Appendix A5

The Carnot Initiative in France

In 2006, France launched the Carnot initiative, inviting its public applied research organizations to apply for designation as “Carnot Institutes,” a newly-created seal of excellence named in honor of Nicolas Leonard Sadi Carnot, a 19th century French scientist.1 Carnot institutes benefit not only from the honor but from government funds correlated to the amount of revenue which each institute derives from contract research for French industry. Sometimes referred to as “Fraunhofer Lite,” the Carnot initiative is designed to incorporate some of the best features of Germany’s Fraunhofer-Gesellschaft, Germany’s successful applied research organization, without attempting to replicate that institution in its entirety—a recognition that it has taken sixty years to build the Fraunhofer system and that some aspects of the German innovation system that contribute to Fraunhofer’s effectiveness are not present, at least to the same degree, in France.

The 34 institutes that currently bear the Carnot designation account for about 15 percent of the research personnel in France, with 19,000 research professionals and 7,700 Ph.D. students. The consolidated annual budget is about 2 billion Euros ($2.54 billion at 1:1.27). The institutes generate 17,000 A-grade publications per year. They engage in 7800 direct annual research contracts with companies generating total revenues of about 350 million Euros. Roughly half of the institutes’ research is financed by companies.2

________________

1Carnot exemplified “applied research that [yielded] scientific results at the highest level.” Tasked with improving steam engines, he established the second law of thermodynamics, which applies to many machines in use today, such as motor vehicles and household electrical appliances. Institutes Carnot, 2007.

2Jean-Michel Le Roux, Carnot Program (2012).



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Appendix A5 The Carnot Initiative in France In 2006, France launched the Carnot initiative, inviting its public applied research organizations to apply for designation as “Carnot Institutes,” a newly-created seal of excellence named in honor of Nicolas Leonard Sadi Carnot, a 19th century French scientist.1 Carnot institutes benefit not only from the honor but from government funds correlated to the amount of revenue which each institute derives from contract research for French industry. Sometimes referred to as “Fraunhofer Lite,” the Carnot initiative is designed to incorporate some of the best features of Germany’s Fraunhofer-Gesellschaft, Germany’s successful applied research organization, without attempting to replicate that institution in its entirety—a recognition that it has taken sixty years to build the Fraunhofer system and that some aspects of the German innovation system that contribute to Fraunhofer’s effectiveness are not present, at least to the same degree, in France. The 34 institutes that currently bear the Carnot designation account for about 15 percent of the research personnel in France, with 19,000 research professionals and 7,700 Ph.D. students. The consolidated annual budget is about 2 billion Euros ($2.54 billion at 1:1.27). The institutes generate 17,000 A- grade publications per year. They engage in 7800 direct annual research contracts with companies generating total revenues of about 350 million Euros. Roughly half of the institutes’ research is financed by companies.2 1 Carnot exemplified “applied research that [yielded] scientific results at the highest level.” Tasked with improving steam engines, he established the second law of thermodynamics, which applies to many machines in use today, such as motor vehicles and household electrical appliances. Institutes Carnot, 2007. 2 Jean-Michel Le Roux, Carnot Program (2012). 368

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APPENDIX A5 369 THE EVOLUTION OF FRENCH INNOVATION POLICY Postwar French policy measures in the innovation sphere have tended to create new measures alongside existing ones; instead of evaluating and culling out unsuccessful programs “the idea is often to create a new measure with more or less the same objectives but with a larger budget and/or a larger coverage.”3 The Carnot initiative was part of a broader effort that began in the early 2000s to reform the French innovation system and improve the relationship between the national research base and private industry, particularly small and medium enterprises (SMEs). Since 1983, when the government of Francois Mitterrand began dismantling the institutions of France’s postwar dirigiste industrial policy, French science and innovation policy has progressively moved away from centralized, government-directed “top down” measures based heavily on large enterprises toward decentralized, industry- initiated “bottom up” measures to encourage and incentivize entrepreneurialism by small and medium-sized firms. During the trente glorieuses (thirty glorious years of postwar economic expansion), the government held a large ownership stake in the economy, provided financial backing for “national champion” companies, and tasked public applied research organizations with executing grandes programmes, large-scale R&D programs to support the development of strategic industrial sectors. The grandes programmes gave certain French industries a lasting technological advantage (rail, atomic energy, aviation, telecommunications), but “by absorbing most of the R&D funds, they deprived other sectors of even the most basic support for technology innovation.”4 By the beginning of the 1980s, dirigisme was becoming fiscally unsustainable and less relevant to the economic challenges arising out of the emerging information technologies and the small-firm driven innovation observable in the United States. The slowing of global economic growth that began in the early 1970s drew French policymakers’ attention to the potential role that could be played by innovation in stimulating economic growth. It was recognized that the country exemplified “the so-called European paradox of tending to be strong in basic research and weak in applied research.”5 France’s basic research was dominated 3 Eparvier, Patrick. 2007. Country Review France. United Nations University and University of Maastricht. March. p. 31. In 2006, France created a “High Council for Science and Technology” to identify research and technology priorities. The new High Council took its place alongside an already established “High Council for Research and Technology” responsible for evaluating research projects and providing advice on R&D spending. The latter High Council acknowledged the creation of the former and issued a statement to the effect that the distribution of roles between the two Councils needed clarification. Ibid. citing High Council of Research and Technology. 2005. “Opinion of the High Council of Research and Technology on the Pact for Research.” 4 Blanka Vavakova, “Reconceptualizing Innovation Policy: The Case of France,” Technovation 26 (2006) p. 453; OECD, Technology and Industry Outlook 2012, p. 292. 5 A 1993 study of the French innovation system reported that of 2040 firms and research centers conducting R&D, only 7 percent had an R&D staff with more than 50 scientists and engineers. A

