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London-there is a new nightmare scenario for U.S. high-tech. And the big surprise? It doesn’t involve the Japanese. That’s a stunning turnaround. For decades, every self-respecting high-tech pundit predicted that, sooner or later, the Japanese would dominate the entire range of electronics industries. Japan’s ability to mass-produce, to match American innovations and indeed to spawn its own knockout breakthroughs would destroy U.S. competitiveness. But a funny thing happened on the road to Japanese high-tech hegemony. The Japanese failed to innovate, their leading companies got bogged down in capital-intensive, low-profit businesses like memory chips, and consumer electronics never took over computing but instead became victimized by over-capacity and falling prices. U.S. high-tech, meanwhile, proved more adept at miniaturization, low-cost production and continuous improvement than anyone thought possible a decade ago.

As a result, the chieftains of U.S. high-tech no longer lie awake at night worrying about the bogeyman of Nippon. Today U.S. technology companies are the envy of the world. They hold a decisive advantage over Japanese rivals in virtually every aspect of electronics.

So what’s the new threat? Europe. No, I’m not kidding. Having moved here myself a few months ago, I am startled to find that tradition-bound, regulation-heavy Europe, which only a few years ago was the laughingstock of high-tech, is a genuine threat. This is the same Europe whose computer companies were savaged by the advent of personal computers in the 1970s, limped through the 1980s and were virtually wiped out this decade. This is the same Europe that spawned the World Wide Web (in a Swiss physics lab, of all places) and yet allowed Netscape and a raft of U.S. upstarts to dominate the Web’s commercialization. The same Europe whose high-taxes, antibusiness universities and lack of venture capital have sent thousands of innovators streaming to the United States. Yet European technology is back. For five reasons:

King Telecom. If desktop computing-an American stronghold-has an Achilles’ heel, it lies in being tethered to a physical network. Europeans hold a commanding lead over the United States in commercial wireless communications. That could be the basis for a sea change in international technology power relations. European standards are driving the industry. This raises the possibility of a European coup in systems-level computing, if wireless networks shape the computing paradigm of the next century.Birth of the New. On the rubble of the old Europe, a new generation of high-tech leaders is rising. Consider the experience of Gemplus, France’s most successful new high-tech company in a quarter-century and the world’s biggest supplier of smart cards. A decade ago Marc Lassus, the founder of Gemplus, first tried to convince his then-employer, Thomson, to pursue smart cards but the French high-tech behemoth refused. Lassus bolted, and Thomson let him (legally) carry off scores of employees and valuable technology.

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