McKinsey has just issued an interesting paper about innovation in Europe and propose five paths which could build on its strengths and help the continent regain its competitive edge.
Europe’s startup scene is thriving: the number of AI startups has tripled in the past three years and is now relatively comparable to the figure for the United States on a per GDP basis. Early-stage startups are better financed than ever before. Investment in European tech is at a record high, with $23 billion invested last year, a five-year increase of 360 percent and an increase of 21 percent compared to 2017.
Europe’s research community is larger, but also more diffused, than that in the United States or in China.
One challenge appears to be Europe’s ability to scale startups into major companies. For example, it has transformed digital promises into success with “unicorns”—privately held startups valued at more than $1 billion—at only about half the rate seen in the United States or even Tel Aviv.
R&D also is becoming increasingly concentrated, and Europe is losing share, particularly in digital sectors. Just 250 companies generate close to two-thirds of global business R&D investment. In this group, while European automotive players dominate, European companies’ R&D spending by software and computer services firms was only about 8 percent of the global total, well below 11 percent for Chinese companies and far behind the 77 percent for US-based companies in 2018.