Back in the 18th century, Europe was considered one of the most powerful technology innovation centers in the word. However, over the past decade, its technology industry growth has been lagging far behind that of the U.S., Israel, or even emerging markets such as China and India. This blog will discuss some reasons that contribute to the poor growth in the technology industry in Europe, as well as present some strategies being put in place by governments and European local businesses to re-boot the European technology industry.
Strict labor laws create great challenges for tech companies, especially for start-ups. European countries typically have higher minimum wages than other countries, and hiring and firing employees is expensive and complicated. For example, Spain requires a company to pay more than one and a half years of salary to layoff an employee. With high job mobility and fast-growing characteristics, tech companies cannot afford to do business in Europe. Diversity is another obstacle that tech companies must get around in order to expand business in Europe. Compared to the U.S., China, India, or any country where only one language is spoken and one culture dominates, Europe has 27 markets with differing languages and unique cultures. This means that a French social media site has to translate its appeal to different languages and cultures when it tries to expand its business. Such a high variety make it hard for small sites to experience growth in this region.
Recently, a group of high-tech companies formed the European Tech Alliance to help the European tech industry scale up. As the E.U. is writing new rules for the digital industry, the alliance is designated to provide a forum for tech companies to communicate with policymakers. The alliance primarily focuses on boosting the growth of companies that are “European in origin”, and helping these local companies go global. Moreover, French and German governments pledged in October to invest more public and private money in European tech start-ups. The government investment banks in the two countries and the E.U. are investing $82.9 million in the latest fund from a French venture capital firm. Although this fund will create opportunities for tech start-ups to grow in the short-run, I believe that Europe must reform its labor and tax laws in order to achieve long-term growth in the tech industry because these complex and strict laws are the root of the growth problems.
In all, Europe's technology industry is facing challenges from labor laws and diversity. Its needs governments and all society members to work together to create a favorable environment for tech businesses to start and grow in Europe.