The Flexible Electronics Opportunity (2014)

3

Government Promotional Efforts

Flexible electronics is a relatively new field involving many unproven technologies and processes, with a potentially long and uncertain path to market for commercial applications. Although private capital has supported some early commercial ventures in the field, most of the initial development of the industry worldwide has involved extensive government support, particularly with respect to the funding of applied research to translate scientific knowledge into commercial products and industrial processes. The scope of these promotional efforts varies substantially between regions.

In the United States, federal government support is generally regarded as appropriate for basic, generic research and basic infrastructure, whereas public support for the development of products and industrial processes can be controversial. At the state level, public funding of research closely associated with commercial activities has been common and widely accepted. In countries such as Germany, Taiwan, and others examined in this study, government support for applied research with explicitly commercial objectives is the norm.¹

In the European Union, an extremely broad and deep effort to promote an indigenous capability in flexible electronics has been under way at multiple governmental levels for more than 10 years. This effort is far broader than the promotional efforts in North America and East Asia. The European Commission

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¹ See generally David C. Mowery and Nathan Rosenberg, “The U.S. National Innovation System,” in Richard R. Nelson, National Innovation Systems: A Comparative Analysis (New York: Oxford University Press, 1993), 35–36; National Research Council, Best Practices in State and Regional, Innovation Initiatives (Washington, DC: The National Academies Press, 2013); National Research Council, 21st Century Manufacturing: The Role of the Manufacturing Extension Partnership Program (Washington: The National Academies Press, 2013).

is funding numerous research consortia with an emphasis on establishing manufacturing competency within Europe. National governments have committed hundreds of millions of dollars to supporting research efforts, particularly the United Kingdom (UK), Germany, the Netherlands, and Finland. Regional governments are providing financial and infrastructure support to “organic electronics” innovation clusters, and a 2011 European Union (EU)-sponsored survey identified no fewer than 17 organic and large area electronics (“OLAE”) clusters in the EU. The survey team observed that

Europe is “certainly . . . looking at a far broader range of printed components than is pursued in East Asia.” European programs are promoting an extraordinary range of flexible electronics–based applications, including “smart packaging,” printed flexible rechargeable batteries, radio frequency identifications, lighting systems, ubiquitous sensor networks for health care, smart textiles, and touch screens.³

In the East Asian countries Japan, Korea, China, and Taiwan, government promotional efforts in flexible electronics are heavily concentrated on development of flexible displays for consumer applications such as smartphones, TVs, and e-readers. Asian government promotional programs are built on the legacy of earlier major government programs to develop industrial capabilities in semiconductors, high definition television, optoelectronics, liquid crystal displays, and photovoltaics. South Korea, China, Taiwan, and Japan are engaging the same government research organizations, the same types of promotional policies, and in most cases the same companies and industrial groups that achieved success in these other sectors. With sustained government support, Asia-based producers have achieved near-total global dominance in displays for consumer electronics applications, facilitating their moves into flexible electronics displays.

In North America, the Department of Defense recognized the multiple potential defense applications of flexible electronics technology in the 1990s and has been providing major funding for research and development (R&D) in the field for more than a decade. The foremost U.S. center for flexible electronics R&D, the Display Technology Center at Arizona State University (ASU), represents a $100 million investment by the U.S. Army. Other federal agencies, including the National Institute of Standards and Technology (NIST) and the National Science

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² The FP7-ICT Coordination Action OPERA and the European Commission’s DG INFSO Unit G5 “Photonics,” An Overview of OLAE Innovation Clusters and Competence Centres, September 2011, 9.

³ Peter Harrop, “Printed Electronics—Europe is Different,” Printed Electronics World, March 9, 2011.

Foundation (NSF), have been funding basic and applied research and technology transfer, and federal laboratories, including facilities at NIST and the Department of Energy’s National Laboratories, are performing and sponsoring research in flexible electronics, often in collaboration.⁴ A number of U.S. states are supporting the establishment of flexible electronics innovation clusters to commercialize research results from local universities. In October 2013, the Canadian government announced a new promotional effort and an industrial consortium to foster the development of printed electronics technologies, involving a $40 million investment by the National Research Council of Canada over a 5-year period.⁵

GOVERNMENT FUNDING LEVELS

It is probably impossible to construct an accurate tabulation of government financial support for flexible electronics around the world from public sources. Funding data for flexible electronics is commonly not segregated and is widely dispersed under headings such as “nanotechnology,” “new materials,” “high technology equipment,” and “green energy.” A European Union project, PolyMap, was undertaken in 2008-2011 to determine public funding for OLAE within EU Member States. It reported in 2010 that “very few questionnaires have been returned so far . . .,” various organic electronics-related projects were “scattered through a large number of different national programs,” few programs were identified with “primarily OLAE context,” databases of funding agencies lacked suitable search tools, and “regional funding is virtually impossible to get information on.”⁶ Funding levels in countries such as South Korea are even more opaque.

