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Europe in Tomorrows World
Harnessing new waves of growth:the views of business leaders.
Report prepared for the European Business Summit 2011
An initiative of Carried out by
Sponsored by
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Contents
Contents
Executive summary
IntroductionEurope in tomorrows world: harnessing new waves of growth
Seven levers for accelerated growth and job creation
Economic governance: a base for stronger growth
Entrepreneurship and SMEs: breaking the ceiling
Human capital and labour markets: bridging the gap
ICT and social media: digital highways to growth
Innovation: creating a pan-European innovation ecosystem
Industrial strategy: a future for Europe in the global economyTrade and investment: building new bridges in a multi-polar world
ConclusionEuropes new direction
Methodology
Acknowledgements
References
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Executive summary
After the storm
New waves of growth
After a period punctuated by sovereign debt crises and financial
volatility, Europe has managed to pull itself out of an economic
tailspin and engineer a modest resumption of growth. With
the economic backdrop beginning to improve, our survey
shows that over two-thirds of business leaders from both
the European Union and the rest of the world now feel more
optimistic about Europes growth prospects compared with
this time last year. Despite continued volatility and sluggish
growth, business leaders also remain convinced of the longer-
term growth potential that Europe offers: 48 percent of business
leaders plan a moderate increase in their investment levels in
Europe over the next three years (6-20 percent), and 9 percent
plan a much bigger increase (more than 20 percent). Viewed
from a global perspective, Europe still ranks favourablyagainst competing regions in terms of future growth potential
and as a place in which to invest and do business.
Europe must not recoil from these long-term trends but mustinstead confidently reframe them as opportunities for growth
and job creation. An older population will generate growth
opportunities in health care, third-age education, leisure, tourism
and age-related consumer markets. With its global leadership
position in environmental technologies, Europe is ideally
situated to benefit from booming demand for intelligent
energy, green infrastructure, alternative fuels, and waste and
water management. Its expertise in many types of services
gives Europe a head start in emergent sectors such as carbon
finance and consultancy. Look closely at the driving forces
of emerging-market growtha growing middle class and
increased urbanisationand it is easy to see major opportunities
for Europe to trade on its expertise in areas such as financial
services, education, infrastructure and citizen services. Emerging
markets need all of these services, and Europe can supply
them competitively.
Yet, while business leaders are positive about Europes potential,
they are equally realistic about the scale of the challenges
currently confronting the region. Many of Europes economies
remain mired in high levels of consumer and sovereign debt,
and are beset by sluggish economic growth and persistently
high levels of unemployment. In addition, volatility in energy
and financial markets continues to cast a cloud over the outlook.
Looking ahead, Europe must prepare for a world that is being
transformed by seemingly inexorable internal and external
forces. The regions population is ageing and the squeeze on
global resourcesincluding land, water and foodis a major
concern for citizens, corporations and policymakers. The world-
wide financial crisis and recession have accelerated the shift
to a multi-polar world, where economic activity and power are
gravitating away from the core developed economies of the last
century towards the powerhouse emerging economies. In the
corporate arena, a new cast of emerging-market multinationals
is also coming to prominence, intensifying competition in
global markets as well as bringing new approaches to markets,
business models, and risk and resource management.
These opportunities are real and within Europes grasp. But howcan Europe become a smart, sustainable and inclusive economy?
In other words, what is needed to fulfil the objectives of the EU's
Europe 2020 growth strategy for the decade ahead? Our survey
of more than 400 business leaders285 from the European
Union and the rest from other parts of the worldprovides a
comprehensive insight into the actions that Europe can take to
stimulate renewed growth and job creation. New growth must
be built on a bedrock of sound public finances and macro-
economic stability. This means tackling unsustainable public
finances and addressing financial sector risks. Indeed, 41 percent
of business leaders cite high budget deficits as the biggest
challenge to European growth, and 36 percent believe that
European governments must take faster action to rein in soaring
deficits if they hope to restore market confidence and promote
investment and long-term growth. Such views were expressed
even more forcefully by business leaders from outside the
European Union.
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Seven levers for accelerated growth and job creationDrawing on detailed research and our survey of more than 400
C-level business leaders, this study identifies actions in seven
key areas that can help position Europe to harness new waves
of economic growth. These areas are as follows:
1. Economic governance: a base for stronger growth.Restoring order to battered public finances is only one
element of a new approach to economic governance. Europemust take the following actions to promote long-term growth:
Steady the shipget the macro fundamentals right.Many business leaders in our survey believed that more
urgent action is needed to tackle budget deficits and debt
levels in the Eurozone in order to restore financial market
confidence. Only 26 percent of business leaders believed
that governments are cutting deficits too quickly.
Develop forward-looking approaches to systemic risksand imbalances. These approaches can include greatercoordination of fiscal policy between member states
(mentioned by 36 percent of respondents), early warning
systems to spot the growth of asset bubbles and stronger
mechanisms to monitor divergences in national competitiveness
(endorsed by a quarter of business leaders).Incorporate pro-growth measures in economic
governance. Restoring macro-stability to public financesand financial markets is a necessary condition for
growth and job creation. However, such action must
be complemented with pro-growth structural reform.
Forty-three percent of business leaders mentioned greater
use of tax cuts to promote employment, 28 percent cited a
greater focus on capital spending as opposed to current
spending, and an equal proportion cited measures to free
up bank lending to small businesses.
2. Entrepreneurship and SMEs: breaking the ceiling. Smalland medium-sized enterprises (SMEs) are a driving force of
the European economy. While creation and survival rates for
European SMEs are roughly comparable to those in the UnitedStates, SMEs in Europe struggle to grow into larger enterprises.
Our research and analysis of business views highlight the
need for the following actions:
Remove the ceiling to growth. Fifty-three percent of businessleaders we surveyed indicated that reducing and simplifying
regulation and taxation would be effective in encouraging
SMEs growth. Necessary actions include introducing pro-
growth legislation through exemptions and incentives for
SMEs that want to expand, as well as improving access to
credit and financing.
Help SMEs go beyond borders. Thirty-nine percent of ourrespondents identified the need to dismantle barriers to
cross-border trade within the European Union as a priority.
Policymakers must focus on completing the Single Marketand build export capabilities through language and
managerial training for entrepreneurs.
Scale up for growth. SMEs need to reach a critical mass inorder to compete internationally. Partnerships and technology
can play an important role. For example, they can use cloud
computing to lower the cost of fixed infrastructure, create
SME-to-SME hubs and build networks to promote collaboration
and knowledge sharing between large and small enterprises.
3. Human capital and labour markets: bridging the gap.The European Union has a large pool of educated workers. But
Europe is failing to fully capitalise on this advantage, due to a
combination of rigidities in labour markets and a longer-term
mismatch between skills provision and future jobs. It is imperative
for Europe to address these issues and possible actions include:
Improve geographic mobility. More than a quarter of businessleaders cited better mutual recognition of qualifications as anaction that would aid increased geographic mobility of workers
within the European Union, while 37 percent said that
tailoring immigration policies to attract skilled workers
would be important.
Widen the labour pool. Thirty percent of C-level executivesbelieve that Europe must take action to widen labour pools.
Examples of actions to bring this about include reforming tax
and benefit systems and aligning pension systems to encourage
greater labour-force participation among older workers, as
well as investing in lifelong learning and the wider infrastructure
needed to help older workers stay in the workplace.
Invest in science, technology, engineering and mathematics
(STEM) skills. Investment in education and training in general(34 percent), and STEM skills in particular (33 percent), werehighlighted by business leaders as important in preparing
Europe for the jobs of the future. Specific measures to achieve
this include promoting STEM options from an early stage, as
well as encouraging businesses to work more effectively with
educational bodies to produce the right mix of academic
and practical skills.
