Transforming Production in Europe – comparing with US

Transforming Enterprise ConferenceDepartment of CommerceWashington D.C., 27 January 2003Olli Rehn, University of Helsinki

1. Not a ”revolution”, rather a long-lasting economic transformation

IT-enabled change did not begin with the internet or e-commerce – got off the ground before

cf. Robert Bosch in the 1980s & Mikkelin Autotarvike

cf. Alfred Chandler: a life span of an industrial revolution is not 2-5 but rather 25-50 yearscontemporary digital transformation will only take full effect once IT in all its senses will be part of daily activities in business, government, lifee-business is primarily technology- and business-driven, but public policy can either facilitate or hinder progress

2. Not mere IT, but process and managerial innovations

to simplify: ”the Wal-Mart effect”; cf. EU Commission 2002: ”Wal-Mart is credited with directly causing the acceleration of labour productivity by developing a successful format based on ongoing managerial innovations and intensive use of IT.”

Forced competitors to copy Wal-Mart’s best practiceEurope trails behind the US, where productivity grew fast both in industries that produce and use IT (and IT-using industries tend to be dominated by service sectors)in Europe: Finland, Ireland and Sweden match with the US productivity gorwth – all are producers of IT (EU dualism!)catch-up potential Euro, Single Market in services ...

3. Yet, Europe is making progress, and its fundamentals are right

Enlargement speeds up cross-national production networks: Philips: R&D of electronics to ShanghaiNokia: a global network of electronic and component producers

e.g. Elcoteq (MBO 1991; est. 1984): the biggest employer in Estonia cf. Tallinn in 1983: nuclear warheads; in 2003: production outlets!

Fundamentals of digital transformation: steady progrebssmobile penetration 75%internet penetration 45-50%BUT: broadband only 4% competition in local telecom markets

the European social model to be revisited:basic education and digital literacy are Europe’s strengthsstructural reforms needed, and revival of entrepreneurship

EU mobile subscribers and average penetration

69

115

194

265 28

4

18%

31%

52%

75%70%

0

50

100

150

200

250

300

1998 1999 2000 2001 2002

Mill

ion

of s

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0%

10%

20%

30%

40%

50%

60%

70%

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EU a

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Subscribers Penetration rate

Mobile penetration in the EU

Household penetration of internet access 2001-200211

,7%

23,4

%

23,4

%

32,9

%

26,2

%

34,7

%

37,9

%

46,5

%

46,2

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46,2

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48,1

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43,6

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64,3

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58,9

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58,5

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9,2%

29,5

% 35,4

% 40,9

% 45,0

%

47,9

%

49,1

% 53,7

%

64,2

%

64,5

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65,5

%

30,8

% 35,5

%

43,7

%

55,0

%

0%

10%

20%

30%

40%

50%

60%

70%

EL E P I F B D UK IRL A FIN L S DK NL

JUNE 2001

JUNE 2002

Internet penetration in the EU

Availability and penetration rate of incumbent's and new entrants' retail broadband access to internet

2%

7%

4% 5%

4%

2%

2%

7%

1%

8%

1%

4%

0

200.000

400.000

600.000

800.000

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1.400.000

1.600.000

EL IRL P FIN A S DK I B E NL F UK D

Nº o

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Availability of incumbent's and new entrants' retail broadband access to internetBroadband penetration

D: Not to scale.Value:3,376,013

Broadband penetration in the EU

3. Yet, Europe is making progress, and its fundamentals are right

Enlargement speeds up cross-national production networks: Philips: R&D of electronics to ShanghaiNokia: 15 major subcontractors, a global network

e.g. Elcoteq (est. 1993, FIN): the biggest employer in Estonia cf. Tallinn in 1983: nuclear warheads; in 2003: production outlets!

Fundamentals of digital transformation: steady progrebssmobile penetration 75%internet penetration 45-50%BUT: broadband only 4% competition in local telecom markets

the European social model to be revisited:basic education and digital literacy are Europe’s strengthsstructural reforms needed, and revival of entrepreneurship