Table 3-1 is an attempt to establish a rough perspective on comparative funding levels by presenting the handful of relatively large government expenditures in flexible electronics based on reasonably reliable sources. As can be seen, even with these figures the timeframes are not coextensive, and it is therefore difficult to make meaningful comparisons. The myriad smaller governmental outlays by various entities are not depicted, a fact that understates the figures for all countries shown, but particularly Germany, where the national innovation system is characterized by multiple small government grants and loans. German figures would be further increased by inclusion of state and regional financial support

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⁴ In 2012, for example, Georgia Tech’s Center for Organic Photonics and Electronics disclosed discovery of a universal technique to reduce the work flow of a conductor using commercially available polymers that are inexpensive, environmentally friendly, and consistent with existing roll-to-roll mass production techniques. The discovery is expected to facilitate lower cost and more flexible electronic devices. The project was jointly funded by the National Science Foundation, the Office of Naval Research, and the U.S. Department of Energy. “Stable Electrodes for Improving Printed Electronics,” April 19, 2012, <http://www.cope.gatech.edu/news/release.php?nid=124901>.

⁵ “Next Generation Printing Innovations with Electronic Intelligence,” Printed Electronics World, October 14, 2013.

⁶ PolyMap Report, WP1: Survey of National and Regional Funding with OLAE Context (February 23, 2010), 3.

TABLE 3-1 Known Major Government Funding—Flexible Electronics

NOTE: Conversion at prevailing exchange rates as of July 25, 2013.
SOURCES: ^a“Army Invests $50 Million in Flexible Displays,” CNET News, January 29, 2009; “Army Partners with Arizona State University to Develop Flexible Displays,” Military and Aerospace Electronics, January 2009; ^bNorTech, “A State’s Initiative: Advancing Flexible Electronics in Northeast Ohio” (2010); ^cThe FP7-ICT Coordination Action OPERA, An Overview of OLAE Innovation Clusters and Competence Centres, September 2011; ^dHouse of Commons, Universities, Science and Skills Committee, Engineering: Turning Ideas Into Reality I (March 18, 2009), 33; ^e“Public and Industrial Agreements Enable Further Growth of Holst Centre,” Holst Centre News Release, April 5, 2012; ^f“Building Activities Start on High Tech Campus Eindhoven,” Solliance News Release, April 15, 2013; ^gGermany National Academy of Science and Engineering, Organic Electronics in Germany: Assessment and Recommendations for Further Development, 2011, 8; ^hHouse of Commons, Innovation, Universities, Science and Skills Committees, Engineering: Turning Ideas Into Reality 1 (March 18, 2009), 41, based on site visits in Japan. Figure represents NEDO funding of OLED R&D; ⁱPresentation of Janglin Chen, ITRI, National Research Council, Flexible Electronics for Security, Manufacturing and Growth in the United States: Report of a Symposium, 2013.

for research and the development of innovation clusters and of state and federal support for flexible electronics research carried out by the Fraunhofer Institutes.⁷

Table 3-1 shows $158 million in expenditures between 2007 and 2013 for flexible electronics by the EU pursuant to its Seventh Framework Programme as reported by OPERA, an EU-backed research alliance promoting “competitiveness

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⁷ The German research ministry, BMBF, contracts with the Fraunhofer Institutes for research, and funds used to support flexible electronics research may be reflected in the $264 million figure shown for the BMBF. However, the federal and state (Land) governments also provide roughly one-third of the Fraunhofer Institutes’ “core” funding, which is not linked to specific research projects but which conveys advantages (such as advanced equipment and well-staffed laboratories) to Fraunhofer research projects for private companies. In 2010, this government core funding totaled €553 million euros ($734 million). Fraunhofer Gesellschaft Annual Report 2010.

clusters” in organic and plastic electronics. This figure does not include expenditures by the European Regional Development Fund (ERDF) in flexible electronics that have been used to support creation and expansion of flexible electronics research facilities in the EU.⁸ Finally, Table 3-1 depicts funding levels for the EU member states that have made the largest public investments in flexible electronics; to this should be added smaller, but not insubstantial, public investments by other Member States, such as France and Finland.⁹

The U.S. figures for funding by the Army and Ohio’s Third Frontier fund do not include smaller grants and research contracts from federal agencies (e.g., NIST, NSF, Office of Naval Research, Air Force) or other state and regional U.S. governments. In 2010, Andrew Hannah, then CEO of Plextronics, cited an industry estimate that aggregated funding for printed electronics from U.S. various government programs and concluded that U.S. spending in the sector was less than $50 million in 2009.¹⁰