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370 21ST CENTURY MANUFACTURING by the National Center for Scientific Research (CNRS), the largest basic research institution in Europe. CNRS scientists accounted for numerous Nobel prizes but were relatively uninterested in applied science or technology development.6 The lack of cooperation between public research organizations and French industry had long been lamented by policymakers.7 Historically, most corporations have demonstrated a low level of interest in R&D.8 The French educational system has been chronically unable to produce sufficient numbers of qualified graduates with the skills needed by French industry and the research base.9 Most of the best students at the Grandes Ecoles, the elite universities that train the country’s science, business, and government leaders, showed little interest in doing research or obtaining doctorates.10 President Francois Mitterand’s 1983 “tournant de la rigeur” (roughly, turn to austerity or U-turn) laid the foundations for a wave of privatizations and the systematic dismantling of the institutions of the dirigiste state. Referring to these reforms, one recent observer commented that “looking across the wealthy democracies, one would be hard-pressed to find any country that shifted so far away from its postwar economic strategy as the France…of Francois Mitterand and Jacques Chirac.”11 Throughout the mid and latter 1980s and 1990s, French policymakers moved away from the grandes programmes, targeting small and medium-sized enterprises and public-private partnerships.12 At the same time, as a 2009 EU assessment observed, rather than disappearing, “the [large] state- owned or previously state-owned companies were able to adapt to the changing group of about 150 firms accounted for 75 percent of the industrial R&D in France. Chenais, Francois. 1993. “The French National System of Innovation.” Op Cit. p. 209. 6 National Institutes of Science and Technology Policy, 2009. Analysis of Recent Trends in Science, Technology and Innovation Policies in Selected Countries, March, p. 31. CNRS Nobel Laureates include physicist Alfred Kastler, who discovered the optical pump; Pierre-Gilles de Gennes, who conducted research on molecular states in liquid crystals; biologist Jean Dausset and chemist Jean- Marie Lehn. “France’s Research Center,” Die Zeit (July 22, 1994) JPRS-EST-94-023. 7 “It must be said that the concern of public authorities about the lack of cooperation between national enterprises and publicly funded research institutes and their component institutes’ laboratories is almost congenital to French national research policy.” Vavakova, Blanka. 2006. “Reconceptualizing Innovation Policy: The Case of France.” Technovation 26. p. 445. 8 The comparatively low R&D outlays by private sector reflect the structure of French industry, in which low and medium technology sectors account for a substantial proportion of total employment and value-added. 84 percent of business expenditure for R&D is undertaken by the manufacturing sector. Of the French companies with the largest R&D outlays, only 6 percent are high technology companies, the remainder being medium or low tech companies. European Commission. 2011. Erawatch Country Reports 2011: France. p. 13. 9 “Lack of Engineers, Trade Deficit Hamper Electronics Industry,” Electronique Actualites (April 1, 1983); Report of the INRIA Visiting Committee (December 18-20, 2008), p. 4. 10 National Institue of Science and Technology Policy. 2009. Analysis of Recent Trends in Science, Technology, and Innovation Policies in Selected Countries. March. p. 31. 11 Jonah D. Levy, “The Return of the State? French Economic Policy Under Nicolas Sarkozy,” Paper presented to the 12th Biennial Meeting of the European Union Studies Association, Boston, MA, March 3-5, 2011, p. 6. 12 European Commission, Enterprise Directorate-General, INNO-Policy Trench Chart—Policy Trends and Appraisal Report: France (2008) p. 7.

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APPENDIX A5 371 world and to compete at the international level,” and today France remains highly competitive in aerospace, telecommunications, rail transport, and atomic energy. 13 Mitterand presided over the 1982 enactment of the Law on Programming of Research and Technological Development, which had the goal of encouraging innovation by small and medium enterprises, improving cooperation between public research institutes and industry, and encouraging R&D by companies. Pursuant to the law the Agence Nationale de Valorization de la Recherche (ANVAR) was tasked with administering a special fund to promote innovation, particularly by SMEs.14 In the same year, France introduced research tax credits, which reimbursed companies for one-half of the increase in their R&D expenditure, a measure patterned on a comparable credit in the United States.15 By 1987, 3500 firms were applying for the credit annually, a figure which more than doubled in the subsequent decade, with recipient firms benefitting from tax reductions or reimbursements totaling 3 billion francs per year.16 The credit was modified in 2004, 2006, and 2008 in a manner that transformed it into “France’s most powerful innovation support tool.” In 2009, the R&D tax credit was worth 4.7 billion Euros to French industry, equaling 60 percent of all government funding to industry.17 The 1982 law also provided the framework for “an explosion of links” between private and public sector research that was so pervasive that two decades later it was “no longer possible to speak of a separation between private 13 European Commission, Directorate-General for Research, ERAWATCH Country Report 2008: An Assessment of Research System and Policies—France, EUR 23766 EN/2Y, 2009, p. 35. Despite this assessment, the French government has intervened to bail out large companies that have fallen into crisis. “France Defends Auto Bailout Amid Protectionism Row,” France 24 (December 2, 2009). “EU Gives Alstom Bailout Backing,” BBC News (July 7, 2004). 14 ANVAR was established within CNRS in 1967 with the mission of transferring research results from public laboratories to companies. Over time it became a principal institution for supporting innovation by SMEs. Vavakova, “Reconceptualizing Innovation Policy” (2006) op. cit. pp. 445-447. By 1991, ANVAR had provided assistance to over 15,000 SMEs in France. One example was Prosyst, a company created in Valenciennes in 1986. Initially ANVAR granted aid to Valenciennes University to develop an error diagnostics card for programmable robots. Several laboratory members decided to form Prosyst to commercialize the system. ANVAR provided funds to help them develop a business plan, and assisted Prosyst in the late-state development and commercial launch of the new product. Today Prosyst still exists as a developer of industrial simulation platforms. “ANVAR’s Role in Innovation Discussed,” Courrier Anvar, (April 1991) JPRS-EST-91- 015. 15 L’Usine Nouvelle. 1987. “France to Start Experimental R&D Tax Credit in Fiscal 1988.” JPRS- ELS-88-006. February 23, 1988. 16 Mustar and Laredo, “Innovation and Research Policy in France (1980-200) or the Disappearance of the Colbertist State.” Research Policy 31 (2002). 17 In 2004, the R&D credit was renewed indefinitely, removing the uncertainty companies would otherwise experience in planning research investments not knowing whether the credit would be available. After 2004, “on the basis of a simple declaration companies [could] benefit from a tax reduction for a large range of research spending such as R&D personnel expenses, R&D personnel expenses, R&D subcontracting or patenting costs.” European Commission, 2011. Erawatch Country Reports 2011: France. p. 14.

