The recently released EU Competitiveness Report from the European Commission delivered a stark message to the bloc’s tech sector. As Mario Draghi, lead author of the report, warned, Europe faces ‘’an existential challenge’’.
“The problem is not that Europe lacks ideas or ambition,” the former Italian premier said. “But innovation is blocked at the next stage: we are failing to translate innovation into commercialisation.”
Namely, the bloc needs to focus on providing the right conditions for more European big tech companies to grow — and the incentives for them to actually stay.
As we get ready for CES Unveiled in Amsterdam on October 15, this is something on many policymakers’ and founders’ minds. Although the event is focused on showcasing European innovation, its ties to CES in Las Vegas also attract founders interested in possible market opportunities and expansion to the US.
Yet, shifting politics and a changing business environment in both the US and the EU have led many to rethink their growth and expansion strategies. We spoke with two industry experts to understand the trends and challenges shaping market conditions on both sides of the Atlantic.
The US has long been a destination of choice for European entrepreneurs looking to expand their business. As Gary Shapiro, CEO of the Consumer Technology Association, explains, “the US has the advantage of sharing one common language across the market. In Europe, this can be a barrier in terms of not only getting a product out but also distribution, relationships, etc.”
Many also consider the ease of expanding across the US market once they already have an established entity. However, Shapiro warns laws and regulations can vary from state to state. “Some states have laws that may be unique depending on the category — there might be different privacy laws, for example, or with AI there may be different solicitation laws. Europe has the advantage, frankly, of having an EU-wide system encompassing privacy and AI.”
Indeed, while federal privacy and AI laws in the US have stalled, individual states have issued a patchwork of regulations, from Colorado’s ambitious AI Act to Delaware’s Personal Data Privacy Act.
Another consideration Shapiro points out is that, although European founders have often looked to US big tech for exit opportunities in the past, the current climate is changing. Following in the EU’s footsteps, Federal Trade Commission Chair, Lina Khan, has been cracking down on big tech monopolies with antitrust cases including investigations into the likes of Microsoft, OpenAI, and NVIDIA.
“That has dried up a bit of the investment money,” Shapiro says. “You can go public, you can grow internally, and have private equity investments, but the acquisition exit is one of the most common routes, so that’s definitely a challenge. It’s had a chilling effect on big companies investing in small companies, they just don’t want to deal with potentially going to court.”
However, while President Biden was supportive of antitrust initiatives during his term, there is uncertainty about whether Kamala Harris would support a similar stance if elected. And this uncertainty brings us to the elephant in the room. With fresh presidential elections coming up in November, it’s hard to predict what the business climate will be like in 2025 and beyond.
TNW spoke with Constantijn van Oranje-Nassau, Startup Envoy for Techleap, a private-public organisation tasked with supporting and growing the Dutch tech ecosystem, to get his perspective on how Europe can use this opportunity to encourage retention and growth in its tech sector.
“In general, I’m not pessimistic about economic activity and entrepreneurship in Europe,” he says, noting that the most recent State of European Tech Report shows venture returns in Europe are actually stronger than in the US. On the other hand, he believes regulation and a more fragmented market are two conditions that could make the bloc less favourable in founders’ eyes.
Over-regulation is one issue Van Oranje highlighted. “If you look at the healthtech sector, companies have to incur considerable costs and a very big time investment to get certified, and these companies simply don’t have that. This means that they often go to the US because the FDA is much more efficient and they have a bigger market. So for the whole healthtech market, Europe has made itself very unattractive.”
While Shapiro posited that common regulations for popular technologies like AI can help when expanding to new markets across Europe, Van Oranje points out that, when it comes to the AI Act, there’s a lot of work still to be done on implementation.
“Right now there’s a lot of legal uncertainty. If there’s too much left to interpretation for national authorities or supervisors, then you get fragmentation in the way it’s applied.”
Another challenge is how future-proof the Act can be in a market that’s moving at lightning speed. He put forward the example of GDPR. Although initially designed to protect privacy and data, it now hinders the application of AI in sectors like open government and healthcare.
“I think the risk with an AI Act is that in two, three, four years time, the whole paradigm may have shifted and AI could be applied in completely different domains that we haven’t foreseen,” Van Oranje says. “Guardrails are good. Predictability is good. Standardised rules across Europe is absolutely a good thing. Standardised application of the laws is even better. So if the AI Act could do that, then, we just have to deal with its future-proofness, which is always going to be a challenge in technology.”
When it comes to supporting growth, the EU could look to the US for strategies on leveraging tax incentives.
“The Inflation Reduction Act (IRA) has done a remarkable job for the US in attracting all kinds of climate-related companies to scale up in the country. It doesn’t mean that all the intellectual property will move there, but they might build their pilot plant or their first production plant in the US, therefore creating a lot of economic activity. There’s no reason why Europe couldn’t have done the same using the tax instrument. But we decided not to do it. So again, this is something that could have been avoided.”
However, perhaps the biggest challenge Europe, and particularly the Netherlands, will face in retaining tech companies is talent. While much steeper US salaries made Europe a more attractive pool for hiring talent, the entrance of a number of right-wing governments into power this year has also brought with it a tougher stance on migration.
With tech companies already facing a talent gap (the European Digital SME alliance estimates the size of this gap to be 1 million workers), curbing incentives for highly skilled migrants, entrepreneurs, and tech and engineering students will not be a popular choice.
“I think a country that wants to stay competitive in an international technology space needs to be a hot spot for the best foreign talent,” Van Oranje says. “Google, Tesla, and many more of the biggest companies are driven and led by foreign talent. So we would be very foolish anywhere in Europe if we didn’t make sure that that talent actually finds their way to our companies.”
Join Gary Shapiro and Constantijn van Oranje at CES Unveiled in Amsterdam on 15 October for key discussions on the future of European innovation.
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