Internal Market,Industry,Entrepreneurshipand SMEs

Digital Transformation Monitor

Turning Luxembourginto a digital nation

May 2017

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Turning Luxembourg

into a digital nation

The creation of an entrepreneurial culture in Luxembourg is not an easy task. The high public-private sector wagegap combined with the high wage in the financial sector makes it hard for other sectors of the economy to attractskilled workers, let alone for policy makers to encourage entrepreneurship. The lack of affordable office or co-working spaces and the shortage of skilled workers notably due to the low number of science and engineeringgraduates does not make the situation any easier. The level of entrepreneurial activity in Luxembourg City couldhave stayed low, had it not been for the initiatives of bold individuals dedicated to turning Luxembourg into a digitalnation.

From industrial leader to financialcentre

The city of Luxembourg constantlyneeds to reinvent itself to secureeconomic growth and sustainableprosperity.

The launch of the industrialrevolution at the beginning of the20th century resulted in thesignificant expansion of LuxembourgCity encouraged by the expandingmining and steel industry. 1

The mining and steel industryremained Luxembourg’s keyeconomic driver until the 1970s inwhich the state’s economy shiftedfrom an industrial economy stronglyrelying on the iron and steel industryto a service economy led by financialservices on which Luxembourgcurrently remains dependent on.

The city of Luxembourg turned intothe largest investment fund centre inEurope, the leading private bankingcentre in the Eurozone as well as thelargest captive reinsurance centre inEurope, which it remains until thisday. 2

Problem statement

1Launching the 3rd IR

In 2016 Luxembourg furtherintensified its efforts to speed up thegrowth of the ICT sector bylaunching its ‘3rd IndustrialRevolution (IR) Strategy’. Thestrategy ambitions to define a neweconomic model in which threetechnologies converge on a smartInternet of Things platform: newcommunication technologies, newsources of energy, and new modes oftransportation. 3 Directly affected bythese significant national initiatives,Luxembourg City is slowlydeveloping into a digital city.

Luxembourg – future big data hub?

In February 2017, Luxembourgsigned a declaration of Europeancooperation in the context of ‘HighPerformance Computing’ (HPC) andthereby officially launched its effortsto develop by 2018 a HPC with thepower of one petaflop/second. 4

Luxembourg joins forces withGermany, Spain, France, Italy, theNetherlands and Portugal toimplement the strategy of aEuropean HPC network, of which itwas the initiator. The aim of theproject is to complement theEuropean supercomputing networkto the benefit of industry 4.0, thedigitisation of the business andproduction processes and research.The project will be financiallysupported by the EuropeanCommission .

The need for diversification

In order to guarantee the continuedgrowth and development ofLuxembourg City, the city cannotsolely rely on the stability of itsfinancial sector. The end of bankingsecrecy (implemented since onJanuary 2015) could ultimately havea negative impact on the nationaleconomy if the government does notincrease its diversification efforts.

With the rapid pace of change in ICTand technological advances, the cityof Luxembourg is being confrontedwith the need to achieve greaterinter- as well as intra-sectoraldiversification.

The development of anentrepreneurship culture, thesupport to the creation of start-upsand the focus on digital skills areperceived as critical parts of thesolution for the diversification of theLuxembourgish economy.

All lights on the ICT sector

For many years, Luxembourg’sdigital economy has experiencedoutstanding growth with successivegovernments focusing on expandingthe national ICT sector. In 2014, thegovernment launched the ‘DigitalLëtzebuerg’ initiative, to support thestate’s transition towards a digitalsociety and economy by bringingtogether experts from the public andprivate sector, as well as fromacademic circles.

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Luxembourg: Turning Luxembourg into a digital nation

The digitalisation of Luxembourg isfundamental to its continued growthand development. While the city-state’s image currently remainsintrinsically intertwined withLuxembourg’s financial sector,Luxembourg has started to diversifyits economic activity in order toremain attractive to diversebusinesses.

Supporting the digital spirit inLuxembourg

In its Smart Specialisation Strategypresented in 2014, theLuxembourgish government clearlyunderlined its intent to diversify thenational economy and increasinglyconcentrate its efforts on the ICTsector. 5 This increased effort can beobserved in the numerous initiativeslaunched in recent years.

