Trends shaping innovation in the digital age & consequences for business and labour markets Meeting of EFTA Consultative Committee Natacha FAULLIMMEL Analyst, European Political Strategy Centre European Commission @natfau 21 November 2018 Disclaimer: these slides were designed to stimulate a discussion about the trends affecting the EU in the future and do not represent official positions of the European Commission

Why focus on innovation in the digital age? How is innovation changing? Some implications and seeds for optimism about the future 1

Global Corporate Top Ten Moves Towards Digital Not a single European company in the global top ten Market valuation in billion US dollars Source: Bloomberg, ycharts 2

The World’s Top 20 Digital Companies American and Chinese companies occupy the entire top 20 of Internet giants Source: Kleiner Perkins Caufield & Byers Internet Trends Report 2018, Forbes, Company Reports 3

Concerns about European firms in a changing global landscape Source: European Political Strategy Centre 4

The Stock of European Companies in the Top 100 Significantly Reduced in One Decade (2007 – 2017) Ten year evolution of global firms, by region Source: Fortune 5

At The Same Time, Unicorns Are Mainly Concentrated In The US And China There are no European unicorns among the top 10 Note: A unicorn is a privately held startup company with a current valuation of US$1 billion or more Source: Fortune, WEF, WSJ 6

The innovation toolbox New infrastructure needs Scale, redefined What’s changing? The rise of Asia The innovation toolbox New infrastructure needs Scale, redefined David vs Goliath Lack of growth capital 7

Global economy shifting East Share of developing Asia in total world GDP (constant 2011 international $ PPP) Source: World Bank 8

China is investing in R&D at a rate that eclipses both the EU and the US Gross domestic expenditure on research and development, in billion current PPP dollars Notes: *EPSC estimates based on current growth rates Source: UNESCO Institute for Statistics: 9

China is well on its way to AI supremacy Market valuation in billions of dollars, April 2018 Note: Companies considered include seed, early and late stage start-ups Source: Crunchbase, Bloomberg 10

The innovation toolbox is changing Intangible investments have overtaken tangibles Share of GDP, US+EU11, whole economy Note: The aggregated EU11 includes: Austria, Czech Republic, Germany, Denmark, Finland, Italy, Netherlands, Portugal, Slovenia, Sweden and the United Kingdom. Source: Haskel, Westlake (2018). 'Productivity and secular stagnation in the intangible economy' https://voxeu.org/article/productivity-andsecular-stagnation-intangible-economy 12

Global Explosion In Data Fuels New Paradigm Worldwide data storage in exabytes Data enables innovation for a ‘segment-of-one’ market Source: International Data Corporation Digital Universe Study 13

A New Infrastructure For A New Age: Connectivity Sweden: where early investments in world-class connectivity enabled the creation of Europe’s most prolific tech hub Share of fast (>100 Mbps) broadband as a % of total broadband, December 2016 Source: Organisation for Economic Co-operation and Development 14

A New Infrastructure For A New Age: Skills Skills and resilience for a world of change Note: This framework is inspired by the T-Skill framework Source: EPSC 15

Scale Of Networks And Customer Pools Facebook’s acquisition of WhatsApp leaves it controlling 48% of online messaging apps % of monthly active users, April 2018 ‘scale without mass’: WhatsApp has a global presence and just 55 employees. Source: Statista 16

In A World Of Disruptive Innovation, The Nature Of Competition Is Changing Start-ups are seen in a new light:: as a means of completing a service offerings, or acquiring talent Artificial Intelligence start-up acquisitions rose by 44% in 2017 Source: CB Insights 17

At risk of an ‘AI start-up drain’? The number of AI start-up acquisitions rose from 22 in 2013 to 115 in 2017 – a fivefold increase. In the first half of 2018: 63% of targeted companies were in the US 23% were in Europe – a testimony to Europe’s growing competitiveness in AI technology, but also sparking fears of a ‘start-up drain’, as 56% of EU start-ups were bought up by non-EU firms. Lack of talent holds back the AI wave Global executives' answers to the question: 'What is the biggest roadblock to AI adoption?' (Share of respondents, %) Source: Gartner, November 2017 18

Acquisition as a business strategy when capital for growth is lacking? Growth capital pales in comparison to the US Investments in Europe and US by stage focus in 2017, in billion US Dollars Source: Dow Jones VentureScore 19

Building on Europe’s strengths and seeds for optimism about the future 20

We can learn from the mistakes of others Current tech backlash Avoiding over-hype 21

Europe Boasts Top Human Capital: 12 Out of 20 Best Countries Source: World Bank Human Capital Index (2018) 22

Europe Produces More PhDs in STEM than United States Number of graduates in STEM fields per year by region Source: World Bank Human Capital Index (2018) 23

EU Home to Steady Business Creation Enterprise birth rate, as a % of total active enterprises Source: European Commission, Eurostat; US Census Bureau 24

Europe is Becoming a Start-Up Powerhouse Digital start-up intensity across Europe Source: European Digital City Index 25

Thank you for your attention Natacha FAULLIMMEL Analyst, European Political Strategy Centre European Commission @natfau