KNOWLEDGE AND INNOVATION Research and Development

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1 28 Research and Development The first phase of the innovation process is usually founded upon research and development (R&D). The knowledge base that underlies high tech and qualitative products, goods and services arises from this. However, it is far from certain whether the results of R&D are always commercialised in the same region in which the research takes place. This can affect economic growth 1. The regional return on R&D investment depends on several factors, such as conducting R&D projects in relation to other economic activities in the value chain: R&D activity focus (basic research, applied research or experimental development), the regional market size and access to capital. The time factor also plays an important role in the innovation process, which can frequently have a time frame of several decades. A specialised R&D sector of appropriate size and quality is the first step towards financial success in the modern knowledge economy. In this context, the Øresund Region occupies a prominent place at the Nordic and European level (see page 16 on business structure). This is also reflected in access to capital especially foreign capital to finance R&D. In addition, the Nordic countries are generally characterised by a good business climate 2. R&D investments Investment in R&D is a key objective of regional capacity and willingness to optimise the knowledge base. It does not, however, necessarily mean that all investments in R&D are transformed into commercial products. The EU2020 plan, which aims to make the EU the world's most competitive knowledge economy, uses R&D investments as one of 14 indicators to measure progress. The goal is an investment level of at least 3 per cent of GDP. The Nordic countries apart from Norway and Iceland are world leaders in 1 This is supported by empirical studies. Further evidence to support it is demonstrated in a 2006 study, which included Nuts2 regions that compared R&D intensity and number of patents on the one hand against economic development (measured in GDP per capita) on the other. The study showed that the region that invested the most in R&D Braunschweig in Germany was simultaneously the fourth weakest region in terms of economic growth. Conversely, none of the league's top 10 growth regions has an R&D intensity of more than 2 per cent (Hanell, T & Neubauer, J: Geographies of Knowledge Production in Europe. Nordregio WP 2006: 3). 2 Forbes Best Countries for Business The Nordic countries' position in the world (in parentheses): Denmark (5), Sweden (7), Norway (8), Finland (13) and Iceland (23).

2 Øresund Trends R&D expenditure as a proportion of GDP in selected countries (2010) in per cent Israel Finland Sweden Source: OECD. Denmark USA (2009) Germany Austria Iceland (2008) France Slovenia Belgium Netherlands China terms of investment in R&D. In 2010, Denmark, Sweden and Finland's total expenditure on R&D was already far above the EU 2020's target. Two thirds of these investments were financed by business, which is high by international standards. Ireland United Kingdom Norway (2009) Estonia Portugal Czech Republic Spain Italy Russia Hungary Poland Slovakia EU27 OECD total (2009) West Sweden and several German regions were previously high on the list of business R&D investment, but fell back a little in This can be explained by the financial crisis hitting the automotive industry hard. Among the 264 European regions reporting R&D investment, the Øresund Region is high on the list of R&D investment as a share of gross regional product. The Øresund Region is in eighth place (The Capital Region occupies seventh place, Scania-Blekinge ninth and Region Zealand is in seventeenth place). The investment structure is virtually identical on both sides of the Øresund waterway. The business sector s significant and market-oriented R&D investment, which accounts for 75 per cent of total investments, is combined with more modest investments from universities and authorities (it is a little different in Region Zealand because this is a major activity undertaken by the authorities). The pattern also characterises the other Nordic metropolitan regions. The Øresund Region is strong in the academic field: the University of

3 30 Copenhagen is number 44 in the world according to the Shanghai Index 2011, and two other universities are among the top 200 universities in the world. This puts the Øresund Region in a strong position in the Nordic Region as well as northern Europe. Only Stockholm is just as strong 3. 3 According to the Shanghai Index When you look at the business sector s involvement in national R&D investment relative to total investment, there is a clear link between them. That is, the higher the R&D expenditure funded by business, the higher the overall level R&D expenditure as a proportion of GDP in the top 20 EU regions Ranking Land Region R&D funds (EUR million) Share of GRP in per cent 1 Germany Braunschweig Belgium Prov. Brabant Wallon Finland Pohjois-Suomi United Kingdom Cheshire Germany Stuttgart United Kingdom East Anglia Denmark Metropolis Denmark/Sweden Øresund Region, including Blekinge län Sweden Scania-Blekinge Germany Oberbayern Germany Tübingen Sweden Östra MellanSweden France Midi-Pyrénées Sweden VästSweden Germany Karlsruhe Finland Länsi-Suomi Denmark Zealand Austria Vienna Austria Steiermark Sweden Stockholm Finland Etela-Suomi (Helsinki) Source: Eurostat. Since Eurostat only reports data on NUTS2 regions, it has not been possible to distinguish between Scania and Blekinge since both regions are within the same NUTS2 region. This means that the absolute value of the Øresund Region's R & D expenses are a little higher.