4. ICT and social media: digital highways to growth.Information and communications technology (ICT) can be
an important catalyst for faster European growth and job
creation. But a focus on the technologies themselves is not
sufficient; explosive growth will occur when investment in
technologies is coupled with measures to promote widespread
usage of IT in peoples home and working lives. Our surveyresults suggest the following measures:
Outperform in digital infrastructure and market regulation.The establishment and adoption of superfast broadband
was the most-cited ICT imperative, with 38% of respondents
choosing it among their top three actions for maximising the
return from ICT and social media. A number of actions can
assist with this, such as coordinating national responses to
the European Commissions Digital Agenda and enhancing
the ability of European consumers to compare broadband
speeds and prices across the European Union and the world.
Set clear ground rules. Twenty-nine percent of businessleaders we surveyed included consistent data privacy and
cyber-security laws across Europe among their top three ICT
priorities. Policymakers can do this by setting out citizensrights to consistent data security and privacy throughout
Europe, setting a long-term vision of the responsibilities of
companies that handle personal data, and encouraging the
creation of ICT-intensive businesses by entrepreneurs and
inward investors.
View digital skills as todays literacy. In our survey, 31percent of business leaders identified the improvement of
IT skills among people unfamiliar with technology as a top
ICT growth imperativesecond only to the call for superfast
broadband. To support this effort, policymakers can encourage
the spillover of workplace skills from consumer ICT, under-
stand age-related and other digital skills gaps, and promote
the role of businesses and the non-profit sector in shaping
digital literacy.
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5. Innovation: creating a pan-European innovation ecosystem.While Europe produces a wealth of raw ideas and generates
a large proportion of global research, it conspicuously fails to
commercialise much of that research as new products, services,
business models and processes. Our analysis highlights three
key action areas that can help create a stronger innovation
ecosystem in Europe:
Promote services innovation. Recommended actionsinclude completing the Single Market in services, establishing
standards to enable interoperability between new and
existing products and services, and providing better methods
of valuing intangible assets related to services innovation
(to induce increased capital market funding of innovation).
Providing the right framework conditions, such as simplifying
and reducing the burden of regulation and taxation, is also
important, with 34 percent of business leaders citing it as an
effective action for boosting innovation.
Develop and retain innovators and entrepreneurs.Suggested actions include incorporating business skills
in STEM degrees and teaching STEM skills in business
degrees, encouraging more placements between research
institutes and industry, and attracting a critical mass ofresearchers from around the world. Twenty-five percent of
survey respondents cited the introduction of measures to
attract non-EU researchers as a potentially effective action.
Rethink clusters to harness networking benefits. Thirty-eight percent of business leaders said that knowledge
exchange between research organisations and business
is an effective way to stimulate European innovation. Key
actions can include harnessing the power of technology to
draw on the creativity of stakeholders, changing academic
incentives to encourage more commercialisation of
research, and supporting technology-enabled virtual
clusters that link agglomerations of early-stage SMEs with
venture capitalists.
6. Industrial strategy: a future for Europe in the globaleconomy. Industry remains the backbone of Europe. Buta combination of emerging-market competition and disruptive
business models wrought by technology now calls for a new
approach to industrial policy in Europe. Required actions
to enhance the environment for industry and to spur new
business include the following:
Reinforce the foundations.Among the business leaderswe surveyed, reducing or simplifying regulation and tax was
the most popular action identified for stimulating industry
growth in Europe over the next few years, supported by 47
percent of respondents. Increased investment in STEM skills
was also cited by one-third of respondents, particularly
leaders in larger firms, with 42 percent citing it as a key action.
Strengthen the link between industry and services.As the lines blur between manufacturing and servicesa
process dubbed servitisationthe European Union needs
to foster closer collaboration between the two sectors
across the value chain. It can also support innovation within
the manufacturing sector by encouraging greater linkages
between manufacturing firms and universities/research
institutes. Our survey revealed that one-fifth of business
leaders favour a sharper focus on interdisciplinary research
to stimulate industry growth.
Articulate a pan-European industrial strategy.A reinvigoratedindustrial strategy can include forging stronger ties with
emerging-market businesses (cited by 36 percent of business
leaders), creating centres of excellence in key technologies
or sectors where Europe has an identified comparative
advantage (34 percent), exploring the role of common
standards in eliminating investment uncertainty (32 percent)
and creating a critical mass of users in new technologiesacross the EU market.
7. Trade and investment: building new bridges in a multi-polar world. As the worlds largest trading bloc, Europe is inprime position to capitalise on its extensive trade and investment
links with other regions. But it cannot rest on its laurels: the
balance of economic power is rapidly shifting towards emerging
economies. Europe can take the following actions to harness the
benefits of this changing environment:
Explore new channels of economic diplomacy. Additionalchannels that can complement the Doha trade negotiations
include regional trade agreements, bilateral free trade
agreements (FTAs), cross-country business delegations
and a new strategic vision of Europes strengths. Specifically,45 percent of business leaders indicated bilateral FTAs
as a prioritythis was the most popular action among the
survey respondents.
Become a magnet for emerging-market investment.Europe can benefit from technology transfers associated
with foreign direct investment and the creation of new jobs
through joint ventures or greenfield investment. Europe can
show that it is open for business by establishing a stable
investment climate with clear decision processes that apply
in respect of inward investment, and by increasing regional
coordination of European efforts to attract foreign direct
investment. For example, a collective approach to attracting
emerging-market investment could draw on areas of excellence
residing in several European regions.
Reach out to emerging markets. Promoting conditions forEuropean enterprises to go abroad is essential to help them
capitalise on the increasing importance of emerging markets
and to boost exports of goods and services. Actions to
achieve this include encouraging partnership with enterprises
outside Europe and investing in infrastructureincluding
ICTsto pave the way to new consumers.
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IntroductionEurope intomorrows world: harnessing
new waves of growth
Figure 1: What are Europe's growth prospects in 2011?
Compared with this time last year, how do you feel about Europes economic growth prospects in 2011?
Figure 2: Challenges to European growth and employment in 2011
What do you see as the most significant challenges to economic growth and employment facing Europe in 2011? Select up to three.
After a year of battling a succession of economic and financial
crises, Europe appears to be regaining its economic momentum.
Despite a volatile and uncertain economic outlook, two-thirds
of business leaders now feel more optimistic about Europes
growth prospects in 2011 compared to last year, with the
proportion rising to 88 percent in economically resurgent
Germany (see Figure 1). This sense of renewed optimism in
Europes growth prospects is shared by business leaders from
outside the European Union, 60 percent of whom feel more
optimistic about Europes prospects than in 2010.