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372 21ST CENTURY MANUFACTURING and public sector research.”18 The core of the 1982 Research Law consisted of policy measures to foster cooperation between public research organizations and companies. The mission of the public bodies was modified by addition of an explicit mandate to contribute “to the application and valorization of research results.” Procedures were established require each research institute to account for all relationships with companies. The law provided stipulations for the temporary movement of individuals in both directions between institutes and companies. New legal structures were established to facilitate public-private collaborations. A 2006 analysis of the impact of the 1982 Research Law by a CNRS scholar commented that the law— …by its discourse, changes in the juridical framework, institutional reforms, and multitude of new policy measures and structures has appeared to many observers and actors as a powerful push to the transfer of technology from academia to industry.19 Despite the reforms initiated in and after 1982, for the next two decades a French productivity gap in research and innovation was widely noted. Comparatively high levels of public R&D expenditure relative to the UK and other countries did not yield increased research results. Private sector R&D spending lagged and exploitation of industrial research results was lackluster.20 It was frequently observed that France did not have enough middle-size companies (50 to 500 employees) or high-growth small companies with above- average levels of job creation, R&D and expert performance.21 Although some 18 Between 1983 and 1996, the number of research contracts between CNRS and industry increased tenfold, from a few hundred projects to over 3000. During the same period the number of industrial contracts with public research organizations increased 8-fold from 500 million francs in 1983 to 4.1 billion francs in 1997. Mustar and Laredo, “Disappearance of the Colbertist State,” (2002) op. cit. p. 64. 19 Vavakova, “Reconceptualizing Innovation Policy” (2006) op. cit. p. 446. A 1994 study of the French national innovation system observed that “relations between public research and the enterprise sector…is one area where changes were deepest over the last year, thus rendering the critique of academic research as unrelated to the enterprise sector no longer pertinent today.” Phillipe Mustar, “La Politique d’innovation en Frances: le Colbertisme Entame” in F. Sachwald (ed.), Les Defis de la Mondialisation: Innovation at Concurrence, cited in Vavakova, pp. 446-47. 20 “Financing—The Budget of Research,” Zero un Informatique (March 17, 1986) JPRS-EST-86-008 (June 18, 1986) “Industrial R&D: Increased Support and New Programs,” Electronique International Hebdo (November 7, 1991) JPRS-EST-92-006 (February 24, 1992). 21 Bussilet, Sophie, Patrick Eparvier and Elisabeth Zaparucha. 2007. Case Study France. European Commission: DG Research. December. p. 9. The shortage of mid-sized firms partially reflects the country’s tax and regulatory regime. France has a very large number of firms with 49 employees. Many regulations take effect when firm headcount reaches 50. According to a 2008 report on economic growth chaired by Jacques Attali, formerly an advisor to Mitterand, 34 laws and regulations begin to apply when a company reaches 50 employees. Efforts to reform this system have not resulted in much progress. “A Lack of Enterprise: France Needs More Start-ups and Mittelstand Firms,” The Economist (November 17, 2012).

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APPENDIX A5 373 technology-intensive French sectors were performing well in international competition, as a mid-1980s report to then Industry Minister Laurent Fabius pointed out, “all our successes are occurring in the fields associated with governmental contracts, whereas American industry’s performances are very far from being limited to the captive markets of the state.”22 The blame for such inefficiencies has been consistently placed on a vast and ossified public science and research system, with recurrent and non-competitive research funding, jobs for life, the absence of a culture of exploitation, and a lack of synergy between public research and industry.23 Lionel Jospin, a Socialist who served as Prime Minister between 1997 and 2002, sought to promote innovation and entrepreneurialism by the country’s small and medium businesses as a means of reducing chronically high unemployment levels. His Economics Minister, Dominique Strauss-Kahn, made numerous visits to Silicon Valley and met with U.S. high-tech executives like Steve Jobs, Bill Gates, John Chambers, and Michael Dell.24 An extensive effort was made to reach out to entrepreneurs and industrial leaders but also to social interest groups affected by new institutional arrangements “that promoted risky high-technology start-ups without undermining the institutional foundations of French capitalism.”25 A 2009 assessment of the French innovation system by the European Commission’s Directorate-General for Research gave the country high marks for its public funding of R&D but noted that “domains of world level scientists and technological excellence exist, but are often specialized in stable/mature research fields.” The Directorate cited “poor knowledge circulation between academic research (universities/CNRS) and business and noted “low demand for research outcomes from potential new companies.”26 In 1999, France enacted the Innovation and Research Act, which prioritized the creation of new innovative firms and the transfer of learning from 22 “French companies in general and small/medium companies in particular do not devote sufficient resources to R&D.” European Commission, Directorate-General for Research. ERAWATCH Country Report 2008: An Assessment of Research System and Policies—France (2009) p. 19. 23 Emmanuel Muller, Andrea Zenker and Jean-Marie Heraud, “France: Innovation System and Innovation Policy” in Fraunhofer ISI, GIGA and Georgia Tech STIP. New Challenges for Germany in the Innovation Competition (August 2008) p. 144. 24 In a 1992 interview when he was serving as Minister of Industry, Strauss-Kahn emphasized the key role of application of research. “Of what use is innovation if we do not have the techniques to industrialize and commercialize the products that result from this innovation? It is unthinkable for an advanced industrial society, such as France, to content itself with simply being a research center. We need to master the technologies that allow us to produce the advanced products which we conceptualize and design.” “Let’s Create Conditions for Good Growth,” Electronique International Hebdo (November 5, 1992) JPRS-EST-92-039 (December 29, 1992). 25 Gunnar Trumbull, Silicon and the State: French Innovation Policy in the Internet Age (Washington, D.C.: Brookings Institution Press, 2004) p. 13. 26 Ibid, pp. 3-4.

