EUROPEAN INDUSTRIAL SOVEREIGNTY - Future Watch Strategy Brief 07/12/2020 - Business Finland
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EUROPEAN
INDUSTRIAL SOVEREIGNTY
Future Watch Strategy Brief
07/12/2020 1
Introduction and objectives
Review of global industrial sovereignty trends
Table of Contents Review of European industrial sovereignty trends
& the current situation in the European Union
Review across industries & exemplary business cases
Scenarios for 2025-2030 & Map of current and future drivers and risks
related to the European Industrial Sovereignty initiatives
Summary and recommendations
2
Industrial Sovereignty concept evolution
The Industrial Sovereignty concept refers to some level of industrial Industrial Sovereignty is the most general concept which challenges global
independence but is not homogenous and encompasses various interdependencies and asks questions about how effective globalisation is in value creation,
dimensions, depending on the context, content and scope wealth distribution and the diffusion of innovations. It assumes some level of self-reliance in
general or in selected industries, which is extremely difficult and costly to restore or create
from the scratch, and then maintain. Access to raw materials is another important aspect.
Industrial Technological Sovereignty refers to particular technologies or industries which are being
Sovereignty considered as particularly important for building competitive advantage of a national
economy on the global arena or being the key base technology for the development of other
related or dependent technologies (e.g. artificial intelligence, batteries, quantum computing,
etc.).
Digital Sovereignty is closely related to data processing and security in Internet,
Technological Digital communication, machine learning, IoT and AI technologies. Data has become an extremely
valuable resource and access to this data is of strategic importance for almost every
Sovereignty Sovereignty industry. Then there is the issue of sensitive or personal data which requires special
protection.
Supply chain resilience lies at the center of the debate about how post-Covid economic
relations should be shaped in order to secure uninterrupted supplies of goods and services
most critical for national health, energy and food security. It doesn’t require Industrial,
Supply chain resilience Technological or Digital Sovereignty, but rather strategies and actions focused on
diversification and risk mitigation.
3
Global industrial sovereignty trends
USA China Japan
Tightening the screening of FDIs Technological Sovereignty as a strategic decision Tightening the screening of FDIs
Donald Trump’s former election promise to bring manufacturing “Dual circulation” economic strategy Granting subsidies to companies moving their
back to USA Aims to gain technological independence in manufacturing capabilities back from China
“America First” policy, meaning shift from trade liberalisation aerospace, semiconductors and robotics (however only a fraction of them are interested
(withdrawal from the Trans-Pacific Partnership) toward Imposing restrictions for foreign companies – 4% currently)
protectionism (CureVac takeover attempt and redirecting air interested in entering its tech business Established the USD2.2bn programme for
deliveries around globe in order to support supplies to US hospitals) Subsiding state-owned enterprises and awarding restructuring supply chains, as risk
and trade war with China initiated by Donald Trump’s administration. them with numerous privileges management tool
However we might expect change of the course under Joe Biden’s Restricting foreign investments
presidency
Important factor behind Industrial
Sovereignty trends in APAC countries
is China’s regional hegemony
India Australia
Focus on liberalising internal business The need signaled for a National Sovereignty
Key trends environment Strategy which should overlook areas of
Rising concerns about USD55bn trade comparative advantage (mining, agriculture
deficit with China (data for 2019) and technologies, mineral processing, food and
Securing uninterrupted supplies of strategic goods and its negative impact on Indian economy beverage manufacturing) and areas of
services such as fuels, medicines and food, through are leading to joining supply chains national priority (pharmaceuticals, medical
diversification and risk management alternative to China technology, defense, energy, space, waste
Enhancing own manufacturing and recycling) but as for now only liquid fuel
Focusing multiple efforts on building excellence in the capabilities in cooperation with security has been discussed
given industry or technology Western business partners (in 2019 Implementing the FMCEA (Failure Mode
India has joined European Alliance for Affects and Criticality analysis) to reduce the
Re-shoring or rebuilding manufacturing capabilities Multilateralism) – positioning itself as failure probability and to mitigate failure
more trustworthy alternative to China consequences
Focus on digital sovereignty (blocking Equilibrium between global connectivity and
Protecting markets from e.g. hostile takeovers or outside 59 Chinese apps due to data security self-reliance
competition concerns) Tightening the screening of FDIs
4
Global industrial sovereignty trends – consequences for European
entrepreneurs
Securing the uninterrupted Focusing multiple efforts Re-shoring or rebuilding Protecting markets from
supplies of strategic goods on building excellence in manufacturing capabilities e.g. hostile takeovers or
and services such as fuels, the given industry or outside competition
medicines, food, through technology
diversification and risk
management
Opportunity to enter supply Threat of losing the technological Use of competitive advantage of Must undergo more extensive
chains that must be redesigned competitive advantage over many European companies which procedures when acquiring major
due to the need to improve their companies in industries are experienced in implementing or significant share of companies
resilience – actively searching for supported by a given country manufacturing 4.0 located outside EU
announcements that might
indicate such movements in given Must actively search for niches Opportunity to participate in Experience obstacles when
supply chains still not covered by the building new manufacturing plants introducing products or services
programmes coordinated by the – monitoring the national for a given market (e.g. additional
Threat for companies engaged given states announcements and public requirements related to norms or
with supply chains that are procurements, building relations legal or technological
expected to undergo the Opportunity for taking advantage with decisive bodies in a given compatibility)
transformation of closer technological country
cooperation with companies Experience difficulties when
Must expect and accept new, enjoying state support programs Attracting companies who are already present on a given market
stricter requirements securing in their home countries, where trying to relocate their (e.g. changing the previously
more flexibility in already existing possible manufacturing capabilities closer, agreed conditions, imposing new
or future contracts but still offshore taxes or fees, etc.)
