Saturday, December 9, 2023

Europe misses the AI ​​revolution, but it’s not too late to catch up

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For decades, the European economy has been characterized and celebrated for its industry, from manufacturing to construction and power generation. Even today, industry accounts for 80% of European exports and private sector innovations. But when we lookFuture 50 of this year, a collaboration betweenFortuneand Boston Consulting Group which ranks the companies best suited to continually reinvent their businesses and support long-term growth, observers may find a sobering situation: only four European companies make the list. And, excluding ICT, there is only one digital native European company on the list,and it’s not industrial: it’s Spotify.

This is a significant observation, but perhaps not that surprising. In fact, the situation looks even more dire when you considerthe competitive gap in artificial intelligence between European countries and world leaders, namely the United States and China. In short, Europe is at a crossroads. Missing today’s opportunity to digitize its industry with AI will have serious consequences for the continent’s long-term competitiveness and local employment. Immediate action is needed.

What is happening to European industry?

Each year, BCG andWITH Sloan Management Reviewsurvey thousands of executives for insight into cross-industry AI practices.Results of this yearreveal that Chinese companies are well ahead of their European counterparts, both in terms of adoption of AI (80% of Chinese companies vs. 45% in Europe) and their ability to achieve financial impact from the IA (29% vs. 14%). And the gap can only increase in the future: 97% of Chinese companies have an AI strategy, compared to only 62% of their European counterparts. It is therefore essential to understand what Europe has been missing. How did he allow such a gap to widen? Based on our analysis, the answer lies in four dimensions.

Europe as a unified entity is a mirage. A single statistic sums it up: in recent years, 18 national AI strategies have been published independently by different EU countries. And all of them are focused on the same goal – improving local AI innovation capabilities – although the strength of an AI ecosystem may also lie in its connections across national borders. In addition, diverging local AI regulations and the lack of pan-European initiatives to attract investment (for example, a European equivalent of NASDAQ) are now hampering the competitiveness of AI in Europe.

EU action is too fragmented and timid. A lack of central coordination, planning and prioritization limits the real impact of any action taken by the EU. The initiative of the digital innovation hub of the European Commission (EC) is revealing: 500 million euros (607 million dollars) were spent to set up 450 hubs where small and medium-sized enterprises (SMEs) could receive training in digital technologies. That’s twice as many hubs as China, which means resource allocation could have been much more targeted to maximize impact.

The situation in the EU contrasts with that of the Middle Empire, where local and national governments play a key facilitating role: setting targets, distributing funds accordingly and ensuring coordination to avoid unnecessary duplication. And China is also boldly investing in the supporting infrastructure needed to digitize at scale. In 2019, it hosted around 40% of the 500 most powerful computers in the world, three times more than all EU countries combined. Even the EU’s latest flagship initiatives, such as Quantum Flagship, which plans to invest € 1 billion over ten years to develop quantum computers, are overshadowed by China’s recent investment of more than $ 8 billion. euros in its national laboratory for quantum information sciences.

The blocking of data sharing has not yet been resolved in Europe.In 2018, the EC found that 60% of companies did not share data with other companies and 58% did not reuse data obtained from other companies. In contrast, China has realized that data is essential in a world powered by AI and has fostered the development of a data labeling industry. It plays a key role in taking unlabeled data, like street images, and adding descriptive tags to convert them into usable data sets. It is a win-win solution: it helps local rural governments by creating a new source of stable employment; and it provides an unmatched volume of data to power the algorithms used by local businesses.

Orchestrators of the European digital ecosystem hardly exist today.None of the global tech giants, like GAFAM (Google, Amazon, Facebook, Apple, Microsoft), Ali Baba or Tencent – is European. Therefore, industry players in the EU are required to digitize independently, without tech giants being drawn to their ecosystem, slowing the path to AI maturity. Conversely, in China, the strongest attractions of digitization for industry players have come from local digital orchestrators. For example, e-commerce giants Alibaba and has digitized more than a third of China’s 6 million stores in less than two years, providing digital infrastructure and AI tools for free. In return, merchants have agreed to share data, strengthening the digital ecosystems of tech giants and serving as distribution and delivery centers. Likewise, in B2B, appliance maker Haier has integrated more than 4 million SMEs to promote mass customization in manufacturing through its COSMOPlat platform.

How to reverse the trend

Above all, European governments must realize that there is strength in unity. Thanks to the cumulative size of its industrial market and its AI innovation capabilities, the EU has the potential to become the world’s third AI superpower, possibly the first in B2B. This is why the EC must speed up the implementation of the legislative framework necessary to create a true “digital single market”, with regulations and policies common to all Member States. The goal, as suggested in the EC AI White Paper, Shaping Europe’s digital future: strategies for data and AI,should be to create the underlying conditions for at least one, but not more than two or three, in order to maintain critical mass, an EU-wide AI ecosystem orchestrator emerges in each key industrial sector, while catalyzing the flow of technological investments. The recent law on data governance, although focused only on data sharing for now, illustrates what such regulatory foundations could look like.

At the same time, European industrial players urgently need to embrace their transformation journey to place AI at the heart of their economic model. Not only can this bring significant financial benefits, as the 2020 BCG-MIT AI report highlights; it can help build resilience in these turbulent times. To achieve these goals, they must be ready for ecosystem cooperation beyond traditional partnerships, and they must take advantage of the unique digital capabilities of technology companies to complement their vertical capabilities and disrupt their own industries. Again, we find a good example looking east: Ping An, a traditional Chinese insurer, has partnered with Tencent and Alibaba to help it become a pure leader in digital insurance.

To remain competitive, European industrial players must evolve rapidly with the best AI technologies. And in most cases, they can only do this by working with Tech Giants; Europe has rarely been able to generate the best in AI on its own. However, to make this association sustainable and mutually beneficial, the actors must interact on an equal footing, which can only happen if the tech giants operate in Europe and follow European rules. European governments and the European Commission have a key role to play here, but it requires a radical shift in mindset: instead of trying to ‘win the race for AI innovation’, they should seek to ‘win the industrial race with AI ”- that is to say, supporting traditional companies in their work to digitize with AI. In other words, they should adjust their policies to focus on joint efforts to attract tech giants on terms for industrial players (e.g. costs, privacy) that respect European values, at the same time. instead of pursuing the fantasy of creatingFrom scratchhypothetical local competitors of tech giants.

In the 19th century, with a third of the world’s GDP, China was the biggest economic power. But it missed the Second Industrial Revolution and lost all global economic significance until recently. Let’s not allow Europe to follow the same path in the 21st century by missing out on the AI ​​revolution. Europe has great strengths, both in industry and in AI; it is the leading region in terms of the size of the AI ​​talent pool, and is home to global leaders in many sectors. There is an urgent need to act. To close the AI ​​digitization gap in Europe, policymakers and businesses have a common role to play, and success can only happen if business leaders and governments embrace this transformational journey. As the Italian writer Lampedusa once wrote: “If we don’t want to change anything, we have to change everything!”

François Candelon is CEO and Senior Partner of BCG, and Global Director of BCG Henderson Institute. Rodolphe Charme di Carlo is Director of the BCG Henderson Institute.

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