Yet business leaders confidence in Europes future is tempered
by a sober assessment of the challenges that Europe still faces
on several fronts (see Figure 2). These include the need to rein
in soaring budget deficits and sovereign debt levels in a number
of European economies, to stabilise financial markets, to contain
inflationary pressures from rising energy and commodity prices,
and to stem the damaging consequences of persistently high
levels of unemployment. A particular feature of the recent crisis
has been the precipitous rise in youth unemployment. Twenty
percent of those under age 25 are now unemployed across the
European Union;1 the proportion is even higher in economies
such as Spain, where two-fifths of young people are struggling
to find jobs.2
Keyfindings
Page06 Europe in Tomorrows World
05
6%8% 6%
14%9%
5%
23%
3%
25% 24%
27%
18%
12%
30%
21%
31%
26%
61% 64% 54%
49%
70%
65%74%
40% 70%6% 6%5% 24% 18% 5%
All
respondents
Respondents
based
in the EU
Respondents
based in the
rest of the world
France Germany Italy Spain United
Kingdom
Respondents
based in other
EU countries
Very optimistic: prospects are much better than 2010
Optimistic: somewhat better than 2010
Neither optimistic nor pessimistic: prospects will beabout the same as 2010
Pessimistic: somewhat worse than 2010
Very pessimistic: much worse than 2010
All respondents
Respondents based in the EU
Respondents based in the rest of the world
0%
10%
20%
30%
40%
50%
High
government
budget
deficits
Financial
market
uncertainty
Growing
competition
from emerging
markets
Unsustainable
sovereign
debt levels
Inflationary
pressures
Persistently
high
unemployment
Weak
private
sector
investment
Currency
fluctuations
Skills
shortages
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New domestic and global dynamicsEurope will need to address these economic issues against
a backdrop of domestic challenges. For instance, many parts
of Europes population are ageing and in some cases even
shrinking. Between now and 2020 in Germany, for example,
the over age 60 cohort will increase by 14 percent, to 24.5
million, compared with a total of 14 million people age 16 or
below. Germany will also have more than 6 million people age
80 and above by 2020a 40 percent increase.3
Externally, the worldwide financial crisis and recession have
accelerated the shift to a multi-polar world, where economic
activity and power are gravitating away from the core developed
economies of the last century towards the powerhouse emerging
economies. Emerging markets now account for more than half
of global GDP (at purchasing power parity)4 and show increasing
heft in globally competitive markets for goods, services, talent,
capital, resources and innovation. Economic interdependence
is the name of the game, with Europes economic fate bound
up with developments in Beijing or Mumbai as much as those
in London or Brussels. In the corporate arena, a new cast of
emerging-market multinationals is also coming to prominence,
intensifying competition in global markets as well as bringing
new approaches to markets, business models, and risk and
resource management. This shifting balance of economic power
is echoed in our survey of business leaders. More than one-
third of them identified increasing competition from emerging
markets as one of the most significant challenges to growth and
employment facing Europe in 2011.
Europe in Tomorrows World Page 07
Business Leader Insight
Europe needs to speed up reforms, encourage
people to work longer and save more, increase
productivity, and encourage immigration.
New waves of growthAgainst this backdrop, how can Europe become a smart,
sustainable and inclusive economy? In other words, what
is needed to fulfil the objectives of the Europe 2020 growth
strategy for the decade ahead? The first essential step is to
restore macroeconomic stability by swiftly tackling budget
deficits and debt levels within Europe. The resulting stability
would provide the foundation for a return of long-term market
confidence and investment. Europes system of economic
governance must also be equipped with better forward-looking mechanisms and tools to ensure fiscal discipline and
detect the early warning signs of future economic crises.
Yet sorting out the European debt trap is not sufficient in
itself for long-term growth and employment. Beyond ensuring
macroeconomic stability, Europe must find a way to kindle
new sources of structural economic growth. Many of these
will involve inventive responses to long-term challenges on
Europes own doorstep, such as:
Demographics: The greying of Europes population willcreate opportunities in age-related demand such as health
care, financial services, tourism, and leisure and consumer
products.
Resources: The squeeze on global resourcesland, water,energy and foodwill present growth opportunities for
Europe in areas such as clean technologies, wind turbines,
carbon capture and storage, smart buildings and cities,
carbon finance, agribusiness and water management
technologies.
Technology: Major breakthroughs are occurring in a whole
range of technologiessuperfast broadband, cloud computing,mobile and robotics, materials, nanotechnology and biotechnology.
These technologies promise to transform business models
and competition in sectors as diverse as education, health
care, transport, music, manufacturing and logistics.
The emerging-market opportunity:A burgeoning group ofmiddle-class consumers, rising income levels and increased
access to credit are creating a critical mass of demand in
emerging consumer markets such as consumer electronics,
automobiles, health care, insurance and banking. Accelerating
urbanisation is also powering demand for hard infrastructure
such as transport and communications and soft infrastructure
such as health care, education and citizen services. These are
all areas from which Europe can stand to benefit.
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Figure 4: Where will businesses invest?
Which of the following geographical areas offer the most significant growth opportunity for your company in the next 3 to 5 years? Select up to three.
Keyfindi
ngs
Page08 Europe in Tomorrows World
0% 10% 20% 30% 40% 50% 60%
Australasia
Sub-Saharan Africa
Other Latin America (e.g., Mexico, Argentina)
Turkey
Other Non-EU Europe
Russia
Brazil
Mature Asia (Japan, South Korea,
Singapore, Hong Kong, Taiwan)
Middle East and North Africa
Other emerging Asia (e.g., Vietnam, Indonesia)
India
United States and Canada
China
European Union
Respondents based in the EU
Respondents based in the restof the world
Figure 3: Future investment intentions in Europe
Thinking about your companys average level of investment in Europe over the period 2009-2011, how do you anticipate that your average
investment levels in Europe over the period 2012-2014 will compare?
The landscape for investment in EuropeDespite its recent economic woes and longer-term challenges,
Europe remains an attractive location for investment in the
eyes of business leaders, a testament to its underlying growth
potential (see Figure 3). Forty-eight percent of business leaders
said that their company plans a moderate increase (6-20
percent) in their average investment levels in Europe over
the period 2009-2011, while 9 percent plan a large increase
(above 20 percent). Only a small proportion plans to reduceinvestment. German and French business leaders are particularly
positive about their future levels of investment in Europe.
Perhaps surprisingly, Europe continues to fare favourably with
other regions in terms of perceived future growth prospects.
Half of business leaders surveyed put Europe among the top
three growth regions for their company over the next three
years, the highest proportion of any region. But other regions
are catching up fast, particularly China (34 percent), India (24
percent) and other emerging Asian economies such as Vietnam
and Indonesia (21 percent). However, the respondents basedoutside the European Union took a much less sanguine view
of Europes growth prospects. Thirty-six percent put Europe
among their top three growth markets over the next three years,
with 40 percent opting for China, followed by India (28 percent),
other emerging Asian economies (27 percent), the Middle East
and North Africa (26 percent), and the United States and Canada
(23 percent) (see Figure 4). This is unlikely to bode well for
Europes ability to continue attracting high levels of foreign
direct investment from markets such as the United States and Asia.
A large increase (increase >20%)A moderate increase(increase between 6% and 20%)
About the same (+/-5%)
A moderate reduction(decrease between 6% and 20%)
A large reduction (decrease >20%)
3%
1%
4%
3%
5%
6%
8%
6%
36%
26%
37%
33%
47%
57%
42%
48%
8%
9%
9%
9%
Respondents from companies
with 2010 revenues between
US$100m-US$500m
Respondents from companies
with 2010 revenues between
US$500m-US$1bn
Respondents from companies
with 2010 revenues above
US$1bn
All respondents
Note: Totals may not add up to 100 as some respondents chose not to answer this question.
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Figure 5: Europe's report card
Thinking about ways of boosting growth and employment in Europe, how would you rate Europes effectiveness currently in each of the
following areas?
Europe is failing to capitalise on its strengthsThese opportunities are real, sizeable and within Europes
grasp. But, without the right set of supply-side factors in place
to nurture and accelerate that growth, they could easily be lost.
A sound innovation ecosystem, measures to augment Europes
human capital, faster scaling of high-potential SMEs and greater
use of technology to drive productivity improvements are just
a few of these factors.
How does Europe currently perform on these measures? Our
survey of business leaders suggests that the report card is
mixed (see Figure 5). Europe gets good marks for improving
essential infrastructure, such as transportation, housing and ICT,
and developing green opportunities. But across a range of other
factorsarticulating a long-term industrial vision, creating a
competitive intra-EU services market, and tapping into emerging-
market opportunitiesbusiness opinion is polarised or
undecided on the effectiveness of Europes actions.
Why is this? A common refrain in our research into each of these
levers for growth is that, all too often, Europe fails to capitalise
on its strengths and natural advantages. Europe has a well-
educated and generally skilled workforce, but its labour-market
outcomesin terms of productivity and employmentare less
successful than those in the United States. Europe possesses an
abundance of innovation inputshigh volumes of pure research
and many research-intensive companies5but it has trailed
other parts of the world in commercialising those inputs as new
products, new business processes and new business models.
