Platform for Knowledge Intensive Services (KIS-platform).
  • 25 May 2008: Competitiveness Council will examine the initiative.
  • First half of 2008: A Commission communication on fostering innovation in services.
  • By mid-2008: The Commission will propose concrete actions to help member states to launch public procurement actions in high-risk technological fields.
  • 2009: A mid-term progress report on the progress in implementing the action plans and the commitment of public and private stakeholders. 
  • 2011: A final report on the first round of the lead market initiatives will be presented.  

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