The Industrial Revolution, which commenced in the late 18th and early 19th century in Europe, propelled the transformation of socio-economic structures and led to a quantum leap towards a capital-intensive economy. It transformed people’s lives and their interaction with the state and other social and economic institutions. A progressive shift towards democratization was already in the making during the aftermath of the French Revolution. The Industrial Revolution accelerated that transformation by fundamentally changing the social dynamics, encouraging migration from villages to towns/cities, and increasing productivity. As such, the industrial revolution created the foundation, upon which modern Europe was built.
Europe as a continent and the EU countries, in particular, hold a strong historical legacy of planning and leading industrialization. That said, in the postcolonial and post-cold war context, when the continent is in continuous struggle in grappling with global political, financial, and environmental challenges, industrialization warrants a set of coordinated and coherent strategies ushering balanced, ethical, and sustainable industrial development. Industrialization, at this point, ought to be underpinned by a robust EU strategy that can protect national and regional interests. A bottom-up approach to need-based policy formulation can help create conducive business ecosystems at the grassroots level, critical in fostering the operational and financial sustainability of appropriate industries. This, however, can always be challenging due to the EU’s concurrent commitment to decarbonization and ethical standards in business and industrial policies. China’s emergence as an economic and security threat further complicates the scenario and demands a prompt and agile response.
Like many other countries around the world, the EU nations are also in contention to overcome the post-pandemic economic crises. In 2023, the bloc’s economy was shaken by high inflation, which has significantly dipped lately in early 2024 – from 5.4% in 2023 to 2.7% in 2024. As such, there is a renewed optimism for economic growth, which is expected to drive income, and quality of living and reduce poverty and inequality. With reduced inflation, the real disposable income is expected to rise. That said, reduced unemployment and increased foreign trade and investment are needed to boost the growth, which is expected to be around a mere 0.8% in 2024. Persistent energy and commodity price fluctuations and geopolitical uncertainties such as the wars in Ukraine and the Middle East significantly dent any hope for resilient growth.
Against this backdrop, it is ever more important for the EU nations to embark upon robust industrialization strategies. Without accelerated industrial development, it will be almost impossible for the EU to achieve its ambition to become a resilient and sustainable economic zone while continuing to hone its global competitiveness.
In 2020, before the pandemic, the European Commission made a start with the development of an industrial strategy that would support the transition to a green and digital economy. That was deemed as a necessary step to elevate the global competitive positioning of EU industries. Following, in 2021, the Commission updated the EU Industrial Strategy to ensure that its industrial ambition takes full account of the new circumstances following the COVID-19 crisis. Simultaneously, the Commission was keen to drive the transformation to a more sustainable, digital, resilient, and globally competitive economy. The two back-to-back strategies demonstrate the Commission’s intent to formulate a coordinated and consistent approach to boost industrialization.
The above strategies paid particular attention to the development of resilient business ecosystems in the member states. In post-COVID business scenarios, the seamless connectivity of the supply chain emerged as a critical driver for industrial development. Strengthened Single Market has the potential to reduce market frictions and supply dependencies. Lessons from the post-COVID financial crisis teach us that international supply dependency has its drawbacks. The resilience of the Single Market and its myriad benefits can be leveraged in the future. A fresh new approach to industrial development is needed, where a fundamental redesign of the supply chain needs to embrace technological and process innovation and encourage co-creative business ecosystems. While policy support plays a key role in building and sustaining business ecosystems, it is also important to enhance the capabilities of individual firms. Co-creative support mechanism at a regional level pivots the sustained success of business ecosystems. Regions can also work like entrepreneurs, and it can exhibit is capabilities to host, run, and succeed businesses. Regions and local businesses can develop mutually beneficial economic symbiosis and shape each other distinctiveness. Devolved regional autonomy is needed to allow smaller regions within the bloc to determine competency-supported and capacity-building activities for businesses and individuals, and coordinated branding strategies for regional products leading to the distinctiveness of the regional brands in national and global markets.
