Europe’s semiconductor industry is research intensive, but lacks a culture of entrepreneurship, says Robert Huggins
The recent news that the EU is to divert €75 million from the budget of its Horizon Europe R&D programme to fund the European Chips Act highlights that policymakers’ efforts to review and adjust industrial priorities will create winners and losers in research and innovation.
The Chips Act is itself a manifestation of Europe’s collective realisation that its semiconductor industry needs to compete more effectively with companies from North America and Asia.
To become more competitive, the European semiconductor industry needs to grow in scale and become more innovative. It has welcomed the Chips Act, along with increases to its budget. But whether or not competitiveness improves will depend on how this funding is spent.
Manufacturing vs R&D
Much of the debate on how best to target the act’s proposed €43 billion of funding has been around how money is to be shared between manufacturing and R&D activity.
Europe’s share of the global chip manufacture market is only around 10 per cent. Its semiconductor R&D activity, in contrast, seems relatively healthy. European semiconductor companies are more research-intensive than their Asian rivals, with 15 per cent of their turnover directed towards R&D, compared with 11 per cent for Taiwan, 9 per cent for South Korea and 8 per cent for China. US firms lead the way, but not by much, dedicating 18 per cent of turnover to R&D.
However, R&D intensity in Europe does not compensate for a lack of scale. European companies currently account for only 6 per cent of global private sector investment in semiconductor R&D, compared with 60 per cent for the US, 13 per cent for South Korea and 11 per cent for Taiwan.
This lack of scale will severely hinder the development of a competitive, growing and innovative industry. It results from a paucity of large European players in semiconductors and a lack of growing businesses more generally.
In many ways, the choice between R&D or manufacturing is false: they increasingly go hand in hand. Taiwan, the global leader in chip manufacturing, is implementing policies to increase R&D intensity within its industry and grow companies with the capability to rapidly scale up activities. Another sign of change is the news that the British semiconductor and software designer Arm is developing plans to manufacture its own chips.
The Chips Act must establish a clear strategy that embraces both R&D and manufacturing. The aim should be to create a cadre of new businesses with the capacity to drive competitiveness, growth and innovation. To achieve this, targeting the act’s R&D funding towards encouraging commercialisation, entrepreneurship and private sector investment would be more effective than a focus on financing basic research.
Entrepreneurial culture
The EU hopes that the Chips Act will leverage more than €30bn of private sector investment. However, Europe has a deep-rooted and persistent lack of an entrepreneurial culture in high-tech industry, particularly compared with North America and, increasingly, parts of Asia.
Efforts have been made to address this, with European universities and research institutes investing in technology transfer and entrepreneurial education. Nevertheless, university spinouts or other startups remain rare in the European semiconductor industry.
Overall, the industry in Europe is highly clustered. Activity is concentrated in a small number of locations: Leuven in Belgium, Dresden in Germany, Eindhoven in the Netherlands and Grenoble in France. These clusters contain universities and institutes with an enviable track record in semiconductor research. However, recent research I conducted with colleagues shows that these clusters largely lack the scale, ethos of commercialisation and culture of entrepreneurship needed to compete on the global stage.
The Chips Act should prioritise removing this bottleneck between research and business. It is heartening that the act states it will seek to improve capabilities in chip design and develop “pilot lines” to take designs from the lab into pre-commercial manufacturing. Such policies could spur and attract private sector investment for manufacturing within the clusters.
More generally, a successful semiconductor policy would make a significant contribution to lifting the entrepreneurial malaise afflicting European high-tech industry. The US has implemented its own Chips Act and China, Japan, South Korea and Taiwan are investing heavily in semiconductor innovation and manufacturing.
Given the geopolitical tensions driving and shaping these investments, there is much at stake. Europe must ensure it remains a meaningful player at the table.
Robert Huggins is professor of economic geography at Cardiff University and a member of its Centre for Innovation Policy Research
This article also appeared in Research Europe