Rebooting Europes High-Tech Industry

Rebooting Europe’s
High-Tech Industry
Europe needs a vibrant high-tech sector to boost
its economy across all industries—and must have
the right measures in place to support the sector.
Rebooting Europe’s High-Tech Industry 1

Europe’s global competitiveness depends on a vibrant high-tech sector. Technology plays
a crucial role for nearly every industry, particularly as machines and products get smarter and
intelligent networks that coordinate the efficient use of resources spread rapidly. A healthy
high-tech sector is an engine for innovation that can give European companies a leg up in
a highly competitive environment.
Yet, as our research over the past few years has demonstrated, Europe’s high-tech industry is
declining. Even as the European Commission has officially recognized technology’s importance
to Europe’s future growth, competitiveness, and mastery of upcoming social challenges, policy
makers’ efforts have not done enough to foster a healthy high-tech sector.
In this paper we examine how Europe can sustain and improve its high-tech sector’s competitive-
ness.1 It is an expansion of our previous study of the high-tech sector, The Future of Europe's
High-Tech Industry.
A hands-off approach from Europe's policy makers, common in the past, won’t cut it anymore.
Without intervention, high tech in Europe will fall further behind the rest of the world, creating
a deficit that will be hard to overcome. Decisive action is needed now.
The Global High-Tech Market’s Shifting Shape

The world’s top 100 ICT companies generated $1.67 trillion in revenue in 2012, an increase from
$1.59 trillion in 2011.2 Of the nine segments we tracked for this paper, the three largest are IT
services, software, and semiconductors (see figure 1). However, segmentation is growing more
Figure 1
Defining the global high-tech market
Internet services Auto- Auto- Aero- Med- Other

mation motive space tech indus-
Telecommunications services and and tries
robotics defense using
Service IT services Consumer Communi- high-
711 electronics cations tech
equipment pro-
Software Software and ducts
331 services
Equipment IT PCs, lap- Handsets

hardware tops, and (including
tablets smartphones)
203 272 274 295 187
Components Semiconductors 299
Electronics components 110
Core technology industry

(scope for high-tech study)
Industry segments with
significant technology share
Out of the
study scope # US$ billion,
2012
Notes: Telecom equipment and services includes OSS and BSS software solutions for telecommunications equipment.
Semiconductors excludes equipment and material.
Sources: Gartner, Reed Electronics Research, Marketline, Informa; A.T. Kearney analysis
This paper focuses primarily on the information and communications technology (ICT) sector, which includes IT services, IT hardware,
1
software, communications equipment and services, consumer electronics, semiconductors, and electronic components.
Telecommunications services, online services, and digital content (such as apps and music) have been deliberately excluded.
2
All monetary figures in this paper are in U.S. dollars unless otherwise noted.

difficult every year as the lines among different sectors blur. Computing, consumer electronics,
and telecommunications are converging, and many companies are expanding into software
and services (see figure 2).3
A healthy high-tech sector is an engine

for innovation.
No matter how you slice the global ICT industry, Europe’s representation is low, even as the
continent accounts for one-quarter of the industry’s global sales. Only nine of the top 100 ICT
companies worldwide have headquarters in Europe, a number that has dwindled in recent
years in the wake of both M&A (such as Canadian firm CGI’s acquisition of UK-based Logica)
and faster growth by Asian and U.S. companies. Another European firm will drop off the list
when Microsoft officially acquires Nokia’s devices and services division this spring—which will
leave Europe with no representatives among the world’s top 10 handset makers (see figure 3
on page 4). Furthermore, Philips has merged its television business into a joint venture with
China’s TCL. Meanwhile, German firm Loewe, maker of high-end home entertainment systems,
has been rescued by European investors determined to keep the company based in Europe,
although they will intensify the company's cooperation with Chinese TV manufacturer Hisense.
Figure 2
Segmenting the global high-tech market
Market share (US$ billion)

711 331 187 203 272 274 295 299 110
Consulting Game consoles
8% 7% Other
15%
Wireless Servers
Applications Desktops
30% 28%
32% 31% IC-LOGIC
39% RCL
Development and integration passive
33% 22%
Storage
13% Smartphones
Service 71%
Analog IC–6%
Software support 24%
8% PCBs
Infrastructure Consumer Discretes–6% 21%
37% audio and
Hardware maintenance and support video
13% Enterprise Portables Micro-
electronics
communi- 54% components
93%
cations 20%
17% Printing
59% Con-
OSS and
nectors
billing–10%
IC memory 30%
IT outsourcing Routing and
Vertical- Other 19%
38% switching–6%
specific mobile
software phones
Other Energy
31% Tablets 29% Optoelectronics compo-
14% 15% and sensors–9% nents
11%
E-readers–1% Nonoptical
IT services Software Communi- IT PCs, lap- Handsets Elec-
sensors–2%
cations hard- tops, and (including tronics
equipment ware tablets smartphones) Consumer Semi- compo-
and electronics conductors nents
services
We have adapted and sharpened the segmentation for this paper, so segment splits are different than in our first study. No conclusions
3
should be drawn by comparing numbers from the two papers.

Figure 3
The world’s top 100 high-tech companies
Rankings based on 2012 revenues
Communications equip-
IT services Software ment and services IT hardware
1. IBM 11. Lockheed Martin 1. Microsoft 1. Cisco 1. HP
2. HP 12. T-Systems 2. IBM 2. Ericsson 2. Canon
3. Fujitsu 13. CGI 3. Oracle 3. Huawei 3. Dell
4. Accenture 14. NEC Corporation 4. SAP 4. Alcatel Lucent 4. Ricoh
5. NTT Data 15. Dell 5. Symantec 5. NSN 5. IBM
6. Hitachi 16. Infosys 6. EMC 6. NEC Corporation 6. Hon Hai Precision
7. CSC 17. Deloitte 7. CA Technologies 7. ZTE 7. EMC
8. Cap Gemini 18. EMC 8. Adobe 8. Panasonic 8. Xerox
9. Tata Consultancy 19. Wipro 9. HP 9. Qualcomm 9. Epson
10. Atos 20. Xerox 10. Intuit 10. Motorola Solutions 10. Toshiba
PCs, laptops, Consumer Electronics

