Europe Must Reboot Ailing High Tech Sector to Drive Wider Competitiveness, Says New Study
20 February 2014 (London)-Europe's global competitiveness depends on a vibrant high-tech sector. Technology plays a crucial role for nearly every industry, particularly as machines and products get smarter and intelligent networks that coordinate the efficient use of resources spread rapidly.
(Media-Newswire.com) - 20 February 2014 ( London )—Europe’s global competitiveness depends on a vibrant high-tech sector. Technology plays a crucial role for nearly every industry, particularly as machines and products get smarter and intelligent networks that coordinate the efficient use of resources spread rapidly. A healthy high-tech sector is an engine for innovation that is a prerequisite for giving European companies a leg up in a highly competitive environment.
A new study by A.T. Kearney, Rebooting the European High-Tech Industry, highlights that already today little more than 10 per cent of the global ICT revenues of the top 100 information and communications technology ( ICT ) companies are generated by European companies. Only nine of the top 100 ICT companies worldwide have headquarters in Europe, a number that has dwindled in recent years in the wake of both M&A and faster growth by Asian and U.S. companies. Many European industries are dependent on non-European high-tech players—in terms of both production and research and innovation. The European Commission has officially recognized technology’s importance to Europe’s future growth, competitiveness, and mastery of upcoming social challenges, but policy makers’ efforts have not done enough so far to stop the decline of the European high-tech sector.
Europe is losing ground
For this study of the high-tech industry, A.T. Kearney looked primarily at nine sectors within the ICT industry: IT services, IT hardware, software, communications equipment and services, consumer electronics, handsets, PCs/laptops/tablets semiconductors, and electronic components. The world’s top 100 ICT companies in these segments generated $1.67 trillion in revenue in 2012, an increase from $1.59 trillion in 2011. For Europe, however, industry representation is low. Of the nine top-100 ICT companies from Europe, one will drop off the list when Microsoft officially acquires Nokia’s devices and services division this spring—a move that will leave Europe with no representatives among the world’s top 10 handset makers. “Europe’s brightest spots are in B2B, and there are also some leaders in smaller sectors that don’t make the top 100,” says Axel Freyberg, co-author of the study and EMEA leader of A.T. Kearney's Communications, Media, and Technology Practice. “However, in total, Europe has few large-scale ICT companies big enough to act as consolidators in each segment’s endgame. This leaves the others vulnerable to buyouts by larger rivals from other regions.”
Europe’s share of global sales is also slowly dwindling. In terms of projected CAGR between 2011 and 2015, Europe ( 2.2 percent ) will grow at less than half the rate of North America ( 5.2 percent ) and Asia ( 5.4 percent ). Particularly in important segments such as IT services, software, communications equipment and services, IT hardware, and semiconductors, Europe is losing importance as a market. "European companies—particularly IT service providers—are more beholden to regional demand trends than their American and Asian counterparts, and therefore could lose market share due to this shift," says Thomas Kratzert, A.T. Kearney partner and co-author of the study.
EU efforts fall too short
The reasons why Europe is losing ground are multi-fold, ranging from the fragmentation of the European market and the shortage of funding for companies to grow and gain scale, to the shortage of strategic foresight, innovation, skilled engineers and competitive, flexible labor laws, to the lack of strategic partnerships both between the EU and companies as well as among companies.
The EU commission has identified many of these shortcomings and is addressing several of them through the “Horizon 2020” program, which was commissioned in 2013, as well as through several other initiatives. “These efforts tend to fall short, focusing on financing research, commercialization, and recently on incubation,” says Freyberg. “A strategic master plan is missing in which the EU is placing major bets to grow promising ICT sectors, and in which an industrial policy is designed to help leading players maintain and expand their positions and create scale.” Although the EU has begun identifying the right business sectors, a decisive policy combining strategic direction, demand management, focused financing, and pre-competitive partnerships is required.
That Europe needs ICT to compete in its industrial strongholds, such as automotive, aerospace, industrial engineering, retail, telecommunications, and energy services, and the jobs and prosperity that come from them is undisputed. By 2025, a car’s embedded software and electronics will account for up to 65 percent of its total value. Also, the recent revelations about the U.S. National Security Agency’s clandestine electronic surveillance programs have highlighted the dangers of dependency on U.S. and Asian high tech players.
Ten ways Europe can compete better in high tech
A.T. Kearney's research and experience working with clients in the high-tech industry show concrete steps that EU institutions, national governments, industry associations, and individual companies, building off of existing programs, can take to restore the industry's vitality.
The actions fall into three main pillars: 1.Enable. Put in place the enablers for a prosperous high-tech sector. Europe must improve the skilled labor supply through more technology-oriented education and targeted immigration, to provide better venture and growth funding for high-tech companies ( especially for internationalization ), to improve the entrepreneurial culture by opening entrepreneurial options and celebrating successes, and to create a level playing field in terms of standards and regulations.
2.Focus. Define and execute a focused strategy for overcoming the fragmentation inherent to Europe. The EU and national governments should develop an EU-wide master plan with clearly defined ICT application focus areas where European players can succeed and assume industrial leadership ( typically centered around high-tech B2B ICT needs ). Focusing these investments, based on educated strategic choices, will ensure that resources are not spread too thin. Consequently, Europe should create real pan-EU clusters of excellence around these key application areas anchored around key buyers, and leverage its public spending and investments to develop these areas.
3.Excel. Outperform global competition though innovation, partnerships, and decisive leadership. At the same time, European companies need to improve their corporate responses to future challenges with better strategic foresight and more decisive leadership to avoid the failures of the past. They need to push their innovativeness by increasing R&D spend and fuel their organic and inorganic growth ambitions. Re-establishing the vendor-customer partnership as an innovation vehicle, where large buyers of high-tech products—public or private—take a more strategic collaborative approach, balancing short-term cost-saving opportunities with the strategic value of having Europe-based high-tech players, would give the required impulse to the sector.
Seizing the moment
Europe’s unique characteristics, history, and culture make it impossible to replicate the conditions that have enabled ICT companies to thrive in North America and Asia. "Europe’s distinctive structure is both a strength that breeds competition and a weakness that reduces returns," Kratzert says.
But there remains plenty that European institutions and governments can do to emulate their counterparts elsewhere to help Europe's industrial base to maintain competitiveness. Horizon 2020 is a good start but more can be done. "Policy makers can do their part to make rejuvenating the ICT industry a top priority," says A.T. Kearney partner Herve Collignon, a co-author of the study. "Government bodies, ICT companies, investors, and industry associations can work together for a long-term master plan."
Without decisive action now, Europe’s essential high-tech industry will continue its decline, which would affect the continent’s vitality, competitiveness, and prosperity. But the right steps can give Europe the chance to reestablish a strong foothold in the global technology sector. “More pan-European leadership is needed, definitely not less”, Freyberg says.
This story was released on 2014-02-26. Please make sure to visit the official company or organization web site to learn more about the original release date. See our disclaimer for additional information.