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McKinsey Consulting publishes study on DeepTech Competitiveness gap in Europe

26 September 2022

McKinsey, the global consulting firm, published a comprehensive study on DeepTech in Europe on 22 September 2022, with an emphasis on the areas where Europe lags its competitors. Entitled “Securing Europe’s Competitiveness: Addressing its Technology Gap”, the study is published by the McKinsey Global Institute. 

DeepTech is a key element of the New European Innovation Agenda, a multi-year strategic initiative to improve European competitiveness and standing in this market. DeepTech is defined as:  

Deep technology (deep tech) or hard tech is a classification of organization, or more typically startup company, with the expressed objective of providing technology solutions based on substantial scientific or engineering challenges. They present challenges requiring lengthy research and development, and large capital investment before successful commercialization. Their primary risk is technical risk, while market risk is often significantly lower due to the clear potential value of the solution to society. The underlying scientific or engineering problems being solved by deep tech and hard tech companies generate valuable intellectual property and are hard to reproduce. 

DeepTech applications occur in a range of technological areas and business sectors, including advanced materials and manufacturing; aerospace, including drones; artificial intelligence and machine learning; biotechnology; blockchain and Web 3.0 technologies; cleantech; electronics; photonics; quantum computing; robotics; photonics; semiconductors; and sustainable energy. 

The McKinsey report comes at an opportune time. Some of the conclusions of the study are recounted here: 

Although Europe has many high-performing companies, in aggregate European companies underperform relative to those in other major regions: they are growing more slowly, creating lower returns, and investing less in R&D than their US counterparts. This largely reflects the fact that Europe missed the boat on the last technology revolution, lagging behind on value and growth in information and communications technology (ICT) and on other disruptive innovations. 

ICT and other tech sectors have spawned a range of transversal technologies, which are spreading horizontally across sectors and determining competitive dynamics. This research looks at ten transversal technologies and finds that Europe leads on only two of the ten. If Europe is not successful in competing in these technologies, it could also lose its strongholds in traditional industries. To give just one example, Europe has been a leader in automotive but could become a laggard in autonomous driving.

The stakes are high. We estimate that corporate value added of €2 trillion to €4 trillion a year could be at stake by 2040—value that could generate wages, employment, investment, and economic growth to the broader benefit of society. To put the estimated value at stake into perspective, that would be equivalent to 30 to 70 percent of Europe’s forecast GDP growth between 2019 and 2040, or one percentage point of growth a year; six times the gross amount needed in Europe to achieve net-zero emissions by 2050; and about 90 percent of all current European social expenditure, or €500 monthly universal income for each European citizen

Unless tackled, this crisis will handicap Europe on many dimensions, including growth, inclusion, and sustainability, and its strategic autonomy and voice in the world.2 Europe can continue to build on its strengths. Its socioeconomic model has served well thus far. But if companies are to play at the scale and speed needed to compete in a world in which technology disruption is spreading everywhere, often with winner-takes-most dynamics, a reevaluation of long-held beliefs and trade-offs may be needed. An integrated package of initiatives could create an environment that enables them to do so—in the process helping to ensure that today’s high quality of life for many of Europe’s citizens is preserved for the long term.

For further information, please consult the McKinsey website. The complete report is available for download, and an online presentation is scheduled for 27 October

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