and tablets Handsets electronics Semiconductors components
1. Apple 1. Samsung 1. Samsung 1. Samsung 1. TE Connectivity
2. HP 2. Apple 2. Sony 2. Intel 2. Panasonic
3. Lenovo 3. Nokia 3. LG 3. Texas Instruments 3. Samsung Electro-Mechanics
4. Dell 4. HTC 4. Canon 4. Qualcomm 4. Murata
5. Samsung 5. LG 5. Nikon 5. Toshiba 5. Sony
6. Acer 6. Sony 6. Panasonic 6. SK Hynix 6. TDK
7. Asus 7. Huawei 7. Nintendo 7. STMicroelectronics 7. Amphenol
8. Toshiba 8. Research in Motion 8. Microsoft 8. Renesas 8. Molex
9. Fujitsu 9. Google 9. TCL Multimedia 9. Micron 9. Alps Electronics
10. Panasonic 10. ZTE 10. Sharp 10. Broadcom 10. Kyocera
Note: Companies in red are headquartered in Europe. Nokia has since been acquired by U.S.-based Microsoft; approval of the deal is expected in early 2014.
Source: A.T. Kearney analysis
Europe’s brightest spots are in the business-to-business (B2B) sector, where European champions
such as enterprise software giant SAP, semiconductor manufacturer STMicroelectronics, IT
service providers Cap Gemini, T-Systems, and Atos and communication equipment and services
suppliers Ericsson, NSN, and Alcatel-Lucent are among the leaders in their sectors. Europe
also has some leaders in several smaller sectors that don’t crack the top 100. For example, world-
leading semiconductor equipment manufacturers ASML of the Netherlands and Aixtron of
Germany support both European and global players. Semiconductor makers Infineon, NXP,
and ARM, communications services company Unify (known as Siemens Enterprise Communica-
tions prior to October 2013), home communications firm Gigaset, digital security company
Gemalto, and navigation company TomTom are among leaders in their respective sub-sectors.
Although these companies have carved out niches and fight hard to sustain them, they often
lack the resources and scale to expand their scope and become top-100 high-tech firms. Mean-
while, Europe’s major conglomerates such as Siemens and Philips, which once dominated parts
of high tech, are gradually leaving the sector, offloading ICT divisions into joint ventures with
other players or to private-equity investors.
Summed up, Europe has few large-scale ICT companies big enough to act as consolidators
in each industry segment’s endgame, leaving the others vulnerable to buyouts by larger rivals
from other regions.

Nine Reasons Europe Is Losing Ground in High Tech
Our previous report outlined hypotheses for why Europe’s position in the global ICT market was
deteriorating. Subsequent discussions with European ICT executives, experts, and associations
have helped us further refine our thinking on this. Today, we see nine reasons for Europe’s
weakening position.
Europe’s share of global demand is declining. Demand for ICT in Europe relative to the rest
of the world is shrinking; in 2015, Europe’s share of global demand will be 24 percent, a drop
from 25 percent in 2012 (see figure 4). In terms of projected CAGR between 2011 and 2015,
Europe (2.2 percent) will grow at less than half the rate of North America (5.2 percent) and
Asia (5.4 percent).
European companies, and particularly IT service providers, are more beholden to regional demand
trends than their American and Asian counterparts. The European companies among the top 100
high-tech firms generate 45 percent of their revenue from Europe. European software companies
and communications equipment and service providers have a broader geographic revenue base.
U.S. and Asian companies are also acquiring new customers in Europe, as buyers of ICT—both
public and private—provide only limited support to local players. On the other hand, in the United
States and in parts of Asia, major ICT buyers follow a deliberate strategy to support local high-
tech firms to bolster their own long-term competitiveness.
Figure 4
Revenue share in Europe
Revenue share
(US$ billion, 2012)
Global revenue: $2.681 trillion
Non-European revenue: $2.003 trillion European revenue: $678 billion
711 331 187 203 272 274 295 299 110
70% 69% 74% 73%

75% 75% 79%
89% 80%
–1% –4% –1% –1% 2% 0% 0%

–1%
Ø Europe
(25%) –1%
30% 31% 26% 25% 25% 27%
21% 20%
11%
IT services Software Communi- IT PCs, lap- Handsets Consumer Semi- Elec-

cations hard- tops, and (including electronics conductors tronics
equipment ware tablets smartphones) compo-
and services nents
Rest of world Europe European trend (2012−2015)

European companies are struggling to add scale. European companies tend to lack the same
access to a large home market that their U.S. and Chinese competitors have. The European
Union’s 28 member states each have distinct cultures, languages and dialects, legal systems,
and regulations. This makes entering a new market in Europe almost as cumbersome for European
players as for American ones. In Asia, European companies often cede market share to local
incumbents with lower costs and a better knowledge of the Asian market. At the same time, their
standing in the European market is threatened constantly by Asian and American companies
with greater scale.
The single European market mechanisms established by the EU represent a major step forward.
The European Commission’s Enterprise Europe Network also supports small and medium
enterprises (SMEs) as they expand internationally within the EU. But European ICT companies
are still struggling to scale. Even though Europe as a whole represents 26 percent of global
GDP (according to Eurostat), it has not been easy for European companies to tap into that size
to build scale.
European companies are more beholden

to regional demand trends than their
American and Asian counterparts.
Europe has a funding shortage. ICT companies in Asia and North America generally have greater
access to venture capital, state funds, and credit financing than their European counterparts.
Europe’s venture capital market is relatively small and fragmented; in some countries it barely
exists. According to the Organisation for Economic Co-operation and Development (OECD),
Europe invests almost one percentage point less of GDP in R&D than the United States and
1.4 percentage points less than Japan. For European startups this can be a big disadvantage
as they seek to fund growth and international expansion.4 Leading companies, such as Swedish
music streaming service Spotify, rely on U.S. venture capitalists to finance growth. Lacking a liquid
stock market for growth companies, such as the NASDAQ in the United States, to provide a solid
exit route for early investors, promising European technology companies often end up sold to
better-financed North American players.
North American and Asian companies also often benefit from supportive government policies and
protected environments, whereas European companies are on their own. Asian governments—in
particular China, but also South Korea and Japan—fund and support their high-tech industries
either directly, for example through credit financing, or indirectly through protected environments
and government policies. Similarly, the U.S. government uses its vast procurement spending
directly and indirectly to shape the U.S. high-tech industry. According to Gartner, the U.S. govern-
ment’s IT spending in 2012—not including the military’s IT spending—is about 50 percent larger
($180 billion) than the combined European government IT spending ($120 billion), with the UK
having the greatest share ($31 billion).
European government funding typically supports basic, more theoretical research. In Europe,
most government departments do not have a policy of buying technology from local players,
so European tech companies lack the secure revenue sources open to many foreign rivals.
Source: Europe 2020—Flagship Initiative Innovative Union

4

The European Commission’s own research has found significant distortions in global markets
as some countries use incentives to attract R&D investment, which Europe cannot always
match. One main competitive advantage for other regions is faster decision making: Europe
typically needs a second level of approval, above the national level, to allocate funds. While
some of these market distortions do not comply with the World Trade Organization’s (WTO)
Agreement on Government Procurement (GPA), Europe has limited scope to seek redress.
Europe has an innovation deficit. Europe’s spending on R&D tends to lag behind North America
and Asia. The European Commission has pointed out that Europe invests almost one percentage
point less of GDP in R&D than the United States and 1.5 points less than Japan. The global players
among the European ICT companies might still hold up against the international competition (an
average of 17 percent of revenues is spent on R&D among the European companies in the top 100),
but the size and R&D power of some Asian and U.S. players is massive.5 Samsung invests more than
5 percent of its global revenues into R&D—equal to $10.4 billion per year—allowing it to break into
new markets such as communications equipment and services, where it is aiming to become a
top-three player by 2015 by taking advantage of the technological shift from 3G technology to LTE.
Europe’s R&D deficit is compounded by the growing use of patents as competitive weapons.
This is exemplified by recent patent cases (such as Samsung vs. Apple) and strategic acquisitions
(such as Google’s acquisition of Motorola Mobility). In Europe, Asian companies such as Samsung
and LG have become leading filers of patents, underlining the growing strength of Korea in
intellectual property. By contrast, only two European players, Ericsson and Alcatel Lucent, made
the list of the top 10 filers of patent registrations in Europe in 2012 (see figure 5). Some European
universities undertake outstanding research and secure patents, but many of the resulting ideas
and insights don’t make it to market quickly enough, either by high-tech players or by inventors’
startups. There is too much focus on invention, and too little on the innovations that bring
commercial success.
Figure 5
Foreign high-tech firms register the majority of patents in Europe
European patent registrations, 2012