5Evolution of the Industrial Sovereignty concept in Europe
The concept of European Industrial 2004 2018 COVID-19
Sovereignty has been present in The “Euro-power” idea postulated by French President The Villani Report on Artificial
public discussion since the early Jacques Chirac in the context of competition with Intelligence, including:
other major economies, Asia and the US. It has also The Covid-19 outbreak has
2000s. It was driven by the The call for intensification
put some “sensitive” industries in the spotlight that intensified the trend and
weakening competitive position of of the works on suitable
require protective measures. This concept has been policies and regulations on brought additional issues to
Europe in the global arena. supported then by UK, Germany, Italy and Spain the table such as:
AI
Establishment of JEDI national health security,
initiative (Joint European including uninterrupted
2013 Disruptive Initiative), similar access to pharmaceuticals,
Early 2000s
Snowden affairs raised the debate on data to the American DARPA personal protective
The idea appears in the French and
security and enhanced the digital
European debate equipment and medical
sovereignty trend
devices
supply chain resilience has
been challenged by border
closure during lockdown,
highlighting too much
dependence on far-away
2002 suppliers, in particular
2016 2019
Galileo satellite positioning system as China
The European The debate on the deployment of 5G
a means to maintain Europe’s Commission's lack of risk management
technology in Europe, whether Huawei
autonomy, sovereignty, technological investigations confirmed tools and response
and ZTE should be admitted to build the
capacity and control of its knowledge that Chinese steel and European infrastructure, in light of the
mechanisms which could
iron products had been concerns related to the European citizens enable mitigation of the
sold in Europe at heavily data governance and security negative impact of the
2002 dumped prices. In turn outbreak
The President of the Belgian Senate, Armand De duties ranging between lack of joint response and
Decker – the idea of a common defense strategy as a 43.5% and 81.1% have 2017
driving force behind technological and industrial efforts coordination on pan-
been imposed Technological and digital sovereignty were European level
policies
important issues in Emmanuel Macron’s campaign
6Initiatives and actions undertaken on the EU level
EU Industrial Strategy
New paradigm for the European Union strategic autonomy in key technologies and access to raw materials
Initiatives Actions Timeline
The framework for screening foreign direct As of 14th October 2020, 14 Member States have already notified and implemented Was supposed
1 investment to safeguard Europe's interests screening mechanisms in their internal regulations: Denmark, Germany, Slovenia, Spain, to be fully
France, Italy, Latvia, Lithuania, Hungary, The Netherlands, Austria, Poland, Portugal, operational on
Romania and Finland 11th October
The Important Projects of Common European The tool with a proven track record, which allows Member States to fund large, cross- Open initiative
2 Interest (IPCEI) bordered innovation projects. IPCEIs have already been implemented in Batteries, with no
Microelectronics and Hydrogen technologies deadlines
Action Plan on synergies between civil, defense and The Action Plan is under development. Commission adoption is planned for first quarter Q1 2021
3 space industries 2021
Intellectual Property Action Plan to uphold The Action Plan is under development. Commission adoption originally was planned for Q3 2020
4 technological sovereignty third quarter 2020
New EU pharmaceutical strategy in 2020 The Strategy is under development. Public consultation closed on 15th September 2020. Q4 2020
5 Commission adoption is planned for fourth quarter 2020
Further legislation and guidance on green public Since May 2020, the EU has announced new GPP criteria for textiles, data centers, server -
6 procurement rooms, cloud services, imaging equipment, consumables and print services
Action Plan on Critical Raw Materials Developed and presented in September 2020, includes list of Critical Raw Materials, -
7 foresight study to 2050 and propositions how to reduce Europe’s dependency on third
countries, diversifying supplies and improve resource efficiency
7Initiatives and actions undertaken by selected European countries
UK Germany
The framework for screening foreign direct investments has been introduced Strengthening their powers of control and
As a result of leaving the EU, Great Britain loses access to some common authorisation for foreign investment - has
programmes and mechanisms aimed at developing new technologies and / or effectively prevented the US from taking
protecting the Common Market control of CureVac, a laboratory working on
Developing its own new state aid programme the development of a vaccine against Covid-
Raising need to implement regulations protecting the technological independence. 19
The recent Arm’s takeover by Nvidia put the UK in predicament between the US and Has blocked export of medical equipment at
China; due to the trade war between those two countries, Arm (securing 2,500 jobs in the beginning of the outbreak
the UK) will lose the lucrative contract with China’s Huwaei As one of the few countries it was able to
produce protective equipment for health
France workers
Strengthening their powers of control and authorisation for foreign investment Call for actions on reducing the potential
One of the 3 pillars of Covid-19 Response plan is protecting strategic companies which supply shortages of medicines and medical
could be potentially endangered in the market, through increasing the capital share of equipment, through building bigger storage
the state, recapitalizing or even nationalizing facilities or bringing back manufacturing to
Call for bringing pharmaceutical laboratories back to France, in order to reduce Europe
