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We develop innovations according
to the principles of digital humanism.

Digitization in Europe:
The human being as success formula of the future

Expert Commentary by Dr. Georg Krause, CEO of msg Plaut

Throughout human history, there have been many new inventions that have led to the improvement of existing processes, the development of new materials or medicines, and the implementation of new forms of energy usage.

What is different in the digital age today is that there has never been such a concentrated convergence of new technologies. Software and hardware, and especially the combination thereof - keywords such as Artificial Intelligence, Cyber Physical Systems, or global networking - have rapidly pushed the boundaries of knowledge and the limits of what is possible within just a few years. And they will continue to do so in the future, with increasing speed.

“The pace of change has never been this fast, yet it will never be this slow again” as Canadian President Trudeau aptly put it at the 2018 World Economic Forum in Davos..

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Georg Krause

Dr. Georg Krause

CEO msg Plaut AG

Digitization changes (almost) everything

Digitization not only offers potential for improvement of existing processes, but also completely novel possibilities and ways in which the economy, administration, education, medicine, and more will function in the future. It is not the implementation of faster, simpler processes that defines digitization, but rather the completely new approach, the disruptive solution.

As a result, today's largest room rental company in the world owns no hotels (Airbnb), and the largest ride-hailing service provider owns no cars (Uber). Things that used to be purchased are now often rented for a certain period of time and to a corresponding extent, as is common with most software products or e-scooter rentals in urban transportation today.

This has, among other things, led to most of the world's most valuable companies coming from the digital sector. They strictly pursue digital business models and often have a market capitalization that is multiple times that of traditional companies (see graph), allowing them to achieve valuations beyond the trillion-dollar mark, while no traditional business has ever achieved a market capitalization of over $500 billion.

Top 10 companies by market capitalization

Top 10 companies by market capitalization

Digital companies are shown in red

Europe is lagging behind worldwide

The bad news first: Europe and its companies have slept through digitization. In 2010, there were at least three European companies in the top 10 companies by market capitalization worldwide, but today's top digital companies come almost exclusively from the US, with a few from China.

Looking at the startup world, it's no different. In its 2021 report, research institute CBInsights examined the global distribution of "unicorns," young, newly founded companies with more than $1 billion in market capitalization. Examining these unicorns is particularly useful as they mostly have innovative, new business models that utilize digital opportunities and drive innovation and disruption forward. Some of them will be the Ubers, Alphabets, and Amazons of tomorrow. Here again, Europe is dishearteningly behind the US and Asia, especially continental Europe.

Distribution of Unicorns

Unicorns world map

Distribution of unicorns (startups with more than $1 billion in market capitalization) by region, CBInsights Report 2021.

And another important area in the digital economy is worth taking a look at: the platforms. These digital marketplaces are not only the most important area for the future, but also significant because they bring together customers, suppliers, service providers and many other stakeholders from around the world. This often creates enormous market power with monopolistic structures, as the example of Amazon shows. The term "platform economy" is already being used, as more and more traditional sales and communication channels are being shifted to platforms. Unfortunately, the same picture emerges for Europe compared to the USA or Asia: the catch-up or lagging behind - however one looks at the statistics - is immense.

Top 100 platforms in the world

Top 100 platforms in the world

Top 100 platforms in the world by economic region

Opportunities for a digital Austria?

The examples mentioned are just the tip of the iceberg. Whether it's the World Digital Competitiveness Ranking 2022 by IMD or the Network Readiness Index, Europe almost always lags behind the other two powerful regions in terms of digitalization. Has the train of digitization already left the station for a small country like Austria?

The answer is no. When looking at country-level reports, it can be seen that some European countries repeatedly appear in the top group of digitalization and digital competitiveness, even if Europe as a whole lags significantly behind. These countries include Sweden, Denmark, the Netherlands, Finland, and Switzerland as a non-EU country.

Within the EU, the Digital Economy and Society Index (DESI) has been measuring the progress and status of digitalization in all European countries annually since 2014. This index combines indicators from the areas of human capital, connectivity, economy, and administration.

Digitalisierungsgrad der EU-Länder im Jahr 2022

In recent years, Austria has consistently ranked between 10th and 13th place in this ranking, placing it in the middle of the pack, usually on par with Germany. Austria's strength in digitalization tends to lie in research and the administration sector (eGovernment), while the use of innovative digital technologies in the corporate sector and in private use lags behind other countries.

But there are glimmers of hope at the end of the digital tunnel. Austria's potential should not be underestimated, especially since the current share of ICT in the country's gross domestic product (GDP) is only just over 3%, while countries like Sweden or the United Kingdom have a significantly higher share of over 5%. This means that there is an immediate growth potential of 2% of GDP. Additionally, there is an indirect effect, as statistically every IT job creates 1 to 3 additional jobs in other sectors.

European competitiveness at risk

In an increasingly digital and interconnected world, traditional business models in many areas are being supplemented or replaced by digital ones. This means that current prosperity can only be maintained or increased if these new opportunities are successfully utilized, otherwise competitiveness and prosperity will decline.