Europe matches the United States in terms of the creation of
new enterprises, but too few of these firms manage to break out
to become larger firms. Europe also has extensive trade and
investment connections with the emerging world, but it has notfully capitalised on these networks and is in danger of being
supplanted by new competitors.
The functioning of seven growth levers in Europe can be
enhanced to maximise their contribution to economic growth
and employment across the continent, through a set of concrete
actions. These levers are:
1. Economic governance
2. Entrepreneurship and SMEs
3. Human capital and labour markets
4. ICT and social media
5. Innovation
6. Industrial strategy
7. Trade and investment
Europe in Tomorrows World Page 09
Extremely effective
Effective
Extremely ineffective
Dont know/not applicable
Neither effective nor ineffective
Ineffective
6%
9%
7%
7%
8%
8%
8%
6%
6%
11%
23%
26%
33%
33%
32%
33%
34%
36%
42%
38%
35%
32%
35%
32%
40%
36%
34%
35%
37%
31%
25%
27%
22%
21%
17%
18%
19%
18%
12%
16%
9%
6%
7%
5%
Articulating a long-term industrial vision
Supporting entrepreneurship and the development
of small and medium-sized enterprises
Tapping into emerging-market opportunities
Developing the competitiveness ofhuman capital and labour markets
Maximising the return from information andcommunications technology and digital media
Turning research into new products, servicesand business models
Creating a competitive intra-EU market for services
Improving the quality and efficiency of citizen services
Improving essential business infrastructure (e.g., transport,housing, information and communications technology)
Supporting the development of green opportunities 3%
2%
4%
3%
2%
3%
Business Leader Insight
Infrastructure investment is both a key to
economic recovery and an extraordinary
economic multiplier.
Business Leader Insight
The longer Europe does nothing, the more it
will be left behind.
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Economic governance:a base for stronger growthOver the last two years, the Eurozone has endured the biggesttest to its stability since its creation over a decade ago. It has
survived. Significant progress has been made in stabilising
debt markets and shoring up bank balance sheets. Europe
is growing again, albeit less quickly than it needs to. These
achievements testify to the innate strength of Europes
economic governance.
Nevertheless, significant vulnerabilities remain. First, large
parts of Europe remain trapped in a debt crisis. Eurozone
public-sector debt stands at around 88 percent of GDP. The
figure is 158 percent of GDP in Greece and 120 percent in Italy
(see Figure 6). Financial-sector bailouts and weak economic
growth have also caused a sharp deterioration in public-sector
budget balances, particularly in Ireland where the deficit is
estimated to reach 9.9 percent of GDP in 2011, the United
Kingdom with 9 percent of GDP and Spain with 6.7 percentof GDP (see Figure 7). High levels of indebtedness act as a
brake on future growth prospects, increase the cost of borrowing
and intensify investor uncertainty and market volatility.
Second, financial market risks have abated but not disappeared.Forty percent of business leaders identified this group of
risks as one of the most significant challenges to growth and
employment in Europe in 2011. The International Monetary
Fund estimates that total banking writedowns or loss provisions
in the Eurozone over the period 2007-2010 were in the order
of US$600 billion.6 Vulnerabilities remain, including a high
proportion of short-term debt requiring refinancing and
significant dependence on the wholesale money market and
central banks for financing needs.7
Third, a multi-speed Europe is emerging, driven by a more
fundamental competitiveness gap in terms of productivity and
labour costs (see Figure 8). Germany is enjoying its strongest
growth in a generation as its ultra-competitive manufacturing
sector taps into rising export demand in international markets,
especially from fast-growing emerging economies. By contrast,the more peripheral economies are increasingly lagging,
buckling under the weight of unsustainable government debt
levels, troubled banks and collapsed property markets.
Page10 Europe in Tomorrows World
While macroeconomic stability is the first step, Europe must
review its economic governance systems and reforms for
sustainable growth.
Imperatives for Europe:
Steady the shipget the macro-fundamentals rightBusiness leaders in our survey clearly believe that more
urgent action is needed to tackle budget deficits and debt
levels within the Eurozone in order to restore financial market
confidence and promote long-term growth. Thirty-six percent
of European business leaders stated that governments
in Europe need to cut deficits faster, while 35 percent were
satisfied that the current speed of deficit reduction is about
right (see Figure 9). Only 26 percent believed that governments
are cutting deficits too quickly. This view was expressed even
more strongly by business leaders from outside Europe, 44
percent of whom would like to see faster deficit reduction
within Europe.
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Fixing the current problems in Europes public finances andfinancial system is not enough. The financial crisis and subsequent
recession provided a stark reminder of how macroeconomic
imbalances, if left unchecked, can quickly spill over into assets
bubbles and create contagion risks across highly interdependent
economies. To prevent similar crises in the future, business leaders
believe that the toolbox of economic governance should include
more and better safeguard mechanisms to identify the buildup
of imbalances and to defuse the risks associated with them
(see Figure 10). In particular, they point to the following actions:
Improve coordination between member states on fiscal
policy (mentioned by 36 percent of respondents). The Pact
for the Euro, adopted by the Eurozone heads of state and
government in March 2011, includes measures to address the
sustainability of national pensions and health care systems,
and stronger enforcement of Stability and Growth Pact ruleson national budget deficits and debt levels.8
Enhance regulation to address financial sector risks (cited
by a quarter of business leaders) and restore stability to
public finances. In practice, this can include measures to
shore up levels of capitalisation or improve macroprudential
supervision of the links between banks and the monetary
system.
Design early-warning systems to prevent asset bubbles (forexample, in property and financial markets), highlighted by
one-fifth of respondents. This can include measures to monitor
the evolution of asset prices over time to spot divergences,
modelling of the risk-transmission channels between assets
or markets and a renewed focus on macroprudential supervision
of financial institutions.
Create stronger mechanisms for central monitoring of national
competitiveness (endorsed by a little more than a quarter of
business leaders). Such measures form a cornerstone of the
Pact for the Euro, which requires member states to review
their competitiveness as embodied in wage and productivity
developments. The Pact also requires member states to take
actions to increase productivity, such as opening up services
sectors to competition, promoting productivity and R&D, and
improving the business environment for SMEs.
Europe in Tomorrows World Page 11
Business Leader Insight
As economic growth returns, member states musttake immediate actions to facilitate the process
of scal consolidation through far-reaching
structural reforms.
Develop forward-looking approaches to systemic risks and imbalances
Incorporate pro-growth measures in economic governanceRestoring macro-stability to public finances and financial
markets is a necessary condition for growth and job creation.
It is not a sufficient condition, however. Pro-growth structural
reformin areas such as skills, innovation and tradeis also
needed. Business leaders indicated several ways in which
the tools of economic governance can support a pro-growth
agenda:
Make greater use of tax cuts to promote employment. This
was mentioned by 43 percent of business leaders as opposed
to 19 percent who favour increased public spending to
stimulate employment.
Modify fiscal rules to encourage increased capital expenditure
(for instance, on growth-enhancing infrastructure) in preference
to current spending, an action cited by 28 percent of business
leaders.
Adopt measures to free up bank lending to small businesses,
cited by more than a quarter of respondents.
8/3/2019 Accenture Europe in Tomorrows World
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Business Leader Insight
The economic stimulus measures have worked
but will not lastnow we must look for real
economic growth.
Figure 6: Public sector debt (% of GDP)
Keyfindings
2007
2009
2011
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
European
Union
Eurozone Spain Germany United
Kingdom
France Ireland Italy Greece
Source: Economist Intelligence Unit
Figure 7: Public-sector budget balances (% of GDP)
Source: Economist Intelligence Unit
Spain
2007
2008
2009
2010
2011
European
Union
Eurozone GermanyUnited
Kingdom
FranceIreland ItalyGreece-35%
-25%
-15%
-5%
5%
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Figure 8: The competitiveness gap: evolution of unit labour costs for a selection of EU economies (index 2001Q1=100)
Figure 9: Is the speed of deficit reduction right?
