Why is European tech having so much trouble catching up?

The lag of European tech compared to the United States and China is notorious. In an analysis published by the Institut Montaigne, Gilles Babinet and Olivier Coste, two tech experts, analyze the reasons for this growing gap and highlight the factors penalizing Europe in terms of digital development.

Created in 2000 by Claude Bébéar, a non-profit association, the Institut Montaigne is a platform for reflection, proposals and experimentation devoted to French and European public policies.

The authors of the analysis

Gilles Babinet, a digital entrepreneur, is an advisor on digital issues there. He was the first president of the Conseil National du Numérique between April 2011 and April 2012 and is currently its co-president. He was also named ” Digital Champion » with the European Commission in 2012 and represented France for issues of inclusion and education related to digital technology.

Olivier Coste, a high-tech entrepreneur, after having worked for five years at the European Commission, was in charge of industrial affairs in the Cabinet of Lionel Jospin from 1997 to 2000. He then worked for Alcatel where he held various positions, including that of President of Alcatel-Lucent Mobile Broadcast from 2006 to 2009. He published the book “Europe, Tech and War” last November, from which the data for the analysis are taken.

The growing backwardness of Europe against a backdrop of Sino-American rivalry

For Gilles Babinet and Olivier Coste, the new Sino-American rivalry overlooks global competition and Europe, which was already lagging significantly behind, is seeing its position deteriorate. For them, this delay is not inevitable since the causes are well identified and treatable.

China intends to catch up with the United States in the field of tech and has also made no secret of its ambition to be the world leader in AI by 2030.

As the covid-19 pandemic revealed the European dependency compared to China in the semiconductor market, the Biden government has made the establishment of new semiconductor factories a national priority. Last August, it passed the CHIPS and Science Act aimed at securing the United States’ place as a world leader in science and technology. This law grants 280 billion dollars to the American Tech industry to counter China, including 52.7 billion dollars for semiconductors.

Falling investment in R&D on the European side

The authors publish a graph showing that the share of R&D in tech reported worldwide has decreased between 2005 and 2020 in Europe. During this period, France which was at 6% and Germany at 8% both fell to only 2%, while the United States fell from almost 54% to just over 62% and China from less than 2% to about 15%.

According to figures from the European Commission, in 2020 the EU invested five times less in private R&D in Tech than the United States (€200 billion vs. 40), while China reached €64 billion, far exceeding the ‘Europe.

Ranking of large companies according to their investment in R&D

Still according to the figures of the European Commission, but concerning for this ranking the year 2019, the large companies which invested the most in R&D were for the most part American. In the lead, we found Alphabet (Google) and Microsoft, then Huawei and Samsung Electronics before Apple, Facebook, Intel. On the European side, Nokia and SAP are in 14th and 16th position, practically tied, and Ericsson in 19th place.

Investing in start-ups

In 2021, investment in start-ups in Europe was three times lower than in the United States, where it is around $320 billion. What may not work out, according to the survey ” AI Act Impact Survey » almost three-quarters of participating venture capitalists expect the AI ​​law to reduce the competitiveness of AI startups in Europe and more than 36% of them plan to look to startups outside of the EU.

Comparison of amounts raised in Europe in 2021

France comes in 3rd position among the European countries having raised the most funds, behind the United Kingdom and Germany. However, it attracts almost three times less investment than the United Kingdom (€11.3 billion against €32.2). Germany, which has a GDP 40% higher than that of the United Kingdom, only attracts €16.3 billion in investments, or about half.

Business capitalization and new unicorns

In terms of capitalization, the United Kingdom retains the lead in the ranking, with 245 billion euros in cumulative capitalization in 2021, against 89 billion in France. It had 22 unicorns and France 16.

Why is Europe failing to close the gap?

The generally invoked causes reported by the authors are: a more risk-averse European culture; the fragmentation of the European market; insufficient capital; regulation harmful to innovation; a competition policy weakening the European champions, by blocking mergers and limiting public aid…”.

However, for them, the main factor penalizing Europe is the cost of restructuring an R&D team which reaches around €200,000 per person in a large company, rising even to €250,000 in Germany. This cost includes the duration of social negotiation, severance pay, redeployment or reindustrialization measures, but it does not exist in the United States, any more than in China or India…

In the United States, the start-ups that have now become GAFAM, like Intel, do not hesitate to invest in tech, these companies have moreover financed 3/4 of the 200 billion R&D in Tech in 2021. No group, whether European or not, ventures to invest such sums in Europe because of restructuring costs. For the authors, a reform of these costs is necessary for Europe to catch up.

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Why is European tech having so much trouble catching up?

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