Gütersloh, December 12, 2016. The global innovation map is changing rapidly. New technologies, research findings and business models are increasingly originating in emerging Asian countries – China and India, in particular. This development is posing serious challenges for European companies, which need greater support from government and fair framework conditions if they are to respond effectively. Those are the key findings from a study carried out by the Bertelsmann Stiftung in cooperation with the Economist Intelligence Unit (EIU). The study is based on a survey of top-level executives at major European businesses.Of the European executives surveyed, 61 percent say that they have received little or no support from their government. Only 31 percent feel they have received considerable support. At the same time, the managers have a significantly different view of the assistance their new Asian competitors are receiving from their own governments: Some 70 percent say that they are at a disadvantage in view of the policy support Asian companies are receiving. One-third of the respondents even say they are at a "considerable disadvantage." And 27 percent believe that their rising Asian competitors could cause them financial difficulties.
Policy makers must lay the groundwork for innovations "Made in Europe"
As a result, European governments must quickly introduce comprehensive measures that can strengthen Europe as a center of innovation and protect companies from unfair competition. "If we want to benefit from the advantages globalization has to offer and ensure the prosperity of the regions in question and their citizens, then stable and reliable trade relations are needed between partner countries, as well as fair framework conditions for the business community," says Liz Mohn, vice-chairwoman of the Bertelsmann Stiftung Executive Board.
According to Mohn, the key building blocks for a European innovation initiative would be active promotion of research and development (R&D) together with efforts to ensure open markets, fair competitive conditions and effective protection of intellectual property, as well as a migration policy that makes Europe a more attractive location for international researchers and developers.
The survey's respondents say that expanding businesses in China and India are currently the biggest competitors they face, although pressure to innovate is also increasingly coming from Malaysia, Indonesia, Taiwan and the Philippines. Asia's most innovative industry is IT, followed by electronic equipment, medical equipment, heavy machinery and automotive. In addition to government support, the main reasons for the rise in innovation in Asia are the considerable expansion of educational systems there and the rapid adoption of new technologies.
Additional research and development (R&D) planned by more than half of the companies
Most of Europe's business players still feel they are up to the competitive challenge. At the same time, almost all say they are planning more targeted strategies and measures so they can keep pace with their Asian rivals. More than half of the executives surveyed say they intend to expand their R&D activities in the future. Approximately one-quarter will seek partnerships in Asia to a greater degree than in the past. Only 11 percent say that developments in Asia will have no impact on their corporate strategy over the next three years.
"Asia's rise is confronting Europe's midsized companies, traditionally the drivers of innovation, with a fundamental cultural change. If we do not start taking these developments more seriously than we have in the past, then Germany and Europe could find themselves left behind," says Bernhard Bartsch, Asia Expert at the Bertelsmann Stiftung. "What is important is having the same framework conditions in place for all market players."
About the study
The study is based on an online survey and extensive desk research carried out by the Economist Intelligence Unit (EIU) in March, April and May 2016. The online survey polled executives of companies headquartered in select European countries. The sample had 200 respondents in total, of whom half are executives at companies based in Germany and the others at companies based elsewhere in Europe.
The questions focused on respondents' views of how innovation in emerging Asia would affect their own industry and company. For the purposes of this survey, "emerging Asia" was defined as China, India, Indonesia, Malaysia, Philippines, Taiwan, Thailand and Vietnam.
The sample included several industries, with a roughly equal distribution among automotive, heavy machinery, electronic equipment, information technology, medical equipment, petrochemicals, and life sciences. In terms of company size, 25 percent of the sample consists of companies whose global annual revenues are less than €50 million; one-half (47 percent) are companies with global annual revenues between €50 million and €500 million; and 28 percent are companies with revenues greater than €500 million but less than €10 billion.