Ursula von der Leyen has put tackling the EU’s loss of competitiveness against US tech companies and increasingly sophisticated Chinese manufacturing at the top of her agenda.
The new president of the European Commission, who took office this month, has promised to roll out a reinvigorated industrial strategy by March.
The EU lags behind the US and Asia in many cutting-edge fields. This means it could lose even more share of global manufacturing as new technologies — such as the internet of things, the use of big data, artificial intelligence and 5G — go mainstream.
The wheels are already in motion. This month, the EU approved a €3.2bn fund to promote the research and development of the battery sector, one of the important industries the new strategy will seek to build up. The road to creating a European industry champion is long, however, and the EU only plays a marginal role in global production.
The commission last week also launched a Green Deal for Europe, a plan to decarbonise European industries and societies and put the bloc in the lead with low-carbon technologies.
Here, the FT examines the data to see where the EU stands relative to other regions, and where the new industrial strategy could bolster its ability to compete:
Europe is not a big player in many fast growing industries . . .
Technology companies have climbed the ranks in the past two decades to become among the world’s most valuable, but so far none of them is European. American, South Korean and Chinese companies dominate.
The European presence is even sparser in software and computer services, and the EU’s 28 markets have fewer “tech unicorns” — start-ups valued at $1bn — than the US.
Reinhilde Veugelers, economics professor at KU Leuven University, said: “My fear is that, as the EU does not have strong digital innovators, it may also miss the next waves of digitalisation.”
This is a worrying sign if Brussels wants to tackle the gap in industrial digitalisation. Experts warn that slow adoption of current digital technologies could put Europe further on the back foot with newer ones.
In October, Margrethe Vestager, the EU’s competition and digital tsar, told the European Parliament: “We need to recognise that there are only two types of business: those that are already digital and those that soon will be.”
Europe has fallen behind before. The region was a leading producer of solar cells in the early 2000s, but lost the race after a long trade tussle with China when many EU companies filed complaints against Beijing for unfair practices.
The industry has gone on to grow at an annual average rate of about 40 per cent in the past 15 years, according to data from the commission’s Joint Research Group.
Europe wants to prevent the same thing from happening in the emerging battery industry, prompting the new EU battery fund. As of now, no European company features among the world’s top producers of battery cells, for which China accounts for more than half of global production.
. . . but it has strengths it can build on
Despite these challenges, the EU’s industrial sector has many strengths. European companies are among the world’s most sophisticated in high-value added sectors such as pharmaceuticals and automotive.
This could be a good base from which to integrate and develop new technologies for electric vehicles and biotechnology.
Ms Veugelers said: “While the EU may not be at the forefront of the champions in creating or shaping these technologies, they may be at the forefront of using these technologies in the sectors where they have a stronghold, using their competences and strengths in knowing their sectors and having the data on their sectors.”
EU entrepreneurs also enjoy a large single market for goods with the second largest household spending in the world, as well as a skilled and highly educated workforce.
European countries top the talent global rankings, according to the Swiss-based International Institute for Management Development, which tracks countries’ ability to create and retain a skilled workforce.
Bert Colijn, a senior eurozone economist at ING, said: “Europe is home to technologically advanced businesses, it offers high-skills workers as well as a large and enriched market.”
EU companies file fewer patents and invest less in research . . .
The EU’s limited ability to be at the forefront of technological innovations is reflected in the lower number of patents filed in strategic sectors. This mirrors its lower spending in research and innovation relative to other parts of the world.
The EU lags behind the US and Japan in patenting in areas that Brussels has identified as “key enabling technology” with potential applications across multiple industries such as micro and nanoelectronics, industrial biotechnology, artificial intelligence and advanced manufacturing technologies.
Research and development spending is also lacking. The US and China accounts for 60 per cent of companies that entered the list of the top 2,500 spenders on R&D in the six years to 2018, according to a study by the EIB, compared with only 13 per cent for the EU.
. . . while further integrating Europe’s markets could give them an edge
Experts agree that the fragmentation of the EU market, particularly for services and capital, is a main barrier to developing industrial champions for the digital age. It reduces the size of the market for companies — and thus their incentive to innovate and invest in Europe — as well limiting businesses’ access to funding.
Ms von der Leyen has called for the completion of the capital markets union in a recent speech to the European Parliament on her programme, but progress is slow.
The risk is that even if EU entrepreneurs develop the newest technologies, they will do it in places where conditions are more favourable. “Keeping them here [in the EU] requires an open integrated home market,” said Ms Veugelers.