2,289
Rest of world Europe
1,635
1,381
1,189 1,184 1,169 1,098
1,011
872 830 830
724 664
Samsung LG Qual- Ericsson ZTE Panasonic Sony Research Alcatel Huawei Hitachi Sharp Fujitsu
comm in Motion Lucent
Sources: European Patent Office, Capital IQ; A.T. Kearney analysis
R&D spending by European top 100 high-tech players excludes IT service providers, given their typically low R&D spending and their
5
large share among European companies in the top 100.

Europe has a shortage of engineers. Europe’s universities are not producing enough graduates
from MINT (math, informatics, natural science, and technology) courses. According to the U.S.
National Science Board, only 17 percent of EU students take engineering, mathematics, and
computer science courses, compared with 29 percent in South Korea and 31 percent in China
and Taiwan. In China, this is equivalent to 700,000 engineers and computer scientists per year
(counting university degrees only), compared with 500,000 in Europe. This gap in the
resource pool for talent is particularly substantial in the context of Europe’s language
fragmentation, which limits cross-country mobility.
The demand for engineers outstrips supply, not only in ICT but also in other major economic
sectors (including energy, health, and education) that are seeking to deploy intelligent networks.
Although youth unemployment throughout Europe has been boosted by the 270,000 immigrants
who moved from EU countries to Germany in 2012 (about 120,000 of which were from Greece,
Italy, Spain, and Portugal), intra-country mobility cannot fully address engineering skills
shortages.6 Today, only 3 percent of Europeans do not live in their country of birth. Europe
as a whole isn't taking in enough skilled immigrants—the kind of workers who have played
a major role in the success of Silicon Valley.
Europe is hampered by high-cost, inflexible labor. High-tech companies continue to move

manufacturing out of Europe and into regions with lower labor costs and more flexible working
regulations; Nokia's recent closing of factories in Finland and Romania to shift production
to China is only one example. An hour of manufacturing is currently four times cheaper in
China than in Eastern Europe, and 15 times cheaper than in Western Europe, according to the
Economist Intelligence Unit. Although wages are rising 10 to 15 percent per year in China (and
minimum wages increased 22 percent in 2012), efficiency is improving in China’s factories,
compensating for these higher costs and enabling the country to remain competitive. And
as a last resort, manufacturers have other lower-cost options such as Vietnam.
Still, growing automation is weakening the business case for manufacturing products for Europe
in other parts of the world. Though high-tech manufacturing could yet make a comeback in
Europe, much as automation, lower energy costs, and economic nationalism have boosted North
American manufacturing in recent years, a similar revival has yet to occur. Inflexible labor markets
are partly to blame, even though the supply of potential employees is increasing thanks to employ-
ment market reforms triggered by the financial crisis and increasing cross-border migration.
Regulations in parts of Europe still make it expensive and cumbersome for companies to scale
up and down along with demand, which makes it tough for small companies, in particular, to take
risks and pursue growth. For example, an entrepreneur in Italy who lays off an employee may
be required to make a severance payment equivalent to three years’ salary.
Europe’s ICT firms lack strategic partners. Unlike in other regions, ICT companies in Europe
typically lack large customers and government entities willing to collaborate on the innovations
required to develop major new technologies. This is a shift from past times. In the 1970s and ’80s,
collaboration between Ericsson and Swedish telco Televerket (then fully owned by the Swedish
government; now called TeliaSonera) led to the development and implementation of the AXE
telephone exchange system, which became Ericsson’s “high runner” in the 1980s and ’90s.
In fact, the European telecom equipment industry’s ongoing strength traces back to that
collaboration along with a parallel one called Groupe Special Mobile, at Conférence Européenne
des Administrations des Postes et des Télécommunications (CEPT), which involved supplier and
Source: Institut der deutschen Wirtschaft Köln

6

buyer partnerships such as Alcatel with France Telecom. Today, such collaborations are almost
unheard of in Europe’s procurement environment of arm’s-length transactions and a single-
minded focus on short-term cost reduction. In public sector procurement, the policy tends to
focus on asking suppliers to conform to common and often commoditized specifications based
on the lowest possible price, which essentially kills any strategic consideration from the outset.
In the United States, large aerospace and defense companies and public bodies act as major
long-term technology investors. By contrast, campaigns by the EU and some national European
governments do not focus enough on the technology or customer-vendor partnerships needed
for innovation. The EU has largely refrained from supporting the consolidation of high-tech global
champions along the lines of its support for EADS-Airbus in the aerospace industry.
Entrepreneurial culture and support are fragile. Europe lacks a strong and consistent track
record of successful entrepreneurship in ICT. Although regions such as Northern Italy and
Sweden’s “Gnosjö” and sectors such as Germany’s Mittelstand (small and medium businesses)
do have an entrepreneurial tradition, Europe as a whole has many obstacles for aspiring
entrepreneurs.
There is too much focus on invention, and

too little on commercial success.
Europe’s strong safety nets for employed staff almost completely disappear for entrepreneurs.
For example, the self-employed usually lack compensation for illness, maternity and paternity
leave, or subsidized pensions. Taxation policies tend to benefit large established corporations
rather than startups, and the administrative hassle of starting and maintaining a company can
be challenging for an entrepreneur. The risks of establishing a new company and pursuing
unproven technologies deter many aspiring ICT entrepreneurs.
Too many European companies have lacked sufficient strategic foresight. Major European
companies have been held back by the so-called “innovator’s dilemma”: the notion that
successful companies won’t innovate in ways that would disrupt their own markets. For example,
Europe’s leading mobile phone makers, which have traditionally benefited from close collabo-
ration with their sister network equipment divisions, were slow to deploy touchscreen smart-
phones, leading to dramatic drops in market share. They also failed to respond swiftly to the
growing importance of software, allowing Google, for example, to capture a major piece of the
smartphone software market with its touchscreen-based Android operating system.
For some high-tech companies in Europe, building strong operational execution has trumped
the pursuit of the long-term strategic planning that takes into consideration how markets will
evolve. This approach can be disastrous in a fast-changing market. European companies have
generally resisted pivoting into new markets or making the rapid transformations needed to
meet new competitive challenges and demand shifts. Even software leader SAP’s cutting-edge
in-memory database HANA, which serves today as a major differentiator for the firm, came
after persuasion from a company founder and supervisory board member. By contrast, many
Chinese, South Korean, and U.S. companies have developed five-to-10-year industrial plans
based on strong strategic foresight. These firms are often shepherded by leaders who make
sure their companies are ready for any possibility in the market—a certain “paranoia” that
reduces the chances of being surprised and keeps them at the industry forefront.