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374 21ST CENTURY MANUFACTURING public research organizations to French industry. The law established fiscal incentives for innovating firms, created a new and simplified legal framework for innovating companies, authorized government researchers to participate in innovative start-ups without losing their civil service status for 6 years, and established new mechanisms to foster public-private research collaboration.27 In 2003, the Ministry of Industry and the Ministry of Research and Technology jointly drew up the Innovation Plan, a series of recommended measures to support innovation in France. This plan was augmented in 2005 by the research ministry’s Pact for Research, which set forth proposals that provided the basis for the Law for Research, enacted in 2006. The purpose of the Law for Research was to support greater cooperation between various actors in the research ecosystem, to network public and private research activities, to provide improved conditions for scientific careers, and to encourage the integration of the French research system into the European Research Area (ERA).28 Concurrently, the French research bureaucracy was overhauled and new entities established for innovation:  The High Council for Science and Technology (HCST) was established in September 2006 to advise the President and the government on policies affecting scientific research, innovation, and technology transfer. It is comprised of 12-21 eminent individuals from the fields of science and technology who serve 4-year terms.  The National Agency for Research (ANR), established in 2005, was tasked with financing research projects and managing innovation programs, such as the Carnot Institutes and the research projects that are part of the competitiveness clusters. The ANR operates on the basis on annual calls for research project proposals, and selects projects based on scientific and technical excellence criteria based on peer review evaluation.29  The OSEO Group, formed by the merger of a number of government organizations, emphasizes the promotion of innovation by small and medium enterprises (SMEs). It includes the former Agence Nationale de Valorisation de la Rechesche (ANVAR), which was established in 1974 to promote application of public research discoveries, with an 27 Muller, Emmanuel, Andrea Senker and Jean-Alain Heraud. 2009. France: Innovation System and Innovation Policy. Karlsruhe: Fraunhofer ISI Discussion Paper. April. p. 3. 28 Fraunhofer ISI, German Institute of Global Area Studies, and Georgia Tech. 2008. New Challenges for Germany in International Competition. August. p. 128. 29 The ANR makes “thematic” and “white” (non-thematic) calls for proposals. The former consist of priorities identified by the government and the latter can relate to any topic, with the most promising and original proposals selected. Chong, Stephanie Fen and Emilie-Pauline Gallie. 2007. Linking Two Instruments for a Better Innovation Policy-Mix: The Case of the National Research Agency and the Competitiveness Clusters. Working Pwper IMRI July. pp. 16, 18.

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APPENDIX A5 375 emphasis on SMEs. It operates under the designation “OSEO Innovation.”  The Research Evaluation Agency (AERES) was created by the Law on Research in 2006, and is charged with objectively and systematically evaluating research institutes, scientists, and programs. It is comprised of 25 French and foreign individuals drawn from the research base. Competitiveness Clusters In 2004 the French government launched an ambitious “Competitiveness Clusters” (pôles de compétitivité) initiative seeking to promote interaction between companies, educational institutions, and public research organizations within limited geographical areas. This program became operational in 2005 for an initial three-year period and was extended to 2009-12. The program is based on the award of subsidies to innovative projects involving collaborations between companies, research organizations, and universities. An evaluation of the second phase of the program (2009-12) jointly commissioned by the Directorate General for Competitiveness, Industry and Services (DGCIS) and the Directorate for Territorial Cohesion and Regional Competitiveness (DATAR) concluded in 2012 that the program should be extended through 2020.30 Regional Initiatives After 1980, the 26 French regions began to increase their role in the national innovation system. Although the regions do not have legislative authority, they receive substantial allotments of the national tax income that they can direct to their developmental priorities. These are negotiated with the central government and embodied in Contrats de Projet-Etats-Regon (state- region contracts), seven-year region-based innovation initiatives. The contracts reflect the central government’s intervention at the regional level in collaboration with regional authorities (OSEO project, competitiveness clusters) and the regional and other local authorities’ own initiatives, which include research promotion, creation of research networks, support for young researchers, support for start-ups, mobilization of risk capital, and promotion of technology transfer mechanisms.31 30 TCI-Network. 2012. “French Competitiveness Clusters’ Evaluation Published.” June 26. 31 European Commission, Enterprise Directorate-General, INNO-Policy Trend Chart—Policy Trends and Appraisal Report: France (2008) p. 18. Although the regions have steadily increased their spending on research, innovation, and technology transfer, regional spending on R&D represented only 5 percent of French public expenditures on R&D for 2008. European Commission. 2011. Erawatch Country Reports 2011: France. p. 23.

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376 21ST CENTURY MANUFACTURING Research and Higher Education Clusters (PRES) The Law for Research provided for the establishment of Research and Higher Education Clusters (PRES) to encourage increased collaborations between research actors and universities. PRES was intended to end the fragmentation of university research and to facilitate sharing of research resources, equipment, and tasks within a given geographic region. National Research and Innovation Strategy (SNRI) Beginning in 2009, France has adopted 5-year National Research and Innovation Strategies (SNRI) setting national priorities that will guide policymaking and resource allocation. The first 5-year strategy was developed by nine working groups drawn from French business, research and civil society communities. In the first five year plan, three priorities have been identified: (1) healthcare, nutrition and biotechnology; (2) environmental and eco-technology; and (3) information, communications, and nanotechnology. Advanced Thematic Research Cluster (RTRA) Based on legislation passed in April 2006 on Thematic Networks for Research, this program supports “research and higher education actors who want to launch together a specific scientific project of high-quality and international visibility giving them a global scope.”32 THE CARNOT PROGRAM The Carnot initiative arose out of the Pact for Research, which sought to reinforce the activities of existing public research institutes that were already involved in research partnerships with private and/or public entities. The program designates what are regarded as the best of those institutes as “Carnot Institutes,” and awards them government funding through the ANR, with the level of funding linked to the volume of each Institute’s contract research revenue from industry. The Carnot designation is intended to be a “seal of excellence.” The Carnot program was inspired by the example of Germany’s Fraunhofer-Gesellschaft.33 Carnot institutes are selected and monitored by ANR. Institutes are periodically invited via a call for proposals to seek Carnot designation by demonstrating their strong affinity with companies. The ANR provides support funding to Carnot institutes based on an incentive formula that takes into 32 Accessed from . 33 European Commission, Enterprise Directorate-General. 2008. INNO-Policy TrendChart—Policy Trends and Appraisal Report: France. p. 15.

