Luxembourg: Dynamic Country, Grand Impact

Research and innovation are key drivers in modern industry. Luxembourg has unveiled new initiatives that are attracting investors and creating a dynamic environment for existing industries to grow.

Luxembourg, officially called the Grand Duchy of Luxembourg, is located in one of the most dynamic regions of the EU at the heart of northwestern Europe where France, Germany and Belgium meet. Luxembourg is unique in that it is the world’s only remaining sovereign Grand Duchy—a territory whose head of state is a monarch.

These and other factors have contributed to Luxembourg’s strong political, economic and social stability. In addition, its multiculturalism and multilingualism, with English, French and German being widely spoken, make Luxembourg a very attractive location for investors. In fact, the Grand Duchy’s international community has grown so much that it now represents about 42 percent of the population. In addition, around 150,000 non-residents commute to Luxembourg to work each day, representing about 44 percent of the total workforce.

Over the years, Luxembourg has risen out of the shadows of its bordering countries to emerge as a strong player in the global marketplace. According to the Institute FERI, Luxembourg ranks number 1 in a survey analyzing European cities and ranking them according to their economic performance, the purchasing power of its citizens, the unemployment rate and its population until 2015.

About half a million inhabitants live in Luxembourg (an area of land about the size of Rhode Island) and enjoy the highest GDP per capita in the world. Luxembourg is a gateway to the European market, giving companies access to some 500 million consumers. However, according to Francois Knaff, executive director of Luxembourg’s Office of Economic Development in New York, Luxembourg offers some unique advantages. “Luxembourg offers not only a central access, but unlike some other surrounding countries, we also offer the advantage of political, economic and social stability, as well as a strong fiscal environment with competitive salaries and lower tax rates and social taxes.”

Luxembourg has risen to become one of the top locations for leading-edge communications infrastructure and is home to a host of Internet firms including Amazon, Apple, eBay and Skype. In March 2010, Luxembourg ranked second worldwide in mobile, fixed, and Internet connectivity, and has Europe’s lowest ICT costs, according to a new International Telecommunication Union survey of 159 nations.

Luxembourg’s logistics sector is also ahead of the curve, rating above other European countries the UK, Switzerland, Belgium, Ireland, and France. In January 2010, it ranked fifth in the world in ease of importing and exporting goods, according to the 2010 Logistics Performance Index (LPI). The LPI is a survey conducted by the World Bank every two years which incorporates data from nearly 1,000 international freight-forwarders and express carriers engaged in world trade, using more than 5,000 individual country assessments to compare the trade logistics profiles of 155 countries.

Since the 1970s, Luxembourg’s steel industry has become one of the most sophisticated on the planet, and home to the headquarters of the world’s leading steel company, Arcelor Mittal. Its private banking sector has bourgeoned since the 1980s and is now one of the most important private banking centers in the Eurozone and Europe’s leading centers for reinsurance companies. By the early 1990s, the Grand Duchy had become a globally renowned hub for investment fund administration, and is currently the second largest investment fund center in the world (after the U.S.).

Recent policy has seen a greater targeting of specific areas of innovative activity. Support is being granted for research, development and innovation as the government recognizes this as a key factor for ensuring competitiveness and success for today’s modern industries.


Luxembourg is Taking Innovation to a New Level

In 2004, with the election of Luxembourg Minister of the Economy and Foreign Trade Jeannot Krecké, the Luxembourg government decided to shift its economic focus to include greater targeting of specific areas of innovative activity, especially in its automotive components manufacturing, ICT, logistics, life science, and cleantech sectors. These plans are helping to diversify the economy and open up multiple opportunities for companies locating in Luxembourg.

“Most of our work recently has been to create the best type of environment for innovating these industries,” said Mario Grotz, head of Luxembourg’s Directorate for Infrastructure and Technologies. “In addition, we know that you need to have a strong backbone in research to attract companies in specific areas such as health sciences or cleantech.”

