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The concept of intangible assets has become an important theme of European policy for industrial competitiveness, as Europe increasingly becomes a knowledge driven economy.
In October 1999, a Communication on "Structural change and adjustment in European manufacturing" and recent declarations of new Commissioner Erkki Liikanen reaffirmed that "we must reinforce intangible investments which is a key factor in competitiveness: life-long learning, spirit of enterprise, innovation, protection of intellectual property, European patents (…)". Therefore, EU Information Society policy, R&D and innovation policies and education and training policies should include actions aimed to stimulate innovation, the spirit of enterprises, creativity and the competitive development of European companies through intangible investments. But the Communication recognised that "despite the importance of these types of capital for the competitiveness of the economy, our relevant data sources and our understanding of the investment decisions in this field are inadequate". Also as the "1999 Report on the Competitiveness of European Industry" states:
"Our understanding of the competitive process remains fundamentally incomplete (…) Paradoxically, our knowledge about intangibles is still poor. Intangibles are, by nature, difficult to measure, and the lack of reliable, comprehensive and internationally comparable data is a major barrier to broad-scale empirical analysis".
"The diffusion of ICT-based products and services is contributing to higher productivity (…) Unfortunately, these themes had to be excluded from this (the Competitiveness) report because, for the time being, the appraisal of these effects faces critical measurement problems and would consequently require the development of new statistical indicators."
"Data on more detailed breakdown of investment spending is scarce. Ongoing investment in information technology, for example, explains an important part of investment expansion in the USA. … Unfortunately, comparable data do not exist for the EU"
Since 1994, the European Commission has launched a series of studies, actions and projects which aim to better understand the knowledge economy and the importance of intangibles as competitiveness factors. The European Commission tends to consider that policy makers should take stock of that evolution by defining new objectives and instruments for industrial policy.
1.1 Preliminary work
In 1994, a Communication entitled "An industrial competitiveness policy for the European Union" was published, stressing the importance of investing in areas such as training, R&D and industrial property rights.
In 1996 and 1997, a series of documents analysed the industrial aspects of the information society in the framework of DG III activity (Working document on Impact of the Information Society on Industry and Service Sectors in May 1996; Analysis of the Industrial aspects of the Information Society). This work has been influenced by the specific recommendation of the Competitiveness Advisory Group ("Enhancing European Competitiveness. CAG June 1995 also called "Ciampi report"). The CAG report identifies the need for a concerted European approach in the form of self-sustaining Knowledge Resource Centres. These KRCs will be linked in networks to enhance synergy and ensure a Europe-wide framework for individual experiences. These networks will facilitate information supply and demand and play a leading role in enhancing developments in the information society. For the CAG, this includes fostering business opportunities and education and training activities, diffusing solutions throughout Europe, and encouraging learning organisations.
Also, the first action plan for innovation in Europe (DG XIII, 1997) included the following action point: "To promote a positive fiscal and accounting scheme for intangible investments", to be implemented by the member states.
1.2 1998-1999 activities
This preliminary work has been followed in 1998 and 1999 by several reports and studies stressing the role of intangible as competitiveness factors:
In the framework of the EU Finnish presidency, the issue of intangibles has been discussed during an Informal Meeting of the Ministers of Industry on Competitiveness in the Information Society which took place in Oulu on 2-3 July 1999. The Finnish presidency note entitled "Improving European competitiveness by promoting the take up of ICT" is available on the web site of the Finnish Council of State.
"Accepting the setting of value at company level on what may appear as no more than just potentiality or virtuality will rely on fulfilling two conditions: firstly, that adequate tools for knowledge storage and further delivery will enable the repatriation of these external resources to the company according to its needs; secondly, that appropriate processes are implemented to ensure optimal internal dissemination of knowledge and the involvement of end-users, thus applying a multiplying effect to value generation."
This study is available for downloading on DG Enterprise web site.
- at the macro level, a study on "Intangible Investment and Human Resources" carried out by WIFO. This study proposed a analysis of the structural differences with regard to importance of intangible investments across industrial sectors and underlines weaknesses and strengths of the European industry;
- at the micro level, a study carried out by the National Institute of Economic and Social Research on "Intangible Investment, Companies and Competitiveness" which investigates current hypotheses on the links between intangible investments and performance across companies and sectors.
In 1999, Enterprise DG has also participated in several events to discuss intangible investments and assets as well as methods and practices of measuring and reporting:
A publication resulting from this Symposium has been published on May 25, 2000 ("Competitiveness and the Value of Intangible assets" Jacquemin (ed) Edwar Elgar). The publication provides a theoretical and empirical analysis of intangible investment and its effect on public policy in Europe. The authors find that the growing importance of intangibles is transforming the direction of public policies in Europe, particularly industrial, R&D, competition and trade policies. They conclude that government policies must recognise the fact that intangible investment is becoming the key element in bringing about durable growth and attribute at least the same priority to intangible factors as to physical investment.