How do you assess the actions being taken by European governments to reduce their budget deficits and levels of public debt?
Source: Organisation for Economic Co-operation and Development
80
100
120
140
160
180
200
220
Q1-2002 Q1-2003 Q1-2004 Q1-2005 Q1-2006 Q1-2007 Q1-2008 Q1-2009 Q1-2010
Greece
Italy
Spain
France
Germany
Governments need to cut deficits faster; they needto restore the confidence of financial markets andpromote long-term growth and investment
Current speed of deficit reduction is about right
Governments are cutting deficits too quickly; governmentstimulus still has a role to play in supporting short-termgrowth and employment
Dont know
Too slow
36%
About right
35%
Too fast
26%
Dont know
3%
Figure 10: Driving growth and job creation
What macroeconomic actions should policymakers focus on in order to drive economic growth and employment in Europe over the next few years?
Select up to three.
43%
36% 35%
28% 28%25% 25%
23%19%
Tax cuts to
stimulate
growth and
employment
Greater
coordination
between EU
member states
on fiscal policy
(including
surveillance
and
enforcement
of limits on
public sector
deficits)
Cut public
sector
deficits to
restore bond
market
confidence
Greater focus
on capital
spending (e.g.,
infrastructure)
as opposed
to current
spending
Measures to
free up
bank lending
to small
businesses
Stronger
mechanisms
for central
monitoring of
national
competitiveness
(e.g., relative
labour costs)
Regulation
to address
financial
sector risks
Introduction
of early
warning
systems to
prevent asset
bubbles
Public spending
measures to
stimulate
demand
8/3/2019 Accenture Europe in Tomorrows World
14/36Page14 Europe in Tomorrows World
Business Leader Insight
Fundamental scal, labour and nancial
reforms are essential to improving economic
performance.
8/3/2019 Accenture Europe in Tomorrows World
15/36Europe in Tomorrows World Page 15
Entrepreneurship and SMEs:breaking the ceilingEurope excels at creating new businesses. There are morethan 20 million SMEs in the European Union and they make up
99.8 percent of total European enterprises.9 This is a dynamic
environment, where for every 10 European SMEs, a new one
is created every year.10 Europe is also successful in ensuring
that these SMEs survive. Two years after creation, around 70
percent of new enterprises are still in business11a result
roughly comparable to that in the United States.12 Moreover,
SMEs in Europe employ two-thirds of the active population13
and create more jobs than large enterprises do.14
However, European SMEs struggle to grow (see Figure 11).They are smaller than their US counterparts.15 Nine out of 10
SMEs in Europe are microenterprises employing an average
of two people.16 Our analysis ofForbeslargest companies
by market capitalisation shows that only around 3 percent of
European enterprises founded since 1980 have made it to
the top 1,000. The equivalent figure for the United States is 11
percent.17 With increasing competition as well as opportunities
coming from emerging economies, growth in the size of the
enterprise can help SMEs better position themselves to unlock
future growth.
Increasing European SMEs size as well as access to foreignmarkets will be fundamental to driving their future growth.
Imperatives for Europe:
Remove the ceiling to growth
Help SMEs go beyond borders
Regulation and administrative barriers must be simplified to
foster SME growtha priority shared by 53 percent of C-level
executives surveyed (see Figure 12). Simplified regulationand better conditions are often available for microenterprises.
However, as they grow, their costs and obligations rise, making
expansion an unappealing option. Europe must adopt a
pro-expansion agenda for SMEs. To achieve this, policymakers
can:
Internationally active SMEs are more innovative and report
higher employment growth than SMEs that operate only
in their home markets (7 percent versus only 1 percent).18
However, a large proportion of European SMEs are too small
to cope with the costs of exporting. On the one hand, Europe
must reap the benefits of fast-growing markets outside the
European Union. On the other hand, SMEs exports are mostly
directed to other European partners, so fostering intra-EU
trade is equally important. Actions to help SMEs go beyond
their borders include the following:
Introduce pro-growth legislation through exemptions
and incentives for micro- and small enterprises willing to
expand, and drive down the cost of regulatory compliance.
Increase visibility of existing EU funding programmes and
build partnerships with the financial sector to improve
access to credit.
Increase awareness of existing internationalisation programmes
and develop facilities to operate in emerging markets
not only in China and India but also in other fast-growing
economies.
Dismantle barriers to cross-border EU trade by completingthe Single Marketthe opening up of services markets
being a top priority.
Enhance SMEs export capabilities through initiatives aimed
at developing language skills, managerial capabilities and
legal training.
Business Leader Insight
Evidence that Europe is competitive would be
to see 10 European start-ups becoming global
companies in ve years.
Business Leader Insight
SMEs are very good foundations for economic
stability and for durable economic growth.
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SMEs need to reach a critical mass in order to competeinternationally. Hiring new people is not the only way to
do it: partnerships and technology can play an important
role. Sixty-nine percent of SMEs have broadband access but
their use of ICTs remains limited.19 Through better harnessing
of the power of ICT, these firms can group together or join
forces with larger enterprisesan option favoured by 28
percent of C-level executives surveyed. Possible initiatives
to build economies of scale include the following actions:
Use cloud computing to drive down costs and implementfunctions such as electronic invoicing, HR services outsourcing
and business process simplification.
Understand how to create virtual hubs and unlock the
advantages of economies of scale among firms in different
locations to share expertise and costs.
Promote collaboration between SMEs and larger companies
(for example, through job secondments, training and supply
chains) to combine small enterprises creativity with larger
firms reach.
Page16 Europe in Tomorrows World
Scale up for growth
Figure 11: Challenges to European SME growth
What do you see as the most significant challenges to SME growth in Europe? Select up to three.
Figure 12: Boosting European SME growth
In your opinion, what actions would be most effective in encouraging SME growth in Europe over the next few years? Select up to three.
Keyfindings
Administrative
barriers (e.g.,
bureaucracy,
regulation)
Insufficient
or adverse
incentives
transmitted
by the tax and
subsidy system
Lack of access
to additional
rounds of
financing and
capital
Shortage of
management
capability
among SME
leaders
Insufficient
trade finance
(e.g., export
credits,
guarantees)
Lack of export
capabilities
(e.g., language
skills, legal
or financial
expertise)
Lack of access
to professional
expertise (e.g.,
legal, financial
consultancy)
Trade barriers
limiting the
geographical
reach of
the SME
Rapid
employee
turnover
in SMEs
inhibiting
investment
in skills
47%
37%
32%
26%24% 24%
23%20%
15%
Reduce and/
or simplify
taxes and
regulation
Dismantle
barriers to
cross-border
trade within
the EU
(includingfor services)
Promote
collaboration
between SMEs
and larger
companies
(e.g., jobsecondments,
training, supply
chains)
Invest in
information
and
communications
technology
infrastructureto enable
cost reduction
and market
expansion
Establish
SME-to-SME
business hubs
for sharing
expertise and
costs
Increase
training in
export
capabilities
(e.g., language
skills,international
marketing)
Increase
investment in
management
training for
SMEs
Identify SME
role models
to share best
practices and
success stories
Develop
mechanisms
for SME
employees
skills to be
certified andrecognised
53%
39%
28% 28% 26% 26% 23%
17%13%
Business Leader Insight
We need less and smarter regulation in order to
create an environment where entrepreneurship
both for SMEs and big companiesis stimulated.
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Human capital and labourmarkets: bridging the gapThe European Union has a large pool of educated workers, witharound 19 million students in tertiary education20 and seven
EU member states ranking in the top 10 of the World Banks
Knowledge Economy Index, with each of the seven ranking
above the United States.21 But Europe is failing to make the
most of these advantages.
