Intelligent Machines

E Pluribus Euro

With Japan on the ropes, the chieftains of U.S. high-tech now must worry about the competitive threat from, believe it or not, Europe.

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:

This story is part of our March/April 1999 Issue
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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.

Virtue of Surprise? Two years ago, Andy Grove, Intel’s chairman, dismissed Europe in a notorious speech delivered to the European elite at the annual World Economic Forum in Davos, Switzerland. Yet look at the way the Linux operating system snuck up on Unix and Windows, the dominant programs in technical and commercial computing. Created by a Finnish hacker, Linus Torvalds, Linux invaded the rest of the world without the backing of any big U.S. companies or even any conventional marketing (see “Programs to the People,” TR January/February 1999). Just as the Japanese once benefited from being dismissed, Europeans do now.

Euro Cash. The advent of the Euro, a single currency for 11 European nations, symbolizes the cohesiveness of a region rivalling North America in size and wealth. Significant national differences remain, especially in taxation and support for higher education and research. But in business technology, English is the lingua franca and one set of standards reigns from Madrid to Warsaw.Gadget Passion. Europe’s quarter-century of hostility toward new technologies is ending. As in America, technology is now perceived as a measure of individuality and a lever of personal empowerment. For Europe’s smaller nations, the marriage of the Internet and wireless communications levels the playing field with the big boys. At the margins of Europe, the passion for technology is extraordinary. The Finns have a higher rate of Internet usage than the United States.

To be sure, innovators still raise hackles in Europe. And while Europe’s engineering talent is surprisingly deep and its universities are starting to overcome centuries of hostility toward commercial activities, European companies still hardly rely on the Indian and Chinese diasporas, whose members make seminal contributions to U.S. high-tech companies. Finally, the top U.S. companies are adept at absorbing and coopting European talent. Still, the lords of U.S. high-tech are watching Europe. Today all technological leads are temporary. Paranoia defines high-tech innovators. Right now, Europe inspires paranoia. It should.

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