The participants asked for new debates and discussions on these issues, in particular with high level managers. "The sense of the meeting was that the Commission should take an initiative in this". The Workshop Final report is available at www.ispo.cec.be/ecommerce/issues/intangibles/WS_full_report.html.
This topic will be on the agenda of IST 2000 in Nice (6-8 November 2000).
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Contacts Enterprise
DG - Unit B1 Information
Society DG |
These issues of intangible assets are also monitored by Internal market DG, in particular in Company Law, Accounting and Auditing which tends to modernise EU accounting rules. The Internal market DG has implemented a Contact Committee and Technical Committee which meets regularly to discuss matters particularly relating to International Accounting Standards. The impact of the Single European Market has also recently been analysed in a consultancy report for DG XV, emphasising that "the single market programme indirectly boosted the exploitation of intangible investments" (The Single Market Review, Subseries V: Impact on competition and Scale effects, 1998).
On June 13 2000, the European Commission has outlined a strategy for future financial reporting in Europe in a Communication it has just adopted. The strategy aims to eliminate remaining barriers to cross-border trading in securities. It recommends that there is one set of accounting standards so that company accounts throughout the European Union are more transparent and can be more easily compared. A single set of standards should make it easier to compare corporate performance, to raise capital and to enhance investor protection. This strategy should participate in the creation of an integrated market in financial services that is the aim of the May 1999 Financial Services Action Plan. The Lisbon Summit also insisted on the importance of the comparability of financial reporting to the creation of an efficient, deep and liquid securities market in Europe. The Commission believes that the adoption of International Accounting Standards (IAS) are the way forward.
The Communication announces that the Commission will come forward with proposals before the end of 2000 which would require all EU companies listed on a regulated market to prepare consolidated accounts in accordance with International Accounting Standards. This requirement would enter into force at the latest from 2005 onwards. Member States would be allowed to extend this requirement to unlisted companies and for preparing individual accounts. Since transparency and comparability are of particular importance for financial institutions, this policy will also cover listed banks and insurance companies.
Concerning more specifically human capital, Education and Culture DG tries to develop new ways of demonstrating the value of investments in human resources. The work is clearly policy-oriented and is based on the fifth objective set out in the 1995 White Paper "Teaching and learning: Towards the Learning Society". The fifth objective states that investments in training ought to be treated in the same way as other capital investments. More recently, on the Luxembourg Employment Summit in 1997 and especially the 1998 employment guidelines, Member States were asked to re-examine the obstacles to investments in human resources and possibly provide for tax or other incentives. A survey on prevailing accounting and tax regulations in the EU Member States suggests other ways of achieving equal recognition with other capital investments. In this field, the European Commission works in close cooperation with CEDEFOP (European Centre for the Development of Vocational Training), whose aim is to develop indicators that measure the effectiveness of vocational training and education (see below).
Finally, many subsets of intangible assets are monitored by other DG (R&D, innovation, Information Society, IPR, etc.).
Various research projects are also being carried out on intangible investments as part of the Fourth and Fifth Framework R&D Programme.
In particular, two research projects are on-going:
MERITUM (Measuring Intangibles to Understand and Improve Innovation Management)Initiated in 1998 and funded by the TSER programme (Targeted Socio-economic research), the aim of the MERITUM project is to investigate possibilities to measure and report intangibles. 9 universities and research institutes in 6 European countries are participating in the project (Denmark, Finland, France, Norway, Spain and Sweden).
The general aim of this European project is:
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Researchers:
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The Project is divided in sub-activities:
In parallel, some national Centre have developed their own sub-projects.
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Contact MERITUM
Coordinator: Other contact details of the research team are available on Meritum web site: http://www.fek.su.se/home/bic/meritum/ |
The MAGIC project (Measuring and Accounting Intellectual Capital)
The overall objective of the MAGIC project is the development of a low-cost and pragmatic IT-solution for the measuring and accounting of Intellectual Capital in engineering and manufacturing environments. Therefore holistic methods and tools have to be developed which enable the quantitative as well as the qualitative evaluation of IC. This project is led by Oy Quality Production & Research Ltd (FI) and involves 5 other partners and a business group. In a survey conducted by FhG-IAO (one of partners) 83% of industrial respondents believe that measuring intellectual capital is critical to achieving business success.