The capabilities of businesses and entrepreneurs are interwoven with the dynamics and resources of a region that collectively constitute regional capability. Regional capability is the cumulative ability of a region to deliver value by optimizing resource utilization. Like individual firms, regions can also hone their capabilities to harness regional assets. Regional capabilities can be driven by a range of factors including industrial and organizational thickness and diversity, infrastructural facilities, policy support, and historical background that mold the potential and opportunities within a spatial context. Factors such as historical legacies, technical and academic knowledge distribution, institutional configurations, and spatial and temporal vectors of development can constitute regional capabilities. As such, some regions may have stronger capability in leveraging technological benefits due to stronger financial support and higher IT literacy. On the other hand, other regions may have weaker capability – despite their abundance of natural resources, they may not have the appropriate policy or entrepreneurial thrust to leverage those resources. Regional dynamic capabilities can be an outcome of the dialectic and iterative interaction between firms, individuals (entrepreneurs/policymakers), regulations, and policies that drive resource utilization and value generation.
Developing a robust regional value co-creation strategy is important to drive economic development by building regional capabilities. The importance of SMEs in shaping the regional economy and driving regional development is immense. According to the World Bank, SMEs make 90% of the global businesses and half of the global employment. SMEs make 99.8% of the total enterprises within the EU and are responsible for 100 million jobs. In 2022, the EU had 32 million enterprises, employing 160 million people with a net turnover of €38 trillion.
The above diagram demonstrates the huge importance of SMEs in enhancing the EU’s competitiveness, industrial ecosystems, and resilience against external shocks.
That said, large enterprises continue to make significant contributions to the economy. Even though large enterprises (more than 249 persons employed) represent only 0.2% of the total number of enterprises (53 000 enterprises) in the EU, they employ more than a third of the labor force (56.5 million people, 35%) and generate half (50%) of the net turnover (€19.2 trillion).
Hence, large enterprises will continue to make bulk contributions to the economy across the EU bloc. However, in many respects, SMEs have symbiotic relationships with large enterprises and are often integral within business ecosystems. SMEs provide critical business support to large enterprises including the likes of supplies, outsourced professional services, and accessories. The priority should be given to bolstering business ecosystems through policy and regulatory intervention. The bricolage of support mechanisms within business ecosystems can be ensured through distributed benefits amongst the members. Regardless, industrial development within the EU bloc is largely dependent upon how these business ecosystems continue to sustain.
Business model innovation is another key aspect for the sustained success of individual businesses and business ecosystems. At the micro level, both SMEs and large enterprises have to resort to product and process innovation to stay ahead of the curve. Technology in this regard, can simultaneously be an enabler and outcome. Cutting-edge technology such as AI can be leveraged to bring operational efficiencies, improved product quality, and inventive business solutions. On the other hand, EU nations ought to thrive to offer green and cost-effective product innovation. The automobile industry, for instance, is in dire need of electric vehicles, while EU nations and many Western countries are grappling with widespread threats from cheaper Chinese products. Again, appropriate policy intervention is imperative to protect ethics and transparency within the competitive environment. The European Commission recently started customs registration of Chinese electric vehicle (EV) imports, amidst the speculation that they receive unfair subsidies. The Commission sought to carry out an anti-subsidy investigation into Chinese battery EVs to determine whether to impose tariffs to protect EU producers. In essence, an agile, responsive and where necessary proactive approach should underpin policy and regulatory measures to ensure transparent and fair competitive environments.
Industrialization is a multifarious process, that involves myriad stakeholders and drivers. The overarching strategies can help guide businesses, individuals, and other stakeholders (eg. education providers) to work as collaborative members of the ecosystem and deliver value for businesses and communities, respective regions, nations, and bloc.
References:
Dr Bidit Dey
Director of Accreditation
& Senior Lecturer (Associate Professor) in Marketing
Sheffield University Management School
The University of Sheffield