South Korea releases information about government funding of high-technology R&D under the rubric of broad thematic categories such as “World Premier Materials” and “Convergence Technologies,” indicating very substantial aggregate funding levels but without a breakdown of funding allocation by sector or technology within these categories. Budget figures are sometimes given for public research institutes conducting R&D relevant to flexible electronics without indicating what percentage of the funding is derived from government sources. Andrew Hannah, the CEO of Plextronics, indicated in a 2010 presentation that no data were available with respect to the level of Korean government funding for flexible electronics, but that it was “assumed to be greater than Taiwan,” which was $200 million between 2006 and 2013.¹¹

Incomplete as the data in Table 3-1 are, with respect to government funding of commercially relevant flexible electronics technologies, it is difficult to escape the conclusion that the United States is being outspent by both Europe and Asia.¹²

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⁸ The Centre for Process Innovation, Ltd. (CPI) is a nonprofit organization established in northeast England in 2004 to conduct research in advanced manufacturing. Between 2004 and 2012 CPI received £17 million ($26 million) from the ERDF, nearly all of which was used for projects involving its Printed Electronics Technology Centre. Written Evidence Submitted by the Centre for Process Innovation, House of Commons, Communities and Local Government Committee, April 2012.

⁹ The EU OPERA project, which mapped the EU’s OLAE clusters, reported in 2011 that €20 million in French public funds had been invested in relevant polymer R&D projects and that Finland had invested €10 million in PrintoCent, a printed electronics research center, between 2009 and 2011. The FP7-ICT Coordination Action OPERA, An Overview of OLAE Innovation Clusters and Competence Centres, September 2011, 13.

¹⁰ Andres Hannah, The Global View of Printed Electronics and What it Could Mean to the U.S., September 24, 2010. In 2014, Solvay, a Belgian company, completed the acquisition of U.S.-based Plextronics, Inc.

¹¹ Andrew Hannah, Global View of Printed Electronics.

¹² The same conclusion has been reached by some representatives of the U.S. flexible electronics industry. Andrew Hannah, CEO of Plextronics, observed in 2010 that “the U.S. is being outspent” by foreign governments in printed electronics. Ibid.

Moreover, the U.S. Army’s investment in the Display Technology Center at ASU will undoubtedly result in commercial as well as military applications, as is the intent, but the primary objective of that investment is the development of displays for incorporation in military equipment, systems, and uniforms. Moreover, the foreign participants in the internationalized ASU projects will reap some of the benefits of the research—also as is intended—whereas the international spillover effects of the European and Asian efforts are likely to be more limited.

COOPERATIVE RESEARCH CENTERS

In all regions, most government spending in flexible electronics is directed toward university-industry-government consortia conducting applied research at government or university research centers. The mission of virtually all of these centers is to translate basic research into commercially relevant products and processes, and to play a silo-breaking and integrational role between various scientific and engineering disciplines and between individual companies, university departments, and government organizations. Such cooperative research centers, known variously as centers of excellence, joint laboratories, engineering research centers, and university-industry research centers, have been characterized as “the organizational solution to the problems team science poses for disciplinary and bureaucratically structured institutions like universities.”¹³ In addition, by fostering collaboration, the centers mitigate the cost and risks associated with research by individual companies, which typically enjoy expertise in only a portion of the disciplines required to engage in the manufacture of flexible electronics products.

Cooperative research centers in flexible electronics are typically equipped with research, measurement, and simulation tools and are staffed with scientists, faculty, engineers, and students with expertise in various relevant competencies, including materials science, electrical engineering, circuit design, and process technologies. Many of the centers also operate pilot manufacturing lines in collaboration with equipment makers to test and prove manufacturing processes, validate prototypes, and develop new lines of processing equipment. Virtually without exception, the centers are either owned and operated by governments, or substantially dependent on government financial support. (See Table 3-2.)

Research collaborations with commercial objectives involving multiple firms and research organizations are inherently challenging, particularly in countries such as the United States, with a deeply embedded tradition of individualism, or South Korea, characterized by intense rivalry between industrial groups—which underscores the value of examining other national models. In continental Europe, longstanding industrial traditions of collaboration are currently buttressed by institutional arrangements for applied research, involving powerful financial

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¹³ Craig Boardman and Denis Gray, “The New Science and Engineering Management: Cooperative Research Centers as Government Policies, Industry Strategies and Organizations,” Journal of Technology Transfer, February 2010, 447.

