Semiconductors, space sector, artificial intelligence, electromobility – these industries, associated with the economy of the future and advanced technologies, have a common denominator in the form of a weak position of European manufacture and technology. Another wave of technological innovation reorganises value chains, creates fresh markets, fresh winners and transformation losers. United States competition with China accelerates a technological race in which Europe lags behind. Will the Old Continent be demoted from the function of technology integrator and the supplier of finished products to the supplier of intermediates?
The stakes of this game are high. This is not only the political weight of Europe and its participation in global governance, but also, possibly above all, the standard of surviving of citizens and the preservation of social contract. The poorer position in supply chains is little added value, little profits and little wealth to distribute in Western societies, accustomed to a advanced standard of surviving and a wide scope of public services. How large could possible losses be? study A fresh look at how corporations impact the economy and houses notes that, without advancement in cross-cutting technologies, European companies will lose an added value of between EUR 2 and 4 trillion per year by 2040.[1]
The sources of European regression are multiple. It is worth noting, on the another hand, 1 crucial 1 which is increasingly affecting the current competitiveness. Europe has slept through the ICT revolution (Internet and communication technology), related to the net and software development. With the expansion of the digital planet to almost all domains and human activity, innovation in this sector has become cross-cutting technologies that affect many different areas of the economy. The consequences of this negligence will increasingly affect European competitiveness.
In today's competition, competition is even greater. Global economical convergence, especially Asia, makes high-tech ambitions and resources more and more countries, including the 2 most populous countries in the planet – China and India.
Critical Technologies
An interesting reason to discuss European innovation and technological possible is to print the ASPI’s Critical Technology Tracker tool and the accompanying report[2] – The aim of the task is to track the advancement of individual countries in the field of 44 critical technologies selected, key to the economy of the future. I don't think it's amazing to anyone that the US and China have a large advantage over competition – these countries are leading in each of the 44 technologies. Interestingly, according to research, 37 of them dominate China. However, let us focus on a Europe whose technological possible looks pale. It is even worse if we consider that Britain is playing more in the Anglo-Saxon squad with the United States than in continental Europe, represented by the European Union. In this case, the first European country in the ranking is Germany, which in 17 technologies ranks in the top 5 (behind China, USA, India, large Britain and Korea). It is besides worth to separate between Italy, which were placed in the top 5 in 7 technologies. Given the size of the European economy and its advanced position in the current value chains, the prospects for a fresh technological hand are not promising for Europe.
The European economical and technological integrity has many dimensions. There are a full of 1203 companies, including only 48 companies from Germany, France, Italy and Spain. There are only 4 European Union countries in the top 100 highest-value unicorns[3]. The corporate performance of large companies in Europe is besides worrying. As part of the study Securing Europe’s competitiveness: Addressing its technology gap McKinsey has surveyed over 2,000 European and American companies with gross exceeding a billion dollars. European companies grew 40% slower, 20% little profitable, investing 8% little and spending 40% little on R & D[4]. Let us bow down to investment in investigation and development. The top 20 companies investing most in R&D are 5 European entities, 4 related to the chemical and pharmaceutical sectors, and Volkswagen – European giants' investment in innovation comes from comparatively "conservative", conventional sectors of the economy. The first 5 are American digital corporations, children of the ICT Revolution – Amazon, Alphabet, Meta, Apple and Microsoft. This shows how large an omission is the deficiency of its own digital giants. It is besides worth looking at the space industry. Only in March have the United States conducted 11 orbital launches (10 successful) – twice as much as Europe over the full year!
Chart Source: P. Gilson, 2022 Orbital Launches by Country [online], January 10, 2023, https://payloadspace.com/2022-orbital-launches/ [accessed: April 17, 2023].Motor manufacture – lens focusing problems
The automotive industry, the pearl in the crown of European industry, representing almost 14 million jobs and almost EUR 80 billion of the EU's trade surplus, perfectly illustrates Europe's problems with technological progress.[5]. Europe has slept through 2 revolutionary directions of automotive improvement – electromobility and autonomous vehicles – completely reorganizing the product value chain. In this second area, European companies cooperate with China and the USA, as they themselves have considerable skills shortages. The authors of this study Securing Europe’s competitiveness: Addressing its technology gap U.S. companies have produced vehicles accounting for nearly 70 percent of all the kilometres driven by full autonomous level 4 cars.[6].
As far as electrical cars are concerned, their construction is much simpler, and a number of competences and technologies developed over decades in European automotive companies are losing importance. ‘In simplification, the electrical car consists of batteries and kilometres of cables, but it does not require an interior combustion engine or gearbox. The electrical car's performance is determined by the battery, which represents up to 50% of the value of specified a vehicle – and in this area almost the full supply chain has been mastered by the Chinese, leaving more and more Koreans behind"[7]– he carefully analyses Konrad Popławski from the Centre for east Studies. Diesel and petrol engines, transmissions, clutches – these European components, especially the German automotive industry, have developed almost to perfection. However, they are not applicable in the production of electrical cars. To realize the problems of Europe's automotive industry, it is worth looking at the forecasts related to the improvement of the marketplace of the various key components of cars.