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APPENDIX A5 377 account revenues from contract research for public and private entities, income that flows from the ownership of intellectual property, and income from SMEs. ANR funding increases proportionally as each of the other revenue streams grows. Eligible income for ANR matching funding includes income from research partnership contracts financed by public or private entities (excluding states, the EU, international organizations, and national agencies) which are either end users of the results or entities acting as intermediaries for user companies. Although ANR selects Carnot institutes, the Carnot designation is bestowed by the Ministry of Higher Education and Research. The criteria for Carnot designation require a candidate institution to—  Clearly define its research strategy;  Maintain or create a sound internal organization;  Retain downstream research in-house to enrich more applied research; and  Be substantially engaged in contract research with other socio- economic actors. The purpose of the Carnot award is to foster stronger links and partnerships between public and private research in France. The most important priority of the program is knowledge transfer from public research organizations to other entities, particularly private companies, through contract research, licenses, and IPR creation in public, academic, and non-profit institutes. The first Carnot designations, in 2006 and 2007, were for a renewable 4-year period. Subsequent designations run for 5 years. By 2011 34 Carnot institutes had been designated, distributed widely across France and involving about 25,000 researchers. The consolidated research budget for the institutes in 2011 was 1.9 billion Euros. Because the Carnot institutes are public organizations, over half of their funding is derived from various government sources in the form of core funding or research contract revenue.34 However in 2011, the institutes were also generating about 350 million Euros from partnerships with industry, of which 60 million Euros was from SMEs. Partnerships between Carnot institutes and companies take a number of forms:  Direct partnership research contracts with companies; 34 The UK’s 2010 Hauser Report, which surveyed a number of applied research organizations, indicated that in 2008, the Carnot institutes received 59 percent of its income from core and other public funding. Hauser, Hermann. 2010. The Current and Future Role of Technology and Innovation Centres in the UK. p. 11.

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378 21ST CENTURY MANUFACTURING TABLE APP-A5-1 Overview: Carnot Institutes Annual budget Institute Core Business Key Applications (million €) Personnel 3BCAR Chemistry Renewables 46.2 836 ARTS Materials, Energy, ICT 82.0 1,260 mechanics, processes BRGM Energy, Minerals, 108.0 989 environment, earth environment sciences CALYM Life sciences Treating 14.6 301 lymphoma CEA LETI Microelectronics, ICT 225.0 1,539 nanotechnology CEA LIST ICT Telecom, 58.5 681 robotics, metrology CED2 Chemistry, energy, “Green 19.1 303 environment chemistry” Cetim Materials, Manufacturing, 39.0 900 mechanics, energy transport, processes logistics CIRIMAT Materials, Aerospace, 11.0 213 mechanics, energy, health processes CSTB Building and Construction 34.6 351 territory management Curie Cancer Life sciences, Cancer treatment 21.8 247 health Energies de Energy, Energy, 130.0 1,555 futur environment renewables ESP Energy, Energy and 25.3 310 environment propulsion systems

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APPENDIX A5 379 I@L Building, Construction, 61.5 1,328 materials, health, mechanics, manufacturing, processes transportation ICEEL Energy, Sustainable use 73.0 1,435 environment, earth of natural sciences, resources, green materials, industrial mechanics, processes processes ICM Life sciences, Treatment of 29.6 397 health brain, neurological diseases ICSA Life sciences Animal health 66.1 954 IFPEN Transportation, Transportation, 41.5 363 Transports fuel propulsion, energy, Energie engines environment Ifremer Earth sciences Development of 13.0 246 EDROME marine resources INRIA ICT Telecom, 255.0 3035 aeronautics, software, energy, health care ISIFoR Energy, Sustainable 30.5 474 environment engineering of fossil resources LAAS CNRS ICT, ICT, robotics, 32.3 522 microelectronics, Microsystems nanotechnology LISA Chemistry, life Exploitation of 8.4 166 sciences, health lipids LSI ICT, life sciences Software 16.5 520 M.I.N.E.S ICT, energy, Clean energy, 80.5 1820 materials, green building, mechanics, materials processes, earth engineering, sciences intelligent systems

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380 21ST CENTURY MANUFACTURING TABLE APP-A5-1 Continued Annual budget Institute Core Business Key Applications (million €) Personnel MICA Chemistry, energy, Functional 64.9 879 micro- and materials nanotechnology, materials, mechanics, processes ONERA ISA Transport, engines, Aerospace 14.7 860 fuel, materials, mechanics, processes PASTEUR Life sciences, Infectious 71.5 772 MI health diseases PolyNat Chemistry, Biosourced 15.9 273 materials, materials mechanics, processes Qualiment Life sciences, Food products 42.9 516 health STAR Chemistry, energy, Aeronautics, 29.4 650 environment, energy, health, materials, ICT, transport mechanics, processes, ICT, microelectronics Telecom & ICT ICT, ICT 71.7 2,200 Societe applications Numerique Voir et Life sciences, Vision and 13.8 236 Entendre health hearing SOURCE: Association Instituts Carnot, . NOTE: Personnel includes permanent staff and students.  Collaborative contracts in response to requests for proposals from ANR, the French Interministerial Single Fund, and the EU Framework Programme;