Some of these causes are systemic—changing the culture and structure of Europe, one of the
most diverse and heritage-rich regions in the world, isn’t viable in the short run. However, other
issues are addressable—improved industrial policy, tackling the right challenges and incentives,
redirecting regulation and removing red tape, and funneling investment to the right sectors.
Why Europe Must Become More Competitive

in High Tech
Europe may not be able to compete on labor costs, but it can still create strong knowledge-
intensive industries and the jobs and prosperity that come from them. ICT is transforming
these industries by embedding computing and communication modules into more products,
while intelligent networks are making energy, health, traffic, education, government, and
other ecosystems more efficient. Europe’s industrial strongholds, such as automotive, aerospace,
engineering, telecommunications, and energy services, could benefit by creating economic
clusters to work closely with technology suppliers by allowing new ideas to flow across sectors.
According to a 2010 A.T. Kearney study of embedded systems, a car’s embedded software and
electronics will account for up to 65 percent of its total value by 2025, highlighting the need
for Europe’s industrial strongholds to collaborate in a fast-changing environment.
High tech remains a major source of employment and wealth creation in Europe. The sector
as we define it employs more than 3 million people, with many more in associated sectors
supplying or benefiting from the sector, along with billions in tax revenues from a market that
was worth $678 billion in 2012.
Furthermore, ICT can address the societal challenges in Europe, such as an aging population,
rising healthcare costs, energy efficiency, climate change, and security. The recent revelations
about the U.S. National Security Agency’s clandestine electronic surveillance programs have
pushed data and communication security up the agenda of European industry. Knowledge-driven
industries have to protect their intellectual capital, while the use of intelligent networks requires
citizens to trust that their data is secure and protected. In the wake of this news, European
companies and governments will be reluctant to depend totally on U.S. and Chinese ICT suppliers.
What the EU Is Doing

The European Commission has long recognized technology’s role in boosting Europe’s competi-
tiveness, creating growth, and addressing societal challenges. Since 1984, the EU has invested
more than €110 billion in its series of Framework Programmes (FP) for Research and Technological
Development. In the past seven years, the seventh FP, for example, has invested about €55 billion
in basic research, researcher support, research infrastructure development, and support of
topics in sectors such as health, food and biotechnology, ICT, nano and production technologies,
energy, environment, traffic, social science, space, and security. ICT accounted for about
18 percent of the total investment in FP7.
The European Commission recently finalized the Horizon 2020 program, which, armed with
an overall budget of nearly €80 billion, will be the successor to FP7 between 2014 and 2020.
Investments earmarked for ICT will increase by 25 percent compared to FP7, supporting every-
thing from basic research to innovation that can deliver new business breakthroughs.7
The European Commission's definition of ICT differs slightly from the one used in this paper.
7

Horizon 2020 will incorporate other programs, such as the Competitive and Innovativeness
Framework Programme (CIP) and the European Institute of Innovation and Technology (EIT),
which had run in parallel to FP7. This will address scientific excellence (€24 billion budget
allocation) and societal challenges (€30 billion) as in previous framework programs, but also
support the quest for industrial leadership. For this purpose, roughly €17 billion has been
earmarked for major investments in key enabling and industrial technologies, including ICT
(€13.6 billion), risk financing (€2.8 billion), and SME innovation (€616 million). Furthermore,
the EIT was allocated €2.7 billion for innovation, particularly idea commercialization.
Although this major investment program puts weight behind the objective to boost Europe’s
competitiveness, does it address the causes for the technology sector’s decline? In the
following section, we look at some of these major programs.
The EIT ICT Labs: A step in the right direction
Founded in 2010, the EIT ICT Labs, one of the EIT’s Knowledge and Innovation Communities
(KICs), have a mandate to foster education, research, and idea commercialization through a
European ecosystem that reinforces ICT hot spots. Funding for the labs will significantly
increase over the next year as the EIT will begin receiving its €2.7 billion from the Horizon 2020
budget, a significant increase from about €300 million between 2008 and 2013 (see figure 6).
However, the EIT ICT Labs will have to compete for funding with six new KICs being created in
addition to several existing KICs.
The Labs’ achievements since 2010 are remarkable—the implementation of several innovation
hubs, the creation of master’s and doctoral programs, and the initiation of research along various
action lines, with a funnel to bring it to market. The master’s and doctoral programs are increasing
the supply of engineers, albeit with a view to turning them into entrepreneurs. And the Labs’
Figure 6
Horizon 2020 is giving rise to important ICT research
Previous Horizon 2020 €80 EIT EIT ICT

programs (2014-2020) billion Labs
€53 Excellent Industrial Societal Joint Excellent Mission:
billion science leadership challenges research science To drive European
• Leadership 1. Health
center EIT ICT Labs
leadership in ICT
FP7 • European innovation for
(2007-13) Research in enabling and well- economic growth
Climate change
Council and being and quality of life
• Future and industrial 2. Food Sustainable
tech- energy Means:
emerging security
€3.6 technologies • Linking education,
3. Clean Healthy living
billion nologies • Access energy and active aging research, and
• Marie to risk European business
4. Smart Food4Future
CIP Curie finance Institute of • Enabling a
transport
(2007-13) actions • SME Innovation Raw material Europe-wide
5. Climate and
• Research innovation entrepreneurial
€0.3 change Technology Added-value
infrastruc- ecosystem
billion 6. Secure (EIT) manufacturing
tures • Focusing and
societies Smart secure
EIT societies
acting on societal
(2008-13) challenges
Urban mobility
Budget allocated during period EIT: Already in place Planned for 2014 Planned for 2018
Sources: Websites (Horizon 2020, FP7, CIP, EIT, EIT ICT Labs), news reports; A.T. Kearney analysis

actions have already yielded several new companies, innovations, and products and services.
A partnership with the European Venture Fund is connecting these companies with additional
funding, over and above the risk financing the Horizon 2020 program already foresees.
Still, the Labs have yet to reach their full potential. The Labs have been working bottom-up,
supporting initiatives that have been brought forward to them, and not based on a clear assess-
ment of where Europe might be able to compete successfully within the defined action lines.
Performance is measured based on people educated, publications released, and ideas commer-
cialized, rather than on the true, full impact on the ICT industry. Today, the Labs are steered
primarily by the research community; although the executive committee has strong industry
representation, these representatives often come from companies’ research departments
rather than management. What is important is that the quest to shape Europe's high-tech
industry as a whole remain the primary goal. The danger is that the individual research agendas
of companies represented in the executive committee will take prominence over the quest
to shape the high-tech industry in Europe.
Semiconductors: A key enabling technology
The European Commission has defined several key enabling technologies, or KETs, that it
considers to be of strategic importance for Europe’s future competitiveness: ICT, nanotech-
nology (which includes semiconductors), advanced materials, biotechnology, advanced
manufacturing systems, and space.8
Defining semiconductors as a KET emphasizes the technology’s importance to many industries’