dependence on supplies (up to 80% now) from Asia and India Leads the recent European GAIA-X cloud
EUR 1B of the EUR 100B recovery plan has been intended for support companies project
starting production of strategic goods at home Together with France supports the concept of
Has blocked export of medical equipment at the beginning of the outbreak European Champions via adapting the
European competition law
Italy
Strengthening their powers of control and authorisation for foreign investment
Especially strong impact of the first wave of the Covid-19 outbreak was caused by the
lack of own capability in manufacturing the personal protection measures. That raised
the need for repatriate such activities. Special tax incentives have been already
announced to enhance this process
The government has recently extended the scope of the so-called “golden share”
protection system beyond defense and security companies, and included telecoms,
energy grids and health companies
8Initiatives and actions undertaken by selected European countries
Poland
Strengthening their powers of control and authorisation for foreign investment
As one of the few countries it was able to produce protective equipment for Slovakia
health workers When it comes to either industrial or
Focus on the initiatives supporting the development of domestic pharmaceutical technological sovereignty Slovakia relies on
industry, i.e. Reimbursement Mode for Development project which will EU initiatives and actions
encourage pharmaceutical companies to transfer production to Poland as well Country does not rule out economic
as create he conditions for the further development of existing factories cooperation with Asian countries, and China
The Polish Digital Sovereignty Charter began work on a basic set of rules that in particular
will enable sustainable and socially beneficial development of the digital There is public debate on how to secure the
economy in Poland sensible data when it comes to building the
5G infrastructure with the use of external
Czech Republic technology and involvement of the foreign
One of few countries able to produce protective equipment for health workers companies
Czechs believe that they are too small to be able to build any kind of industrial,
technological or digital sovereignty. Therefore they consider the EU as the
coordinator and support the common initiatives. However slow response to the first
outbreak caused nationwide doubts if EU is capable of coping with it properly
The digital sovereignty subject has been only discussed in the context of
cybersecurity
Spain
Strengthening their powers of control and authorisation for foreign investment
The strategic mistake of exporting medical personal protective equipment to China
in mid-February raised the public debate on better planning, prevention and
building strategic capacity for potential future crisis situations
Considers reshoring, nearshoring and health sovereignty
Prefers building resilience through exploiting the European interdependencies
Wants to avoid antagonizing China
Lagging behind in terms of digitization and ICT and being dependent on US and
Chinese technologies supports EU Digital Sovereignty initiatives
9EU leading trends
European trends related to the Industrial Sovereignty concept are very similar to those observed globally. However many activities are
coordinated at the pan-European level to secure the coherence of activities (that is the case of the for the screening of foreign direct
investment) as well as to obtain the synergy effect (common R&D and implementation initiatives such as IPCEI mechanism)
Trend Industrial Technological Digital Sovereignty
Sovereignty Sovereignty
Protecting markets from hostile takeovers leading to
the loss of control over strategic technologies or
resources
Focusing multiple efforts on building excellence in the
given industry or technology
Re-shoring or rebuilding manufacturing capabilities in
industries critical for national health or security
Developing strategies and risk management measures
aimed at securing the uninterrupted supplies of the
strategic goods and services
Providing public support to the selected industries and
companies if the form of subsidies, tax incentives, etc.
10European Industrial Sovereignty across industries
Full industrial sovereignty remains a theoretical concept in Europe. When access to rare natural resources is taken into account, it is not possible for it to be
deployed in any single European country or even in the European Union as a whole. Therefore it applies only to individual sectors of the economy. Cross-
industrial analysis identifies a number of industries being the subject of debate on the need for some level of autonomy. While there are very different premises
behind this need, these industries can be grouped into 3 separate categories: critical, competitive and strategic. Each of them implies distinctive roadmaps,
legislative mandates and procedures, as well as tools and mechanisms of implementation.
CRITICAL COMPETITIVE STRATEGIC
Industries or resources crucial for Current industries or technologies that are Future industries or technologies being
maintaining national safety and health. perceived as a competitive advantage for a considered as basic ones for the further
Might require fast track legal processing, single country or region in the global development of derivative technologies or
interference with the current legal status or arena. Usually funded from special essential transformation of already existing
international agreements. Any activities purpose funds, from member states and ones. Funded from special purpose funds
coordinated and funded by the state, private company contributions. Initiatives and coordinated on a pan-European level.
usually on the Member State level. coordinated by NGOs or jointly by the Initiatives concern all Member States and
countries concerned. associated countries.
Pharmacy Batteries (which account for about 40% of the Infrastructure for digital economy, i.e.