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APPENDIX A5 381  Joint research teams and laboratories;  Supervision of PhD students financed by companies The Carnot institutes are a heterogeneous group of publicly-owned research organizations ranging in headcount from 213 professional employees (CIRIMAT) to 3,034 (INRIA). A number of them are public research organizations which were founded during the dirigiste era and at one time executed grandes programmes, and which have reoriented their mission and approach in recent decades.35 In contrast to Taiwan’s ITRI and Germany’s Fraunhofer-Gesellschaft, some of the Carnot institutes engage in basic as well as applied research. Parent organizations of the various institutes include universities and CNRS, and other governmental or quasi-governmental entities. Many Carnot institutes operate through multiple research centers in various parts of France.36 The goal of the Carnot Institutes is the improvement of society through renewable energy, personal health care, improved transportation and mobility, civil safety, homeland security, and information and communications technology (ICT). Accordingly, the Carnot Institutes concentrate on a number of thematic areas:  Life sciences and health technology.  Materials, mechanics, and processing.  Earth sciences and natural resources.  ICT—micro- and nano- technologies.  Building, civil engineering, and land use planning.  Environment and energy, propulsion, and chemistry.37 Contracts with Industry The nature of the research collaborations between Carnot institutes and companies vary considerably from institute to institute. In general, collaborations may involve very specific research sought by a company with respect to which the company pays for the full cost of the project; R&D 35 CEA LETI, for example, is the microelectronics research organization of CEA, the French Atomic Energy Commission. Founded in 1965 in Grenoble, LETI worked closely with Thomson Semiconductor on the development of submicron CMOS technology and participated in JESSI and other major European Community joint research projects. “Integrated Circuits: Looking Beyond the Borders,” Industries et Techniques (June 1, 1988) JPRS-EST-88-005 (July 27, 1988). 36 INRIA, a Carnot institute specializing in computer science, operates research centers in Paris, Saclay, Grenoble, Bordeaux, Nancy, Rennes, Sophia Antipolis, and Lille. Carnot ARTS, which specializes in engineering, has research centers in Angers, Bordeaux, Paris, Lille, Aix-en-Provence, Cluny, Metz, Dijon, and Valduc. 37 Joachim Rams, President, Instituts Carnot, “France: Carnot Institutes,” International Energy Agency, Transforming Innovation into Realistic Market Implementation Programmes, Workshop Summary, April 27-28, 2010, p. 84.

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382 21ST CENTURY MANUFACTURING collaborations, consortia, and joint laboratories involving cost sharing; and special projects for small and medium enterprises. Many contracts involve personnel from both the Carnot institute and the industrial partner. CEA LETI (microelectronics and nanotechnology) administers PEPITE, a program that provides short term (6-12 months) project engineering for small companies seeking to use mature technologies held by CEA LETI. Carnot IFPEN Transports Energie offers Joint Industry Projects (JIPs), consortia in which the institute does all of the research itself, shares the results with participating companies, and retains industrial ownership. IFPEN also performs “research demonstrators which perform the last step in the validation of a technology prior to industrialization.”38 AiCarnot The Association des Instituts Carnot (AiCarnot) acts as a coordinator and network developer of the various individual Carnot institutes. It secures public financial support for each institute, works to define the medium-term objectives, and defines and manages intellectual property rights policies.39 AiCarnot has developed long term relationships with regional and thematic entities providing technological support to companies, including OSEO, the French competitive clusters, research clusters, professional organizations, and the French Chamber of Commerce. Evaluations French public research organizations, including Carnot institutes, are periodically subject to external evaluations supervised by the government Agency for the Evaluation of Research and Higher Education (AERES). The evaluations are conducted by independent experts (Visiting Committees) who not only have no connection to the institution under examination and in a majority of the cases are not even French. Some of the AERES reports are published. Intellectual Property AiCarnot has promulgated a code of best practices with respect to IP and knowledge and technology transfers (KTT) for the Carnot institutes. The code provides with respect to research partnerships between the Carnot institutes and “socio-economic actors” (in most cases companies), each party will have proprietary rights with respect to the R&D results they develop alone during the collaboration. Results that the parties develop together are jointly owned, with 38 . 39 Ibid, p. 8.

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APPENDIX A5 383 conditions regarding the exercise of IP rights “defined according to specified and negotiated terms, for example, in proportion with their contributions in terms of inventing and funding.” A free right of use of the partnership’s research results is held by the Carnot institute solely for the purpose of subsequent research. Transfer of IPR by Carnot institutes is to be considered on a case by case basis with an appropriate compensation. The rights to prior knowledge which the parties bring to the collaboration cannot be modified by the collaboration unless specifically negotiated. At the same time, the partners grant free access to their prior knowledge for the sole purposes of the joint research. Licenses for the technology developed by the partnership “will be limited to a definite period and to specific fields and territories.”40 Support for Manufacturing Twenty Carnot institutes offer competencies in “materials, mechanics, and processes,” which support French manufacturing companies and industries. A number of institutes offer companies access to on-site pilot manufacturing facilities on which they can prove processes and equipment, and/or tools and platforms through which factory environments can be simulated. CEA LETI, for example, which specializes in microelectronics, features 8,000 square meters of CMOS compatible clean rooms equipped with 200 and 300mm fabrication tools. The STAR Carnot Institute (Science and Technology for Research Applications) operate a multi-purpose production platform for advanced materials, tools for materials deposition, and clean rooms.41 Some institutes, such as Carnot CETIM, are virtually entirely dedicated to industrial automation technologies and systems, simulation of industrial processes, metrology, and other themes directly relevant to manufacturing.42 CETIM’s website details 120 recent projects that have boosted competitiveness of French industry, generally through incremental improvements in materials and industrial production processes. Some examples:  AEML: France’s AEML Company (Ateliers Electriques et Metallurgiques due Loiret) manufactures equipment for use in construction and color preparation for motor vehicle bodies. AEML wanted to repatriate part of its Chinese production of metal clamps to 40 AiCarnot, “The Carnot Institutes’ Code of Best Practices for Intellectual Property and Knowledge and Technology Transfers,” (2009). 41 Carnot CEA LIST (smart digital systems) is equipped with robotics and robotics platforms, CAD stations for integrated circuit design, reactors for diamond synthesis, ionizing radiation metrology platforms, immersive rooms to create virtual environments, and experimental network diagnostic tool platforms. . 42 Founded in 1965 at the behest of French machinery companies, CETIM has been involved in factory automation and industrial materials and processes for many years. “Very High Speed Machining Gaining Ground: 3-Year Research Program Launched,” L’Usine Nouvelle (November 14, 1991) JPRS-EST-92-008 (March 12, 1992).