While Luxembourg was alreadywell-known for its big home-grownmedia and technology companiesRTL Group and SES, as well as for itsrelatively well established FinTechsector, the state wants tosignificantly increase its efforts withregard to big data, blockchain andcybersecurity.

The ICT sector represents animportant enabler for thediversification of various sectors as itis highly interconnected with theeco-technology sector, logistics,biotechnology as well as theindustrial and financial sector. Bysupporting the growth of the ICTsector, Luxembourg indirectlysupports the modernisation andevolution of the whole nationaleconomy.

Realised benefitsand newopportunities

2ICT and GDP growth

While GDP growth remains high inLuxembourg, with a growth rate of4.2% in 2016, the country’s GDPcurrently relies significantly on thefinancial sector.6 By activelysupporting the growth of the ICTsector, Luxembourg is hoping toincrease the sector’s contribution tothe GDP and thus support itscontinued growth despite a possiblyweakening financial sector.

Attracting new investments andboosting employment

Digital is one of the most powerfultools that Luxembourg can use tofurther promote the economy andtherefore attract foreigninvestments.

While big international ICTcompanies such as Skype, Amazon,eBay and Sony were mainlymotivated to settle in LuxembourgCity by the state’s favourable taxsystem, Luxembourg has also beenable to position itself as one of theleading countries for connectivity,digital skills and innovation inEurope, continuously ranking high inthe European Commission’s DigitalEconomy and Society Index (DESI). 7

Luxembourg – a hub for digitaltalent.

An OECD study ranked Luxembourgamong countries with the highestproportion of ICT specialists in itsworking population and anotherstudy placed Luxembourg as top 2for countries in the world to start abusiness in 2017. 8

However, a recently published EDPRreport underlined the state’sgrowing need for ICT professionalsas many companies are havingdifficulties finding sufficient high-skilled ICT specialists as demand forskilled ICT professionals is rapidlyrising. 9

To meet this increase in demand, theLuxembourgish governmentintroduced various new initiativessupporting the development ofdigital skills among the young aswell as encouraging theirentrepreneurial spirit.

The Digital4Education strategyintroduced in 2015, for example,aims at educating young people indigital media as well as to teachthem through digital media.

The strategy is structured around 5axes: Digital citizen, Digital peer,Digital learner, Digital worker andDigital entrepreneur. The initiativethus encompasses a broad portfolioof programs reflecting the diversityof opportunities offered by thegrowing ICT sector.

Improving the skills of the localworkforce and driving innovation inthe city

The establishment of additional ICTcompanies and start-ups inLuxembourg is expected to havepositive repercussions on the skill-base of the local workforce as thesector’s future development isinfluencing curricula and shaping thedigital skills of the young generation.

It is further being assumed that thisincrease in highly skilled ICTspecialists will significantly influencethe financial landscape of the city ofLuxembourg, by attracting an open,innovative and entrepreneurialworkforce to the city.

This innovative workforce isexpected to further support theimplementation of the 3rd IndustrialRevolution strategy and facilitate thedevelopment of an circular economythus driving the city’s developmentinto a highly-connected digital-friendly community.

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Luxembourg: Turning Luxembourg into a digital nation

In Luxembourg, unemploymentamong low-skilled workers isrelatively high which illustrateschallenges in the education andvocational training system. Yet,according to a recent study, 500vacancies are expected in the ICTsector over the next couple of years.

Digital Lëtzebuerg’s working groupon “e-skills” has launched severalinitiatives to attract and train digitaltalents in order to better meet therequirements of the labour market.Hack4kids, FIT4CODING, and theEDUsphere project constitute only afew of the digital initiatives that arebeing developed.

Supporting the entrepreneurialspirit

Luxembourg has been increasing itsefforts with regard to supportingentrepreneurship and encouragingthe emergence of an entrepreneurialspirit.

To facilitate the business creationprocess, the government opened theHouse of Entrepreneurship in the cityof Luxembourg in 2016, to reunite

Drivers andobstacles

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With a relatively small domesticmarket, the proximity of actors inLuxembourg facilitates thecoordination between public sectordecision makers (both at state andcity levels) and the collaborationwith other stakeholders of the digitalecosystem.