In the short term, Europe faces labour-market inefficiencies as
rigidities prevent the appropriate allocation of the available
skills of the unemployed. There are 23 million unemployed
people searching for a job22 but a large number of vacancies
3.5 millionremain unfilled as employers struggle to find
people with the required skills.23 One in four employers reports
difficulties in filling vacancies.24 At the same time, estimates
show that in Europe 30 percent of todays employees possess
a higher level of education than that required for the jobs in
which they are currently working.25
In the long run, Europe will have to cope with a skills mismatchthat is the product of a structural shift induced by factors such
as globalisation, technological change and the move to a lower-
carbon economyall compounded by the recent economic
crisis. The resulting imbalances in European labour markets
can become significant. For example, engineering graduates
account for only 12 percent of Europes graduates26 despite
the fact that vacancies for technicians and engineers are some
of the most difficult to fill.27 This shortage will worsen in the
future: estimates show that by 2015, EU member states will lack
2.7 million skilled workers in their IT, health and research sectors.28
Increasingly, Europe will have to expand the supply of skilled
and adaptable workers who can be employed in jobs that do
not yet exist.
Europe must act now to make the machinery of labour markets
operate more efficiently and to develop the appropriate human
capital for the jobs of the future.
Imperatives for Europe:
Improve geographic mobilityOn average, only about 2 percent of resident EU citizens take
advantage of their freedom to live outside their native country.
By contrast, non-EU nationals make up almost 4 percent of the
EU population.29 According to 35 percent of all the business
leaders surveyed, the lack of geographic mobility is one of
the most significant challenges they face in labour markets
(see Figure 13). C-level executives from large companies
were particularly concerned, with 43 percent citing it as a
challenge. Policymakers can facilitate greater geographic
mobility through a range of actions:
Ensure the mutual recognition of qualifications acrosscountriesan option favoured by 28 percent of respondents
and encourage improvement in language skills and
qualificationsmentioned by 29 percent of respondents
(see Figure 14). Business leaders also highlighted the
potential of a Europe-wide labour exchange to balance
demand and supply more effectively in labour markets.
Integrate existing European mobility tools, in order to
increase awareness of their capabilities and broaden their
take-up across sectors. There is also potential to widen the
scope of these tools to address other key barriers, such as
pension portability and housing market rigidities. An example
of a tool that can be adapted in this way is Europassa service
that aims to make qualifications easily understood in Europe.
Encourage mobility among young people through a focus
on the Europe 2020 Youth on the Move initiative. This
initiative aims to support young peoples access to and
take-up of job openings abroad, and encourages employers
to create openings for them.
Tailor immigration policies to improve geographic mobility
between EU and non-EU countries. Thirty-seven percent of
C-level executives surveyed agreed that this would be an
effective strategy.
Business Leader Insight
Demography will translate into a lack of man-power in the future. We need more exibility in the
retirement age and new thinking on immigration.
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As older employees retire, workforces in Europe will losethese employees knowledge and expertise. At the same time,
Europe must reverse the declining employment rate (it fell
from 65.9 percent in 2008 to 64.6 percent in 2009) to reach its
target of 75 percent by 2020.30 Widening the labour pool was
considered an effective strategy by 36 percent of C-level
executives from high-growth companies, compared with 26
percent of all other companies. To support widening of the
labour pool, policymakers can:
Incentivise a longer working life by reforming tax andbenefit systems and aligning pension systems with these.
Invest in lifelong learning and the wider infrastructure
needed to encourage older workers to stay in the work-
place, such as digital networks that enable remote and
flexible working. Twenty-nine percent of business leaders
agreed that using technology to enable lifelong learning
would be an effective action.
Page18 Europe in Tomorrows World
Widen the labour pool
Invest in STEM skillsOnly four EU countries rank in the top 10 countries of the
Programme for International Student Assessment in mathematics
and science.31
Investment in education and training in general(34 percent), and STEM skills in particular (33 percent), were
considered effective strategies by our surveyed business
leaders. Specific measures can include:
Promote STEM options from an early stage to encourage
young people to pursue STEM subjects in their subsequent
education.
Encourage businesses to work more effectively with
educational bodies to produce the right mix of academic
and practical skills: for example, through the establishmentof business-run academies.
Adapt curricula and teaching methods to the changing
needs of the knowledge economy and strengthen the role
of vocational qualifications and training.
Focus on career counselling that helps young people under-
stand the link between STEM-related subjects at school and
the future career paths these skills make possible.
Figure 13: Skills challenges for companies
What are the most significant skills challenges for companies in Europe? Select up to three.
Key
findings
0% 10% 20% 30% 40% 50%
Poor or limited information for workers aboutavailable job opportunities
Poor or limited information for employers aboutavailable skilled labour
Loss of skilled workers to destinations outsideof Europe (brain drain)
Lack of experienced employees due to retirement
Low levels of basic and intermediate skills
Multiple and differing qualifications and trainingstandards across Europe
Lack of graduates with applicable
skills in the job market
Cost and complexity of sourcing skilledworkers from outside Europe
Shortage of available workers in growth sectors
Lack of geographic mobility of workers within Europe
All respondents
Respondents from companies withannual revenues above US$1bn
Respondents from companies withannual revenues between US$100mand US$1bn
Business Leader Insight
Thirty-eight percent of workers have no basic
e-skills, but we expect that 90 percent of jobs
will require these skills in ve years time.
Business Leader Insight
We need to shift the focus of labour market
regulation from job security to employability.Lifelong training is a key element of exicurity.
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Figure 14: Building the talent pipeline
In your opinion, what strategies would be most effective in addressing skills challenges in Europe over the next few years? Select up to three.
All respondents Respondents from companieswith 2010 revenue growth 5%
0%
10%
20%
30%
40%
Establish a
Europe-wide
labour
exchange
(e.g., an online
platform for
advertising
demand and
supply)
Undertake
better
long-term
skills
planning
Ensure better
mutual
recognition
of
qualifications
across Europe
Encourage
improvement
in language
skills across
Europe
Use
technology
to enable
lifelong
learning
and the
development
of skills
Widen the
labour pool
(e.g., extend
retirement age,
increase female
participation,
encourage
flexible
working hours)
Boost science,
technology,
engineering
and math
(STEM)
training in
particular
Increase
public and
private
investment
in education
and training
generally
Tailor
immigration
policies to
attract skilled
workers
(e.g.,
simplification
of work visa
rules)
Business Leader Insight
A competitive Europe would be a Europe where
it is easy for companies to operate, where an open
and challenging environment stimulates entre-
preneurship, where the level of education is high,
and where people are stimulated to be mobile.
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ICT and social media:digital highways to growthAfter years of promise, information technology and socialmedia have finally come of age. Technological advances
are transforming the business landscapeseparately and in
combinationand Europe has a chance to benefit from these.
Cloud computing, for example, puts business support services
within reach of small businesses, at entirely variable costa
significant boost to innovation and entrepreneurship. Mobile
commerce promotes productivity in ways of working and
opens up new channels to customers, particularly in overseas
markets. Equally, the breathtaking rise of social mediajust
think of Facebooks 500 million active usersis redefining
advertising, marketing and product development.
In an economy increasingly geared to knowledge and information,a greater focus on ICT has the potential to drive faster
European growth and competitiveness. But several studies
have shown that a major part of the productivity gap between
Europe and the United States is attributable to differences in
the take-up and application of ICT.32 Indeed, business leaders
we surveyed identified productivity gains through more
innovative business models as one of the most significant
benefits from increased investment in ICT (44 percent), along-
side the ability to gain better insights into customer demands
preferences (see Figure 15). Yet a focus on the technologies
themselves is not sufficient. Explosive growth occurs when
new technologies reach a critical mass of users, unleashing a
wave of creativity across the general economy.
Page20 Europe in Tomorrows World
Europes actions around investment in technologies must also
be coupled with measures to promote take-up and widespread
usage of IT in peoples home and working lives.
