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Europe Plays Catch Up With Uncle September 29, 2000
Europe's trying to dance the techno.
Author : Suryati Mahmud

Untitled Document
Europe Lags Behind

The European Union has been trailing in the race for the New Economy. UNICE, a group of European industrial and employers' associations, in a recent report said that the region is falling behind the US and Japan in economic performance and level of innovation. It also needs to catch up in other areas such as competitiveness, economic welfare, living standards and employment. Similar sentiments have also been expressed by other organisations. At the Time? (a firm offering e-commerce solutions) CEO roundtable in September last year, president of the World Economic Forum, Klaus Schwab, said in comparison to the US, European labour markets and government tax structures are more rigid.

Difficulties That European Firms Face

In the recent inaugural European Business Summit in Brussels, Europeans were urged to be more daring in order to benefit from the digital revolution. The EU commissioner, Erkki Liikanen, said Europe needed to build a new culture of entrepreneurship. Echoing his words, other speakers at the meeting advised companies to adapt their strategies to the changing business environment. European companies were also urged to spend more on research and development - an area they are relatively weak in. The worry is not unfounded. According to a Morgan Stanley report, European companies' accumulated investments in IT in 1998 only amounted to what American companies spent in 1990.

European governments have also been slow in introducing regulatory and tax changes to spur the new economy. One major stumbling block why Europe is lagging behind the US in seeing more start-ups, is the difficulty entrepreneurs face in setting up businesses. UNICE reported that on an average, it took ten times as long to set up a limited-liability company in Germany than in America. It also cost three times more.

America also has more nimble start-ups than Europe because these firms can get financing more easily, says John Dinsdale of IT consultancy, the Gartner Group. "A lot of it is down to the mentality of the financial sector in the US which is much more open towards funding start-ups. If you have a smart idea, a smart telecoms idea or a smart IT idea, it's much easier to get funding in US than in Europe," added Dinsdale, who is based in UK and is also Gartner's worldwide director for telecommunications. The better opportunities has led European companies to snap up US assets. That in turn has resulted in a weak Euro vis-à-vis the US dollar.

Playing Catch Up

But Europe is catching up. Deregulation of sectors is taking place. One major area being freed up is telecommunications. The European Commission (economic policy body of the EU) has come up with a package that will streamline the present 26 telecommunications laws into just 6. It'll enable new technology to be introduced more quickly into the markets.

Financing new technology-driven business ideas have also become less daunting in some EU countries. Technology-oriented stock exchanges such as Germany's Neuer Markt and France's Nouveau March? are attracting droves of entrepreneurs to the fore. According to Businessweek magazine, companies in the euro zone raised a total of $222 billion US dollars last year by issuing new equities and bonds. That's a ten-fold increase from 1995. Initial public offerings last year amounted to $55 billion US dollars, tripling the figure in 1998.

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