Leading the next industrial revolution: boosting Europe’s competitiveness through digital transformation

Europe stands at a pivotal moment, facing significant challenges to its competitiveness and growth. As global dynamics shift and technological change accelerates, the continent must address longstanding issues of productivity and innovation to close the gap with other major economies. The recent Draghi report highlights the urgency of this task, emphasising the need for Europe to enhance its technological capabilities and reduce dependencies. By focusing on strategic investments in innovation, decarbonisation and security, Europe can position itself as a leader in the next digital era, ensuring prosperity and resilience for its citizens.

Today, enterprises and governments  work in an environment of perpetual change – geopolitical shifts, energy transitions, new regulatory mandates, disrupted supply chains and technological innovations are impacting every aspect of business. This perpetual change needs to be met by perpetual adaptability, supported by future-oriented regulatory frameworks.

In this respect, the upcoming years will be crucial for preserving Europe’s competitive future while securing its economic security and social freedoms. The agility needed for the European industry to deal with shifts in the global competitive arena must be driven by a much faster pace of digital transformation, supported by a stronger innovation ecosystem, enhanced connectivity, strong security measures and a ready pool of talent.

A stronger innovation ecosystem

Artificial intelligence (AI) can lead us into Society 5.0, a future scenario where humans, technology and nature create a sustainable and safe economy in harmony. This concept of society moves us from the information age to an era where AI supplies the analysis allowing the industry and society to make better decisions and exponential advances at greater speed.

The AI Act seeks to safeguard European ideals through dynamic governance while fostering innovation. As the race to develop AI technology intensifies, Europe’s future prosperity hinges on its success. To thrive in this  era, it is crucial to not only implement effective regulations but also invest in digital infrastructure, tools, resources and skills that are essential for building a sustainable and comprehensive ecosystem that can accelerate European innovation at scale and pace.

This new era will be driven by data, which requires access to high-quality data needs to be a priority. Data should be leveraged effectively beyond its primary source. In this sense, the Data Act could liberalise data access and prove to be revolutionary for Europe’s tech sector as the value that this could create for the European economy is beyond measure. Data sharing will naturally become a core pillar of international cooperation and the development of Trade and Technology Councils with the US and India is a positive step in this direction.

Enhancing EU’s connectivity

Europe recognises the transformative power of cloud and edge computing to protect against cyber-attacks, provide almost unlimited storage capacity and enhance business connectivity. Digital enablers such as web hosting, cloud-based services and digital financial services, enhance economic value while fostering market access and competitiveness. As Europe gears up for the 5G revolution, it must also anticipate the advent of 6G to fully harness the potential of next-gen technologies. Enhancing the EU’s connectivity will have a widespread impact and revolutionise not only smart cities but also workplaces, homes, factories and healthcare.

Cybersecurity more important than ever in an era of global insecurity

The EU and its industry need to be prepared for global cybersecurity threats. To be ‘quantum ready’, Europe must prepare for situations where the power of quantum-computing could be maliciously unleashed to break existing encryptions in a matter of seconds. The Cyber Resilience act advances this direction, and I would emphasise that cooperation between industry, law enforcement, regulators, academia, and security forces must be enhanced to ensure that Europe stays secure in the face of these digital threats. Cybersecurity is a global problem that requires global solutions.

Energy transition: powering sustainable growth

Investments in green energy are not just environmentally imperative but economically strategic, as highlighted in the Draghi report. Renewable energy sources offer an endless supply, and with the right focus on innovation and scaling they do not need to be expensive. By reducing reliance on external energy supplies, Europe can achieve greater autonomy and long-term cost savings. Embracing green energy technologies will not only enhance energy security but also drive economic growth by creating new industries and jobs. Technologies like digital twins can play a pivotal role in this transition by improving efficiency across energy systems. By creating virtual models of physical assets, digital twins enable real-time monitoring and optimisation, reducing waste and enhancing performance. These advancements align with the call for Europe to seize growth opportunities in clean technologies, ensuring a competitive edge in the global market.

Streamlining compliance for enhanced competitiveness

One of the key barriers to competitiveness in Europe is the compliance and regulatory burden faced by businesses. In this vein, President of the European Commission, Ursula von der Leyen has proposed consolidating ESG reporting requirements into a single ‘omnibus’ regulation. This initiative aims to streamline overlapping mandates; reduce bureaucracy and allow companies to focus on innovation and growth. Commission Vice-President for Tech Sovereignty, Security and Democracy, Henna Virkkunen, echoed this sentiment during her hearing, noting that “An Act is not the answer to everything”. The Commission will have a big role in cutting red tape and creating a more business-friendly environment, paving the way for enhanced economic dynamism and competitiveness. Moreover, the Commission must avoid a siloed approach to policymaking, where additional compliance burdens arise from multiple directions. Ensuring proportionality and considering the downstream effects of regulations are vital, especially since small and medium-sized enterprises (SMEs) are often affected the most.. Robust competitiveness checks on all new legislation and revisions are needed to prevent inadvertently stifling economic growth.

Talent and skills

With its fast-ageing demography, Europe faces a skills and labour shortage, especially in the digital sector. In the short term, upskilling and reskilling the workforce is needed to build specific skills in areas such as AI.  Enhancing investment in STEM education and digital skills at an early stage will secure the diverse and skilled workforce of the future.

The first von der Leyen Commission laid the groundwork for what could be a successful sustainable green era for the EU, one that will be underpinned by innovative digital companies. We need to keep up the momentum and tie the loose ends that risk unravelling the grand designs of the last five years. Embracing perpetual adaptability will be key to navigating the challenges ahead and ensuring resilience in an ever-changing global landscape. And at TCS, we look forward to partnering with the EU so that its industry can continue to innovate and preserve its economic and social future.

The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.