competitiveness. Europe has lost ground in this crucial area—only three players in the top 20
worldwide today (STM, Infineon, and NXP), when there were three in the top 10 at the end of the
1990s. Europe’s semiconductor industry works well with the region’s industrial base and R&D
network and leads in certain areas (for example, Infineon is first globally in power and chip
cards, and second in automotive semiconductors), but a clear strategy and industrial policy
to grow the industry is lacking. Europe generates 40 percent fewer patent applications than
its U.S. counterparts and has limited manufacturing capabilities for the next generation of 450 nm
production. How the EU plans to push this KET to real leadership remains uncertain—there has
been some brainstorming about an Airbus-style strategy that facilitates the creation of a major
semiconductor firm (through consolidation), but nothing has materialized yet.
ICT: Striving for industrial leadership
ICT has been given a prominent role within Horizon 2020—striving for leadership in emerging
and industrial technologies (LEIT) under the pillar of industrial leadership. A working program
for 2014 and 2015 will focus research and innovation activities on nine specific research and
innovation topics: next-generation components and systems; advanced computing; future Internet;
content technologies and information management; robotics; micro- and nano-electronic
technologies; photonics; ICT cross-cutting activities; horizontal ICT innovation actions; and
international cooperation actions. The importance of the semiconductor industry for Europe
is highlighted as both micro- and nano-electronic technologies and photonics are defined as ICT
key enabling technologies.
The 2014–2015 program has defined more than 100 calls for specific research, innovation, and
support actions for the nine focus areas, with goals more closely aligned than in previous
Nanotechnology includes semiconductors; the EU’s definition of ICT does not cover semiconductors.
8

programs intended to move Europe into a leading position in technology. The program outlines
clear goals both at the macro and operational levels for the impact the research areas should
attain—for example, at least 35 percent of the global market share in Europe for future network
equipment, and five times reduced end-to-end latency (5ms for 4G-LTE).
Overall, Horizon 2020 has budgeted €774 million in 2014 and €854 million in 2015 for calls,
conferences, publications, and horizontal activities in ICT. In addition to European-focused
research, intercontinental R&D cooperation including Brazil (to address cloud computing
security) and Japan (on the future of the Internet, including big data and the Internet of Things)
will use synergy to close existing research gaps.
An entrepreneurial culture can fuel the

creation of more high-tech startups and
the expansion of larger high-tech players
into new business fields.
The ICT working program will address some important issues to increase the competitiveness of
the European ICT industry. The focus on key enablers—not only for Europe's high-tech industry
but also for other important European sectors—is a step in the right direction. However, simply
enabling certain technologies by supporting research and commercialization may not be enough
in today’s competitive high-tech market. Stronger industrial policy actions might be necessary to
ensure that the program has the desired economic impact, which has been missing in the past.
EU programs: Limited impact
Taking a high-level view, EU-funded programs, although well-meaning, have had little impact
on the fast-changing high-tech industry in recent years, falling short of addressing the
challenges facing high tech in Europe. These programs tend to focus too much on financing
research and entrepreneurship, and recently on incubation, rather than growth through
demand management, financing, cross-border expansion, and government support (such
as public procurement).
Most important is the lack of a high-level strategic plan focused on the areas in which Europe
can become competitive or achieve industrial leadership. Although the working program for
ICT gives some direction, the EU is placing no major bets on the ICT sector; there is little sense
of how the programs will help Europe achieve industrial leadership beyond the belief that
innovation leadership drives economic success. Europe lacks an industrial policy designed
to help leading players maintain and expand their position and create scale. Policy makers
focus too much on supporting SMEs rather than the large players that can create an ecosystem
around them and can secure a sustainable European presence in a particular sector as well
as a degree of independence. Europe needs leading players in areas such as semiconductors,
communications equipment, software, security, and ICT services.
Although Germany, France, and the Scandinavian countries are trying to support their ICT
sectors, they will only succeed by working together. To compete on a global scale, the goal
should be more Europe, not less—with a clear mandate for growth.

Ten Ways Europe Can Compete Better in High Tech
We have compiled 10 concrete steps that EU institutions, national governments, industry
associations, and individual companies, building off of existing programs, can take to restore
the vitality of Europe’s ICT industry. These steps are meant to supplement existing efforts, such
as the Horizon 2020 program, and to direct the conclusive decision making of these stake-
holders when taking actions such as setting challenges, allocating funds, and establishing
new initiatives, programs, and sub-programs. A coordinated effort is the only way to increase
the competitiveness and size of Europe’s high-tech sector.
We have clustered these 10 steps into three areas (see figure 7):
A. Enable. Put in place the enablers for a prosperous high-tech sector.
B. Focus. Define and execute a focused strategy for overcoming the fragmentation inherent
to Europe.
C. Excel. Outperform global competition though innovation, partnerships, and decisive

leadership.
Figure 7
How Europe can respond to the high-tech industry’s challenges
Enable Focus Excel

• Improve skilled labor supply • Develop EU-wide ICT application • Improve corporate responses
through more technology-oriented focus areas, typically centered with strategic foresight addressing
education and targeted immigration around high-tech B2B ICT needs future challenges and more decisive
• Provide better funding for high- • Create pan-EU clusters of leadership
tech companies and for inter- excellence around key application • Push innovativeness and growth
nationalization areas anchored around key buyers ambitions of European SMEs
• Improve entrepreneurial culture • Focus (public) spend and invest- • Re-establish vendor-customer
and support ments into these areas and enforce partnership model as an innovation
• Create a level playing field EU-wide standards vehicle
via standards and regulations
Source: A.T. Kearney analysis
The following section outlines the concrete steps by area:
A. Enable
1. Improve skilled labor supply through technology-oriented education and targeted

immigration. To prosper, high-tech companies need access to a highly qualified workforce. This
starts by more deeply implanting MINT subjects into Europe’s education systems from elementary
schools to universities—including fostering greater interest from girls and women. Besides the
formal education system, the broader community needs more easy access to MINT content—
here MOOCs (massive open online courses) can play an important role, not least to identify,
train, and recruit highly skilled individuals. Underpinning these measures is an appreciation for
science and technology in European society—celebrating, not fearing, technological progress.

