In an era of foreign direct investment (FDI) screening and discussions about technological sovereignty, it remains to be seen how long attracting FDI can be a reliable creator of jobs. The less open to FDI countries get, the more important innovation ecosystems will become to generate future employment.

The most successful innovation ecosystems appear to be locally embedded, home-grown networks. Within that, it is unsurprising that there is a growing interest to include universities and public research institutes in regional development initiatives. However, generating knowledge isn’t enough. It is the commercialisation of these ideas that generates genuine benefits. Failure to do so is maybe best illustrated by what is termed the “European paradox”. This is the phenomenon that Europe largely fails to translate world-class scientific advances into marketable products. 

Europe is therefore facing a two-pronged set of challenges. First, how does it ensure that its research is commercialised at home in the fields in which it is still world-leading, such as cleantech. For that, we need to boost the entrepreneurial activities in our universities and ensure that corporate-research knowledge-transfer clusters are sufficiently well funded. 

There is another dimension which impacts upon the success of research and development (R&D) in ecosystems. The availability of venture capital funding to support scale-ups is crucial. But so too are entrepreneurial infrastructure like science and industrial parks, advice and support services, as well as a close-knit network of start-ups and established multinationals. 

A prime example of knowledge transfer and networking structures can be found in several pan-European initiatives, such as the Deeptech Alliance. This helps link national incubators and accelerators — like PoliHub in Milan, ETH ieLab in Zürich or Munich’s UnternehmerTUM — with established corporations seeking new ideas.

It might be the more arduous and slower path to nurture home-grown inventors in local ecosystems, rather than to seek to attract foreign R&D investment. It is, however, unclear whether foreign firms actually help regions to create high-wage employment or promote a region’s brand as a research location. Indeed, it could be that foreign innovative firms are only attracted to these regions due to an already pre-existing vibrant ecosystem. The key interest of firms generally tends to be to protect their intellectual property, rather than to have it “spill over” into the region as FDI theory would suggest. 

So the causality of development is less than clear. In any case, regions have a lot to gain from building their local innovation ecosystem, nurturing local innovators and start-ups.

Martin Kaspar is head of business development at a German mittelstand company in the automotive industry.

E-mail: martin.georg.kaspar@googlemail.com

This article first appeared in the June/July 2022 edition of fDi Intelligence.