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Europe has a chance to dominate deep tech

Like so many other European entrepreneurs at the start of the century, Siraj Khaliq headed off to the magic factory that is Silicon Valley to chase his dreams. His choice was a smart one - he pursued a successful career as an early Googler and start-up entrepreneur.

But when Mr Khaliq returned to Britain after 13 years in Silicon Valley, he was in for a big surprise. As he began touring Europe as a partner in Atomico, the venture capital fund, he discovered that the region's once-laggardly tech hubs had changed beyond recognition.

"I was shocked," he says. "There is an energy across Europe. It is almost like there's another Renaissance going on."

Mr Khaliq's impressions are supported by some harder analysis. In a report published in November, Atomico argued that Europe had acquired real traction in what it termed "deep tech": artificial intelligence (AI), robotics, virtual and augmented reality and the Internet of Things. "The future is being invented in Europe," the report proclaimed.

Some European politicians have latched on to this sense of possibility and are spying the chance to attract global tech "refugees" from an increasingly nationalistic US.

Mr Emmanuel Macron, the 39-year-old upstart in France's presidential election race, has appealed to all those scientists and entrepreneurs disillusioned with the Trump administration to move to Europe. "I want all those who today embody innovation and excellence in the United States to hear what we say: From now on, from next May, you will have a new homeland, France," he says.

All this happy Euro-tech talk requires something of a reality check. Previous predictions of a European tech resurgence have - rightly - met with derision from the west coast of the US. Where precisely are Europe's answers to Google, Apple, Facebook and Amazon - or les Gafas as they are known in France?

In those rare instances when promising European tech firms do achieve significant scale, they tend to be snapped up by US and Asian rivals. Qualcomm of the US is buying Netherlands-based chipmaker NXP, Japan's SoftBank has acquired Arm Holdings and Google bought Britain's leading AI company, Deep Mind, in 2014. The market value of the entire European tech sector amounts to just 7 per cent of that of the US.

If ever the leaders of Silicon Valley lie awake at night fretting about the future, they are far more likely to worry about the astonishing Internet giants of China such as Alibaba, Tencent and Baidu, than they are about any emerging rivals from Europe.

Besides, mainland Europe, like Brexit Britain and the Trumpian US, may yet succumb to its own forms of inward-looking nationalism, which is so anathema to the globalised tech world.

Yet there are two reasons why Atomico is right to suggest things may pan out differently in Europe this time.

The first is that we are now moving from the era of the consumer Internet to the industrial Internet, which is reshaping the manufacturing sector, playing more to Europe's strengths. It would be senseless for Europe to try to replicate Silicon Valley. But given its strong industrial base, Europe can still create something unique. Europe undoubtedly has the technological, financial and human assets to flourish in the digital economy.

As the Atomico report highlights, Europe boasts five of the world's top 10 computer science institutions. There are some 4.7 million professional developers in Europe compared with 4.1 million in the US.

Europe's financing market has also grown bigger and deeper. Although the market has cooled since the Brexit vote, about US$13 billion (S$18.4 billion) was invested in European tech start-ups in 2016 compared with US$2.8 billion in 2011.

There also appears to be an urgent recognition by many of Europe's established firms that they need to surf the digital wave if they are not to be crushed by it. Two-thirds of Europe's biggest firms have directly invested in a tech company as the old and new economies merge. One-third have acquired one since 2015.

The second reason for relative optimism is cultural.

Mr Frederic Mazzella, the founder of BlaBlaCar, the French ride-sharing company that now operates in 22 countries, points to a profound shift in attitudes among Europe's young. They no longer expect all the answers to come from the state or big organisations and are determined to shape their own future.

"Mindset is the most important thing for a country to be innovative. When people switch from willing to be a civil servant to willing to be an entrepreneur, then the country is on the right path," he says.

The European tech sector does indeed appear to be heading in a new direction and may yet surprise us all. There is no doubt that it is changing faster than ever before. But the critical question remains whether it is changing fast enough given developments elsewhere.

Speaking about the life cycle of companies, Mr Jack Welch, the legendary boss of General Electric, once warned that if the rate of change on the outside exceeded the rate of change on the inside, then the end was near. The same may apply to economies.

Europe had better keep accelerating.

FINANCIAL TIMES

A version of this article appeared in the print edition of The Straits Times on February 08, 2017, with the headline 'Europe has a chance to dominate deep tech'. Print Edition | Subscribe