However, these changes take time. Managing and nurturing the existing scarce resource pool
over the next years and shifting it to where it is needed is important. Encouraging talent migration
within Europe will be crucial, and it is already occurring between Southern Europe and Germany.
Relaxing EU border controls for highly skilled workers by easing graduate enrollment in education
and access to working visas can increase the supply of engineering talent. Combining these
moves with a cluster strategy to create an English language infrastructure and environment
for highly skilled immigrants (for example, shops and schools) will allow immigrants to acclimate
more quickly.
2. Provide better funding for high-tech companies and for internationalization. Better
funding of high tech in Europe is imperative. Policy makers can support European venture
capitalists indirectly with tax breaks, complemented by government-backed venture funds
to ease and increase the flow of funding toward promising startups. Financial instruments
such as export credit, growth loans, and credit default insurance can help ICT firms go global
and seek fast growth, overcoming their scale disadvantage.
Europe’s banking system plays an important role here—to focus on supporting SMEs and
corporations in their funding needs, with a particular emphasis on ICT companies. The estab-
lishment of an EU-wide, technology-based stock exchange similar to NASDAQ would not only
provide additional opportunities to raise public financing, but would also provide investors a way
to cash in on their investments—thereby creating independent European players that can
survive without selling out to international companies.
China’s 11th Five-Year Plan shows how it can be done. It gave companies, particularly the biggest,
governmental support when “going global”: financing, insurance, foreign exchange, customs
clearance, quality inspection, and staff entry and exit.
3. Improve entrepreneurial culture and support. An entrepreneurial culture can fuel the
creation of more high-tech startups and the expansion of larger high-tech players into new
business fields. This means public celebration of entrepreneurial role models and technology-led
achievements to make entrepreneurship more attractive. Educating MINT students on business
and making them more aware of entrepreneurial options (as the EIT ICT Labs are already doing
with graduate school options), and lowering the administrative burden (particularly the patent
application process) will facilitate the creation of a vibrant technology-driven sector. More
flexible labor laws in terms of layoff protection and employer responsibilities (such as sick leave)
will encourage new ventures to take risks and grow more rapidly by hiring ahead of the curve,
since their leaders know they can scale their company as needed. This is not only true for venture
capital-driven startups, but also for incubating and spinning off ideas generated within larger
companies, where the seeds planted now may become the basis for future business.
The in-memory storage system HANA was created by SAP in a startup fashion by the Hasso
Plattner Institute, and it now provides a major growth engine for SAP in the global software
market. Clearly the Hasso Plattner Institute’s entrepreneurial culture and risk taking helped
to secure SAP’s position as one of Europe’s major technology players. Like many other ICT
companies, SAP has now developed a program to support startups in big data using the HANA
platform, with development and go-to-market support.
4. Level the playing field between European ICT companies and their competitors. European
high-tech companies face a maze of regulatory regimes in home markets and Europe as a whole—
including labor laws, tax red tape, security and environmental standards, data protection laws,
product standards, and investment support—which reduces their home-market advantage

against other markets. The EU needs to ensure that its emphasis on consumer benefits, through
standardization and regulation, does not negatively impact the competitiveness of European ICT
companies. For example, regulators have eroded profits for many European telecom operators
compared with Asian and U.S. operators by introducing regulated wholesale and retail price caps,
even proposing to abolish long-standing tariff classes such as international calls or roaming. The
profit squeeze has forced operators to restrict their capital investment—by buying the cheapest
possible equipment, forcing strategic work to offshore locations, delaying investment programs,
or favoring non-European vendors that can offer short-term discounts to “buy” market share.
European ICT companies need to be able to compete on the same terms as their competitors—
by setting common standards in the European market (such as in data protection laws and
environmental standards) and by influencing global bodies and other nations to discontinue
unfavorable practices. Naturally, the EU (via laws) and industry associations (via certification)
can support the ICT industry, particularly in Europe, by setting easily attainable standards.
Other nations are already using these tactics.
To compete on a global scale, the goal

should be more Europe, not less—with
a clear mandate for growth.
Size and consolidation are also areas where Europe needs to nurture its ICT industry. Competition
laws that allow European companies to make mergers and acquisitions—rather than a narrow
market-by-market approach—will enable them to be size competitive in global ICT markets.
For example, the Weve mobile commerce joint venture by three UK mobile operators, designed
to compete with global payment and internet companies, was forced to undertake a nine-month
investigation before proceeding—crucial time in a fast-moving, competitive marketplace. With
many industries moving to consolidate in search of scale—including communication equipment
suppliers and semiconductors, as well as related industries such as defense—competition
authorities will need to continue their pragmatic approach and not shy away from getting
involved in global high-tech mergers impacting Europe. In certain areas, the EU should even
support consolidation to create players with sufficient size to compete.
In many large emerging markets, the EU also needs a vigorous push for fairer procurement
practices among both government bodies and semi-government-controlled corporations. For
example, under the framework of The National Medium- and Long-Term Science and Technology
Development Plan (2006-2020), the Chinese government has boosted its industry by giving procure-
ment preference to domestically produced high-tech equipment and products with IP ownership.
B. Focus
5. Develop an EU-wide master plan with clearly defined ICT application focus areas.
The EU, national governments, and industry associations are already investing substantial
resources to boost European competitiveness in the high-tech sector. Focusing these invest-
ments, based on educated strategic choices, will ensure that resources are not spread too
thin. A strategic master plan that clearly defines for Europe the sectors and key industrial
and public application areas in which it can and wants to achieve leadership will lead to more

focused investments. Such a master plan requires EU institutions to work with national
governments and the EU high-tech sector, represented by major industry associations and
key industry players. Aligning most if not all public funds and actions with the plan will ensure
it is executed with maximum force.
Taking the global competitive environment and the industrial strengths and remaining tech-
nology sectors in Europe into account, Europe’s best shot comes in high-end, B2B and business-
to-government (B2G) markets rather than in the consumer sector. The B2B and B2G sectors
require high quality and flexibility, the capability to manage complex solutions, and horizontal
and vertical integration competence spanning ICT sectors and industries. The few remaining
top 100 European high-tech players work in such environments; though they also have challenges,
they aren’t as vulnerable to pure labor arbitrage and large-scale market entrants, given the
lock-in factors of the ecosystems they operate in.
A master plan can identify where ICT can address innovation and productivity challenges in
economic sectors in which Europe has a comparatively strong position, such as the automotive,
process industries, industrial machinery, utilities (including utility equipment vendors), telecom,
and financial services. The master plan should focus on ICT subsectors that will specifically
address the unique challenges of these top industries and Europe’s standing within them—and
create a sizable home market for European ICT. The right ICT subsectors might include embedded
systems (including semiconductors), intelligent networks (such as smart grids), cyber-physical
systems, ICT-enabled smart automation (such as the German government’s Industry 4.0 strategy),
complex software systems, security systems and big data and analytics solutions.
Rather than being driven by technology,

the master plan should focus Europe’s
ICT industry on meeting the needs of
major EU buyers over a five-year period.
The master plan can also identify where ICT can address Europe-specific societal challenges
and consumer demands. For example, the EU accounts for half of the world’s spending on
publicly funded welfare-related services such as healthcare, child and elder care, education,
employment market-related services, tax administration, public transport systems, and general
public services. ICT can support these sectors by taking ICT solutions already deployed in the
private sector and applying a revised focus. Over time, emerging economies will increase their
spending in these areas, opening up ICT export opportunities for EU providers.
Rather than being driven by technology (as is the case with KETs and KICs), the master plan
should focus Europe’s ICT industry on meeting the needs of major EU buyers (both public
and private) over a five-year period. In other words, meeting end-user demand is the goal,
not merely developing technology for its own stake. The largest EU buyers of these new ICT
solutions can ensure success by pledging to buy research and prototypes, and making invest-
ment and spending decisions based on a longer-term view that foresees the development
of commercially viable solutions. Tapping into major areas of EU spending will enable existing
initiatives to escape from the funding trap of only accessing “special EU research funds.”

