China in innovation challenge to Europe

May 16, 2013 12:03 am

China in innovation challenge to Europe

By Chris Bryant in Frankfurt

Europe’s business leaders fear its industry will fall behind China in technological innovation within a decade as the economic crisis undermines one of the continent’s competitive advantages.

More than two-thirds of business leaders surveyed by Accenture, the consultancy, on behalf of BusinessEurope, the business lobby group, said China would reach or pull ahead of Europe in innovation by 2023.

Weak demand caused by Europe’s economic crisis has sent industrial production into decline, while corporate reluctance to delve into cash reserves is holding back new investment, training and R&D.Rising unemployment threatens labour flexibility and Europe’s ability to maintain a highly skilled workforce. Fewer than half of those surveyed said Europe’s workforce remained a competitive advantage for industry.

European policy makers are determined to reverse industry’s decline. The European Commission last year proposed by 2020 to raise industry’s share of EU gross domestic product from 15.6 per cent to 20 per cent.

“We cannot continue to let our industry relocate outside Europe,” said Antonio Tajani, vice-president of the European Commission.

European companies remain leaders in sectors ranging from automotive to aerospace, engineering to pharmaceuticals, and two-thirds of surveyed business leaders said European industry was still competitive internationally.

But some Chinese companies such as Huawei, the telecoms equipment maker, are drawing level in innovation capability and gaining share in Europe. Some 61 per cent of those surveyed said they feared Europe would struggle to recover from its economic crisis for at least three years.

Some 90 per cent of German business leaders said Europe’s industry was competitive compared with only half of business leaders in Spain.

The Accenture study identified two areas to support growth: rebuilding Europe’s skills base and reinvigorating industry’s access to finance, including better access to capital markets and venture capital funding for start-ups.

Although Europe is mired in recession, there remain opportunities in areas ranging from low-carbon technology and smart grid networks to biotechnology and advanced manufacturing.

“The China machine is definitely going to invest a lot of money in technology innovation over the next 10 years . . . [But] there’s a sense that if we get our act together Europe can remain successful in manufacturing,” said Mark Spelman, strategy chief at Accenture.

“Just because there is zero growth across Europe doesn’t mean there are not segments of good growth within that . . . So it’s about how you place bets in an intelligent way.

To address the innovation deficit, business leaders want to see more public funding for R&D, reduced tax for R&D and capital investment and improved financing conditions.

European executives raised a variety of other worries ranging from the cost of energy to labour costs.

A majority of respondents were pessimistic that European industry would be cost-competitive in energy compared with markets such as the US, Russia and China in three years’ time.

US industry is enjoying cheap energy courtesy of discoveries of shale gas that permit new investment in gas-intensive industry, such as petrochemicals.

In contrast, Europe remains dependent on more expensive Russian gas, and costly regulation and investments in renewable energy are adding to the burden.

Accenture commissioned a survey of 500 executives and public sector leaders in a variety of company sizes.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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