When it comes to digital innovation, the contrast between Europe and the rest of the world is stark. Snared between the innovative muscle of the U.S. and the steely determination of China, the continent’s digital ambitions need a refresh.

The makings are there: A groundswell of entrepreneurial activity is emerging across Europe, and young European digital natives are beginning to develop companies with the potential to compete on the global stage, making Europe a digital destination — rather than just a lovely place for a vacation.

The question is whether Europe can unify its haphazard and uneven landscape of digital activity and focus its currently fragmented digital firepower so that business leaders can adapt to ever-evolving consumer expectations and technologies. And, of course, Brexit poses a challenge whose ramifications cannot be underestimated.

To analyze these developments, Cognizant’s Center for the Future of Work partnered with the UK government-backed start-up network TechNation to understand where this innovation is happening and where new forms of technology and work are catalyzing across the region.

Key findings of our research revealed that:

• Europe needs to increase its number of start-ups (by a factor of five). Start-ups, like good ideas, are the lifeblood of the digital economy. Despite rising numbers of successful start-ups and capital raised in Europe, the ratio between successful U.S. and European start-ups today is 5:1. European financiers and policymakers need to recalibrate funding models to accelerate new company formation, create more risk-tolerant entrepreneurial environments, and lift regulatory burdens for small and medium-sized organizations. Commissions such as the Startup Europe Partnership and Horizon Europe are good models to follow.

• All roads lead to London (and they need to lead elsewhere). The beating heart of Europe’s start-up scene is in Northern Europe, and particularly in London. With Brexit looming, Europe needs to establish a clear financial market for local start-ups beyond these locales and provide a home for the ecosystems that develop in their wake.

  A likely region for a new digital hub is Eastern Europe, which — along with its affordable cities and well-educated populace — has seen a high growth of start-up tech businesses, especially in nations like Latvia, Russia, Lithuania and Bulgaria. Our analysis also reveals an engaged network of informal meetups in Eastern Europe, as well as a concentration of tech research funding by the EU. Research and innovation spending in nations like the Czech Republic and Slovenia is on par with many Western European countries, while Slovakia has invested at a growth rate that’s four times higher than the EU average. The region is one to watch for new tech start-ups and the formalization of grassroots networks that could scale with adequate EU stimulus.

• Meetups play a powerful role in shaping digital ecosystems. Our analysis of meetup data throughout Europe reveals thousands taking place every week, focusing on everything from ethics and AI, to virtual reality experiences. We identified a high concentration of artificial intelligence (AI) and machine learning communities active in and around Manchester, England, as well as a large virtual and augmented reality community in Estonia, with 1,000 members forging best-practice developer links across the Nordics. These thriving communities are an essential way for people and organizations to connect and collaborate around digital tools and ideas.

• The “heat map” of digital activity in Europe reveals a rich yet fragmented landscape. Our analysis reveals a mosaic of emerging capabilities across Europe. Some countries show a higher concentration around specific technologies, like cryptocurrency in Switzerland, augmented reality and mobile commerce in Hungary, and robotics in Austria.  A closer look at these digital hotbeds offers insight into how European businesses could potentially benefit from these developments (see figure below).

Figure 1

• Now’s the time for inspired policy at the EU level. Although attempts to grow an open, innovative economy are working, judging from our analysis of Europe’s digital landscape, it needs to move much more quickly. We believe Europe could improve its position in the digital landscape by taking the following actions:

  • Accelerate an “innovation union,” using cross-continental initiatives to promote entrepreneurship and encourage innovation. Right now, SEP could be refocused around specific industries (such as e-health) or emerging industry niches (such as sustainability, education or government services). Other initiatives could focus on infrastructure investments in STEM subjects, training for new human-to-machine skills or early entrepreneurship education in schools.
  • Augment Europe’s “single market” with a single data market. By unifying its many open-data policies and publicly funded accelerators, Europe could spur improvements in efficiency and productivity. Common API standards, platforms and data frameworks could quickly replicate best practices from one city and country to another, coalescing Europe’s digital firepower into a single open and trustworthy data ecosystem.
  • Nurture a homegrown, stand-out, emerging industry rock star. Entirely new industries are now being forged on the back of emerging technologies like AI, machine learning and IoT. Starting next year, potential business opportunities will also grow from climate change with the Paris Agreement, including in the areas of sustainability, advanced manufacturing and ethical AI. Europe must look to own these emerging plays, with coordinated policy at the interregional level.
  • Build connective tissue between digital’s multiple stakeholders. The Horizon Europe program should strive to unite the crackle of innovation across meetup and start-up networks and link into Europe’s secondary and tertiary education providers, universities, city planners and entrepreneurs to create a force-multiplier for digital innovation. 
  • Invest for growth and don’t fall into the protectionist trap. The EU could provide funding as limited partners, co-investing with other institutional partners in venture capital funds. It needs to be done with care, as the over dominance of government funding might hold back private funding and present disincentives to address structural problems, such as education systems and regulatory environments.

Europe’s digital ecosystem is innately human — it’s about people talking and connecting through a burgeoning network of meetups and start-ups. The region’s historical strengths — diversity, multiculturalism, ingenuity — underpin these ecosystems and are the watchwords for mastering the digital economy. In fact, this people-first approach could offer Europe’s political leaders a “third way” that balances the super-capitalist tendencies of the U.S. with China’s command-and-control mode. By doing so, Europe will be positioned to ride the wave of opportunities catalyzed by digital.

For the full report, read “Europe: Digital Superpower? Or Second-Rate Peripheral Player?” or visit us at Cognizant Center for the Future of Work.