Imperatives for Europe:
Outperform in digital infrastructure and market regulationWorld-leading digital infrastructure is essential if Europe is
to set in train a self-reinforcing wave of ICT-enabled growth
and access to fast broadband is central in creating this. Yet
there remains still a long way to go before the European
Union can meet its target of giving all Europeans access to
basic broadband by 2013 and to ultra-fast broadband by 2020.
Business leaders share the European Commissions vision, with
38 percent of survey respondents citing the establishment
and adoption of superfast broadband as an imperative for
maximising the return from ICT and digital media (see Figure
16). To assist ICT leaders with the journey, policymakers can
consider a number of actions:
Progressively coordinate national responses to the
European Commissions Digital Agenda to provide clear
and durable frameworks for investment in fast broadband,
regulation of next-generation access, and growth of mobile
and satellite broadband.
Enhance the ability of European consumers to compare
broadband speeds and prices across the European Union
and the world, thus increasing market competition.
Create investment incentives for the establishment in the
European Union of the servers and other infrastructure
required by cloud computer service providers.
A clear and far-sighted understanding of Europes laws on
data handling, migration, privacy and security is vital to
confident business investment and consumer adoption in
an increasingly ICT-intensive economy.33 Twenty-nine percent
of business leaders we surveyed included consistent data
privacy and cyber security laws across Europe among their
top three ICT priorities; and 26 percent cited the improvement
of intellectual property laws to promote the digitisation of
content. As part of the process of building this essential base
of ICT-powered growth, policymakers can:
Articulate citizens entitlement to consistent data security and
protection throughout an increasingly virtual Single Market.
Set a long-term vision for how the responsibilities of enterprises
handling personal data are likely to evolve.
Formulate incentives for the establishment of ICT-intensive
businesses within the European Union.
Business Leader Insight
ICT and digital and social media are excellent
elds for Europe to focus on.
Set clear ground rules
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Business Leader Insight
The EU must facilitate the ow of data both
internally and with its international partners to
promote global innovation.
Business Leader Insight
A digital single market can bring additional
digits to GDP.
As ICT increasingly plays a pervasive role in Europeans daily
work and life, digital illiteracy is more disabling than ever.
Being unskilled in the basics of IT excludes people from job
opportunitiesand makes the process of job searching harder.
As consumers, they can be denied the IT-enabled benefits of
better information, wider choice and lower prices. In our survey,
31 percent of business leaders identified the improvement of
IT skills among people unfamiliar with technology as a top
ICT growth imperativesecond only to the call for superfast
broadband. Actions to support this effort include the following:
Promote and harness the consumer adoption of newtechnologies, which over time builds transferable digital
skills for the workplace.
Identify digital literacy or accessibility gaps in specific
geographic, age or other groups.
Encourage business links with the third sector and social
enterprises to transmit ICT know-how, particularly in
disadvantaged communities.
View digital skills as todays literacy
Figure 15: The case for greater ICT investment
In your view what would be the most significant benefits of increasing investment in information and communications technology (ICT) and digital
media networks for Europe? Select up to three.
Figure 16: Maximising the return from ICT and digital media
What actions would be most effective in maximising the return from information and communications technology (ICT) and digital media in Europe
over the next few years? Select up to three.
Keyfindin
gs
44% 44%
40%
36%
26%
Productivity
gains
generated
by lowercosts of
communication
Harnessing
innovation
from multiple
stakeholders(e.g.,
crowd-
sourcing)
Increased
environmental
sustainability
(e.g., viaintelligent
energy
solutions)
Boosting
efficiency
and reach
of publicservices
More
efficient
supply chain
operations
Better access
to new
customers
(e.g., throughsocial
networking,
mobile
commerce)
Better
insights into
customer
demands andpreferences
(e.g., through
analytics)
Productivity
gains
through more
innovativebusiness
models
26%
22%
19%
Assimilating
consumer
IT for
workplace
use toimprove
productivity
Closing
digital
skills
divides
acrossEuropean
economies
Public
procurement
of new
advanced
technologiesand
solutions
Freeing up
government
data to
enable
citizen-sourced
digital tools
(websites,
apps, etc.)
Measures
to promote
the
adoption
of cloudcomputing
across
Europe
Better use
of online
social
networks
formarketing
and
crowd-
sourcing
Improved
intellectual
property
rules to
promotedigitisation
of content
The
establish-
ment of
consistent
data privacyand cyber
security laws
across
Europe
Measures
to improve
IT skills
among
peopleunfamiliar
with
technology
The
establish-
ment and
adoption of
superfastbroadband
across
Europe
38%
31%
23%
26% 26%
21%21%
20%18%
17%
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Innovation: creating apan-European innovation
ecosystemThe EU member states include world leaders in manufacturing,design, aerospace, telecommunications, energy and environ-
mental technologies. The region accounts for a little more than
25 percent of scientific publications, the highest share of any
region.34 As Martin Schuurmans, chairman of the European
Institute of Innovation and Technology, points out, half of the
Nobel Laureates for medicine originate in Europe, yet many of
the global players in the pharmaceutical sector stem from the
United States.35
So while Europe produces a wealth of raw ideas (see Figure
17), its innovation performance is lagging in the global arena,
with the United States widening its lead and emerging markets
catching up. The European Union spends 2 percent of GDP
on R&D, compared with 2.8 percent in the United States and
3.4 percent in Japan (see Figure 18).36 China has increased its
global share of scientific publications to 12 percent in 2007,
a major improvement over the 2.5 percent it had in 1997.37
So far, Europe has failed to create a pan-European innovation
ecosystem that can adapt to the new nature of innovation. On
the one hand, innovation measures have been fragmented
across member states and between various EU policymaking
bodies. On the other hand, innovation has become increasingly
global and dispersed. Innovation hotspots are springing up in
emerging markets, and technology is enabling new models
of innovation around crowd-sourcing and coproduction.
Page22 Europe in Tomorrows World
Europe must create an effective innovation ecosystem that hosts
dynamic networks with rapid exchange of knowledge and capital
between stakeholders.
Imperatives for Europe:
Promote services innovationThe services sector makes up more than 70 percent of the EU
economy, but accounts for only 20 percent of the European
Unions internal trade.38 The appropriate framework can
encourage business-model innovation and product innovation
as businesses seek to tap into new markets. To unlock this
potential, action must be taken to:
Complete the Single Market in services. This would make
it easier for economic activity to take place across borders
and boost services, including business-to-business services.
Establish standards to enable interoperability between new
and existing products and services and to provide a platform
for further innovation.
Support better methods of valuing intangible assets related
to services innovation to induce increased capital-market
funding of innovation.
Provide the right framework conditions, such as simplifying
and reducing the burden of regulation and taxation. Thirty-
four percent of all survey respondents cited this as an
effective action for boosting innovation (see Figure 19).
Europe must develop a labour force with a broad skills base,
a critical element in transferring high-value ideas all the way
to market. But it must also retain and attract talent from around
the world to create a truly networked innovation ecosystem.
Suggested policy levers include the following:
Reform education systems to incorporate business skills in
STEM degrees and teach STEM skills in business courses.
Encourage more internships and placements so that students
and researchers gain hands-on experience with the technologies
used by industry.
Focus on measures to attract non-EU researchers, such as
visa arrangements and scholarships. A quarter of the survey
respondents cited this as a potentially effective action for
European innovation.
Business Leader Insight
We need links between universities and companies
R&D centres to develop new products.
Develop and retain innovators and entrepreneurs
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Business Leader Insight
Programmes to stimulate innovation need to be
simple if companies are to participate in them.
Innovation clusters are central to the knowledge architecture
of modern economies. Their creation can bring together a
broad and diverse mix of skills, venture capital, marketing and
development expertise, universities, industry and spin-outs.
Our survey found that promoting knowledge exchange between
research and business would be the most effective strategy.