Chart Source: In Focus: electrical Vehicles. marketplace trends and value chain analysis [PDF], 2021, https://appliedvaluegroup.com/wp-content/uploads/2021/02/AV_Electronic-Vehicles_In-Focus.pdf [accessed: 17 April 2022].The ongoing change will call into question many of the advantages of competing European companies and local co-operators, sub-suppliers forming supply chains. Drive, interior combustion engines, fuel and ignition systems – these markets are slow shrinking, and sales in electrical, battery, sensors and electronics segments are increasing rapidly, where the position of European concerns is not besides strong. It is worth realizing that we are talking about a sector that generates more than 7% of GDP in Germany and employs more than 1 and a half million people. Many German tiny and medium-sized companies for decades have been part of the value chains of the combustion engine. This network of co-operators, the tiny and medium-sized companies that our western neighbors stand for, will gotta adapt to the electromobility revolution. But is there adequate area for them in a much little complex supply chain, where more than half of the final value of the battery product is produced by Asian concerns, making up their own local networks of cooperators?
Digital economy
An effective link between the real planet and the digital planet will be an crucial origin in the competitiveness of the economy of the future. As much as 70% of the fresh value in the global economy will be generated thanks to digital technologies, the planet economical Forum experts estimate. As a consequence of the ICT revolution, Europe does not have its own "digital giants", and European digital space is colonized by American corporations. Facebook, YouTube, Google, Microsoft, Apple, Amazon, Netflix – these American platforms, monopolizing the digital marketplace slowly, collect powerful amounts of data on Europeans and local businesses daily. Data is becoming an increasingly crucial origin in production and a origin of competitive advantages. Their collection and processing capabilities become increasingly crucial from the position of economical security. The net of Things, the improvement of industrial platforms 4.0 and the increase in the usage of data in optimizing production processes and services will only strengthen their function in shaping the competitive advantages of the future economy. specified large data sets are besides crucial in the improvement of artificial intelligence. Europe is definitely giving way to the United States and China in this race. According to marcopolo.org, only 3 are among the 25 most crucial institutions dealing with SI in Europe[8]. The Old Continent has a problem with investigation funding, it is besides drained of talents, mainly by corporations from the United States. Although 18% of global talent in artificial intelligence comes from Europe, only 10% work for local actors.
Semiconductors
Semiconductors have late been a subject of expanding public debate. For a reason, the improvement of this manufacture is essential for the implementation of all modern technologies. In this section too, the share of European companies in the full value chain is negligible. European companies have only about 10% of the marketplace in the individual segments of the semiconductor value chain and only 9% of European request for semiconductors[9].
Table source: S.M. Khan and others, The Semiconductor Supply Chain: Assessment National Competition [PDF], January 2021, https://cset.georgetown.edu/wp-content/uploads/The-Semiconductor-Supply-Chain-Issue-Brief.pdf [accessed: April 17, 2023].The production process itself is very complex and the value chain geographically dispersed – Europe has any competences at different stages of production, but, given the full market, has a weak position. Physical semiconductor production is the domain of East Asia – China, Taiwan, South Korea and Japan account for over 80% of production. plan is dominated by US companies, which are besides large customers of semiconductors produced in another countries.
The most celebrated European company in the manufacture is surely Dutch ASML, producing lithography machines, which is 1 of the stages of chip production. The Dutch company is the only company in the planet to plan the most advanced lithography machines in EUV technology, without which there is no anticipation of producing the most efficient semiconductors. The analysis of the value chain in the semiconductor sector shows that Europe is the most powerful in the form of intellectual property – is it not a sign of overeating intellectual capital, which could be utilized to make business models and consequently invest?
New industrial policy
Geopolitical tensions transform the ongoing technological rivalry, highlighting the importance of the "visible hand of the state" at the expense of the "invisible hand of the free market". An approach to technological improvement and financing of innovation is being redefined, which are one more time at the centre of geopolitical competition. Flights into space, the improvement of the computer manufacture and semiconductors, the invention of the net – these examples of technological breakthroughs driven by the cold-war geopolitical rivalry of the United States with the USSR were mostly financed by state capital and resource mobilisation. A post-war geopolitical nap made the United States technologically "sit on laurels" – the deficiency of geopolitical rival weakened the interior mobilisation of resources to make technological breakthroughs and strengthen dominance. We are now witnessing a change in this policy through an expanding competition with China.
