The Old World Becomes A Little Newer

The trend toward collaborative innovation will help the Continent revive its R&D.

Europe has long been an innovation leader. Centuries ago, Johannes Gutenberg revolutionized practically everything with his technological marvel, the printing press. Europe's modern-day innovators have changed how we work and play with inventions such as compact disks, the World Wide Web, and the Linux operating system. Today, engineers at Airbus are pushing the envelope with the world's biggest commercial aircraft, the 600-seat, double-decker A380 superjumbo. And Europe still dominates mobile-phone technology, thanks to local champs Nokia (NOK ), Ericsson (ERICY ), Siemens (SI ), and Alcatel (ALA ), which together spent $13 billion on telecom research and development last year. "There's an enormous amount of technical talent in Europe," says Joël Monnier, director for central R&D at European chip giant ST Microelectronics in Geneva.

Yet despite the successes of solo inventors and big companies, Europe's place as a technological leader is far from assured. Overall R&D spending lags behind that of the U.S. and Japan. R&D spending in the 15 (pre-enlargement) European Union member countries clocked in at just under 2% of gross domestic product in 2002 -- the most recent year tallied -- compared with 2.7% in the U.S. and just below 3% in Japan.

Worse, venture-capital investment in European tech startups -- a key ingredient for innovation -- was less than a quarter of that in the U.S. last year. For European scientists and engineers, it's tougher to cash in on their inventions by starting up new companies. The lack of incentives has spurred an exodus of smart people from the Continent. An estimated 400,000 European scientists and engineers now live in the U.S., and a 2003 study found that among Europeans who got PhDs in the U.S. in the 1990s, three-quarters have no plans to return home.

What's the Old World to do? From the corridors of Brussels to corporate laboratories, Europe is working to overcome these obstacles. EU policymakers had already declared, in 2000, that they want the Continent to boast the world's most dynamic knowledge-based economy by 2010. Now they are pushing to boost R&D spending by governments, universities, and corporations to a total of 3% of GDP within the decade. That will require raising overall spending by 6.5% annually -- two more points than the current rate -- and hiring 700,000 researchers.

European R&D spending has already climbed a bit -- about a half of a percentage point -- since 2000, but Europe may have a hard time hitting its 3% target unless companies step on the gas, says Georges Haour, professor of technology management at IMD business school in Lausanne, Switzerland. He's not writing off Europe, though. "What really counts is the effectiveness of the innovation," Haour says. "If you spend less but get more bang for your buck, it's even better."

That's why policymakers are also trying to improve the climate for innovation in Europe. The EU is working to attract more women into science and knock down barriers that hamper technology transfer among universities, public research labs, and private companies. National and regional governments are promoting technology clusters such as the emerging "Telematics Valley" in Göteberg, where car manufacturers and wireless companies collaborate on mobile-communication systems for motor vehicles.

Some efforts are bearing fruit. Following the model of Silicon Valley's ties with Stanford University and University of California at Berkeley, dozens of technology parks are springing up around European schools. Prominent examples include the Roslin BioCentre near Edinburgh, where Dolly the sheep was cloned, and the IMEC semiconductor cluster in Leuven, Belgium. In Germany, the renowned Max-Planck research institute has established a tech transfer unit that has helped seed 64 startup companies in partnership with venture capitalists.

In the corporate world, the trend toward creating innovation networks also plays to Europe's strengths. Since World War II, Europeans have had plenty of practice in collaborative ventures, from the Ariane rocket to the GSM mobile-phone standard. Royal Philips Electronics (PHG ) is a leading proponent of this style of cooperative innovation. In June, the Dutch giant opened a new 28,500-square-foot semiconductor clean room in Eindhoven, Netherlands, that is also available to other companies who lease space to develop -- and sometimes share -- technology there. "The era of doing everything yourself is over," says Rick Harwig, chief executive of Philips Research in Eindhoven. One Dutch startup, called fluXXion, is already using the lab to produce filtration systems so precise that they can screen bacteria out of milk. Meanwhile, Philips continues to roll out innovations of its own there, such as a new biosensor chip for fast, accurate blood tests, and a technique for etching flat-panel display circuitry using a modified inkjet printer.

With smaller domestic markets in which to grow, Europeans grew accustomed to doing business across borders long ago. "We have to think in multinational terms," says Marten Mickos, CEO of Swedish software company MySQL. That makes Europeans more experienced in dealing with a patchwork of languages, business rules, and cultures -- a skill increasingly necessary for global success. Take Germany's SAP (SAP ), the world's No. 1 seller of run-the-business software. It started setting up research labs outside its home country a decade ago. The goal: to tap into local knowledge, get closer to customers, and save money by hiring cheaper talent. Now, some 30% of SAP'S 10,000 engineers are based outside Germany, in locales ranging from the U.S. to India to Romania. But SAP still keeps 70% of its R&D at home in high-cost Germany to take advantage of the country's "culture of great, hard-working, intelligent engineers," says Leslie Hayman, global head of human resources.

To be sure, Europe still has its work cut out catching up with the U.S. in supporting research. But R&D spending alone isn't an adequate metric for innovation. In an increasingly interconnected world, Europe's ability to collaborate across borders "could turn out to be a more sustainable model for innovation," says David E. Schindel, former head of the U.S. National Science Foundation's European office. If the Old World unites around its impressive strengths, it may help drive the next innovation era.

By Andy Reinhardt

With Jasper Perkins in Paris

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