6. Create pan-European clusters of excellence. A few large Europe-wide “clusters of excellence”
can help tackle the major areas of the master plan. Key buyers should be the focal points for each
cluster, including major ICT companies, SMEs, entrepreneurial startups, and research institutions.
Research shows that physical clusters are more effective than virtual (non-colocated) clusters
(see figure 8). Beyond establishing five to 10 physical clusters, the EU should also take on the
challenge of making virtual clusters work as effectively as possible.
Figure 8
Physical proximity improves the effectiveness and efficiency of clusters
High Effectiveness
Efficiency
Performance
Low
Same Same Same Different
city country continent continent
Source: MIT Sloan Management Review
Creating the most effective clusters starts by positioning them where there is a nucleus of user
and provider expertise with advanced and forward-looking buyer organizations—not where an
economically weak region needs support. Logical geographical clusters could include Germany
for auto- or utility-centric ICT solutions, Berlin for Internet solutions, Stockholm and Helsinki
for communications, France for aerospace, security, and defense, and London for banking.
The Netherlands, which ranks first in the European Health Consumer Index, would be a logical
location for a health-related cluster, Finland for education, and the UK for e-government.
Encouraging several buyer groups across the EUto join the clusters will support the develop-
ment of new ICT solutions within the clusters and secure Europe-wide adoption. Rapid agree-
ment on EU-wide solutions and standards will be key to ensuring the development of efficient,
value-creating solutions that can be ramped up for broader, Europe-wide implementation
within five years.
Other regions have shown how designating clusters as “special economic zones” offers signif-
icant benefits, as has occurred in the Shenzen and emerging Shanghai zones in China. Such
zones, using flexible labor laws and tax breaks, would allow clusters to pilot measures and foster
an entrepreneur-friendly EU environment.
7. Focus EU spending and investments on priority areas and clusters. Nearly all EU member
states have initiatives to develop certain sectors and to form clusters at the national or regional
level. In total, 130 specific national measures support clusters in 31 countries. Although Europe’s
federal structure is a strength, a more focused approach is needed to boost competitiveness
in high tech.

Prioritizing cluster development by aligning their programs with the master plan, with a focus
on fewer but more effective clusters, will help them achieve world-class performance. Success
requires more intense and practical cooperation. For example, coordinating various national
initiatives and establishing the right policy framework can direct innovation to the most
promising fields.
Furthermore, public spending can be steered to support and ensure the adoption of ICT
solutions focused on public-sector challenges. Of course, this spending should be in line with
the spirit of the WTO GPA policy, but clusters’ unique ability to offer Europe-focused solutions
will give them a clear competitive edge, assuming public spending decisions are based on
medium- and long-term benefits rather than short-term results.
The right steps, taken decisively and in

coordination, can give Europe the chance
to reestablish a strong foothold in the
global technology sector.
Of course, the effort should not simply be a European-centric approach. The high-tech sector
is far too global and interconnected to make it a pure European play. Engaging foreign high-tech
companies will boost success, and encouraging global venture capital companies to have an
active presence in clusters will accelerate the commercialization of new ideas.
C. Excel
8. Improve corporate responses with better strategic foresight and more decisive leadership.
The above measures will improve the external environment for Europe’s ICT players. But long-
lasting advantage will come when high-tech companies step up to the challenge. To last in
a dynamic, uncertain, and globally interconnected world requires European ICT companies
to have greater strategic foresight, improved innovation capabilities, a more active approach
to M&A, rapid corporate transformation, and cost-competitive “best shoring.”
Strategic foresight is of particular importance for breaking out of three-year incremental

strategic planning. It can come by analyzing major trends, uncertainties, and potential wild
cards that may occur. A.T. Kearney research shows that leading companies—such as BASF,
Volkswagen, Nestlé, and Ericsson—that regularly take a 10-year view on how their industries,
customer needs, technologies, and competitor landscape could evolve enjoy a significantly
higher average long-term shareholder return than companies with shorter planning horizons.
This isn’t just about making point predictions—it’s analyzing alternative scenarios and creating
“preferred futures” with an elaborated agenda to shape the future.
Responding to industry change requires corporate renewal and transformation, whether

through organic transformation or an aggressive M&A strategy in a buy-and-build fashion.
It is not easy to do, but transformation is becoming increasingly necessary to survive brutal,
fast-paced global market forces. Often this entails cannibalizing existing businesses, such
as mobile telecom services cannibalizing fixed-line services. The truth is, if a company doesn’t
cannibalize its own business, a challenger may do it for them.

Interestingly, some of the most successful high-tech companies, such as Apple, Samsung,
and Cisco, are steered by highly empowered leaders (often helped by their ownership stakes),
rather than the typical European approach of committees, management meetings, stakeholder
alignment, and union negotiations. How companies can develop rapid transformation capabilities
will differ by company, but there is little doubt that for every high-tech firm in Europe it should
be an urgent priority that all stakeholders must acknowledge.
9. Push innovativeness and growth ambitions. Long-term advantage will come only by
ambitious innovation approaches and increased investment in R&D. At the same time, R&D
productivity must improve, in coordination with selective offshoring, to overcome Europe’s labor
cost disadvantage and tap into talent pools. Large companies can broaden their mindset to
include their vendor base. In technology, much of the development—and hence the competi-
tive advantage—comes from suppliers; because technology development takes long cycles,
close collaboration with an ecosystem of suppliers can be a key competitive advantage. Many
strategies that have made leading automotive manufacturers successful, such as modularization,
supplier collaboration, and supplier innovation, are applicable to today’s high-tech environment.
SMEs need to grow rapidly to achieve the economies of scale necessary to compete with large
companies. Whether they succeed or not depends heavily on how well their capabilities are
matched by clear ambition and a willingness to take risks. Here, the management culture and
access to capital play important roles.
Broadly speaking, growth comes either through M&A or organically, and most industries
consolidate as they mature. Cisco, for example, achieved a leading position from the start
by putting a strong emphasis on acquiring technologies and companies. A “buy-and-build”
strategy requires solid skills in evaluating targets, transaction execution, and, most impor-
tantly, appropriate integration. Mergers are risky business, so the integration process requires
close attention.
Organic growth comes in part from ambition and in part from organizational capabilities. For
SMEs, the primary goal is often to reach full geographical and customer segment penetration.
This requires significant entrepreneurship and risk-taking to break into new markets—something
that is no doubt in the DNA of Europe, but needs honing and development.
The final step is sustaining the innovation capability that got it all started. The European
IMP³rove program, developed with the help of A.T. Kearney to instill innovation in SMEs, is one
strong way to embed innovation.9 More than 1,500 companies have used the program so far,
and it has proven to be a solid tool to self-assess innovation capabilities and practices and take
actions to improve them. The IMP³rove assessment should be made mandatory by investors—
private or governmental—for any SME seeking financing, as it will boost returns when acted
upon. Innovation is the key ingredient for future growth and for evaluating SMEs.
10. Reestablish vendor-customer partnerships as innovation vehicles. Approaches from the

1970s and ’80s to strategic partnerships, between corporations and between government and
corporations, are key vehicles for risk management and for pooling capabilities. Long-term
collaboration is crucial for achieving important breakthroughs.
Government-led policies, standards, and ambitions (such as GSM and Energiewende) can
set the direction for the high-tech industry to rally around and achieve leadership through
cooperation. The EU and national governments can set many challenges together with
For more information about IMP3rove, go to https://www.improve-innovation.eu/.

