Europe needs to invest in digital skills and infrastructure to remain an attractive destination for technology investments

This year’s EY Europe Attractiveness Survey finds that a rebound in investments is expected in 2021, to be driven in large part by the digital economy. Europe continues to be a very attractive destination for technology investments, thanks to its large consumer market, advanced digital infrastructure, skilled workforce and stable political climate. Those seeking investment across the continent must remain alert though, as slow responses to new challenges may undermine its position.

Spurred by demand for work-from-home solutions and home entertainment, which has increased exponentially due to the COVID-19 pandemic, the tech sector in Europe is booming. Despite the fact that none of the global companies worth over US1t are headquartered in Europe, all of them have a very large and growing asset base in the region, including regional headquarters, research campuses and data center activities. Europe’s next-level global tech companies are world leaders in software segments, semiconductor niches, FinTech and e-commerce markets. These companies are powered by an elaborate network of advanced research and operational facilities, both in Europe and across the globe. They have managed to take advantage of the growth opportunities presented by the pandemic and reported record earnings over recent quarters.

Start-ups, too, have been doing well. The venture capital investments in the technology sector, although still well below figures in the US and China, have increased by US$31b in 2020. This represents a five-fold increase over 2015. Most funding went into FinTech, e-commerce, AI, software and HealthTech. Europe now has over 25 technology unicorns with a value north of US$60b and growing.

One of the main reasons why tech companies invest in Europe, is its large market potential. There are over 500 million consumers, who all need new devices, digital services, smart homes and autonomous cars. They all want to be entertained. Companies across Europe are all investing in work-from-home facilities and they are all migrating their workloads to the cloud to become more agile and customer oriented. This is creating enormous market potential that no single technology company can afford to ignore. On top of that, Europe has a good investment climate, which is made up of a skilled workforce, an advanced digital infrastructure and a stable political climate.

None of this should be taken for granted, however. Rapidly growing countries such as China and India, and regions such as Latin America, are becoming increasingly attractive end markets. Technology changes, including AI, automation and virtualization, create radical developments in skills required in the workforce. More than 9 out of 10 respondents in the survey said that a technologically skilled workforce is a key consideration in foreign investment decisions. Europe must invest in technology education to maintain its position. To keep its digital infrastructure state of the art, the continent should also speed up investment in 5G – something we’ll be discussing at this year’s MWC Barcelona. The implementation of 5G technologies will enable new business models and services to flourish, which will open up new opportunities in the digital economy. This is an area where China, the US and some Asian countries are leading the way and Europe has some catching up to do. And finally, a stable political climate does not only require institutional stability, but also clear, consistent and relevant regulation and public oversight And it should not be held back by slow decision-making processes, which could mean repercussions when responding to a fast-paced market. A recent example is the European response to the semiconductor challenges that have hit global supply chains. While Europe was still formulating its response, investment support programs were established in other regions, leading to commitments from large chip manufacturers to build facilities there. In the taxing of digital services, the European approach is still patchy, which creates uncertainty in investments. And even in locations where there is a harmonized regulatory regime, such as data protection legislation, local enforcement interpretations could slow decisions down.

Despite these challenges, Europe is in a good position to raise its profile in the technology sector. The vaccination program has gathered steam and an economic recovery is imminent. There is a lot of capital available to kick-start essential industries, including the tech sector. Education initiatives, digital infrastructure investments and research incentives should be combined to boost the investment climate further, so that technology companies can thrive, invest and employ people.

This summer sees events such as VivaTech and MWC Barcelona, where EY will be in attendance to showcase capabilities to do exactly that. Why not drop by?

This article is part of a series of articles published in connection with the annual Viva Technology event, Europe's biggest startup and tech event, which is taking place online and in person, in Paris, from June 16-19.