The city of Luxembourg, as thebiggest city of the country ofLuxembourg accounts for a largepart of the government’s efforts toturn Luxembourg into a digitalnation. The government ofLuxembourg is therefore leading theefforts towards the transformationof Luxembourg into a smart nation.

A

Drivers

Nyuko – Start Up NationLuxembourg

Multi-level governance for digitaltransformation

As mentioned, above, thegovernment launched its flagshipinitiative “Digital Lëtzebuerg” in2014 which aims to offer a commonumbrella for all the public andprivate initiatives of the digitaleconomy and society.

“Digital Lëtzebuerg” is a partnershipbetween the government and adirectory of more than 109 publicand private actors of the digitalecosystem.

The main focus areas of DigitalLëtzebuerg cover:

• ICT infrastructures;• support for innovation and access

to financing for start-ups;• 'FinTech';• e-skills;• e-administration;• Promotion of Luxembourg

Nyuko was launched in 2015 as aninitiative hosting and helpingentrepreneurs to articulate theirbusiness plans and early stage ideas.Nyuko takes local entrepreneurs tothe next level by accelerating thetransformation of their ideas to thelaunch of a start-up. After theirNyuko experience, entrepreneursare ready to enter incubators andaccelerators in Luxembourg to growtheir businesses.

Nyuko was created as anindependent structure and resultedfrom the merger between BusinessInitiative and the co-workingplatform “The Impactory”. NicolasBuck, a Luxembourgishentrepreneur and former head ofBusiness Initiative carried the visionfor the creation of Nyuko, a space forexchanges, training, and sharingbetween entrepreneurs, investorsand coaches. Nyuko is composed ofenergetic and inspirationalentrepreneurs offering the 3following lines of services to newand second chance entrepreneurs:

Cross-border cooperation for astrong digital talent pipeline

WebForce3, the very first codingschool of Luxembourg opened inNovember 2015. The coding schoolintends to provide jobseekers withthe required skills to immediatelywork as integrators or juniordevelopers after the 490 hours oftraining of the programme. Theschool is operated by the Frenchdigital campus “Numericall” locatedless than 100km across the Frenchborder. By contributing to thetraining of web developers on bothside of the border, as evidenced bythe progressive shift from ironmining to digital currency mining,Numericall aims to turn thishistorically industrial region to adigital territory.

all the stakeholders involved in thebusiness creation process on a singleplatform.

Another important development tomention concerns the opening of6zéro1 the same year, the firstsocietal impact company inLuxembourg which aims atsupporting the creation anddevelopment of further societalimpact companies and is beingactively supported by thegovernment.

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Luxembourg: Turning Luxembourg into a digital nation

6zéro1 supports socialentrepreneurs with legal andfinancial advice, and offers them anoffice space to set up their company.6zéro1 also aims to facilitate thecreation of networks to satisfy theneeds of social entrepreneurs andoffers them training to increasingtheir knowledge/skills.

The importance of clusters

The government of Luxembourg hasmade many efforts to increasecooperation between private, publicand academic initiatives. To facilitateinnovative development in variouskey sectors, the state set-up 7clusters aimed at furtheringResearch, technological developmentand innovation:• Luxembourg BioHealth Cluster• Luxembourg EcoInnovation

Cluster• Luxembourg ICT Cluster• Luxembourg Materials &

Manufacturing Cluster• Luxembourg Space Cluster• Luxembourg Automobility

Cluster• Luxembourg Wood Cluster

While these clusters are notrestricted to the ICT sector, they allinclude the aim to increase thedigitalisation of these sectors andthus support the development ofdigital talent.

Involving local actors in policy-making processes

In order to attract digital talent andbuild a science and innovationculture, the involvement of localactors in the policy-making processis crucial.

However, currently local actors arehardly involved in the policy-makingprocess nor in networking initiativesrelated to the development of adigital community.

In general local governments areconsidered as weak partners for thestate but they could be used morestrategically (i.e. to look for newspaces to build new office spaces inthe city or to support the transitionof small local business to the digitalage).

Therefore greater cooperationbetween the government and localcommunes should be encouraged.

Incentivising local public servants toturn to the digital trend

The national government isincreasingly focusing on reinventingitself, launching new experimentsand leveraging progressively ondigital technologies (notably toinvolve citizens in policy design).During the first “Game of CodeHackathon” the challenge, forexample, focused on thedevelopment of smart mobility.