To help foster growth in this arena, the government established a national agency for innovation and research called Luxinnovation. The agency helps assist businesses with strategic information, advice and support, thereby facilitating access to knowledge, financing, technologies, and business opportunities. Luxembourg also founded a research-focused university—the University of Luxembourg—which with the public research centers will eventually constitute a City of Sciences. The University’s Photovoltaic Laboratory has already developed the world’s first thin-film solar cells, the outcome of a private-partnership between the university and TDK, Japan.

In July 2009, the government passed a new law that will increase financial support for innovation and R&D in Luxembourg. The upgraded legal framework offers financial support for firms carrying out a comprehensive range of innovation activities and is especially designed to meet the needs of SMEs and startups.

“The objective of the ministry of the economy is not only co-financing investments, but co-financing R&D to really create a knowledge base in Luxembourg,” said Mr. Grotz. “We have succeeded to attract and create significant private research centers here. For example, Goodyear has two main technical research centers. One is located in Akron, Ohio, and the other one here in Luxembourg, where nearly 1,000 researchers are working. In addition, Delphi transferred its European headquarter activities to Luxembourg, and has more than 700 researchers which focus on its power train work.”

The Luxembourg government plans to spend a percentage of its GDP over the next decade on public research. In 2008, EUR 175 million was spent, representing 0.48 percent of national income, with 0.53 percent spent in 2009. There are currently over 2,500 researchers working in the country, about 550 more than five years ago, with a further 500 set to arrive by 2013.

Luxembourg’s automotive components sector, which is the country’s strongest industrial sector, is a prime example of how innovative companies can use innovation and R&D activity to thrive. For example, when Goodyear opened its tire plant in Luxembourg in the 1940s, it simply executed customers’ orders. Today, its facility hosts one of the most respected research centers, developing new materials and

features for its clients. IEE’s automotive sensing products have almost become standard features in most cars sold around the world. In addition, the U.S.-based firm Guardian Industries R&D center in Luxembourg develops and produces high-specification glass for the auto and construction industries.


Innovation in All sectors, Including Health Tech

Innovation in Luxembourg is infused across all sectors and firms of every size, but one of the government’s main areas of focus has been development of its health sciences sector. After the government conducted an economic analysis of this industry in 2006, it decided to narrow its focus even further into the areas of biotechnology and specifically molecular diagnostics and personalized medicine.

In 2008, two years after the study, Luxembourg’s Ministry of the Economy and Foreign Trade launched its “Cluster of Health Sciences and Technologies” with the aim to stimulate cross-fertilization and technological cooperation in the field of health sciences and technology. It announced a strategic partnership initiative with three world renowned U.S.-based research institutions, with EU 140 million of public money being spent to kick-start the process. The three institutions are: the Translational Genomics Research Institute (TGEN) in Phoenix, the Institute for Systems Biology in Seattle, and the Partnership for Personalized Medicine (PPM). The goal of the partnership is to increase the pace of innovation based on cutting-edge research in the areas of molecular biology, systems biology and personalized medicine.

“We knew we could strengthen research and innovation by partnering with other world renowned research institutions,” said Grotz. “We saw how much the TGen project has influenced the biotechnology sector in Phoenix, so we tried to emulate this here in Luxembourg. Out of our talks with TGen we developed a project of realizing a biobank here in Luxembourg.”

The Integrated BioBank of Luxembourg (IBBL) is the centerpiece of the overall partnership initiative. IBBL is seen as an international collection, repository, analysis and distribution point for blood, serum, saliva, tumors and other biospecimen samples to assist investigators worldwide in scientific research.

Funding will also go towards establishing a Center for Systems Biology in Luxembourg, which will conduct research into genome sequencing and molecular fingerprinting of the body’s main organs, and a pilot project with PPM to advance research in personalized medicine. Backed with public funding, this initiative aims helping the country raise its profile in the global research community and augment local expertise, more particularly in the field of molecular diagnostics.