This was markedly higher among high-revenue-growth
companies (42 percent) than average- or no-growth
companies (35 percent). Actions that can support knowledge
exchange include the following:
Harness the power of technology, including social media
and digitisation of public data, to draw on the creativity of
a wide range of stakeholders.
Change academic incentives to encourage commercialisationof research and university spin-outs, and develop areas of
excellence in areas of societal concerns.
Support technology-enabled virtual clusters or online platforms
that link agglomerations of early-stage SMEs with venture
capitalists; 29 percent of all business leaders agreed that a
hub that connects investors with innovators was important
for European innovation. For example, GrowVC is a community-
based social networking platform that brings together start-up
companies with providers of seed capital.
Facilitate greater understanding of industry among universities
and research institutes through secondments and collaborative
projects.
Rethink clusters to harness networking benefits
Figure 17: Tertiary education graduates in mathematics, science and technology (% of population age 20-29)
Figure 18: Gross domestic expenditure on R&D (% of GDP)
Keyfindings
Japan
European Union
United States
0.5%
1.0%
1.5%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Japan
United States
European Union
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Eurostat
Source: Eurostat
8/3/2019 Accenture Europe in Tomorrows World
24/36Page24 Europe in Tomorrows World
Figure 19: Creating an innovation ecosystem
What actions would be most effective in increasing the level of innovation in Europe over the next few years? Select up to three.
Keyfindings
All respondents Respondents from companieswith 2010 revenue growth >5%
Respondents from companieswith 2010 revenue growth
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Business Leader Insight
Europes leaders need to be real thought leaders
who are inspirational and can set a new direction
for entrepreneurship, innovation and education.
8/3/2019 Accenture Europe in Tomorrows World
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Industrial strategy:a future for Europe in
the global economyIndustry remains the backbone of Europe, with manufacturingindustry a major source of EU growth and jobs. Before the
global financial crisis, European manufacturing accounted for
around 17 percent of GDP and 22 million jobs.39 But the importance
of the industrial base stretches far beyond the core activity of
manufacturingit also encompasses the broader productive
sector, associated business services and wider businesses that
rely on industry (and vice versa). Including this broader definition,
the servo-industrial economy accounts for nearly half of the
EUs GDP.40
EU industry is a key player in the global economy and very
competitive in new green technologies. Europes core eco-industries have a turnover in excess of 300 billion and have
global market shares of up to 50 percent in some sub-sectors.41
The European Union is also a specialist in niche marketssuch
as craftsmanship, design and creative contentthat have high
barriers to entry. And with careful nurturing, niche markets can
turn into mass markets. But European industry faces a number
of challenges.
The current phase of globalisation, marked by the rise of
emerging markets and low-cost centres, is placing pressure
on European industry, especially on higher-volume markets
that compete mainly on cost rather than service and quality.
Emerging-market companies with functional business models
are carving out market share in areas where European businesses
previously dominated. As emerging markets focus on higher-
value-added goods, they will also join advanced countries
in competing with Europes newer growth successes. The
European Unions first-mover advantage in the green sector
could easily be eroded by rapidly expanding industries,
particularly in the United States and Asia.
In addition, competition from emerging markets is playing out
beyond the corporate arena. Emerging markets often have a
more strategic vision of industrial planning; their governments
are striving to establish certain industries at the forefront of the
global stage and are investing heavily in key sectors. Beijings
12th Five Year Plan, for instance, has marked out 4 trillion
yuan (US$600 billion) of financial support for the development
of key emerging industries: energy conservation andenvironmental protection, information technology, biology,
advanced manufacturing, new energy, new materials and
new-energy automobiles.42
At the same time, disruptive business models are emerging
for EU industry. The lines between manufactured products and
services are blurringthe so-called servitisation of products.
Services are increasingly being built on the back of manufacturing,
with the manufacturing workforce employed in less traditional
roles including R&D, design and after-sales care. The auto-
mobile industry, for instance, sells vehicles with maintenance
schemes, financing options and insurance. And the degree of
integration between goods and services is intensifying. Some
products and services cannot be separated, as demonstrated
by the car-sharing service Zipcar.
Europe needs to build a dynamic and sustainable industrial base
to remain competitive in areas such as the green sector and to
take advantage of the growing trend in servitisation.
Imperatives for Europe:
Reinforce the foundationsThe basic conditions for growthsuch as a favourable tax and
regulatory regime, low levels of bureaucracy, skilled staff to
hire and access to financeneed to be suitably created for
EU industry to prosper. Complex tax and regulatory systems
discourage investment, and a shortage of appropriate skills
inhibits industry growth and innovation. Reinforcing the
foundations is vital not only to industry in Europe but also
for attracting foreign investment. Among the business leaders
surveyed, removing the obstacles to industry development
included the following:
Reduce and/or simplify regulation and tax, as mentioned
by 47 percent of respondents (see Figure 20). This view was
expressed even more strongly by high-growth firms, with 56
percent of business leaders supporting tax changes.
Increase investment in STEM skills, endorsed by one-third of
respondentsespecially large firms (42 percent)to support
emerging industries such as the green sector.
Business Leader Insight
There is the need for integrated policies at
the European level to address climate, energy
efciency and sustainability issues.
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The servitisation of industry can carve out new niches and areasof comparative advantage over low-cost, functional business
models. As manufacturing and services become more
intertwined, the growth and demand in manufacturing and
in new services will reinforce each other. This virtuous cycle
of growth can be encouraged through the following actions:
Foster stronger linkages and closer collaboration between
the two sectors, spanning the value chain, from product
design to outbound logistics and marketing.
Support innovation within the manufacturing sector byencouraging greater linkages between manufacturing firms
and universities/research institutes. Our survey revealed
that one-fifth of business leaders favour a sharper focus on
interdisciplinary research to stimulate industry growth.
Create an advisory service to share knowledge and best
practices in the servitisation of goods. Such a service can
encourage the use and adoption of technologies to promote
innovation in processes and business models.
Strengthen the link between industry and services
Articulate a pan-European industrial strategyAs barriers to trade and capital erode, and as technology
opens up more sectors to international competition, Europewill need a more strategic vision of industry. A number of
actions can frame an EU industrial strategy, including the
following:
Encourage stronger ties with emerging-market businesses,
cited by 36 percent of business leaders.
Consolidate areas of existing comparative advantage to
create emerging centres of excellence. Thirty-four percentof our business leaders agreed that Europe needs to
prioritise business sectors seen as advantageous to Europe,
such as finance, aerospace and automotive.
Implement common standards across the European Union
to eliminate uncertainty and encourage investment in new
technologiessupported by 32 percent of respondentsin
order to create a critical mass of users in new technologies
across the EU market.
Figure 20: Stimulating industry growth
How can European industrial policy most effectively stimulate industry growth in Europe over the next few years? Select up to three.
Key
findings
Reduce
and/or
simplify
regulation
and tax
Encourage
stronger
ties between
European
and
emerging-
market
businesses
Articulate
a pan-
European
industrial
strategy,
prioritising
business sectors
seen as
advantageous
to Europe(e.g., finance,
aerospace,
automotive)
Increase
investment
in STEM skills
(science,
technology,
engineering
and
mathematics)
Implement
common
standards
across
Europe to
eliminate
uncertainty
and encourage
investment
in newtechnologies
Encourage
stronger
partnerships
between
business
and labour
to reduce
risk of
industrial
action
Apply more
focus on
inter-
disciplinary
research (e.g.,
information
technology,
genomics)
Facilitate
more
apprenticeship
programmes
Facilitate
greater
emphasis on
management
training
47%
36%34% 33% 32%
28%
21%
16%14%
Business Leader Insight
We need to invest in areas of existing competitive
advantage such as manufacturing, aerospace,pharma and clean energy.
Business Leader Insight
Given its current positioning in the sustainable
technology eld, Europe must lead the world inbreaking the link between the production of
wealth and the consumption of resources.
8/3/2019 Ac
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