TABLE 3-2 Government-Supported Centers for Applied Research with Major Flexible Electronics Programs

SOURCE: Chapters 5-7 of this study.

incentives to cooperate and intellectual property and cost-sharing practices that have fostered pervasive, sophisticated research collaborations of the kind cited with approval by the visiting WTECH panel of U.S. experts in flexible electronics in 2010.¹⁴ In Taiwan the government’s leverage relative to industry is sufficiently great that it can shepherd companies into de facto research and rationalization cartels that mature in the form of complete industry chains.¹⁵

Government-supported cooperative research centers are frequently proactive in forming and shaping consortia. Taiwan’s ITRI has not only organized industry alliances in flexible electronics but also assigned specific roles to individual participating companies.¹⁶ The European Union’s Flex-o-Fab project, a 3-year

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¹⁴ WTECH, European Research and Development in Hybrid Flexible Electronics (2010), 7. See generally National Research Council, 21st Century Manufacturing, “Appendix A2, Fraunhofer Gesellschaft: The German Model of Applied Research,” 224–284.

¹⁵ See National Research Council, 21st Century Manufacturing, “Appendix A3, Taiwan’s Industrial Technology Research Institute: A Cradle of Future Industries,” 285–336.

¹⁶ Interview with Dr. Janglin Chen, Director ITRI Display Technology Center, Hsinchu, Taiwan, February 14, 2012.

effort to demonstrate processes for organic light-emitting diode (OLED) lighting foils, is being directed by the Holst Centre, a Dutch/Belgian flexible electronics research center supported by national and regional government entities in the Netherlands and Belgium.¹⁷ Germany’s Fraunhofer institutes, which derive much of their revenue from public sources, commonly encourage their industrial partners to form consortia when confronting major research and development challenges.¹⁸

PROMOTION OF INNOVATION CLUSTERS

Innovation policies in the regions surveyed in this study emphasize the formation of innovation clusters, geographically localized groups of companies in related sectors that do business with each other and share needs for skilled workers, research infrastructure (i.e., universities and public laboratories, supportive industry associations, community colleges with relevant training programs), and new technology. As Michael Porter famously stated in his influential 1990 book The Competitive Advantage of Nations, regional clusters, rather than individual firms or industries, are the primary determinant of competitiveness. Governments seek to promote clusters through economic incentives to firms to locate in a particular geography, the establishment of supporting research infrastructure (including cooperative research centers), provision of networking services and events, provision of incubation and other business services, and assistance in securing financing for startups.¹⁹

In the European Union, the EU-sponsored OPERA project released a survey in 2011 of OLAE innovation clusters and competence centers in Europe. The study observed that there were more than 17 OLAE clusters in Europe with more emerging and that at least 400 firms and institutions active in the field were located in these clusters.²⁰ In a 2010 presentation on Korean initiatives in flexible and printed electronics, Professor Changhee Lee of Seoul National University emphasized the nine innovation clusters of companies, research institutes, and universities that have emerged in South Korea in this sector.²¹ The

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¹⁷ “European Project Develops Flexible OLED Lighting Production Process,” Plastic Electronics, February 8, 2013.

¹⁸ Interview with Fraunhofer Institute for Process Engineering and Packaging IVV, Friesing, Germany, June 13, 2012.

¹⁹ See generally Stefano Breschi and Franco Malerba, eds., Clusters, Networks and Innovation (Oxford: Oxford University Press, 2005); National Research Council, Clustering for 21st Century Prosperity, Charles W. Wessner, rapporteur (Washington, DC: The National Academies Press, 2012).

²⁰ The FP7-ICE Coordination Action OPERA, An Overview of OLAE Innovation Clusters and Competence Centres, September 2011.

²¹ Professor Lee identified these as Seoul, Daejeon City, Pohang City, Sunchon City, Jeonbuk Province/Jeonju City, Kumi City, Paju City, Suwon City, Kihueng, and Cheonan City. Changhee Lee, “Flexible Electronics—A Korean Initiative.”

state of Ohio’s promotional effort in flexible electronics is based on a cluster strategy developed through observation and study of foreign cluster policies.²²

Some flexible electronics clusters have already achieved substantial scale and sophistication. The largest organic electronics cluster in Europe is in Dresden, where about 40 companies, 17 research institutes, and more than 950 employees (as of 2012) are pursuing various research and innovation themes in organic electronics.²³ (See Table 3-3.)

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²² Presentation by John West, “The Genesis of a New Cluster,” National Research Council, “Building the Ohio Innovation Economy: Summary of a Symposium,” April 25-26, 2011.

²³ “Organic Electronics for Saxony OES,” <http://www.colae.eu/companies/organic-electronics-saxony-oes-2/>.

TABLE 3-3 The Dresden Flexible Electronics Cluster

SOURCE: City of Dresden, Dresden—Europe’s Largest Cluster for Flexible Electronics (April 2012).