Are Lead Markets going anywhere?

It’s not good enough that a product is better than what went before, it won’t be successful without a receptive market.  And for many public sector purchasers, it’s often easier to keep buying the old product than to opt for a disruptive, innovative one that may require changes in procedures, or shift costs from one budget line to another.

Yet Europe’s public sector is calling out for innovation, to help it cope with rising health and social care costs, recycle more refuse, reduce energy consumption and operate more efficiently.

The size of the lost opportunity this represents was highlighted by former Finnish Prime Minister Esko Aho in 2006, in ’Creating an Innovative Europe’ a report in which he articulated a vision of driving the development of new high tech markets in Europe by bringing its massive public sector spending power to bear in areas including health, construction and waste disposal  – where the public sector is the largest customer.

The report struck many raw nerves, and moving at notable speed, in 2007 the European Commission launched the Lead Markets Initiative (LMI). Unfortunately, the scale of this initiative does not match the large-scale strategic action that Aho called for, and as a result has fallen short of his ambition, according to an evaluation of progress to date, published last month.

The authors say the shortcomings of LMI are reflected in the comments of some of those who participated in this evaluation. “They feel that some of the rhetoric surrounding the LMI raised expectations of quite significant changes in policy that have not been realised,” the report says.

Not an overarching strategy

But the authors note that the LMI is more a set of pilot programmes focussing on six specific markets, rather than an overarching strategy aiming to shift the basis of whole area of policy, and should be judged as such.

Given this, it is important to look at individual successes rather than write off the ongoing programme as a failure. The major strength of LMI is, “its potential to focus on a relatively restricted number of inter-related policy issues that are of importance for the development specific promising markets, but that are unlikely to be dealt with systematically in any other policy framework,” the report says.

In addition, the architecture of LMI was rather new and involved interaction with many different groups, some of which were not used to operating at a European level.

The initiative concentrated mainly on areas where the Commission’s services could have a direct input, without much reference to the Member States. It did nonetheless require a considerable amount of co-ordination across different services of the Commission.

Overall, the report says, engagement with industry has generally been  more successful than with Member State authorities - although the way that this developed varied considerably across the different markets.

Six action plans

The markets targeted by LMI are: bio-based products, eHealth, protective textiles, sustainable construction, recycling and renewable energies. Six action plans are in operation over a period of 3-5 years consisting of a mix of demand-side policy measures in the fields of legislation, standardisation and labelling, public procurement, and complementary activities, which mainly involve support from the existing Competitiveness and Innovation Programme and Framework Programme 7. The initiative as a whole is in the third year of its full implementation.

So for example, in the case of protective textiles, advances in materials science and embedded intelligence are leading to the development of garments that are not only able to protect their wearers in extreme conditions, they are also able to monitor the environment in which they are being worn and provide feedback if conditions are becoming dangerous.

Public authorities are very important customers for clothing making use of such protective textiles, for fire-fighters, emergency services, police forces and health care professionals. In certain product categories public purchases account for 100 per cent of sales.

But limited end user input has resulted in a fragmented development of this kind of advanced equipment and a failure to address basic issues, such as the usability and comfort of equipment in extremely stressful situations.

Recognising the scope for public procurement to stimulate the use of advanced materials, thus pulling new products through that could also expect to find significant markets elsewhere in the private sector and outside Europe, the Enprotex network was set up to encourage the use of new materials in protective clothing for fire-fighters, and is developing guidelines for authorities purchasing this equipment.

Similarly, public bodies are responsible for around 40 per cent of EU construction projects, prompting a lead markets initiative in Sustainable Construction. As yet the market for sustainable building materials is highly fragmented and purchasers lack knowledge and understanding of the value of these products.

Suppliers also need to be aware of the particular needs of the public market and to use case studies to promote the adoption of innovation from one country to another. In a bid to overcome these barriers the Sustainable Construction and Innovation Network has been set up, focusing on three topics:

• renovation of the existing building stock;
• innovative building materials;
• the use of life-cycle analysis and life-cycle costing of building projects.

According to the evaluation, effective engagement with industry has been one of the successes of the LMI in certain markets. There are many lessons to learn from the methods adopted, but perhaps the most important is the development of structured interactions between purchasers and suppliers.

Another success has been the promotion of end-user interaction with research - from the shaping of objectives, to the detail of the work undertaken and its subsequent application. The evaluation says, “This is a major advantage of the lead market approach, providing positive links between the demand-side and supply-side.

And, says the report, this should be exploited further. For example, a further strengthening of the relationships between purchasing authorities and the major technology platforms would be a useful step in this direction.

Overall, LMI has been, “at the forefront of an important shift in innovation policy at a European level,” leading moves towards a greater emphasis on the demand-side stimulation of innovation. This approach is now widely recognised as a significant element in innovation policy at regional, national and European levels.

Encouraging progress perhaps, but despite the urgency of Aho’s call and the speed with which the European Commission reacted, the lead markets initiative is still very much a work in progress and its real impact when – and if – it arrives, can only be expected in 5-10 years from now.