4 Øresund Trends Business sector's R & D expenditure in EUR billion and as a percentage of GRP (2009) Ranking Region EUR billion Percentage of GRP 1 Cheshire 1, Stuttgart 7, Braunschweig 2, Pohjois-Suomi (NUTS 2006) 0, East Anglia 2, Metropolis 3, Øresund Region 5, Oberbayern 6, Scania-Blekinge 1, Tübingen 1, Zealand 0, West Sweden 1, Essex 1, Midi-Pyrénées 2, Länsi-Suomi 1, Bedfordshire and Hertfordshire 1, Darmstadt 4, Östra MellanSweden 1, Stockholm 2, Etelä-Suomi (NUTS 2006) 2, Source: Eurostat. of investment in the country 4. This relationship is apparent for most Nordic regions. 4 Hanell & Neubauer, The Øresund Region is among the leading European regions, both in terms of business R&D expenditure and total R&D expenditure as a share of GRP. Although the Øresund Region cannot yet be regarded as functionally coherent, it can be concluded that a significant proportion of total R&D investments in Denmark and Sweden are concentrated in the Øresund Region. 43 per cent of the business sector s total R&D investments in Denmark and Sweden in 2009 were located in the Øresund Region. The region has also increased its share of R&D expenditure over time. In 1997, the Øresund Region accounted for just 25 per cent of total corporate R&D expenditure in Denmark and Sweden. Thus there is an increase of 18 percentage points between 1997 and The general pattern is that the majority of R&D investment takes place in metropolitan regions. In Denmark, the business sector s own R&D investments are largely concentrated in the Danish part of the Øresund Region, especially the Capital Region. Approximately

5 32 84 per cent of Danish business R&D investment takes place in the Danish part of the Øresund Region: the Capital Region accounts for the majority, 66 per cent, and Region Zealand for 18 per cent. In Sweden, the greater part of business R&D investment is also in the Capital Region, but Stockholm's role is not as dominant in Sweden as Copenhagen is in Denmark. Approximately 34 per cent of business R&D investments are made in Stockholm County, followed by 25 per cent in the Västra Götaland Region and 17 per cent in Scania and Blekinge (figures from 2009). If we measure business R&D expenditure as a share of GRP, the Øresund Region is also high. The Capital Region has the highest with 3.78 per cent, followed by Scania-Blekinge and Region Zealand with 3.51 per cent and 3.38 per cent, respectively. The proportion for the total Øresund Region amounts to 3.64 per cent. When comparing investments internationally in nominal terms, it is not obvious that the same sums can finance an equal amount of R&D in different countries and regions. It depends, of course, on the different structures in terms of business, research and costs. Another part of the explanation is the wage gap between countries and regions as well as between sectors. Differences in purchasing power are usually adjusted to different price indices. This is not possible for R&D. As with so many other services, R&D is personnel heavy, and so the majority of R&D expenditure goes in salaries 5. Around two-thirds of R&D expenditure is accounted for by salaries in the Øresund Region. Although it is not currently possible to analyse the consequences in detail, it is reasonable to assume that investment in R&D on the Danish side probably has a lower purchasing power and thus finances a smaller amount of R&D than is the case in Sweden. This becomes more important when comparing regions in western and eastern Europe. The difference in purchasing power can influence the investment patterns in R&D in Europe significantly in the longer term; this is because lower costs outside western Europe may attract a much larger share of R&D investment in the future. 5 Denmark and Sweden have no statistics on R&D investments, but in Germany, R&D studies include questions of this nature. The German studies show that in most industries, around two thirds of R&D expenditure goes to fund salaries, especially in dedicated R&D environments (Stifterverband für die Deutsche Wissenschaft: FuF-Datenreport Tabellen und Daten, s. 38 Tabelle 14).

6 Øresund Trends The high-tech service sector in EU15 (2003) Specialisation index high tech services Information lacking Not EU Since 2000, wage costs in Denmark have increased by 35 per cent, while Sweden has experienced a growth of 18 per cent. In comparison, labour costs in Germany rose by just 6 per cent over the same period. In other words, it has become relatively expensive to conduct R&D in the Øresund Region and in the Danish part in particular. Innovative capacity The ability to translate research, knowledge and ideas into new commercial products and processes is essential to increasing a region's global competitiveness. Innovative capacity is difficult to measure, in part because the concept is difficult to define, in part because there is a lack of standardised data at regional level. Source: Eurostat, Statistics Denmark and Statistics Sweden Map: Region Scania. An attempt to measure regional innovation capability has been made in the EU-funded study 'The Regional Inno-

7 34 vation Scoreboard'. According to the study, regions in Denmark and Sweden are among the most innovative regions in Europe. The study is based on a weighted index of 17 different indicators, which are divided into three main groups: innovation promoting background factors (public R&D expenditure, higher education, access to broadband, etc.) innovation activities in enterprises (R&D expenditure, patents, etc.) and performance factors (employees in high-tech companies, sales of new products, new innovation companies, etc.). The latest survey from December 2009 contains data from in the next highest group, which includes much of the central and western regions (half of EEA 6 countries' regions). Unfortunately, the statistics in Denmark are at national level, not regional. Denmark as a whole is considered to be among the regions with the highest capacity for innovation, while Scania is 6 EEA countries consists of 27 EU member states plus Iceland, Norway and Liechtenstein.