Medical equipment total cost of an electric vehicle) federated cloud infrastructure, connecting all
Personal protective measures / equipment Hydrogen fuels European cloud service providers and giving
Defense Microelectronics priority of data access to European
Energy Automotive companies, in order to create value first in
Aviation Advanced manufacturing Europe
Aerospace Industrial and agriculture machinery AI – requires common regulations and
Geopositioning Chemical engineering commonly agreed standards
Telecoms Quantum computing, blockchain
11Critical industries – initiatives and actions
HEALTH PHARMACY GEOPOSITIONING AVIATION
Concepts of legislation that would force
Imposing export prohibitions and pharmaceutical companies to maintain a Galileo - Europe’s Global Navigation Airbus – jointly owned by Germany,
restrictions in order to secure supply of specific part of the supply chain in the Satellite System (GNSS) France, Spain and Britain's BAE
products enabling the response to country of origin or in Europe; or would Alternative to American GPS or Systems; registered in the
Covid-19 (France and Germany have limit the access to the tenders to Russian GLONASS, which are non- Netherlands, its shares are traded in
taken such decision at the beginning companies who obtain active ingredients civilian France, Germany and Spain
of Covid-19 outbreak in March 2020) from the EU Secures the access to positioning Subsidized loans for the development
Need for mapping the EU healthcare National strategies for drug sovereignty system for critical, emergency of new aircraft — the A380
infrastructure and dependencies and (e.g. Poland, France, Spain) – creating response services superjumbo and the A350 twin-aisle
identifying the vulnerabilities and gaps conditions for further development of jet recognised by WTO in 2018 as
Creating common strategic stocks already existing factories and offering illegal EU assistance
incentives to transfer the production back
home
Number of countries / territories introducing export prohibitions and restrictions as a result of
COVID-19 (source: WTO Secretariat, April 2020)
Actions on national level
Toilet paper 2
Soap 3 Tax incentives for companies who bring their activities back to home country (Italy)
COVID-19 test kits 6 Golden Share rule – minimum number of shares controlled by state in the companies
Other medical supplies 10 operating in industries strategic for national safety (usually defense, security companies,
Medical devices, incl. ventilators 10 telecoms, energy networks and now also health companies
Foodstuff 17
Pharmaceuticals 20
Actions on EU level
Sanitizers and disinfectants 28
Gloves 47
Protective garments 50 the Strategic Investment Facility - proposed in May 2020, as a part of InvestEU, would
Face and eye protection 73 target investments in strategic areas such as pharmaceuticals, health and biotechnology,
green and digital technologies, and critical infrastructures
12Competitive industries – initiatives and actions
AUTOMOTIVE MICROELECTRONICS RAW MATERIALS
European Automotive and Telecoms Alliance – Important Project of Common European Interest The European Raw Materials Alliance –
created in 2016 – forum for cooperation between (IPCEI) on Microelectronics – program accepted by announced in September 2020 – it’s aim is to build
automotive and telecoms sectors to jointly explore the European Commission in 2018. As far 29 supply chains around metals and rare earths, critical
how to best accelerate the deployment of connected companies form France, Germany, Italy and UK are in manufacturing of batteries and equipment for
and automated mobility in Europe involved. Initiative covers following technology fields: renewable energy
Connected and autonomous mobility is being energy efficient chips, power semiconductors, smart Only a few rare earths are mined in Europe: Norway
supported also through initiatives on building sensors, advanced optical equipment, compound (Silicon metal – 30% of global production), Finland
common European data infrastructure materials. The funding comes from the participating (Germanium – 51%), Germany (Gallium – 35%),
states, not the European Union; France (Hafnium – 84% and Indium – 28%) and
Spain (Strontium – 100%) [source: European
Commission, 2020]
HYDROGEN BATTERIES CIRCULAR PLASTICS
Clean Hydrogen Alliance – announced in March Important Project of Common European Interest Circular Plastics Alliance – launched in December
2020 as part of the new industrial strategy for Europe (IPCEI) on Batteries 2018, 245 members as far involved in the plastic
Important Project of Common European Interest European Battery Alliance value chain
(IPCEI) on Hydrogen – still in preparation phase. Northvolt investment in demonstration facility in The Alliance declaration: “to take actions to boost the
Iincludes projects in following areas: generation of Vasteras co-funded by Volkswagen, Goldman Sachs EU market for recycled plastics up to 10 million tones
hydrogen, transportation of hydrogen, mobility sector, and Ikea, with a production of about 350MWh and in by 2025”
industry applications, energy sector, housing sector Skelleftea, with an expected capacity of 40GWh In May 2020 there has been R&D agenda developed
and end user driven applications; Setting environmental standards on batteries which lists 7 strategic R&D needs (common to at
production (including mineral extraction, cell least 3 plastics-using sectors) and series of specific
manufacturing, software standards and recycling) on R&D needs (common to only 1 or 2 plastics-using
pan-European level sectors)
13Strategic industries – initiatives and actions
Infrastructure for digital economy R&D
Project launched in 2019
European Strategy for Data Aim of the project: to develop the Horizon Europe – EUR 100B research and
Announced in February 2020, aimed at the foundations for a federated, open data innovation program to succeed Horizon
creation of a single European market for infrastructure based on European values 2020
data to be used by European companies for Has been founded by 22 companies from Pillar 2: Global Challenges and European
analytical purposes France and Germany (11 companies from Industrial Competitiveness including:
Part of this data space will be “federated each country) Health,
cloud architecture” integrating all cloud Currently 300 companies and organisations Civil Security for Society,
service providers operating in Europe (as are already engaged from 7 countries (i.e. Digital, Industry and Space,
alternative to AWS and Azure, ensuring the Netherlands, Spain and Switzerland) Climate, Energy and Mobility
security of data and data governance in line Use cases for: Industry 4.0 / SME, smart Food, Bio-economy, Natural
with EU regulations) living, finance, health, public sector, Resources, Agriculture and
Synergy with GAIA-X project mobility, agriculture, energy Environment
Agriculture and Marine
Artificial Intelligence NETWORKING Incubators, accelerators, Resources
technology centers, etc. Agrofood Industry
Creating an ecosystem of excellence for Network approach to the digital industry, 1% 5% 6% Biological Sciences
3% 8% 7%
efficient research and development innovation and skills; Fostering the
