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Addressing Europe’s Corporate Technology Gap

European firms currently lack the scale and agility they need to compete with their US and Chinese counterparts. Wise policymakers would harness the cooperative momentum generated by the Ukraine war and embrace the “transversal technologies” that are crucial to the region’s future prosperity.

ZURICH – Europe seems to change most decisively as a result of crises. The European Union was created in the aftermath of World War II. The 2008 global financial crisis and the eurozone crisis that followed led to more financial cooperation among European countries. The COVID-19 pandemic triggered greater fiscal coordination through the Next Generation EU recovery fund. Now the war in Ukraine is upending Europe’s energy strategy and sparking a new conversation about defense.

In this context, policymakers must not forget another slow-motion crisis: the significant lag in European companies’ technological prowess, relative to other leading economies. As technology spreads into every sector and reshapes competitive dynamics, innovation and tech leadership is as pivotal to the EU’s strategic autonomy as energy supplies or defense are, especially amid increasing geopolitical turbulence.

Lagging technology largely explains why major European firms are underperforming their US counterparts. According to new research by the McKinsey Global Institute, between 2014 and 2019, large European companies’ revenues increased 40% more slowly than their US peers’. They invested 8% less (measured by capital expenditure relative to the stock of invested capital), and they spent 40% less on research and development. Information and communications technology and pharmaceuticals accounted for 80% of the investment gap, 75% of the R&D difference, and 60% of the disparity in revenue growth.