Mobile telephony not enough to win the race with US

Date: 22/03/01

By Bruce Barnard

A YEAR ago Europe was obsessed with a yawning transatlantic high-tech gap that threatened to condemn it to a permanent second place behind the high-flying, Internet-driven US economy.

Times have changed. Now the EU is poised to grow faster than the US for the first time in a decade. And with US Internet stocks in free-fall and American 'new economy' icons like Amazon.com and Yahoo looking vulnerable, Europeans can be excused a certain degree of schadenfreude.

But the high-tech gulf remains, and Europe has to narrow it rapidly to sharpen its competitive edge in the intensifying battle for world markets with the US and the resurgent Asian economies.

Europe has already established a clear lead over the US in a major high-tech sector, mobile telephony, boasting the world's top operator (Vodafone), handset manufacturer (Nokia) and supplier of network infrastructure (Ericsson).

Ironically, the EU governments that pledged at the Lisbon 'dotcom summit' last year to create the world's leading information-based economy, present the biggest threat to Europe's mobile industry by extracting €100 billion for third-generation mobile phone licences. There are growing fears this 'greed' could cripple Europe's overstretched telecoms industry and destroy its great high-tech hope.

Despite its leadership in Internet mobile telephony, the EU is still running a poor second to the US in information and computer technology (ICT). It is catching up, spending 7% of its gross domestic product on ICT in 1999 compared to about 8% in the US, according to the latest figures. But the difference in output is much larger, with the Union's ICT 'production' accounting for just over 4% of its GDP compared with about 7% in the US.

European firms are, however, narrowing this gap and establishing global leadership in niche sectors by buying into US success stories. France's Alcatel has spent around €12 billion in the past two years acquiring six North American Internet-based firms, including Canada's Newbridge Networks and US switch builder Xylan.

The Dutch ASM Lithography group recently acquired its US rival Silicon Valley Group in a €1.6-billion deal that created the world's largest manufacturer of machines that print circuit images onto computer chips.

Philips, the Dutch electronics giant, has spent more than €4 billion in two years on US health equipment manufacturers to jump into third place in the world rankings behind GE Medical Systems and Germany's Siemens Medical Systems.

Leading European manufacturers are using the new technology to revolutionise the way they do business. Siemens' chief executive, Heinrich von Pierer, has committed the company to booking 25% of its overall sales and half of all its consumer products sales - worth €18 billion a year - via the Internet during the next three years.

ABB, the Swiss-based engineering giant, has revamped its websites to make them more user-friendly. It has cut delivery times for a customer ordering and receiving a customised electric motor from four weeks to two days.

But Europe is also at risk of trailing the US in other high-growth sectors in which it has enjoyed parity with American firms.

A recent study for the EU on global competitiveness found that pharmaceuticals "still provide by far the largest contribution to the European trade balance in high-technology, research and development-intensive sectors". Europe is home to five of the world's top ten pharmaceuticals companies and its laboratories produced some of the world's best-selling drugs. But by next year, only three of the 25 best sellers will belong to European companies, according to Evaluate, a research consultancy.

Europe is also paying the price for a late start in biotechnology as it struggles to match the products and profits of the American pioneers.

There is a long way to go before the high-tech gap closes.