2% Electronics, IT and Telecoms
processes and fostering the collaboration excellence of the process of developing 11%
between all stake holders to provide new technologies and gaining the synergy Energy
sufficient funding effect of efforts undertaken jointly 26% 19%
Industrial Manufacturing,
Creating a legal framework for enhancing E.g. the European Cluster Collaboration Material and Transport
12% Measurements and Standards
trust in AI and to regulate high risk systems Platform is a service facility aiming to
Promoting the “European way of provide cluster organizations with modern Other Industrial Technologies
digitisation”, human-centered and value- tools
Most focus and effort on Physical and Exact Sciences
oriented
industrial manufacturing,
Increased investments in AI under R&D material and transport, as well Protecting Man and
programs such as Horizon as electronics, IT and telecoms Environment
Social and Economics Concerns
14Business Case 1
Airbus – European Champion for European sovereignty in aviation
As an answer to Boeing’s dominance in commercial aircraft Airbus footprint on FILTON
Development: wing; development and testing: landing
market, on 29th May 1969 German and French ministers
agreed a partnership between European countries, joined also European market gear, fuel systems
European by Spain and the UK, to develop the first Airbus plane
BROUGHTON
Among more than Assembly and pre-equipping: wing box
Heritage Its legal structure is “European Company” – Airbus Societas
12,000 direct suppliers
Europaea
8,400 are based in STADE
More than 90% of Airbus workforce is located in Europe Manufacturing: aft fuselage upper and lower shells, wing
Europe
European suppliers upper cover; assembly and equipping: vertical tail plane;
benefit from the 68% testing: vertical tail plane
Had to shut down its production in France and Spain for some HAMBURG
time due to the health and safety concerns related to covid-19 of the total value of
Development: cabin and fuselage; assembly and
Impact of Had to reduce the opened workstations due to health external sourcing equipping: aft fuselage, forward fuselage; testing: cabin
Covid-19 concerns
Received requests for delivery deferrals, as many of its
and fuselage; Customer Definition Centre
BREMEN
outbreak customers are struggling with the impact of covid-19 on Development and testing: cargo loading systems, wing
transport movable surfaces; assembly: flaps; and equipping: wing
SAINT-NAZAIRE
Most suppliers involved in European supply chains are Assembly and testing: nose and center fuselage
companies with less than 100 employees, which are strongly NANTES
dependent on the aircraft industry (with low level of business Manufacturing and assembly: center wing box, keel beam,
random and air inlet
Threats diversification) and operating in low margin segments –
TOLOUSE
therefore the Covid-19 outbreak threatens their existence and Aircraft development; testing of structure and systems;
also the flawless operations across whole supply chain final assembly; flight test; customer delivery
SAINT-ELOI
Development: pylon, air inlet and nacelle integration;
Assembly and integration: pylon and aft pylon fairing
Lobbying for government support for implementing a
programme of profound restructuring of their domestic supply
chains that are highly fragmented GETAFE
Assembly and equipping: horizontal tail plane; assembly: S19
Actions The aim of this action is to support creating more robust
ILLESCAS
suppliers (i.e. through consolidation processes) that would Manufacturing and sub-assembly: wing lower cover; manufacturing: S19 full barrel skin
survive the Covid-19 crisis and protect the core technologies PUERTO REAL
from the acquisition by foreign companies Assembly: horizontal tail plane boxes
Source: Airbus
15Business Case 2
Volkswagen – top world automotive player with strong European roots
Founded in 1937 and headquartered in Wolfsburg The importance of automotive industry to the European
Today it is a part of Volkswagen Group, which is indirectly
majority owned by the Austrian Porsche family, and economy
European comprises 12 brands from 7 European countries
Heritage It’s the largest car manufacturer in Europe (71 manufacturing
Automotive sector generates 7% 14.6 million European citizens work
plants) and since 2016 it’s the second largest auto maker in directly or indirectly in the
the world and 10th biggest company overall of the total EU’s GDP
automotive industry, which accounts
European automotive sector also for 6.7% of all EU jobs
Company had to halt production at some sites, due to the creates around 3.7 million
state of emergency announced in the countries where plants manufacturing jobs - 11.5% of Each year there are 18.5 million
Impact of are located the total number for whole EU vehicles produced in 226 assembly
Group sales revenue decreases by 23.2%
Covid-19 Raise in prices of components from suppliers – they were
and production plants across EU
investing heavily to meet high VW’s demand on parts and
The industry accounts for €74B
outbreak trade surplus for the EU
components, and now they have to cover high depreciation
costs while seeing lower volumes being ordered Source: ACEA
Financial and operational difficulties that some of the Challenges related to the European automotive industry supply
suppliers undergo can affect the supply chains chains
The group is undergoing deep restructuring and simplification
Threats of supply chains, as it strategically switches into electric and
autonomous cars; the turbulence caused by Covid-19 could
disturb this process
German government has resisted call for more state support
for the car automakers; The existing support programmes are
directed to suppliers only A single car is Complex sub-assembly
Further integrating all 124 production plants into single manufactured from about Commonly used practice
Actions process is required to
Volkswagen Industrial Cloud, what together with IoT and Big 20,000 parts which are of Just-In-Time
finish a single vehicle +
Data analysis will further improve cost efficiency. That will supplied from over 30 manufacturing, which
equally complex supply
strengthen the company’s ability to compensate negative countries, including China results in limited stock
chain of parts
effects of such events as Covid-19 outbreak
16Business Case 3
Sanofi – pillar of European resilience for future pandemics
Company formed in 1973, headquartered in Paris, France,
operates internationally; 7th biggest pharmaceutical company Pharmaceutical industry in Europe in numbers
European in the world
Since 1999 it has undergone numerous M&A processes and Pharmaceutical industry delivers Due to the European Federation of
Heritage was rebranded ‘Sanofi’ in 2011 €206B gross value added to Pharmaceutical Industries and
Through its subsidiary Sanofi Pasteur, it is one of the world’s
European economy annually Associations (EFPIA) there are
largest vaccines manufacturers
7,000 medicines currently in
Creates 2.5 million jobs, 642,000 development in Europe
As soon as it was possible, the company began developing a
Impact of covid-19 vaccine of which are employed directly
Around 3,200 European patent
