Will Europe have its own NVIDIA? How can we create champions for our companies?

A few weeks ago, we wrote about “bubble-building” in large-cap US technology stocks. Since then, some tech stocks like TeslaTSLA have struggled, while NVIDIA, the leader of the “bubble” pack, has become more volatile, rising and falling by as much as its market cap on any given day. I have been putting effort into it. – Famous European companies like Volkswagen (NVIDIA is worth over $2 trillion, while Volkswagen is worth only $65 billion).

Companies considered by many to be European industrial giants (Volkswagen employs 670,000 people, half of them in Germany) and fast-growing high-tech companies (NVIDIA employs about 26,000 people). The difference in size (1,000 people) has led many to demand that Europe expand its size. own giant company. This in itself is not a consistent strategy. In the United States, big technology companies have gotten so big that they have become at least oligopolistic, and in some cases monopolistic.

This level of concentration can only be tolerated under the guise of great power competition, where tech giants are part of the competitiveness of great powers (incidentally, since 1929, the 10 largest US companies have been the largest in the stock market. market share).

Europe doesn’t have this problem, but a better way to frame the “we need to go bigger” question is to think about how we can make it easier for European companies to scale up. After all, that’s the nature of technology-driven businesses. This issue has become even more important as Europe’s new defense procurement strategy is developed, the EU AI law comes into force, and the supporting ‘supercomputing’ strategy drives its infrastructure forward.

If you think about the companies that have successfully expanded across Europe, many have done so through mergers and acquisitions (beverages and spirits), and most have had tangible products with cross-cultural appeal (again, luxury goods, payments). It belongs to an industry that deals with technology, beverages). In most cases, the difficulty in scaling lies in the distribution network. Financial services is a great example.

There are many reasons why it is difficult to expand companies across Europe, one of which is the lack of deeper capital and venture markets. A more critical reason is the cultural and legal complexities of doing business across countries that have different ways of doing things. Among them, the majority of European companies, even fast-growing technology companies, tend to have unavoidable cultural imprints, and these “imprints” make companies a “domestic company” It has become extremely difficult to transition from a company to a “pan-national enterprise.” .

For example, while many French politicians talk about the idea of ​​a pan-national champion, virtually no large French company has a “foreigner” CEO (and very few women). . Just as most European politicians value seats in their national parliaments more than the European Parliament, ‘domestic’ corporate politics is more important to most executives than ‘European’ corporate politics.

So what does it take to build a pan-European large business champion?

First, some clues can be taken from countries in the EU’s geographical and cultural hinterland. For example, the UK was once home to large corporations such as banks, oil companies, and some large technology companies, and was widely considered to be a free market capitalist economy. There should be more mega-cap companies in the UK, but the shock of Brexit, years of neglect of education and public services, and a deteriorating labor market appear to have eroded the UK’s attractiveness. Two other countries of hers that come to mind in a more positive sense are Canada and Switzerland.

While Canada doesn’t have huge corporations (there are many large banks, railroads and mining companies), the breadth of its investment ecosystem makes it seem to me that Europe should emulate it. The country is one of the few economies with a series of successful venture capital, private equity, infrastructure and agricultural investment companies and a very large pension fund, largely thanks to its progressive pensions ( It has the same population as Poland and 10 million fewer people than Spain). And tax law.

Switzerland is perhaps the lighthouse of Europe. Despite having only 12% of Germany’s population, its stock market is only half the size of Germany’s (Switzerland’s stock market as a percentage of GDP and population is better than that of the United States). It houses major global companies such as Nestlé and UBS. Despite the fact that Switzerland is very much an exception, there are some factors that Europeans should pay attention to.

First, Switzerland has a well-developed capital market and large savings capital (much of which comes from outside Switzerland), a developed financial market ecosystem, an active market for executive labor, and a high level of research and development. That’s true. and significant investment in education (from skills-based apprenticeship schools to top universities like ETHETH). Understanding the secrets of success in Switzerland and other countries may provide some implications.

The Swiss example may point to the need for increased private funding (in the form of endowments) to universities so that developments in physics are consistent with the legal and philosophical framework that accompanies the deployment of new technologies. do not have. It could also improve pension funding, allowing pension funds to invest in a wider range of asset classes. We also need the European Investment Bank to expand its equity investments and strengthen collaboration among corporate venture capital firms across Europe.

More generally, to reiterate the recommendation we made in ‘The Levelling’, Europe needs to think about corporate governance at a pan-European level.

‘One such suggestion is to harmonize the processes involved in setting up a business. The European Union could establish an EU-level process that would allow entrepreneurs to adopt an EU template to set up a business, making it take the same amount of time to set up a business anywhere in the EU. . The EU Entrepreneurial Template should ideally make the initial stages of business as complex as possible and could serve as a basis for harmonizing legislation across specific topics such as insolvency, prosecution of corruption and labor law. There is a gender. This would be a far more meaningful reform than deeper political unity. ”

This proposal could be established, for example under the EU Horizon programme, and with a deeper pool of capital could create a cadre of European corporate champions.

As a final comment, perhaps the biggest impediment to policy action on building corporate ‘champions’ is that this is not voted on as a political issue in Europe and therefore there is little impetus for change.