Innovation as a key to the competitiveness of European companies

Europe is facing important challenges in its fight to maintain competitiveness. Even though it’s one of the most advanced economic regions, its delay in innovation and technology when it comes to the United States and China threatens its strategic position. According to data from the World Economic Forum’s 2024 Global Competitiveness Report, Europe has fallen behind in crucial areas like digitalization and technological development, ranking behind its competitors concerning several critical indicators. Adoption of technology is therefore a determining factor in boosting business productivity.

Europe is going through a period of economic slowdown, with growth below the historical average and which differs from figures in other advanced economies. According to the International Monetary Fund (IMF), the region’s GDP grew by only 0.6% in 2023, reflecting moderate progress affecting large economies as well as smaller countries, and it doesn’t look like the situation will improve a lot this year. According to the Economic and Sectoral Outlook 2024: Forecast Update Toward the Fourth Quarter report, created by MAPFRE Economics, the eurozone is expected to register a growth of 0.8% this year, followed by an improvement in 2025, reaching 1.2%.

This situation is mainly attributed to limited private sector investment, despite potentially favorable financial conditions. Factors such as political instability, geopolitical tensions as well as ongoing structural barriers continue to hinder stronger economic growth.

The IMF highlights that Europe still has a solid foundation on which to build its economic recovery. The region has tremendously competitive industrial sectors, a highly qualified workforce and a first-level research environment. On the other hand, in order to take advantage of this potential, removing the obstacles that hinder private investment and creating a more favorable environment for the development of emerging technologies is absolutely vital. The organization highlights that Europe has ample room for improvement if it can incentivize investment, promote innovation and strengthen its digital infrastructures.

European companies have the opportunity within this context to lead a transformation that not only allows them to compete with other regions, but to respond to the demands of a more digital and sustainable economy too. When it comes to this, greater investment in R & D can significantly increase productivity and economic growth, as can be seen from the European innovation scoreboard 2023. The key lies in speeding up innovation technology and overcoming barriers to business development.

This European weakness isn’t new, but various reports have now analyzed the situation in depth. The Letta report is a case in point, this report being prepared by former Italian Prime Minister Enrico Letta, as well as the report recently published by Mario Draghi, former President of the European Central Bank and also former Italian Prime Minister. Under the title The Future of European competitiveness, Draghi delves deeply into a series of challenges that are underpinning the competitiveness of Europe.

1. Delay in investment in R & D

Europe invests less in research and development than the United States, Japan, and China. This deficit can be seen even more clearly in the private sector, where industries with medium or low technological intensity are the norm, reflecting the lack of an environment conducive to the development of high-added value sectors.

When it comes to the technology sector, for instance, Europe has recognized its dependence on external providers in the production of semiconductors, essential components for advanced technologies such as artificial intelligence and the Internet of Things. In order to address this vulnerability, the European Union has implemented the European Chips Law, with the objective of doubling its global market share to 20% by 2030. This initiative aims to boost Europe’s competitiveness and resilience in semiconductor technologies, supporting the digital and green transition.

2. Fragmentation of the internal market

Regulatory, fiscal and legal barriers within Member States make it difficult for startups and technology companies to grow on the continental stage. SMEs, which are the core of the European business fabric, find it harder competing on a global scale due to regulatory diversity.

3. High energy costs

European industrial competitiveness is hindered by higher energy prices in comparison to its main competitors. This factor increases production costs and also limits companies’ ability to invest in new technologies.

4. Low marketing of new technologies

Despite having a scientific basis and having a tradition of innovation, Europe hasn’t been able to turn this progress into commercial leadership. This becomes very clear in sectors like artificial intelligence, semiconductors and quantum computing, where the United States and Asia are now in the driving seat.

To reverse this situation, focusing on the technological trends that are redefining the global economy is absolutely crucial These technologies aren’t only an opportunity to boost European competitiveness, they’re also a way of transforming strategic sectors.

1. Artificial Intelligence (AI)

Artificial Intelligence is changing the way companies operate, optimizing processes and improving decision-making in real time. Its impact covers key sectors:

• Logistics: companies like Amazon and DHL use AI to analyze demand patterns, optimize delivery routes and proactively identify potential issues in the supply chain. These tools help reduce operating costs, guarantee faster deliveries and improve customer experience. Moreover, machine learning algorithms manage inventories more accurately, helping to avoid both excess stock and lack of products.
• Pharmaceutical industry: when it comes to the development of medicines, AI streamlines the identification of promising chemical compounds and improves clinical trial planning. During the pandemic, companies like Pfizer used advanced algorithms to accelerate vaccine creation, showcasing this technology’s ability to face the changing medical challenges.
• Insurance industry: insurance companies have implemented artificial intelligence solutions in order to improve customer experience and optimize their internal processes. For example, at MAPFRE we developed a smart automation system that makes it possible to resolve issues involving water damage in the home in a matter of minutes, a task that used to require several days. This system uses machine learning to understand the customer’s needs and offer precise and reliable responses at any given moment.