However, local governments are notsufficiently involved in digitalinitiatives and local public servantslack the digital skills necessary toexplore the new opportunitiesoffered by digital technologies totransform the way public servicesare operated.

The introduction of ICT trainingprogrammes and digital awarenessinitiatives might be considered toincentivise local public servants toturn to the digital trend.

B

Obstacles

Attracting and retaining digitaltalents in Luxembourg

The competition for ICT skilledworkers is global, Luxembourgthus competes with renowneddigital hubs in Europe such asLondon, Paris or Amsterdam butalso international tech hubs such asSan Francisco or Singapore. Techbusinesses located in Luxembourgmust therefore redouble efforts toattract and retain Science,Technology and Innovation (STI)talent, as the global competition islikely to intensify.

Building a science and innovationculture

As the Luxembourgish governmentis finding it difficult to encouragean entrepreneurial spirit among itspopulation, with only 44% of thepopulation estimatingentrepreneurial activity a desirablecareer choice, the development of ascience and innovation culturerepresents a significant challenge.10

While many of the measuresaddressed above aim atencouraging innovation and thedevelopment of ICT skills,Luxembourg is finding it difficult tobuild a science and innovationculture as many of the moretraditional businesses in place arehaving trouble digitising theiractivities.

In 2015, only 6.38% of SMEs wereselling their products and/orservices online11. Increased effortsare thus necessary to encouragethe digitalisation of the businessenvironment and encourage ascience and innovation culture.

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Luxembourg: Turning Luxembourg into a digital nation

KeyRecommendations

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The main recommendationsstemming from Luxembourg’sjourney to digital transformationinclude: the importance ofsupporting the growth of digitaltalent; the necessity of publicsupport to help existing businessesadapt to the digital age, and theimportance of involving local actorsin the digitalisation process.

Supporting the growth of digitaltalent.

To be able to meet the needs of agrowing and increasingly innovativeICT sector, Luxembourg needs toincrease its production of localhighly-skilled digital talent. Whilenumerous initiatives have beenlaunched in this regard, awarenesson the opportunities available toyoung people in the ICT sectorshould be further underlined and theoffer of courses available at auniversity level needs to beincreased.

Increasing the use of online storesamong SMEs

As mentioned above, the majority ofSMEs located in Luxembourg are notyet selling their activities andproducts online, thus missing out onan increasingly important market.Public support measures specificallyaimed at supporting thedigitalisation of traditionalbusinesses should be increased andthe establishment of online storesfurther encouraged. Smallbusinesses need to be made aware ofthe benefits an increased onlinepresence can have on their activityas well as on their continued growthand sustainability.

Increasing the involvement of localactors in the digitalisation process

Local actors are crucial tointroducing their communities to theimportance of adapting to the digitalage and the changes the continueddevelopment of the ICT sector willhave on the national landscape.Local actors should thus beincreasingly involved in theestablishment and execution ofpolicy measures aimed at digitalisingbusinesses and the modernisation oflocal as well as nationalinfrastructures.

Category Role of the stakeholder

Local

government

- The digital skills of local public actors need to be

improved to facilitate the digitalisation of local

administrative procedures and encourage the further

development of innovative businesses in their

communities.

Businesses- Businesses should reinforce their digitalisation efforts

and introduce online stores to increase their

sustainability.

Universities- The number of courses offered on ICT skills needs to be

improved to support the growth of the highly-skilled

digital talent necessary to develop Luxembourg into a

digital hub.

Clusters- Clusters might want to consider raising awareness

among young people on their activities to render the ICT

sector more appealing to youth.

© Anteromite/Shutterstock.com

Leveraging on the hybrid role ofsmall state and regional actor

Small states play both a national anda regional role which can be used asan advantage to strengthen thedigital position of the country both atnational and regional level.

Luxembourg’s efforts with regard tothe above mentioned introduction ofa High Performance Computer andthe NumericALL initiative furtherdemonstrate how the state canbenefit of its hybrid role as a smallinterconnected state and an openregional actor.

However, to further increaseLuxembourg’s level of cooperationwith its neighbouring states and thusstrengthen the state’s digitalposition, sub-national actors need tobe more involved in thedevelopment of cross-borderinitiatives.