Covid-19 Sanofi is now leading the clinical development and by pharmaceutical companies
applications in the pharmaceutical
registration of a vaccine in partnership with British GSK
outbreak industry originated from European
Contributes annually over €35B based companies in 2019
French pharmaceutical companies produce 80% of their investment in European
medicines in China. Sanofi’s production also relies heavily on research and development
Source: EFPIA
Threats APIs sourced from the Asian region
Not enough capacity to scale up in case of global
immunisation need for millions of people Characteristics of the pharmaceutical industry in Europe
In February 2020, the company announced plans to establish Switzerland 45,885
a new company in Europe, where APIs would be Germany 32,905
manufactured. The ambition is to become the second largest Italy 32,200
API provider in the world. The company has its HQ in France,
France 23,213
and will have 3,000 employers in 6 European plants. The
costs of manufacturing will be 10% - 15% higher than in Asia, UK 23,039
70.9% of active pharmaceutical
Actions however it is a strategic decision to keep these facilities in
ingredients (APIs) used to the
Ireland 19,305
Europe – no public aid assigned so far Spain 14,970
Sanofi is also planning to spend $554M on a brand new production of pharmaceuticals in
Denmark 14,391
vaccine manufacturing plant in France. The construction is European laboratories come from
Belgium 13,312
going to take 5 years and its purpose is to secure vaccine Europe, 8.0% are imported from China
production capacity for future pandemics – will be a part of and 3.4% from India (in volume terms Sweden 8,153
Pharmaceutical production
“global biosecurity network” - no public aid assigned so far 22.5% and 3.2% respectively) Netherlands 6,180 in €M in 2018
17Scenarios for 2025 - 2030
Introduction: Covid-19 pandemic scenarios:
The development of the pandemic, as well as the responses to it, will be
The objective of this part of the research and analysis is to present three
different across countries and regions
scenarios on how the industrial sovereignty trends could develop to 2030
The impact on Europe will depend on the location and distribution of
supply chains (Covid-19 situation in a particular region or country)
As the issue is complex, and some industries or countries will be more
impacted by these trends than others, it is not possible to draw general
scenarios for the entire EU. Therefore the scenarios must be considered COVID Scenario 1 Scenario 2 Scenario 3
through at least two different lenses: industrial (3 groups of industries defined scenarios STRONG MEDIUM MILD
earlier: critical, competitive and strategic) and political (particular countries
have different approaches and readiness toward cooperation). All these
interdependencies have been mapped as part of the analysis Pandemic Number of cases Active adaption Number of cases
escalation growing; to the situation; stable and under
The main driver for industrial sovereignty initiatives across the globe will be Crisis in the Number of cases control, easy to
China’s recently announced (29/10/2020) self-sufficiency and "double- healthcare; growing but forecast and
circulation" strategy – also mentioned on the map of interactions Chaos, no under control; manage;
control Healthcare Efficient
The development of the European Industrial Sovereignty scenarios to 2030 system under healthcare
will depend more on movements in global politics and economies than the pressure system
COVID-19 situation
Possible answer Total lockdowns, Restrictions to Some restrictions
However, the pandemic could speed up certain trends or pivot others, and to the given including closing the movement of to travel (i.e. only
therefore three scenarios on how the pandemic could influence the EU have scenario in terms borders and people, business travel
also been included. The most important aspect in terms of Covid-19 is the of movement of cancelling or (therefore some allowed),
impact on the global supply chains. The possible negative impact on supply people and limiting flights services are however the
chains fully or partially located in the regions or countries most affected by goods (also cargo) limited) but the transport of
the pandemic will likely support more radical actions toward industrial transport of goods is not
sovereignty in these countries goods not affected at all
affected
18Scenarios for 2025 – 2030 (1/2)
Scenario 1 Scenario 2 Scenario 3
Extreme sovereignty Soft adaptation Toward cooperation
Main features • Member States undertaking • Member States undertaking • High engagement into common
independent actions toward total independent actions but only for some initiatives on pan-European level
sovereignty of specific industries; of the critical industries and in line aimed at building technological and
• Moving production facilities and with European regulations; digital sovereignty with extraordinary
supply chains back home; • Common initiatives toward European effects;
• Withdrawal from multinational technological and digital sovereignty • EU as strong economic powerhouse
agreements and alliances; but not all countries engaged; able to build competitive advantages
against rising Chinese dominance;
Cooperation between countries within LOW MODERATE HIGH
the EU for resource supplies Member States competing for resources Some countries don’t want to accept Member States offering and accepting
rather than cooperating support or don’t want to provide support help / support
to others
Acceptance of higher public aid for HIGH PARTIAL LOW
companies, especially state-owned ones High acceptance for public support of Some countries more eager to accept Low acceptance for more support for
state-owned companies supporting the state-owned companies state-owned companies; further public
from public sources; however others support for SMEs as the pillars of
want to follow the current rules European economy
Assessment of the actions undertaken WEAK ACCEPTABLE but not sufficient in some HIGH
on EU level High skepticism for EU initiatives fields High level of trust
Knowledge and technology transfer LOW MODERATE HIGH
between EU member states Companies keep access to their Companies cooperate on R&D projects High tendency to cooperate on R&D
knowledge closed; Low willingness to under schemes supported by EU (e.g. projects with other companies and joint
cooperate with other entities on its Horizon Europe) efforts on technology transfer and
further development commercialisation
19Scenarios for 2025 – 2030 - map of the interactions (2/2)
China’s implementation Scenarios for Industry
of its self-sufficiency COVID-19 Member States’
and "double-circulation"
European Industrial - the level of concentration of initiatives and actions on the
scenario attitude
strategy Sovereignty given group of industries
CRITICAL COMPETITIVE STRATEGIC
Aggressive
Imposing embargoes, Populist
initiating trade wars, Extreme governments
STRONG Strong Moderate Weak
hostile actions towards Sovereignty (e.g. Poland,
European companies in Hungary)
China
Moderate
Focus on internal
processes, no Moderate (most
Soft Adaptation MEDIUM Moderate Moderate Moderate
aggressive actions countries)
