How can Europe sustain its digital drive?

By

Andy Baldwin

EY EMEIA Area Managing Partner and EY Global Managing Partner – Client Service-elect

Interested in innovation, FinTech, inclusive growth and geopolitics. Regular contributor in print and broadcast media. Leading commentator on financial services in the Eurozone.

Contributors
4 minute read 16 May 2019

Europe will make improvements to its Digital Single Market strategy with the right skills and infrastructure.

Improving Europe’s digital attractiveness requires comprehensive and collaborative effort. In technology research done for our forthcoming European Attractiveness Survey 2019, we explored the level of foreign investment in Europe’s digital sector, as well as business views on the most important ways to improve Europe’s digital competitiveness.

On nearly every measure, Europe’s digital sector is booming. The digital sector is ramping up investment in job-creating foreign direct investment (FDI) projects in Europe. The number of new projects increased 5% to a record high of 1,227 in 2018. European technology companies raised US$23b of venture capital funding in 2018 — more than four times the US$5b secured in 2013.1 In parallel, 69 technology companies listed in Europe in the first nine months of 2018 — more than double the 29 that did so in 2013.2

The digital sector’s importance in driving wider economic growth is not lost on businesses surveyed for this research. They rank the digital economy sector first in terms of its potential to drive economic growth across Europe in the coming years. CleanTech ranks second, and the energy and utility sector third.

Digital investments

1,227

The number of new projects in 2018 – an increase of 5% and a record high.

London is still considered the most attractive European city for digital businesses among a list of global hot spots. When asked which cities offer the best chance of producing the next technology giant, surveyed businesses rank London fourth globally, behind San Francisco (and the wider Silicon Valley), Shanghai and Beijing. Berlin ranks 7th globally and 2nd in Europe, while Paris ranks 12th globally and 3rd in Europe.

More digital FDI projects were established in the UK (288 projects) than in any other European country in 2018, including Germany (218 projects) and France (171 projects).

Companies are taking a variety of measures to improve digital skills

No room for complacency

Continued investment in Europe’s digital sector, however, is by no means guaranteed. In the past year, European businesses have experienced greater restrictions on the use and handling of personal data through General Data Protection Regulation (GDPR). The vast quantities of data processed impact the technology sector significantly.

Eighty-six percent of surveyed business leaders say the degree of protection of intellectual property (IP) rights is a key factor that determines where they invest. And, the implementation of a Digital Services Tax across Europe may harm investment into the sector.

The Digital Single Market is the European Commission’s strategy to protect consumer data, reinforce individuals’ access to online activities under conditions of fair competition, and resolve copyright and geo-blocking issues. Achieving this will help create an environment where digital businesses thrive.

The EU is backing up its strategy with money. In June 2018 it announced proposals for a €9.2b digital investment package.3 It will focus on supercomputers, artificial intelligence (AI), cybersecurity and trust, digital skills and ensuring wider use of digital technologies across society.

Investing in the EU

€9.2 billion

The amount of money the European Commission proposed for a digital investment package in 2018

A continuing skills gap

Today, Europe lacks many important digital skills. Cybersecurity, AI and robotics, and big data and analytics skills are considered most scarce in Europe. Tellingly, 52% of surveyed businesses say the availability of a workforce with technology skills is “critically important” in determining where they invest in Europe. A further 42% say it is an “important” determinant. This makes technology skills the most important factor that determines where businesses invest and, consequently, an area in which the EU can cement its digital competitiveness.

Skills aside, Europe needs a robust digital infrastructure, particularly fast and reliable internet connectivity, to enhance its attractiveness.

The European Union and national governments can bolster digital competitiveness in a host of other ways.

By making improvements in these areas, the EU can boost its digital competitiveness, attract more FDI and, ultimately, increase long-term economic growth and employment.

  • EY Attractiveness program looks at growth from an FDI perspective into countries and regions across the globe. Its surveys use custom-designed methodology and explore developed and emerging markets to help public sector and business leaders make economically sound strategy and policy decisions – and us to build a better working world.

    We define the attractiveness of a location as a combination of image, investors’ confidence and the perception of a country’s or area’s ability to provide the most competitive benefits for FDI. The field research was conducted by the CSA Institute in January and February 2019 via telephone interviews, based on a representative panel of 506 international decision-makers.

Summary

Digital is one of Europe’s fastest growing activities and a major contributor to economic prosperity. To keep this momentum, Europe must fortify its digital attractiveness. However, European companies and governments also have to create the physical infrastructure that technology companies need, such as ultra-fast broadband connectivity.

About this article

By

Andy Baldwin

EY EMEIA Area Managing Partner and EY Global Managing Partner – Client Service-elect

Interested in innovation, FinTech, inclusive growth and geopolitics. Regular contributor in print and broadcast media. Leading commentator on financial services in the Eurozone.

Contributors