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The industrial relevance of the measuring and accounting IC itself according to the MAGIC project:
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The main deliverables of the project will essentially consist of:
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Contact
Fraunhofer Institute of
the University of Stuttgart - Institute of Human Factors
and Technology Management (IAT) |
Eurostat has developed a classification proposal concerning intangible investments, in association with national statistics institutes, in particular with CBS, Statistics Netherlands. such as the study "The role of intangibles in the competitiveness of industry" with CBS, Statistics Netherlands. The aim of this study is to:
In February 1999, Eurostat and SBS, Statistics Netherlands published "Intangibles Investments - Definition and Data Sources".
Eurostat has presented its Workprogramme 2000 entitled "EPROS – The European Plan for Research in Official Statistics" which contains a sub-programme called "Definition, measurement and exploitation of new socio-economic statistical indicators for the Information Society" which has resulted in the SINE initiative : "Statistical Indicators for the New Economy".
In that framework Eurostat has launched a call for R&D proposals in February 2000 in order to encourage the research communities to further elaborate R&D projects on these topics. Eurostat has prepared a document whose purpose is to present and describe concepts, ideas and issues associated with the Statistical Indicators for the New Economy.
According to that background paper, "the transition from the industrial to the information society is characterised by the rapid growth of intangible assets, whereas economic and social activity still relies substantially on physical, tangible goods. The relation between the two has to be defined and measured."
"Measuring the New Economy" : statistical measurement instruments and processes are faced to huge challenges because "Classical methods need to be adapted, more automatic and intelligent data sources would need to be developed. More rigorously relevant, reliable, timely, comparable and user-friendly statistics would be needed for indicators in all domains". If several Statistical Indicators for the New Economy are already available, there refer more to technology and infrastructures, specifically on tangibles.
Therefore new indicators must be developed. Eurostat proposed to group these new indicators in 4 main domains :
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Domains |
Possible groups of indicators |
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Technology Domain |
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Industry Domain |
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Economy Domain |
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| Social Domain |
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Based on the EPROS-SINE presentation paper
This paper refers to several nomenclatures on economic activity, products, trade and occupation. Concerning indicators on intangibles, it refers in particular to the work done by Michael Peneder (WIFO) in his working paper N°14 of May 1999 entitled "Intangible investment and human resources" (available at on WIFO site).
Eurostat wishes that the expected results of research have immediate applicability. In particular, Eurostat considers that "there should be a fuller exploitation of the new, intelligent data sources that are emerging as part of the evolution of the New Economy" and that :
A number of EUROSTAT funded projects have been also carried out in the area of Indicators for the New Economy.
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EUROSTAT Directorate A:
Statistical information systems; research and data
analysis; technical cooperation with Phare and Tacis
countries |
4. European Centre for the Development of Vocational Training (CEDEFOP)
The "Centre Européen pour le Développement de la Formation Professionnelle" was established by Council Regulation 337/75 as a non-profit- making body, independent of the Commission, to help rethink the direction and requirements of vocational training and assist the Commission in promoting the development of vocational training.
A series of recent European Commission documents – principally the White Paper "Teaching and Learning: Towards the Learning Society" and "Towards a Europe of Knowledge" – set out proposals and guidelines for stimulating VET. In that framework, one task of CEDEFOP is to look at the financing of vocational education and training and, more specifically, works on measuring and reporting on human capital.
In particular, its aims is to support the objective 5 entitled "treat capital investment and investment in training on an equal basis" of the European Commission white paper, "Teaching and Learning: Towards the Learning Society". Therefore, a dossier on "Human resources accounting" was included in CEDEFOP workprogramme for 1997-2000:
"Despite a number of studies concerning the effects of training, information gaps hinder the quantification of the effects of training and the qualification of the respective roles of the different financiers. In economic terms, all financial expenditure is a risk. The risk is greater when the results of the expenditure cannot be formulated in tangible terms. One answer to this problem is to try to translate intangible assets into tangible terms, by giving them a concrete value."
"This is an issue which is increasingly debated. The Commission’s White Paper on Teaching and Learning emphasises the treatment of "capital investment and investment in training on an equal basis" to explore possible ways to account for investment in intangible resources. As we move towards the ‘Knowledge Society’, the challenge for the future will be measuring the value of knowledge within enterprises in the same way as other assets are measured.
The potential of human resource accounting (HRA), however, remains stronger than concrete progress. A number of conceptual, methodological, legal and institutional barriers exist. In addition, there are different interests associated with this issue, in defining both its objectives and the way in which it should be pursued. The dossier on this topic will provide an overview of the various approaches to human resource accounting as well as a comprehensive outline of the stakeholders’ interests in HRA."
Source: Funding Vocational Education and Training: the CEDEFOP approach for providing information and informing debates
CEDEFOP has conducted several activities concerning the measuring and accounting of human capital such as:
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Contact CEDEFOP |