towards European
countries in China
Aggressive
Imposing embargoes, Toward
initiating trade wars, Toward cooperation
MILD Moderate Strong Strong
hostile actions towards Cooperation (e.g. France,
European companies in Germany)
China
20Scenario 1 – impact on EU industry
Extreme
sovereignty
Acceptance for Limiting access to some
Actions Limiting access to the Reducing the funding for R&D
providing wider Reducing the size of common benefits for
European market for schemes such as Horizon Europe
undertaken on EU public support to
companies not sharing
Cohesion Fund in future
and initiatives that support
countries opting for
level companies; Easing financial perspectives national industrial
European values networking and collaboration
public aid rules autonomy
Supporting industrial champions; Even
Actions Withdrawal from common projects Incentives for moving Further development of the regions
broader support for such companies as
or programmes that can be businesses back to home where industries have already
undertaken on Airbus, Thales, Leonardo, Indra, ATOS,
perceived as too costly, mainly by country (tax relief, direct been concentrated, including
national levels Bosch, EDF, ENEL, ENI, Total, E.On,
countries who participate the most subsidies) development of self-sufficient cities
Engie, Telefonica, Bayer
Actions Losing competitiveness against Restructuring supply chains Setting strategic technological Where there is a higher tendency for
industrial champions, therefore leaving – withdrawing them from partnerships with companies granting more individual state support,
undertaken by supported industries and moving to China and moving closer to enjoying state support in their companies lobby for it directly in the
companies other sectors or closing business home countries home countries, where possible decisive government bodies
Searching for market Entering the re- Moving manufacturing capabilities back home, to Decreasing number of business
Business niches still not covered organised supply countries where the workforce is relatively more opportunities on a bigger scale, which
by the programmes chains located in / or expensive, will fuel the automation and robotization are dominated by limited number of
opportunities coordinated by the much closer to home of production (opportunities for companies providing large state-owned or state supported
given states countries services for Manufacturing 4.0) companies
21Scenario 2 – impact on EU industry
Soft adaptation
Concessions in favour of more Member Building alliances and working Broader support for Using the European Cluster
Actions States’ sovereignty in setting rules of groups engaging all European research and innovation Alliance and other networking and
undertaken on EU public aid for companies operating in stakeholders in order to build schemes such as collaboration tools to further
level critical industries – but limited in time competitive ecosystems for specific Horizon Europe cooperation, gather information,
and scope industries programme facilitate necessary support
Incentivising (tax relief, direct Participating in common
Actions Providing further state support Further development of the regions
subsidies) the reshoring and initiatives for enhancing
for major aerospace and defense where industries have already been
undertaken on companies such as Airbus,
nearshoring of the supply chains in competitive and strategic
concentrated, including
national levels the strategic industries most impacted industries, building frameworks
Thales, Leonardo or Indra development of self-sufficient cities
by the Covid-19 outbreak for further development
Actions Restructuring supply chains – withdrawing them from Strengthening or setting up cooperation with tech- Participating in the common R&D
China and moving them closer to home countries or leading companies from democratic countries, initiatives and setting international
undertaken by transferring them to more reliable countries such as participating in R&D programmes with countries partnerships for technology transfer
companies India or Vietnam; also diversifying supply sources from outside EU, e.g. USA, Israel and commercialisation
Moving the manufacturing capabilities
Entering the re-organised Taking advantage of participation in
back home, to countries where the Providing products, services and
Business supply chains located in / joint R&D projects such as priority
workforce is relatively more expensive know-how to joint, pan-
opportunities or much closer to home
will fuel the automation and robotization European projects
access to the new technologies,
countries expertise
of production (manufacturing 4.0)
22Scenario 3 – impact on EU industry
Toward
cooperation
Further focus on building Further development of IPCEIs (Important Projects of Common Establishing structures for managing the
Actions open, competitive markets European Interest) and direct support from EU, as well as industrial sovereignty process such as: an
undertaken on EU with common rules and introducing new programmes – at the same time the Commission European Commission Economic Sovereignty
level strict control on public ensures that all EU Member States can benefit and that there is no Committee, Committee on Foreign Investments
subsidies disproportionate distortion of competition in the EU and Financial Sanctions Enforcement
Running the technological observatories,
Actions Incentivising companies to Participating in common initiatives for Active submission of identifying the potential strengths of
participate in common European enhancing competitive and strategic industries, new proposals for
undertaken on initiatives, e.g. tax relief for R&D
particular regions and supporting
building technological and legal frameworks for collaborative balanced economic and technological
national levels expenses in international projects further development, providing funds initiatives on EU level development of all regions
Further implementation of industry 4.0 Restructuring supply chains – Participating in common R&D
Actions Strengthening or setting up
concepts into manufacturing processes withdrawing them from China initiatives and setting
cooperation with tech-leading
undertaken by (including automatization and robotization)
companies from democratic
and transferring to more reliable international partnerships for
companies which will enable production to move back countries such as India or technology transfer and
countries
home and shorten the supply chains Vietnam commercialization
Providing products and services for big
Taking advantage of participation in Common modern infrastructure, new products and services
pan-European projects such as
Business joint R&D projects such as priority resulting from joint research and innovation projects will
common infrastructure for digital
opportunities services or joint manufacturing plant for
access to the new technologies, create new markets, full of new, still uncovered business
expertise opportunities
batteries
23Map of current drivers and risks related to European Industrial
Sovereignty Initiatives
DRIVERS
Political factors
China’s implementation of its self-sufficiency and the "double-circulation" strategy,
