The Role of Demand in Innovation - A Lead Market Analysis for High-tech Industries in the EU-25

A Lead Market approach is used for each of 25 European Union member states (EU-25) to assess the likelihood that locally preferred innovation designs become successful in other countries. The analyses are conducted for 4 high-tech industries: automotive, chemicals, information and communication equipment, and machinery. The concept of Lead Markets suggests that for many innovations in a particular industry there are regional markets that initiate the international diffusion of a specific design of an innovation. Once a specific innovation design has been adopted by users in the Lead Market it is subsequently adopted by users in other countries as well. Lead Markets should be focal points for the development of global innovation designs.

By focusing on the design of the innovation which responds to the preferences within the Lead Market, a company can leverage the success experienced in the Lead Market for the product’s global market launch. In order to follow this Lead Market strategy, it is necessary to assess the Lead Market potential of the industries in different countries before an innovation is developed and tested in the market. The method produces information that is of importance for the development phase and the market launch of globally standardised innovations.

This document presents an indicator-based methodology that attempts to approximate the Lead Market attributes of EU-25 countries for four high-tech industries. A Lead Market is defined as a country where users prefer and demand a specific innovation design that not only appeals to domestic users, but can subsequently be commercialised successfully in other countries as well. A system of five particular country-specific attributes - the so called Lead Market factors – is regarded as critical for the probability of the market becoming a Lead Market. These factors, which influence a country’s Lead Market potential, are as follows: price advantage, demand advantage, export advantage, transfer advantage and market structure advantage. The aim of this document is to identify and operationalise indicators to measure and compare the Lead Market properties at international level. The indicators used are taken from the Community Innovation Surveys (CIS-3 and CIS-4), the Eurostat/OECD PPP and Expenditure Database at BH level, the UNCTAD FDI-Database, the EU Business Demography Statistics, and the Eurostat Foreign Trade Database (Comext). Based on the Lead Market analysis, implications for policy makers are outlined.

Cleff, Thomas, Christoph Grimpe und Christian Rammer (2007), The Role of Demand in Innovation - A Lead Market Analysis for High-tech Industries in the EU-25, ZEW-Dokumentation Nr. 07-02, Mannheim