Molecular diagnosis is the cornerstone of personalized medicine, a relatively new approach that takes an individual’s genetic and biological make-up into consideration when providing health care. This branch of the health industry holds vast business opportunities.

“Through this investment, we have already managed to attract collaboration between private industry and our public research centers and attract companies working in the field of molecular diagnostics who are developing their first products,” said Grotz. “Luxembourg is now well positioned to offer these companies an opening into the European market.”


The Green Heart of Europe

Sustainable development has become a key growth industry in many countries due to its environmental protection and wealth creation implications. Recent estimates put the world market for eco technologies or related services at about EUR 1 trillion. In the EU alone, this industry is valued at more then EUR 60 billion, amounting to 2.2 percent of GDP, and has created as many as 3.5 million jobs. Three quarters of these jobs are in labor-intensive sectors such as eco-construction or solid waste management.

In 2009, the government launched the “Luxembourg’s Eco-Technology Action Plan” to continue to foster growth for its eco-industries. As part of this plan, Luxinnovation launched “EcoDev” in July 2009—a new cluster with a goal to bring together companies already active in the field, offering guidance on incentives schemes and increasing the number of eco-technologies pilot and research projects. Currently, there are nearly 300 eco-companies located in Luxembourg, working mainly in renewable energy, waste management, water and eco-construction.

While this niche is not as defined as the country’s health technologies sector, the government believes that its existing companies have a unique potential to foster growth in the eco-sector, particularly in the areas of biogas, solar, and zero emission vehicles.

For almost 10 years now, the Luxembourg engineering firm L.e.e. has been building agricultural and industrial biogas plants to convert biomass into biogas, producing power and heat. It is currently in the process of engineering and designing combined energy plants where wet and solid biomass is used. For one such project once completed it will save about 1 million liters of domestic fuel oil. Biogas is not only an environmentally friendly and carbon-neutral technology, but also a sound business proposition. The company has an annual turnover growth of about 15 percent and has already worked on about 100 biogas plants since 2000. The potential for the biogas industry in Europe is exponential—the EU has set itself a target of increasing the share of renewable energy to 20 percent by 2020.

SOLARtec, a small Luxembourg-based firm specializing in the large-scale installation of solar panels, actually conducts its innovative R&D activities in-house, enabling them to identify and combine the best components and engineering innovative management technologies from the ground up. According to SOLARtec, this breakthrough work has allowed it to yield 10 to 15 percent more power than traditional solar panel installations and require 30 to 50 percent fewer holes in the roofing. Since the company was founded in 2001, it has completed more than 300 installations and has a projected turnover of EUR 7.5 million in 2009. One of its projects involved installing solar panels on a rubbish dump in Germany, delivering up to 5,000 kWh of electricity per day, which amounts to the total energy consumption of about 200 families. Another project installed an independent solar power system Africa, providing electricity to a village in Tanzania. This type of innovative work is groundbreaking, as it helps developing countries with unreliable grids or those who are completely off the grid.

Rotarex Group, a market leader in industrial valves, is developing leading-edge innovative projects that are paving the way for tomorrow’s zero-emission vehicles. In its R&D headquarters in Luxembourg, the company has developed a comprehensive range of products enabling engines to run on compressed natural gas or liquefied petroleum gas, reducing carbon emissions up to 30 percent. It is also working on hydrogen technologies both for internal combustion engines and fuel cells. More than 400 people work at the headquarters in Luxembourg, of which 50 are engineers. The group has reported revenue of EUR 138 million in 2008.

“Most of the companies working in eco-tech today are involved in consulting and not producing, so our focus in the coming years is to strengthen public research in order to attract more companies and create a critical mass,” Grotz said.

All of these efforts combined are helping Luxembourg to establish its voice in the European and global marketplace. The country has built a reserve of expertise across its industries and its current focus on innovative research and development is helping to create a unique and competitive environment, which is augmented by a stable economic, social, and political climate and multilingual and multicultural workforce.