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Discover The Future of Work

The United States and China are unending sources of creative destruction generating a constant flow of innovation, while Europe has long lost its dynamism and now does little more than observe passively as the world’s two national juggernauts roar ahead into the Fourth Industrial Revolution. Or so goes the prevailing narrative. In this post, I will challenge this widespread notion and argue that European innovation is doing better than is commonly perceived.

I am well aware that, for many years, European business news have been feeding us with generous dollops of pessimism, from the euro-crisis saga a decade ago and the Brexit tribulations, to the decay of corporate Europe and the never-ending red tape companies face in some parts of the continent that make doing business there a task for heroes.

And let’s not forget Europe’s apparent inability to play in the same league as the US and China in the related areas of modern technology and global economic influence. All that is left for Europe on the international stage, it seems, is to exert leverage through the Brussels effect. This, in practice, forces multinationals to comply globally with the EU’s normally high standards in a range of areas, as GDPR famously demonstrates in the case of personal data privacy.

Playing a key role in the regulation-based construction of a safer and more secure world for all is a good thing for Europe, and arguably for the entire global community. But it is surely not enough to make Europe recover the position at tech’s high table it abandoned decades ago.

Then there is innovation culture. In Europe, it seems, failing as an entrepreneur is something to be ashamed of, whereas in the US it is widely accepted and even celebrated as a step in the direction of success as long as you are able to draw lessons from it.

When it comes to innovation, then, doom and gloom about today’s and tomorrow’s Europe are the order of the day. Yet, to what extent is such pessimism justified? Measuring innovation is notoriously difficult, but total patent grant numbers offer a decent yardstick. Data published by the World Intellectual Property Organisation (WIPO) indeed show that applicants from European countries are granted far fewer patents than their US and Chinese peers – seeming to confirm the image of a continent condemned to being a global innovation laggard.

overburdened-renters-in-lowest-income-quintile-2018-latest-chart

Now for the good news

Look closer, though, and you will find grounds for optimism. First, we should dispel the myth that, although Europe as a whole --and especially the 446-million-people European Union -- is surely a mouth-watering market for innovative companies, national, intra-European competition coupled with slow, complex policy-making processes will always tend to clip the wings of promising European innovators.

As my colleague Euan Davis has recently highlighted, Airbus was born out of informal conversations between leading European airlines in the 1965 Paris Air Show. There is no reason why today’s European businesses, governments, academia and other relevant stakeholders cannot come together to create an “Airbus event” for AI and other likely age-defining technologies, such as quantum computing and blockchain.

Moreover, closer analysis of today’s scenario also reveals a better situation than the first impression suggests. Consider, for example, the ratios of patents granted per capita, rather than in absolute terms. That gauge casts a far better light on some innovative European economies.

overburdened-renters-in-lowest-income-quintile-2018-latest-chart

Perhaps more interestingly, some European economies also do quite well when we consider the ratio of patent grants to GDP. By that measure, their economies have a very high indeed “innovation content”.

overburdened-renters-in-lowest-income-quintile-2018-latest-chart

Admittedly, in those two alternative measures, Europeans are favoured by the fact that their countries are smaller than the United States and China, whose results are undermined by large denominators (population or GDP). It is also true that Switzerland in particular benefits from hosting the headquarters and research facilities of many global firms, including in R&D-intensive sectors such as pharma.

However, a similarly rosy picture emerges from the 2020 Global Innovation Index, which throws in the mix far more variables than I have employed here and includes no fewer than seven European economies in its top ten.

Europe’s start-up ecosystem fires up

Moreover, it’s not just patent statistics and the GII that suggest that Europe can be fertile ground for innovation.

Consider the continent’s start-up scene. Not all innovation happens in start-ups, of course. But a thriving start-up ecosystem is a good indicator of existing and future innovation prowess. The good news is that European start-ups have been raising their game significantly.

As of July 21, Europe had seen this year the birth of 31 unicorns, defined as venture capital-backed start-ups valued at US$1 billion or more. It is true that:

  • this is a volatile gauge;
  • in absolute terms, the US produced over five times as many unicorns over the same period (174), and
  • Europe is part of a global trend in this area.

Yet, even considering all these caveats, the fact remains that the acceleration in unicorn birth rates in 2021 so far measured against 2020 as a whole in Europe has outpaced that recorded in all of the world’s other most innovative geographies.

overburdened-renters-in-lowest-income-quintile-2018-latest-chart

Again, a caveat helps ensure a balanced view. There is only as much you can tell form looking at the figures for one year only. But Europe had already been upping its game for years when its rate of unicorn creation started to accelerate in 2018.

overburdened-renters-in-lowest-income-quintile-2018-latest-chart

Although the current venture capital boom may be causing an overvaluation of many start-ups, in Europe and elsewhere, there is little doubt that investors have a solid appetite for the continent’s dynamic nascent innovators. Europe’s global share of VC investment in start-ups -- unicorns or not -- while also a volatile gauge, shows an unequivocal long-term direction: it has trended upwards since the turn of the millennium.

overburdened-renters-in-lowest-income-quintile-2018-latest-chart

So it is clear that there is more to European innovation than its many individual successes -- which include, for example:

  • Germany’s BioNTech’s development of an mRNA COVID vaccine
  • fintech stars such as UK-Estonian money transfer company Wise and Swedish BNPL (buy-now-pay-later) provider Klarna
  • leading audio streaming service Spotify, also from Sweden
  • French long-distance car sharing service Blablacar, and
  • the constant displays of AI prowess emanating from British dynamo DeepMind (acquired by Google in 2014) – including its recent, and massive, contribution to science: the production and free publication of a dataset that more than doubles humankind’s knowledge of human protein structures.

The bottom line: Europe is ‘quietly’ recovering its innovation mojo. In the coming months, I will discuss why I believe the continent can do even better in its innovative endeavours and explore the secret sauce of especially innovative European places.