Last June we attended the ECSEL Joint Undertaking Symposium 2018 held in Brussels. The event focused on Europe’s digital future.

For those who are not familiar, the ECSEL JU is a public-private partnership for electronic components and systems.

One of the many projects showcased at ECSEL Joint Undertaking Symposium 2018.

The ECSEL JU supports European research and technology organizations including large corporations and SMEs. EU and the 30 states that participate in ECSEL co-fund various R&D and innovation projects in key enabling technologies that are essential for Europe's competitive leadership in the digital economy.

During the symposium, one particular presentation got our attention among several others. Mariya Gabriel, EU Commissioner for Digital Economy and Society, gave a keynote speech, in which she admitted:

“Currently, we don't have computing power in Europe that would match our potential. I am personally dedicated to change that. Mastering digital technologies is essential for Europe."

These words got us thinking: is Europe really facing a gap when it comes to digitalization?

Mariya Gabriel, EU Commissioner for Digital Economy and Society, giving her speech.

Apparently, the answer is yes. According to McKinsey, Europe operates below its digital potential as European countries only capture 12% of their full digital potential, compared with the United States’ 18%. What is more, Europe is dependent on the US, being a net importer of US digital services with a digital trade deficit of 5.6% of total EU-US services trade. Of course there is variation among European countries. For instance, the United Kingdom and the Netherlands are net exporters of digital services to Europe, while Italy is a net importer. (Go Netherlands!)

To be fair, a digital transition is ongoing in Europe. Consumers, technology hubs and some corporations are driving the transition. However, the extent to which firms and industries invest in and use digital is not sufficient. Europe lags behind in this respect.

AI gap further widens digitalization gap

Digitalization is an important precondition for the diffusion of AI.

And Europe’s digital gap with US and China, two world leaders in digitalization, is further growing due to its slowness in AI engagement. Without faster engagement in AI, the gap could widen.

In fact, Europe has some very strong qualities. For example, it has six million professional developers, which exceeds the four million in the US.

According to its current position relative to the world, Europe could add some €2.7 trillion, or 20%, to its GDP by 2030. This means a 1.4% compound annual growth.

So what should be done?

A recent McKinsey discussion paper reveals Europe's gap in AI engagement and discusses five areas of action to overcome the gap.

Here are the two actions we find the most important:

1) An ecosystem of deep tech, AI startups and new business models

Europe needs to develop an ecosystem involving deep tech companies and AI startup firms. These companies are to generate new business models based on AI.

Before we start, are we all familiar with what deep tech is exactly? Deep tech is where science and engineering blend. Deep tech companies are founded on a "scientific discovery or meaningful engineering innovation."

Europe does possess deep tech talent with lots of university centers engaged in AI and computer science, especially in France, Germany, Switzerland, and the United Kingdom. Plus, Europe keeps generating science, technology, engineering, and mathematics (STEM) graduates at a faster speed than the US.

What's more, policy makers are coming to the realization that Europe getting among global AI leaders is a priority.  

In line with the hints we collected from listening to the speech by Gabriel, the European Commission is investing €2.6 billion in AI and robotics as part of its Horizon 2020 plan. Approximately the same amount will go in high-performance computing.

So what does Europe need to tackle? What Europe needs to tackle is the fragmentation issue.

Although some particular European countries thrive in AI, such as Sweden, home to Spotify, the continent needs to find a way to link successful local hubs for global network effects.

In fact, most European countries have their own AI road maps in place, but they suffer from fragmentation. The resources are not allocated Europe-wide, and neither do priorities match.

The solution might be lying under a distributed yet cooperating network of AI hubs across the continent. A distributed rather than centralized network would be preferable. Of course, the framework of legal expertise, data, funding and incentives of the whole EU should be available to all network members.

In short, Europe, already being one of the world’s largest bases of technology, should organize its developers in a more connected innovation web.

2) Incumbent firms and governments embracing AI

The top priorities of Europe’s incumbent firms should be digital transformation and business model innovation with AI.

When it comes to competing with world leaders in AI engagement, Europe might not need to compete head on but rather focus on areas where it already has a competitive edge. Business-to-business [B2B] and advanced robotics are a couple of these areas. In fact, advanced robotics is the sole area Europe beats the US.

However, incumbents cannot easily realize that digitalization lets them develop larger ecosystems than those defined in the past.

When adopted properly, digital technologies enable "servitization".

For those who missed it, we had discussed the importance of digital transformation in the specific case of manufacturing companies in an earlier blog post.  

The same applies to Europe's tech incumbents.

For instance, car manufacturers could broaden their thinking into self-driving vehicles, maybe even positioning themselves as work and entertainment services companies in the near future.

Also, European public sector can help lead and support experimentation with digitalization and AI.

In Sweden, for example, municipality-owned renovation agency Renova collaborated with Volvo Trucks. Together they test autonomous garbage trucks. The aim is to increase safety and optimize fuel consumption.

Such examples should be multiplied in and across Europe with cross-border activities running as smoothly as possible. Coordination of infrastructure, interoperability of systems and applicability of the same regulation across Europe would help achieve this ambition.

Sources:

McKinsey Global Institute discussion paper: "Tackling Europe's gap in digital and AI"

McKinsey Global Institute report: "Digital Europe: Realizing the continent's potential"