To be more competitive and successful, Europe needs more innovation, more entrepreneurs and more jobs.
Perceptions of Europe’s value have changed a great deal since our 2011 European attractiveness survey. The business environment in Europe is now seen as less predictable and emphasis on social responsibility has reduced. The focus has clearly switched to the continent’s capacity for discovery and innovation.
Creating an innovation mindset
Forty-six percent of respondents say Europe’s research and innovation ability is its key world-class feature. This enthusiasm is partly matched by the reality of investment decisions. Leveraging its research and innovation strength, Europe attracted 234 R&D projects in 2011, 6% of total inbound FDI projects.
Give it a go: entrepreneurship in European cities
Which three cities in the world offer the best chance of producing the next Google?Source: Ernst & Young’s European attractiveness survey 2012. Total respondents: 840.
Although investors acknowledge Europe’s innovation capability and potential, respondents identified only two European cities — London and Berlin — as being in the running to give birth to the next Google.
Companies are increasingly opening or expanding innovation centers in the US and rapid-growth hot spots. Often the aim is to get closer to consumers, enabling existing production facilities to respond more quickly to changes in customer needs. Those customers may be consumers or businesses in dynamic investment ecosystems where R&D of new products, services and technologies occurs. Some governments are energetically implementing education, fiscal and infrastructure policies to ensure their main cities and innovation clusters evolve as high-tech centers.
Others need to look, learn and emulate.
The future is digital and green
As new technologies sweep aside old ways of doing things, respondents continue to stress the role of information and communication technologies (ICT) (33%, +9 percentage points) and the cleantech sector (26%, +3 percentage points) as the engines of European growth in the coming years.
- The ICT sector is central to the dream of a smart and digital Europe. Breakthroughs in digital and communications technology have unleashed innovation that is transforming swathes of manufacturing and services.
- Green energy is another area of European strength with great potential. European countries have leading-edge technologies in renewable energy and environmental solutions.
They are well placed to benefit from the clean tech revolution that is sweeping through much of the world’s industrial infrastructure.
Making manufacturing hopes a reality
To attract manufacturing investment, Europe should focus where its strength lies: high-value products and advanced manufacturing. Several sectors illustrate Europe’s manufacturing potential:
- Europe is world leader in machine tools, a key enabler for aerospace, rail vehicles, energy, medical, automotive and other industries. Europe’s machine tool industry accounts for 32% of global production and 53% of world exports.
- Europe is a significant technology provider and advanced manufacturer of micro-electronics for use in telecoms, industrial machinery, medical devices and vehicles. Since advanced technology, capital, automation and productivity drive competitiveness, Europe remains an attractive place for technology and manufacturing.
- Europe is the world’s largest vehicle producer with annual output of more than 17 million passenger cars, vans, trucks and buses, equal to 25% of world vehicle production. Although Germany has the biggest vehicle and components cluster, centers of design and manufacturing excellence are located throughout the continent.
Promoting entrepreneurial innovation
Europe’s attractiveness has changed substantially since 2011 and so have investor ideas about measures to renew
growth on the continent. In the 2011 edition of our European Attractiveness Survey, panel members urged government leaders to focus on Europe’s business credentials, particularly improving the cost of doing business. In their responses this year, investors seek “entrepreneurial innovation.”
To be more competitive and successful, Europe needs more innovation, more entrepreneurs and more jobs. Investors accept Europe’s levels of cost, provided they receive high quality output. This is a radical change in perceptions. How can Europe continue to improve value for money and raise quality without slashing costs?
Europe’s future as an investment destination is interlinked with the ability of its policy-makers to create an environment for innovation to flourish. To compete effectively in the race, Europe needs to simplify policies designed to drive innovation and ensure they deliver.
Upgrading Europe’s entrepreneurial appeal
Leader EMEIA Strategic Growth Markets,
Ernst & Young
Flying around the Middle East, Africa and Russia today, you can feel the buzz in the air. Some countries in southern Africa are growing faster than China. When you are there, you can feel there is something going on around entrepreneurship.
They are where China was 20 years ago. The infrastructure is not right yet, but private equity is entering the continent, finding opportunities.
In the Middle East, the majority of the population is under 35 years old. They need to create tens of millions of jobs. The state companies and family businesses cannot create them: they have to come through entrepreneurship.
And in Russia, this is the first generation that has become entrepreneurial. In Europe too, growth will have to come
through entrepreneurship. But it is clear that we need unified steps to facilitate innovation and entrepreneurship, and remove barriers.
In Africa, European innovation is being used to leapfrog the high cost of providing services in the way we Europeans traditionally do.
In Nigeria you can walk into a tent and open a bank account accessed via your mobile phone. eHealth is growing
rapidly in Africa. They lack our governmental health systems, but if you are diabetic, you can use a mobile phone App to measure whether you need to take insulin. Much of the population is concentrated in 8–10 large cities.
Distribution is not such a problem as we imagine. You can reach these people. There is a lot of talent and innovation in Europe, but we don’t do very well at moving innovation out of universities and turning it into products.
In Greece, it takes six months to start a company. To be competitive, we have to do some leapfrogging ourselves. The EU can play a lead role in removing barriers and promoting schemes that work.
If you want to stimulate enterprise and innovation you have to make both easier and more profitable. Since France began offering tax credits to venture capitalists three years ago, there has been a huge increase in early-stage investment there, helping innovation. That policy is a good model.
I really think we need to organize venture capital networks and overhaul the way we work in Europe. Some countries have rigid rules on working hours, but the new generation doesn’t want to work nine to five.
European markets need to operate more efficiently. The world around us is changing fast; but too often, when you get off a plane in Europe, you find that nothing has changed.
More than 30% of survey respondents believe that support for small and medium-sized enterprises (SMEs) should be increased. There is a loud call for encouraging entrepreneurial culture in Europe to reinvigorate its economy.
Digital and communications technology is transforming what people and companies do, and how they do it. New ideas for using these technologies to satisfy consumers or enhance business operations spring forth, and must be quickly developed and brought to market.
An extraordinary period of industrial evolution is under way, and successful economies will be those that succeed in fostering this creativity and converting it into viable products and services through entrepreneurship by inventors of ideas and solutions.
Developing the right skill-set
To support innovation and entrepreneurship, our respondents also emphasize the importance of imparting the right skills. Thirty percent say that governments should develop education and skills to increase Europe’s attractiveness as an investment destination.
Curricula in schools and colleges should be redesigned with business input to equip job-seekers with the skills business needs and encourage entrepreneurship at a young age.
A call for reforms to encourage innovation
The areas where investors believe Europe should concentrate its efforts are also those where they believe reforms are urgent. To help make Europe a leader in innovation, investors seek an improvement in education and training (47%) and call for a more innovative culture (32%) and tax incentives for innovative companies (29%).
Nearly half (47%) of our survey respondents say that improving education and training in new technologies is the most urgent need to enhance Europe’s credibility as an innovation destination. The European Union is home to almost 40% of the 500 best universities in the world, according to the annual ranking by Shanghai Jiao Tong University, China.
But the top end is dominated by the US. Policy-makers, business and academia need to strengthen links, prioritize quality and relevance in education, and ensure appropriate laboratory ideas become commercial products and services.
Promoting a culture of innovation
32% of our respondents want a more innovative culture in Europe. A weak spirit of innovation and entrepreneurship in many European countries and universities limits the growth of innovation and the success of university-industry partnerships and academic spinoffs. Better policies can create an environment for innovation to flourish.
29% of our respondents want more or better tax incentives for innovative companies. EU innovation policy has focused on competition — now it needs to motivate and facilitate.