For Europe, the challenge is to catch up with the other economic regions as described above, to invest specifically in new technologies, to consciously translate their own strengths into the digital world (e.g. using the lead of the German automotive industry for new digital transportation models), and to become an attractive economic region for investments, startups and globally operating companies.

Digital education is crucial

This cannot be done without people. The digital transformation is changing the way we work, and traditional business models are being supplemented or replaced by digital ones. In order to maintain or increase our current prosperity, it is necessary to embrace these new opportunities and use them successfully, otherwise competitiveness and prosperity will decline.

For Europe, the challenge is to catch up with other economic regions, invest in new technologies, and consciously apply its strengths to the digital world (e.g., leveraging the lead of the German automotive industry for new digital transport models), in order to become an attractive economic region for investment, startups, and global companies.

However, digital transformation cannot happen without people. There are hardly any jobs that can be done without digital competencies. Whether it is a welder operating complex welding robots, or a craftsman using augmented reality glasses to perform repairs on machines, digital skills are crucial.

Therefore, digital education is of paramount importance. People with good digital education not only have better chances of getting a job, but especially higher chances of getting an IT-intensive job, which is typically better paid, as confirmed by the Vienna Institute for International Economic Studies in a 2021 study. And this, in turn, strengthens prosperity.

In order to create sufficient digital jobs in Europe, two things must be achieved: First, people must be qualified digitally through targeted expansion of digital education and attractive, modern study programs such as data science or AI engineering. Second, an attractive ecosystem must be created consisting of universities, leading companies, and startups, as well as suitable conditions for venture capital. This will create a counterbalance to the Silicon Valleys of the world, in order to retain or attract top talent and entrepreneurs.

There are also opportunities for Austria in particular. According to DESI, currently only 63% of Austrians have "basic digital competencies," and only about half of those have "advanced digital competencies." Additionally, focusing on a specific area such as digital tourism could be advantageous.

European values - from stumbling block to future opportunities?

In terms of digitalization, Europe is currently lagging behind the USA or China. And there are reasons for that: In the USA, the practical dominance of companies over society and politics, as well as the dominance of the state in China. This has led, in the first phase of digitalization, to faster reactions, as less consideration was given to special interests, ethical and socio-political questions such as data protection, and less interest reconciliation was required.

While this was previously seen as a weakness in Europe, this "IT-political, democratic stubbornness" could turn out to be a strength for Europe in the future. Especially in a time when sovereignty has become an important value again. The increasing international networking in the context of the digitalization of recent years has also led to a significant increase in mutual dependence. In addition, the COVID pandemic and the Ukraine/Russia conflict have shown us in Europe how essential this digital sovereignty is for our coexistence.

Can a democratic Europe, which is based on different values and principles than the other two mentioned states, succeed in the digital world?

Europe needs its own digital path

To avoid being left behind in the digital world in the next few years, we must not blindly follow the approaches of the USA or China, neither understanding digitalization as company-centered as in the USA nor state-centered as in China. We need our own, European - and if you will - third digital path. One that thinks of humans and technology together, human-centered, and humanistic.

Of course, this is not entirely new. In a strategy process led by Danube University Krems in collaboration with ministries, scientists, thought leaders, representatives from the economy, and civil society, this approach was already formulated in Austria in 2018.

The central question is how to reconcile the requirements and possibilities of digitalization, such as dealing with the enormous amounts of data needed for AI, with European values, especially human dignity, freedom, democracy, equality, the rule of law, and the protection of human and minority rights.

With human-centred approach to digital success

The direction for a digitally strong Europe is already being shown by some concrete and very promising approaches and projects such as the Digital Service Act, "Digital Identity for all Europeans" (which aims to allow all citizens to securely prove their identity throughout Europe) or GAIA-X (a secure and privacy-friendly virtual cloud computing infrastructure for Europe).

All of these projects are based on the same fundamental principles that have always distinguished Europe when it comes to digitization: self-determination over data, the use of data only for its intended and agreed-upon purposes, with emphasis on the GDPR, secure networking and anonymized data exchange, and unrestricted protection of human rights for users such as freedom of expression and children's rights.

Of course, these are just the first steps of a human-centered approach to digitization. If the EU and its countries continue to pursue this path consistently, it can become a real unique selling point for Europe in the digital world. After the first rapid years of digitization, the digital gold rush, it is expected that companies and countries will seek sustainable concepts that establish a good balance between what is technically feasible and what is morally and ethically desirable.

If we implement this concept wisely and deliberately over the next few years, Europe can stand out as a pioneer. This is coupled with the hope that people in free nations outside of Europe will also follow and support this path as it aligns with their interests and values. I, for one, am convinced that this path will be successful, and that it will help us restore our international competitiveness, secure our prosperity, and preserve our sovereignty.

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Georg Krause

Dr. Georg Krause

CEO msg Plaut AG