2. 5G and Internet of Things (IoT)

By enabling real-time connectivity and process automation, the combination of 5G and IoT is driving major advancements across various industries. In the realm of the insurance industry, these technologies are transforming the way data is collected, analyzed and used to improve the services offered:

• The Insurance Industry Advanced connectivity enables the use of IoT devices to monitor risks in real time. As an example, home insurance can now include connected sensors that detect water leaks or fires, allowing for immediate actions to minimize damage. In the realm of automobile insurance, telematic devices collect information on driver behavior, enabling premiums to be adjusted based on usage and promoting safer driving habits. MAPFRE uses IoT-based solutions so it can provide personalized insurance and claims management more efficiently.
• Automotive: vehicles connected via 5G networks can interact with smart infrastructure to improve road safety and user experience. These connections enable advanced features like autonomous driving, remote software updates as well as real-time navigation optimization. Tesla and BMW are at the forefront of these innovations, driving the rest of the industry forward.
• Health: Connected medical devices such as glucose sensors and cardiac monitors are giving health assistance a complete overhaul. These devices help doctors to monitor patients remotely, enabling faster diagnostics and more effective treatments. This technology helped manage patients in isolation during the pandemic. 

3. Cybersecurity 

Increased digitization has heightened companies’ vulnerability to cyberattacks. Data protection, hand in hand with operational continuity, have become critical priorities for organizations. According to recent data, cyberattacks in Europe have grown 40% in the last three years, impacting key sectors such as health, finance and industry.

• Data protection: tools based on artificial intelligence enable the identification of weaknesses in networks and the prevention of attacks before they even happen. One notable case was the ransomware attack suffered by a German hospital in 2021, which made its operating systems grind to a halt and which affected the medical care of hundreds of patients. This type of incident highlights the need for advanced solutions that can guarantee the safety of critical infrastructures.
• Future projection: By 2025, significant growth is expected in the demand for cybersecurity insurance, fueled by businesses’ growing dependence on digital systems and the rise in cyber threats. This scenario is a real challenge to European insurers, who must develop innovative products and services so they can meet these new demands. In relation to this topic, we launched “CIBER On” at MAPFRE, a cyber risk insurance aimed at self-employed people and SMEs, which protects against damage to IT systems, business interruptions and cyber extortion, as well as offering technical support available 24 hours a day.

4. Clean technologies

The transition to cleaner and more sustainable energy sources is vital to guaranteeing energy security and fighting climate change. Germany’s reliance on Russian gas, starkly revealed during the 2022 crisislaid bare the fragile underpinnings of its energy system.
. To solve this issue, the country has increased its investments in solar and wind energy, but it still keeps facing challenges related to the storage and diversification of sources. This is a perfect example of the importance of developing technologies that reduce dependence on external resources.

Europe faces significant obstacles when it comes to positioning itself as a technological leader, but it also has great opportunities to achieve this:

• Greater public-private collaboration: alliances between governments, companies and universities must be fostered to create solid innovation ecosystems. These partnerships would enable the sharing of resources, knowledge and risks, speeding up the adoption of key technologies.
• Simplified access to European funds: programs such as Horizon Europe can be crucial, but companies need less bureaucratic, more efficient access to these resources. Directing the funds toward projects with a transformative impact is also essential.
• Learning from successful models: The United States has successfully integrated private and public capital efficiently, while Asia stands out for the scalability of technology startups. Europe has got to adopt similar strategies to boost its market and promote the growth of innovative companies.
• Fostering education and talent: the technological transformation requires a skilled workforce. Investing in training, promoting STEM careers (science, technology engineering and mathematics) and attracting global talent are essential steps to ensure that Europe can be at the forefront of this new era.
• Ensuring a coherent regulatory framework adapted to the future: developing regulations that encourage the adoption of key technologies, ensure data protection and enhance the interoperability of digital systems across Member States is essential. A common framework would reduce administrative barriers, enable the expansion of startups as well as guaranteeing security in an increasingly digitalized environment.

The report’s conclusion is clear: Technological innovation is essential for competitiveness and economic growth in Europe. According to the European Commission’s 2022 European Innovation Indicators Table, the EU’s innovation performance has improved approximately 10% since 2015.  On the other hand, to strengthen this progress and recover global leadership, immediate and coordinated action between companies, governments and institutions is needed.

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