Stuffed at Both Ends: Europe Needs a New Business Plan
By Bundeep Singh Rangar

While attending high school in India, I was taught how the economics of colonialism was underpinned by the theory of mercantilism. India first provided a cheap source of raw materials for European factories, and then served as a market for their manufactured goods. In short, it got stuffed at both ends.

First forward 100 years and it seems we're witnessing an interesting reversal. As industrial countries of the last century are replaced by information economies, Europe holds the unique position of becoming both the source of raw ideas and a market for processed ones.

Firstly, Europe's role as a leading source of technology breakthroughs is unquestionable. Its inventors and scientists occupy many a seat in the Innovation Hall of Fame. Secondly, the expansion of the European Union next year will create the world's largest information society-based market. Its 445 million people will beat the North American Free Trade Agreement zone's 416 million population.

What's wrong with being a leading innovator and market at the same time? Probably the same thing that was wrong with mercantilism - targeting economies to allow a net transfer of wealth away to enrich those who process the materials into a finished product.

If Europe can't find a way to improve the commercialisation of its own innovations, other world powers will come and take their creations away - along with the potential economic benefits that these designs could have within their own home base. Despite the breakthroughs of Europe's scientists, lower-cost labour in Asian countries can cheaply copy technologies, while big US firms are easily able to incorporate them into their product offerings and then sell these products back to their biggest target market: Europe.

At worst, Europe seems to be inviting the situation. To understand why, it's important to see how value is created by today's technology companies compared with their industrial counterparts. For multinational tech firms, the ownership of customers and leveraged intellectual capital gives them the competitive edge. European companies have generally focused on infrastructure provision to the detriment of customer knowledge, preferences and habits.

But while a lack of customer ownership is one thing, the biggest global threat to European competitiveness is human capital shifting to other regions, particularly to Asia. As technologies mature, Western companies are trying to maintain profits by becoming customer-oriented service firms while lowering production costs. A consequence of this intellectual capital shift is that Asia is nurturing some of the biggest challengers to Western tech firms at Europe's cost. And what little cost advantage lies with Eastern Europe countries will be lost when their currencies are harmonised following the EU expansion.

If there is not a massive change in Europe's business plan, get ready for the new Europe; the biggest colony to the world's high-tech firms.

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