According to the report «Ensuring Europe’s competitiveness. Address your technology gap«, of the consulting firm McKinsey, Europe could generate between 2 and 4 billion euros a year, between now and 2040, if it recovers its business and technological competitiveness.
In a context conditioned by the challenges that have developed in recent years, Europe has plunged into a crisis which has questioned its technological skills and the future competitiveness of its companies, endangering its leading role in world economic policy. So much so that, according to the study, the revenue growth of large European companies between 2014 and 2019 was 40% slower than that of US companies. Also, invested 8% less and spent 40% less in R&D than the US companies included in the sample.
«We are facing a great opportunity for Europe. The old continent can address its shortcomings in terms of business performance and innovation and position itself as one of the benchmarks of economic policy at a global level”, says Sven Smit, President of the McKinsey Global Institute.
in what regarding clean technologies, Although Europe continues to lead in patents and venture capital funding, China has led the production of these types of technologies in almost all areas, and the United States leads the majority of cutting-edge technologies, including nuclear fusion. In terms of artificial intelligence (AI), the investment of US companies is six times higher than that of their European counterparts, and in the field of 5G, Europe has strong providers, but lags behind in deployment.
One of the main reasons for Europe’s technological gap with respect to other world powers has been specialization in sectors such as industry, automotive or fashion, among others, where the old continent had a relevant competitive advantage. A situation that has changed completely due to the fact that technology has fallen on all sectors, something that has reassessed the leadership of the continent in these sectors in which it used to position itself ahead of the rest of the world powers. In fact, today, Europe leads only two of the ten transversal technologies that will mark the future wave of technological innovation in the world, and is at the bottom in terms of innovation, production and adoption of these technologies.
“In response to the constant challenges that are brewing at a global level, technological disruption is a challenge for European industries. Europe needs to act on a larger scale and speed and level the playing field so that its companies can compete with the rest of the world powers”says Sven Smit.
bet on optimism
Despite this critical situation, the data in the report show that Europe has sufficient reason to be optimistic. When it comes to public and private capital spending on the deployment of low-carbon technologies, Europe led in investment to boost the energy transition in 2020 with 166,000 million dollarsbetting on renewable energy, energy storage, electric vehicles and heating, hydrogen and carbon capture and storage. China came second with $135 billion, and the United States third with $85 billion. The five European countries that allocated the most capital to investment were Germany (39,000 million), the United Kingdom (26,000 million), France (20,000 million), the Netherlands (19,000 million dollars) and Spain (13,000 million dollars).
Furthermore, Europe has lower carbon emissions per capita than the United States and China, and emissions are declining 30-50% faster than those of those economies. Income inequality, measured by the Gini index, is only 30, compared to 41 in the United States. And the first ten countries that lead the Social Mobility Index, published by the World Economic Forum, are European.
“The added value that European companies could generate between now and 2040 is equivalent to between 30% and 70% of the projected growth of European GDP between 2019 and 2040, or six times the amount needed to achieve net zero emissions in 2050, for what the challenge is to rescue and boost the competitiveness of European companies”emphasizes Sven Smit.
Spain, engine of European economic growth
One of the main competitive advantages that the old continent has is Spain, which has positioned itself as one of the main engines of European economic growth. In fact, Spain has a strong record on sustainability, ahead of the average for Europe, the United States and China in terms of CO2 emissions per capita recorded in 2019, which reflects the high use of solar energy in our country. With regard to aspects of inclusion and well-being, such as life expectancy or social progress, which takes into account all the advances that affect the improvement of people’s living conditions, Spain was also well ahead of the average of Europe, the United States and China in 2020.
Regarding to growth and prosperity, Spain has worse records than in other areas. GDP per capita growth between 2000 and 2019 was lower than that of China, the United States and European countries, which “reflects the fact that Spain suffered severely from the real estate crisis of 2008 and the subsequent crisis in the eurozone”, according to Alejandro Beltrán, managing partner of McKinsey.
Regard to the flow of foreign direct investment (2019) and private debt (2020), Spain is very close to the European average, but its current account balance is somewhat worse than that of Europe and it has a higher public debt, taking the 2020 data in these last two aspects.
Finally, when compared to the United States and Europe, Spanish companies fare worse in terms of return on capital invested in R&D, whose levels are 36% and 52% below those of US companies, respectively. “A relatively weak return on investment may, in a certain way, reflect an important weight of the infrastructure sector and companies retailers”points out Alejandro Beltrán.
Instead, the revenue growth of Spanish companies is much higher than that of the European ones and is close to the American ones, something that could be explained. Likewise, in investment (capital expenditures and invested capital), Spanish companies are not too far from European and United States companies.
“Business leaders need to get involved, take more risks and increase competitiveness, for example by setting ambitious long-term goals, adjusting incentives and taking advantage of scheduled mergers and acquisitions to position Europe as a major power in the global technology landscape.”, concludes Alejandro Beltrán.