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384 21ST CENTURY MANUFACTURING France, and to do so it sought to develop a new model clamp that could be patented and manufactured at costs that would be competitive with Chinese costs. AEML asked Carnot CETIM to identify a variety of electrogalvanized steel that was less expensive and which could be stamped in a more productive manner than the existing steels in use. CETIM used digital simulation tools to identify a type of steel, DC03, that was cheaper and which provided a superior performance. As a result of this project, AEML’s factory in Meung-sur-Loire, France, employs an “operating sequence [which] allows it to compete with Chinese manufacturing costs.”43  Inoforges: Inoforges, a small French company engaged in the manufacturing of brass, copper, and aluminum parts, asked CETIM to review its plans for manufacturing connecting aluminum parts for welded frames intended for rail transport. CETIM conducted simulations with its software “Forge 200S” which revealed that the company’s planned method would result in large amounts of power consumption with a risk of poor material homogeneity and high stresses on the tooling. CETIM and the company’s engineers simulated a redesigned part. The new part and associated processes generated material savings of nearly 15 percent and reduced process costs by about 10 percent.44  Rivard: Rivard SA is a manufacturer of cleaning systems based on high water pressure. At the beginning of 2005 it needed to carry out an emission control plan for its painting and coating operations to comply with new regulations concerning volatile organic compounds (VOC). To do this and to achieve greater efficiency in production, the company turned to CETIM. CETIM engineers proposed that the company set up an automated and continuous process involving the preparation of paint, in-line feeding of electrostatic pulverizing guns, and a control system measuring consumption using flowmeters and volumeters. The new process cut VOC emissions by 50 percent and yielded a 30 percent reduction in paint consumption during the production process.45 Networks The Carnot institutes comprise a major network covering many of the competencies necessary to sustain a high technology economy, including information and communications technology, microelectronics, construction, factory automation, energy, medicine, chemicals, and advanced materials. To 43 CETIM, “Repatriating the Manufacturing of Clamps from China.” . 44 . 45 .

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APPENDIX A5 385 leverage these disciplines, the institutes have formed “Carnot alliances” in a number of market sectors in order to bring to bear the skill sets of the entire network on particular technological challenges. Companies can access these networks regardless of the point of entry. The sectors covered are environment, chemistry, transport, ICT/micro and nano technology, healthcare, sustainable construction and mechanics, materials, and processing. In some cases, Carnot institutes have formed joint laboratories among themselves to pursue themes of mutual interest.46 The Carnot institutes are also heavily networked with other French research organizations and educational institutions. The Carnot Institute ARTS (Actions on Research for Technology and Society), for example, which specializes in engineering, is led by the engineering school Arts & Metiers Paris Tech and has research partnerships with five universities and seven public research organizations including CNRS and CNAM (Conservatoire National des Arts et Metiers). Some Carnot institutes are involved in the governance of French Competitiveness Clusters.47 Finally, the Carnot institutes enjoy extensive European and international networks.48 Training A significant proportion of the Carnot institutes’ professional staff is comprised of PhD students. At the largest Carnot institute, INRIA (computer science), 1270 of the institute’s 3035 professional staff are PhD students. “The contributions of young doctoral and post-doctoral researchers from a variety of fields are a noteworthy benefit of the Carnot initiative.”49 IFPEN Transports Energie operates IFP Schoul on its premises that offers graduate-level training to 600 young engineers. IFPEN and IFP Schoul jointly operate IFP Training, an international training organization for managers, engineers, and technicians from 46 Carnots CETIM and Cirimat, both of which are involved in materials, mechanics, and processes, have formed Cetimat, a joint laboratory specializing in surface engineering and the in-service behavior of materials. . 47 The Institute Carnot BRGM, specializing in earth sciences, participates in the governance of seven competitiveness clusters. 48 CEA LETI Carnot (microelectronics) belongs to the Heterogeneous Technology Alliance (HTA) that is comprised of LETI, Germany’s Fraunhofer Gesellschaft, the VTT in Finland, the CSEM in Switzerland, and the French Institute for New Energy Technologies (LITEN). The partners have agreed to be interdependent, according each other access to their technologies and coordinating their investments. HTA concentrates on micro and nano technologies and its mission is to “bridge the valley of death” between academia and industry. “Heterogeneous Technology Alliance: Vision— Mission—Strategy.” Heterogeneous Technology Alliance. October 17, 2011. . CEA LETI also has research partnerships with Caltech’s Kavli Nanoscience Institute, IBM and Japan’s Micromachine Center. 49 LETI. LETI, a Carnot Institute. .

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386 21ST CENTURY MANUFACTURING the oil and gas, chemical, and automotive industries.50 Carnot institutes’ research contracts with companies sometimes stipulate that the institutes will train employees of the companies in the technologies that are the subject of research.51 EU Engagement The Carnot institutes are major players in the European Union’s Seventh Framework Programme (FP7), which provides major EU funding for R&D. Carnot CEA LIST (smart digital technology) alone is involved in about one hundred FP7 projects, including 12 in which it is the project leader.52 Spin-off A number of institutes receiving the Carnot designation had already established a long history of spin-offs, a practice that continues under the Carnot initiative. INRIA, an information technology institute that is the largest Carnot by budget and headcount, has created 106 spin-off companies.53 These include Esterel Technologies, an innovative software SME which certifies and verifies “critical codes;” Trusted Logic, a developer of smart cards; and the high- performance computing firms Activeon, Kerlabs, and Sysfera.54 A 2008 assessment of INRIA by a Visiting Committee commented that “INRIA has continued its successful policy aimed at creating new spin-off companies. Along with educating students, this is one of the most effective mechanisms for technology transfer. The number of new companies created roughly followed the overall growth of the institute.”55 The Carnot Institute Telecom & Societe Numerique averages 25 spin-offs per year.56 Carnot spin-offs benefit from a number of measures implemented by the French government during the past decade to encourage start-ups. The Ministry for Higher Education and Research has funded the establishment of incubators in close proximity to public research organizations.57 The Jeune Entreprise Innovante status was authorized in the framework of the Finance 50 . 51 LETI. Collaborating with LETI. . 52 . 53 Institute Carnot Fiches en anglais, “Institute Carnot INRIA.” INRIA provides financial and technical support for start-ups through INRIA-Transfert, which administers a number of start-up funds. 54 Report of the INRIA Visiting Committee (December 18-20, 2008) p. 3. 55 Ibid, p. 3. 56 Carnot Institute TELECOM-EURECOM, Strategy and Technologies Transfer (December 2008). 57 In the period 2000-2005, 1,415 projects of innovative companies were hosted in these incubators, nearly 50 percent of which were based on research results of the public research organizations. Muller, Zenker and Hearud, France: Innovation System and Public Policy (2009) op. cit. p. 19.