together with American technological dominance in many areas, is pushing Europe to
P undertake initiatives that strengthen its internal technological capabilities
More state aid for single companies, also state owned or co-owned and launching
programmes financed or co-financed from public sources
L E Brexit – for the UK economy, if there is a no-deal scenario and the UK fail in setting up
favourable trade agreements with other blocks
RISKS OPPORTUNITIES
In the long term, too much public aid Strategic technological partnerships with
injected into the economy will cause companies enjoying state support in
weakening competitiveness of single their home countries, where possible
E S companies and whole economies
Setting up legal representatives or other
Breaking down and disrupting the legally independent entities in the UK in
operational continuity of supply and order to provide products and services
T value chains spread across the English
Channel
to supply chains located on the islands
24Map of current drivers and risks related to European Industrial
Sovereignty Initiatives
DRIVERS
Economic factors
Transmission of economic crisis through international business connections and supply
chains spread across the globe
P Unfavorable balance of payments with no alternatives for its improvement other than
taking some of the value chain back home
Increasing competitiveness on the markets where the supply chains are located due to
L E economic development and raising labor cost there, therefore keeping operations there
is becoming less and less profitable and rise questions on taking them back home
RISKS OPPORTUNITIES
Lack of enough work force with required Agency in hiring employees coming
skills will make the re-shored industries from abroad
more vulnerable to labor shortages and
E S will lead to rise in prices Entering the re-organized supply chains
relocated to the countries with lower
Economic dependency on fewer and labor costs
larger companies able to survive in
Manufacturing 4.0, automatization and
T more competitive conditions due to the
economy of scale robotizing the production plants
25Map of current drivers and risks related to European Industrial
Sovereignty Initiatives
DRIVERS
Social factors
Fear about depending on other countries in technologies or industries critical for national
and health safety
P Growing concerns around cybersecurity related to technologies enabling big data
collection in a way that is difficult to control
Narratives used by populist governments, which build a feeling of national pride around
E E industries 100% controlled by home-grown capital and favour state-owned companies in
procurement
RISKS OPPORTUNITIES
Blocking further development of Building strategic partnerships within
technologies i.e. more connected and industries supported by states
autonomous mobility
L S Limited access to technologies crucial
Trusted technologies providing
cybersecurity in line with EU standards
for economic development
Providing products and services to the
Decreasing competitiveness of a given
T industry or whole economies
critical industries rebuilt on national
levels
26Map of current drivers and risks related to European Industrial
Sovereignty Initiatives
DRIVERS
Technological factors
The growing technological dominance of the USA and China, which could leave the
European economy behind if no actions are undertaken
P Growing importance of innovation hubs and eco-systems across Europe, which attract
knowledge, capital, talent and startups in given areas of expertise, i.e. Golden Triangle
(London, Oxford, Cambridge), Medicon Valley in Sweden, Swiss BIOVALLEY Life
Science Network, Cosmetic Valley in Paris, IT hubs in Berlin, London or Barcelona, etc.
L E R&D programs supported through European Funds (i.e. Horizon Europe)
RISKS OPPORTUNITIES
Lack of technological standards and Exploring innovation and technology
compliance related to some strategic hubs across Europe to find the most
technologies such as quantum relevant to own business profile, then
E S computing or AI locate business development efforts
there
Failure to use the synergistic effect of
joint effort on new technological Taking advantage of participation in joint
T development and commercialisation R&D projects such as priority access to
the new technologies, expertise
27Map of current drivers and risks related to European Industrial
Sovereignty Initiatives
DRIVERS
Environmental factors IInterruptions in the supply of energy resources caused by climate change (e.g. drying
up of rivers, drying up of sources of water used for cooling energy plants, dependency
on the supplies from countries affected by extreme weather phenomena)
P Growing exposure to emerging natural disasters, such as floods and fires, supports the
initiatives for building own disaster response facilities (to a large extent covered by
defense sector but might also relate to other industries)
Development of technologies enabling better exploration of renewables available at
L E home
RISKS OPPORTUNITIES
Losing access to strategic natural Moving supply chains to regions /
resources if they are affected by climate countries more resistant to
catastrophes environmental changes – Europe is far
E S Rising prices of commodities affected
less vulnerable to severe floods or fires
by climate change Development of technologies for
renewables
Further reliance on fossil fuels if no
T investments in renewables taken
28Map of current drivers and risks related to European Industrial
Sovereignty Initiatives
DRIVERS
Legal factors
Uncertainty around unethical actions by China with regards to IPO rights, such as
duplicating technologies with no respect for international regulations
P Uncertainty with regards to the unclear methods and purposes of gathering sensitive
data, collected by systems with Chinese-origin technologies, often controlled by state-
owned or state-controlled companies
L E China’s divergence from multilateral standards
RISKS OPPORTUNITIES
Losing control of sensitive personal data Taking over high technology businesses
which will be reshored from China for
Providing access to big data, generated fear of dishonest actions
E S by various devices and systems, to
external companies which can monetize European companies providing services
this data and gain competitive in IoT, Machine Learning and Big Data
advantage over European companies analytics preferred over their Chinese
T counterparts
29Recommendations
How to explore opportunities created by European Industrial Sovereignty trends
Check to what extent your business Determine which group of industries
operations could be affected by you provide goods and / or services:
global industrial sovereignty trends critical, competitive or strategic
Check what the COVID-19 impact
on the given industry may be
Find out how national politics
influence the industrial sovereignty
trends in a chosen market
Explore the opportunities created by
Verify which scenario is the most the industrial, technological and
relevant in a preferred market, in the digital sovereignty initiatives under
given industry selected conditions
30List of references
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