Reviving innovation in Europe

Europe a century ago was a global powerhouse of innovation, but it has started to lose its edge: today, despite some notable exceptions, many innovative companies are found elsewhere. Europe is falling behind in growing sectors as well as in areas of innovation such as genomics, quantum computing, and artificial intelligence, where it is being outpaced by the United States and China. A discussion paper from the McKinsey Global Institute (MGI), suggests five paths that could help the continent regain its competitive edge. The paper, Innovation in Europe: Changing the game to regain a competitive edge (PDF--395KB), focuses on ways that Europe could seek to build on its strengths rather than trying to play catch-up, given that it is hindered by fragmentation and lack of scale. This article is a condensed version of the original paper, which draws from MGI research as well as from a recent collaboration with the World Economic Forum. Given Europe's relatively high wage costs and low reliance on natural resources, innovation remains of fundamental importance for the continent's economic and social system. European companies still account for one-quarter of total industrial R&D in the world, but over the past ten years US companies have continued to increase their share, reinforcing their leadership position.