Especially local communes close toneighbouring borders should beincreasingly involved in digitalcooperation projects with theirneighbouring communes toelaborate smart inter-communalsolutions and thus strengthen thedigital development of Luxembourg.

The need for a forward-lookingapproach to keep growing throughcontinual economic renewal

While Luxembourg benefits from astrong level of economic growth, theadoption of a forward-lookingstrategy is crucial to the continueddevelopment and growth ofLuxembourg and Luxembourg city.While some may believe thatLuxembourg city might find itdifficult to continue growing due toits geographical location and theincreasingly expensive housingmarket, the adoption of smart cityinitiatives is crucial to support thefuture development of the city .andthe opening of new creative spaces.

Lessons learnt

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References1 Paul Zahlen and Statec (2007) The Luxembourg Economy: An Eventful History.http://www.luxembourg.public.lu/en/publications/k/letz-economie-histoire/letz-economie-histoire-2007-EN.pdf2 Luxembourg for Finance (2015)http://www.luxembourgforfinance.com/sites/luxembourgforfinance/files/lff_bg_eng_0815.pdf3 3rd Industrial Revolution

http://www.luxembourg.public.lu/en/actualites/2016/11/15-rifkin/index.html4 Official Luxembourgish Government statement: http://www.luxembourg.public.lu/en/actualites/2017/03/27-hpc/index.html

Speech by Guenther Oettinger at the European Commission on the project (17/11/2015):https://ec.europa.eu/commission/commissioners/2014-2019/oettinger/announcements/speech-european-data-forum_en5 Luxembourg Strategy for Smart Specialisation (2014): https://rio.jrc.ec.europa.eu/en/library/luxembourg-strategy-smart-specialisation6 STATEC. Informations Statistiques Récentes – Communiqué de Presse N. 10-2017.:http://www.statistiques.public.lu/fr/actualites/economie-finances/comptes-finances/2017/03/20170331/20170331.pdf7 Luxembourg DESI Report (2017): https://ec.europa.eu/digital-single-market/en/scoreboard/luxembourg8 UK Business Insider (2017) The 9 best countries in the world to start a business 2017.:http://uk.businessinsider.com/wharton-the-9-best-countries-in-the-world-to-start-a-business-2017-3?r=US&IR=T/#2-luxembourg-the-tiny-landlocked-country-in-western-europe-is-often-described-as-a-tax-haven-due-to-the-huge-tax-incentives-it-offers-for-companies-to-move-there-that-means-it-has-one-of-the-most-competitive-tax-regimes-in-the-world-as-well-as-the-typical-benefits-of-a-highly-developed-european-economy-89 Luxembourg Digital Progress Report (2016): https://ec.europa.eu/digital-single-market/en/scoreboard/luxembourg10 EU Commission, SBA Fact Sheet Luxembourg 2016: http://ec.europa.eu/DocsRoom/documents/2238211 EU Commission, SBA Fact Sheet Luxembourg 2016: http://ec.europa.eu/DocsRoom/documents/22382

Luxembourg: Turning Luxembourg into a digital nation

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About the Digital Transformation MonitorThe Digital Transformation Monitor aims to foster the knowledge base on the state of play and evolution of digital transformation inEurope. The site provides a monitoring mechanism to examine key trends in digital transformation. It offers a unique insight intostatistics and initiatives to support digital transformation, as well as reports on key industrial and technological opportunities,challenges and policy initiatives related to digital transformation.

Web page: https://ec.europa.eu/growth/tools-databases/dem/

This report was prepared for the European Commission, Directorate-General Internal Market, Industry, Entrepreneurship and SMEs;Directorate F: Innovation and Advanced Manufacturing; Unit F/3 KETs, Digital Manufacturing and Interoperability by the consortiumcomposed of PwC, CARSA, IDATE and ESN, under the contract Digital Entrepreneurship Monitor (EASME/COSME/2014/004)

Authors: Laurent Probst, Bertrand Pedersen, Olivia-Kelly Lonkeu & Jill Wenger, PwC

DISCLAIMER – The information and views set out in this publication are those of the author(s) and should not be considered as theofficial opinions or statements of the European Commission. The Commission does not guarantee the accuracy of the data included inthis publication. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use whichmight be made of the information contained in this publication. © 2017 – European Union. All rights reserved.