9

industry to foster innovation and growth. Examples include creating the world’s leading
European intelligent networks in education, government, and traffic; creating the world’s
smartest electric grid infrastructure to handle renewable energy; or building the world’s most
efficient healthcare system.
Success here does not require massive public investments, but rather the right conditions and
dialog between policy makers and industry. Some nations already follow this path. In Germany,
the national IT summit is the basis for an intensive discussion between industry and the govern-
ment on pushing important topics, such as broadband coverage in Germany or speeding up the
rollout of intelligent networks for energy, health, traffic, education, and government. Such
a dialog must happen on a broader European basis. Industry associations and leading players
must step up to create this partnership.
Such vender-customer partnerships do not have to be limited to the relationships between

policy makers and industry. The large buyers of high-techproducts—public or private—can take
a more strategic collaborative approach to European high-tech players, balancing short-term
cost-saving opportunities (often temporarily caused by labor arbitrage) with the strategic value
of having Europe-based high-tech players. Close collaboration can help the industry boost
global competitiveness, as demonstrated by collaboration in auto and energy equipment with
Europe’s semiconductor companies, such as Infineon, NXP, and STM.
Rethinking the Strategy

Europe’s unique characteristics, history, and culture make it impossible to replicate the conditions
that have enabled ICT companies to thrive in North America and Asia. Europe’s distinctive federal
structure is both a strength that breeds competition and a weakness that causes subscale
developments, fragmentation, and lower returns.
But there remains plenty that European institutions and governments can do to emulate their
U.S., South Korean, Taiwanese, and Chinese counterparts by more strategically managing the
continent’s industrial base to maintain competitiveness. Policy makers can do their part by making
rejuvenating the ICT industry a top priority. EU institutions, national governments, ICT companies,
venture capitalists, and industry associations can work together to develop an ICT master plan
along the lines we describe above. Horizon 2020 is a step in the right direction, but more decisive
and focused efforts are required to nurture and build on the remaining high-tech industry in
Europe now, rather than merely hoping that today’s research programs will enable the sector
to rise like a phoenix from the ashes at some point in the future.
Without decisive action now, Europe’s high-tech industry will continue its decline, which would
affect the continent’s vitality, competitiveness, and prosperity. But the right steps, taken decisively
and in coordination, can give Europe the chance to reestablish a strong foothold in the global
technology sector and support the competitiveness of Europe’s industrial base. More pan-
European leadership is needed—from institutions, governments, and industry.

Authors
Axel Freyberg, partner, Berlin Thomas Kratzert, partner, Stockholm

axel.freyberg@atkearney.com thomas.kratzert@atkearney.com
Herve Collignon, partner, Paris

herve.collignon@atkearney.com
The authors wish to thank their colleagues Michael Broquist, Heike Nabert de Lobo, Alexander Menke,
Sebastian Schömann, and Jan Stenger for their valuable contributions to this paper.

Appendix
We analyzed the following sub-segments for this study:
1. IT services. Implementation services, application development, integration, and outsourcing;

software and hardware maintenance and support; IT infrastructure services and outsourcing;
IT workplace management and outsourcing.
2. IT hardware. Servers, storage, document management (copiers, printers).
3. Software. Application software (back office, ERP, and supply chain; front office, CRM;
desktop; collaboration and vertical industry-specific applications), storage management
software, system management.
4. PC, laptops, and tablets. Desktop PCs, ultrabooks, tablets.
5. Handsets. Smartphones, mobile handsets.
6. Communications equipment and services. Enterprise communications applications,

enterprise network equipment, carrier network infrastructure, telecom operations
management systems, enterprise network services.
7. Consumer electronics. Audio equipment (home and mobile), video equipment (home and
mobile), game consoles.
8. Semiconductors. Memory (DRAM, NAND, SRAM), microcomponents (digital IC), analog ICs,
discretes (diodes, transistors, and thyristors), optical semiconductors (LED, CCD, CMOS),
sensors (non-optical, such as MEMS), ASICs (application-specific integrated circuits), ASSPs
(application-specific standard products).
9. Electronic components. Electrolytic capacitors, other fixed capacitors, variable capacitors,

fixed resistors, variable resistors, connectors, transformers and inductors, relays, switches,
printed circuit boards.

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Rebooting Europe’s

Rebooting Europe’s High-Tech Industry 1

The Global High-Tech Market’s Shifting Shape

Internet services Auto- Auto- Aero- Med- Other

Equipment IT PCs, lap- Handsets

Electronics components 110

Core technology industry

Rebooting Europe’s High-Tech Industry 2

A healthy high-tech sector is an engine

Market share (US$ billion)

Sources: Gartner, Reed Electronics Research, Marketline, Informa; A.T. Kearney analysis

should be drawn by comparing numbers from the two papers.

Rebooting Europe’s High-Tech Industry 3

Rankings based on 2012 revenues

PCs, laptops, Consumer Electronics

Rebooting Europe’s High-Tech Industry 4

Non-European revenue: $2.003 trillion European revenue: $678 billion

711 331 187 203 272 274 295 299 110

70% 69% 74% 73%

–1% –4% –1% –1% 2% 0% 0%

IT services Software Communi- IT PCs, lap- Handsets Consumer Semi- Elec-

Rest of world Europe European trend (2012−2015)

Sources: Gartner, Reed Electronics Research, Marketline, Informa; A.T. Kearney analysis

Rebooting Europe’s High-Tech Industry 5

European companies are more beholden

Source: Europe 2020—Flagship Initiative Innovative Union

Rebooting Europe’s High-Tech Industry 6

European patent registrations, 2012

Sources: European Patent Office, Capital IQ; A.T. Kearney analysis

large share among European companies in the top 100.

Rebooting Europe’s High-Tech Industry 7

Europe is hampered by high-cost, inflexible labor. High-tech companies continue to move

Source: Institut der deutschen Wirtschaft Köln

Rebooting Europe’s High-Tech Industry 8

There is too much focus on invention, and

Rebooting Europe’s High-Tech Industry 9

Why Europe Must Become More Competitive

What the EU Is Doing

Rebooting Europe’s High-Tech Industry 10

The EIT ICT Labs: A step in the right direction

Previous Horizon 2020 €80 EIT EIT ICT

Rebooting Europe’s High-Tech Industry 11

Semiconductors: A key enabling technology

Defining semiconductors as a KET emphasizes the technology’s importance to many industries’

ICT: Striving for industrial leadership

Rebooting Europe’s High-Tech Industry 12

An entrepreneurial culture can fuel the

EU programs: Limited impact

Rebooting Europe’s High-Tech Industry 13

A. Enable. Put in place the enablers for a prosperous high-tech sector.

C. Excel. Outperform global competition though innovation, partnerships, and decisive

Enable Focus Excel

Source: A.T. Kearney analysis

The following section outlines the concrete steps by area:

1. Improve skilled labor supply through technology-oriented education and targeted

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To compete on a global scale, the goal

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Rather than being driven by technology,

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Source: MIT Sloan Management Review

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The right steps, taken decisively and in