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APPENDIX A5 387 Law in 2004, making small innovative firms exempt from numerous taxes and social security payments.58 Through the Investments for the Future Programme (PIA), a stimulus program, the government funded the establishment of two special venture funds to assist start-ups, the National Fund for Digital Society (2010) and the National Seed Fund (2011).59 PIA is also underwriting the establishment in 2012 of thirteen projects of “Mutualized for Innovation Platforms” (PFMI), which are intended to provide SMEs with pooled resources (people, equipment, associated services) to support innovative projects and R&D.60 INRIA INRIA, a Carnot institute specializing in computer science, has the largest budget and professional staff in the Carnot network, and is recognized as one of the best institutions of its kind in the world. Founded in the era of dirigisme as part of a grande programme, it achieved the status of a public scientific and technological establishment in 1985.61 INRIA’s first chairman, Jacques-Louis Lions, was one of the greatest applied mathematicians of the Twentieth Century. He built INRIA into an institution that applied mathematics, computer science, and automated controls in a deep and integrated manner. He welcomed interaction with industry as a source of proximity to new research challenges, and placed an emphasis on training, particularly, at the doctoral level, working closely with French universities. INRIA introduced its motto in 1994, “scientific excellence and technology transfer,” reflecting its emphasis on applications and relationships with industry. INRIA contributed particularly to the French telecommunications sector, where it forged close relationships with Alcatel and France Telecom. In 1998 it set up a subsidiary, INRIA-Transfert, to function as an incubator for start-ups.62 INRIA closely interacts with the French academic research infrastructure. A 2008 report by a Visiting Committee indicated that of the 160 projects then underway at INRIA, over 75 percent involved academic or other research organizations, and that of the 1200 Ph.D. students then working at the institute, only 25 percent were fully paid by INRIA. The Committee commented that 58 Ibid. 59 OECD, OECD Science and Industry Outlook 2012, p. 292. 60 “Thanks to this mutualization, SMEs and medium-sized companies can have access to high technology equipment that they would have been unable to purchase or use on their own.” Groupe Caisse des Depots, “Results of the Call for Projects ‘Mutualized for Innovation Platforms’,” (August 3, 2012). 61 INRIA, originally known as IRIA, was created in 1967 as part of the French Computer Development Plan. . 62 Ibid.

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388 21ST CENTURY MANUFACTURING The original and distinctive INRIA “model” based on team- projects, each with a clear research focus and vision, has an extremely fruitful impact on the academic system, fostering the emergence of regional poles of excellence with international visibility, as well as interdisciplinary, and individual collaborations. This flexible and dynamic team-project model shapes the bottom-up creativity of researchers in a coherent national strategy.63 Collaboration with Fraunhofer In 2007, ANR and Germany’s research ministry, BMFB, launched an initiative to foster collaboration between the Carnot institutes and Germany’s Fraunhofer-Gesellschaft in the area of applied research. This effort was funded by the two governments at 10 million Euros over a 3-year period. Eleven bilateral research groups were established, including the following:  The Fraunhofer institutes for Cell Therapy and Immunology IZI and Reliability and Microintegration IZM joined with the Institut Carnot FEMTO to develop “lab on a chip” technology to enable fast and affordable blood sample analysis at the doctor’s office, eliminating the need for a trip to the major laboratory.  The Fraunhofer Institute for Interfacial Engineering and Biotechnology IGB and the Institut Carnot CIRIMAT launched a joint project to develop bone tissue using innovative biomaterials for use in surgery.  The Fraunhofer Institutes for Physical Measurement Techniques IPM and the Institut Carnot IEMN undertook a joint project to develop antennas for terahertz radiation for security controls on substances such as drugs and explosives.64 CONCLUSION The Carnot initiative is one facet of a broader effort by France to improve its innovation system in a manner that will improve the competitiveness of French industry and create jobs. The purpose of the Carnot effort is to “make the transition from fundamental research to industrial research more fluid.”65 The Carnot model incentivizes each institute to ascertain what types of technology French industry is seeking and to secure contracts to develop those technologies, and the government rewards success in obtaining contracts with 63 Report of the INRIA Visiting Committee (December 18-20, 2008) p. 4. 64 Fraunhofer-Gesellschaft. 2009. “Research News: German French Camaraderie.” Press Release. November 16. 65 Jean-Michel Le Roux, Carnot Program (October 2012).

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APPENDIX A5 389 matching funds. The sheer number of annual contacts with companies (7,800) is impressive. The spinoff efforts by some Carnot institutes are very robust and the track record of the French institutes in this area appears to eclipse that of the Fraunhofer. At the same time, even if highly successful, the Carnot initiative, standing along, cannot remedy some of the more intractable weaknesses in the French innovation system, such as manpower shortages, the acknowledged shortcomings of the educational system, chronic underinvestment in research by industry, and the comparative lack of interest by young people in careers in engineering and science.66 In 2011, five years after the inception of the Carnot initiative, a study by two French academics concluded that research cooperation between public and private sectors in France contributes less to companies’ innovation capacity than is the case in Germany, based on an econometric study of the share of innovative products in total turnover. The European Commission attributed these findings to the difficulty encountered by companies in cooperating effectively with public research organizations, the complexity of the knowledge-transfer system, and the difficulty private companies experience in finding the right research partners.67 These findings underscore the fact that addressing the challenges facing France in innovation will take a major effort spanning many years. 66 In 2011, the European Commission commented on “the low level of interest shown by [French] companies for innovation. This is due to the weak culture of innovation characterizing French companies.” European Commission. 2011. Erawatch Country Reports 2011: France. p. 14. 67 Robin, Stephanie and Tosben Schmidt. 2011. “Partenaniats Public/Prive et Innovation dans les Enterprises” in MINEFI. L’Innovation dans les Entreprises: Moteurs, Moyens et Enjeaux cited in European Commission. 2011. Erawatch Country Reports 2011: France. p. 14.