The fresh industrial policy, designed to win the race for innovative technologies, is symbolized by the American Inflation simplification Act and the CHIPS and discipline Act. The first is simply a $369 billion subsidy and relief program for American business that favors local products. Although in thought the preferences for local business were to hit primarily China, the program caused considerable tension in transatlantic relations and was identified by European leaders as an existential threat to the EU economy. CHIPS and discipline Actto in turn a spending program of $280 billion over 10 years. Most of the amounts will be directed towards investigation and their commercialisation, and respective tens of billions will besides be allocated to taxation relief for semiconductor industry. South Korea late announced an investment program in a semiconductor production cluster of $230 billion by 2042. specified massive financing projects will be increasing.
SEE ALSO:Big Tech stronger than an atomic button
European response
The European Union, under the European Chips Act, intends to "involve more than EUR 43 billion in public and private investment"[10] in 7 years. Compared to another programs, the amount is not impressive. This is, of course, just 1 of the programs supporting technology development, in this case the semiconductor industry. In a planet of increasing protectionism and expanding technological competition in the sectors of the future economy, the European Union faces serious challenges and the request to adapt to fresh conditions. Developing a coherent policy to support innovation and competition in advanced technology will be complicated. Traditionally, it is about political control and adaptation of this policy to EU needs, which are defined by the various EU countries. Active technology policy requires immense measures that will go to the richest, most technologically advanced countries in the EU, causing natural opposition to EU peripheries. From the position of the political coherence of the Union, however, the thought of loosening the rules on State aid is worse – it favours naturally rich economies, with capital resources that let for the financing of this aid, i.e. the technological race, from state budgets, without bureaucratic and time-consuming EU procedures. This will consequence in erosion of the most crucial binders of the European Union, the single EU market. This will consequence in further interior tensions, as the single marketplace is for many poorer countries the top benefit from the presence in the European Union. If the EU's core tightens the economical screw, "socialising" the next costs of the common policy and overburdens them in periphery while "privatising" the benefits and sharing them between the rich countries of the north, we can anticipate further serious cracks in the European Union. Thus, solutions that can strengthen Europe's position in technological competition can simultaneously lead to a further wave of EU political fragmentation and negatively affect the stableness and functioning of the full community. To prevent this, a technology policy should besides be designed for tiny and medium-sized businesses, taking into account the aspirations and needs of all EU countries. However, this is not in the interests of the most crucial countries of the community, especially in view of the technological problems of their national economies.
In order to keep the current standard of surviving for citizens, Europe must mobilise its own resources in the race for fresh technologies. The ongoing rivalry will find whether Europe will inactive be a major economical hub, alongside North America and East Asia. Given the build-up of European problems, it will not be easy to stay in the first technological innovation league.
[1] J. Manyika and Others, A fresh look at how corporations impact the economy and houses [online], https://www.mckinsey.com/capability/strategy-and-corporate-finance/our-insights/a-new-look-at-how-corporations-impact-the-economy-and-households [accessed: April 17, 2023].
[2] J. Gaida, ASPI’s Critical Technology Tracker [online], March 2, 2023, https://www.aspi.org.au/report/critical-technology-tracker [accessed: April 17, 2023].
[3]The Complete List Of Unicorn Companies [online], https://www.cbinsights.com/research-unicorn-company [accessed: April 17, 2023].
[4] S. Smit and Others, Securing Europe’s competitiveness: Addressing its technology gap [online], 22 September 2022, https://www.mckinsey.com/capability/strategy-and-corporate-finance/our-insights/securing-europes-competition-addressing-its-technology-gap [accessed: April 17, 2023].
[5]EU exports of motor vehicles [online], July 22, 2022, https://www.acea.auto/figure/eu-exports-of-motor-vehicles/ [accessed: April 17, 2023].
[6] S. Smit and Others, Securing Europe’s competitiveness: Addressing its technology gap [online], 22 September 2022, https://www.mckinsey.com/capability/strategy-and-corporate-finance/our-insights/securing-europes-competition-addressing-its-technology-gap [accessed: April 17, 2023].
[7]US priority? Competition with China. OSW Expert: EU fears that Americans renounce the fight for free trade [online], April 3, 2023, https://wpoliticy.pl/world/641031-co-meaning-for-ue-rivalization-usa-with-chinamiepokowa-change [accessed: April 17, 2023].
[8]The Global AI Talent Tracker [online], https://macropolo.org/digital-projects/the-global-ai-talent-tracker/ [accessed: April 17, 2023].
[9] S. Smit and Others, Securing Europe’s competitiveness: Addressing its technology gap [online], 22 September 2022, https://www.mckinsey.com/capability/strategy-and-corporate-finance/our-insights/securing-europes-competition-addressing-its-technology-gap [accessed: April 17, 2023].
[10] The president EU Chips Act: possible Trap? [online], September 2, 2022, https://crn.pl/articles/eu-chips-act-potential-pulapka/ [accessed: April 17, 2023].
photo: wikipedia.commons
