2022-02-11
Dariusz Zbytniewski
Thinking about the future of Poland, it is worth being aware of the development models being considered elsewhere. Interesting reflections on the current model of business and economic development in Switzerland, as well as the necessary changes in this model, were presented by Dominique Mégret, the head of Swisscom Ventures, in the book "Deeptech Nation What future for the Swiss model?[i] " Proposed solutions for the Swiss economy have a pan-European character. Therefore, it's valuable to consider them in the context of building the long-term competitiveness of Polish companies and increasing their ability to face global challenges related to the digital transformation of the world economy and the rapidly growing innovation of various countries and regions.
Europe has become a major loser in the digital transformation. In 2006, three out of the top 10 companies in terms of market capitalization were European. 15 years later, in November 2021, there are no longer any European companies among the top ten, and the ranking has been dominated by high-tech firms (7 American and 1 from Taiwan).
The European economy has become heavily dependent on American software and Chinese hardware, and its competitive ability is decreasing due to declining innovation. Europe's strength lies in its ability to create theoretical solutions, but the closer it gets to the market and economic activity, the worse it performs, as confirmed by the following figures:
Amidst the European backdrop, Switzerland stands out, ranking first in the world for both innovation and competitiveness in 2021. In the same rankings, Poland occupies the 40th and 47th positions respectively[i]. Switzerland holds the third spot globally, following the USA and China, in terms of the market capitalization of the world's top 100 companies. In 2020, the three largest European companies hailed from Switzerland (Nestlé, Roche, and Novartis).
Other significant trends influencing the competitiveness of European companies include the growing power of American digital platforms. In May 2021, among the top 25 companies by market capitalization, only one European company (SAP) was present. The economy of the platform business model is based on scale of operation and data exploration. This means that a market leader (e.g. in personalized medicine) with the best algorithms for prevention and medical care will have a significant advantage over its competitors. Who would entrust their health to a lesser doctor/system? Similarly, with autonomous cars, who would risk using less safe algorithms?
The same logic applies to other areas. Overall, this could lead to a "winner takes it all" development model, further deteriorating the competitive position of European companies.
Key questions arise: What contributes to the high current competitiveness of Swiss companies? Will the global digital economic transformation impact the Swiss model? What does Switzerland plan to do to strengthen its position? The author of the book "Deeptech Nation What future for the Swiss model?" - an entrepreneur and investor - addresses these questions.
Traditional Model of Innovation and Competitiveness of Swiss Companies: This model is based on several pillars:
Swiss Entrepreneurship Model 2.0:
The need for changes in the Swiss, and more broadly European, entrepreneurship model arises from a very strong correlation between financial investments in the development of new innovative ventures and the scale of their subsequent success. Americans and Chinese understand this very well. These countries, thanks to massive investments in venture capital funds, collectively own:
For comparison, Europe, where 36% of global startups were created between 2009-2019, generated only 14% of global unicorns and just 2% of the value of the largest technology companies.
These numbers clearly show that it is not enough to fund a large number of startups, but that large financial investments are necessary to position the best European companies at the forefront of the world. Major investors in the most advanced financing rounds create future market leaders. Companies with the best funding for their development achieve global leadership with comparable competencies. The example of Uber, which raised nearly $25 billion for its development between 2010 and 2020, illustrates this thesis well.
It is also worth noting that the development of 21 out of the top 25 technology companies was financed by venture capital funds.
To create leading companies capable of competing with American and Chinese giants, the scale of venture capital funding in Europe should increase three or fourfold.
In this context, the main framework of the Swiss model for building innovation and competitive capability will remain unchanged. According to Dominique Mégret's proposal, the existing model should be expanded to include a world-class startup financing ecosystem.
This would mean that over the next 10 years, investments in venture capital should amount to around 50 billion CHF (an average of 5 billion per year, compared to 2.1 billion CHF in 2020) to remain among the top 10 global innovation clusters. The recommended target is investments in venture capital funds of around 10 billion CHF annually from 2030 onwards.
Investments of around 5 billion CHF annually would allow Switzerland to remain among the top 10 most innovative countries and in the top 5 in the Deep Tech segment. According to this scenario, 3-5 unicorns would emerge each year in several highly technical sectors where Switzerland has a comparative advantage.
Investments of around 10 billion CHF annually by the end of this decade, combined with significant capabilities in R&D and the ability to attract talented resources from around the world, are expected to create a "small Silicon Valley" in the center of Europe, specializing in Deep Tech. Significant investments by VC funds will lead to the development of the startup ecosystem, which in turn will have a positive impact on building their value[ii] and increasing the attractiveness of the entire ecosystem. In this context, Switzerland's goal is also the rapid development of an ecosystem that supports startup growth.
10 Development Directions - Switzerland 2030:
Investments of 50 billion CHF in innovative projects can yield expected results if they are directed toward areas where the country already has considerable experience. The priority development directions are defined by three criteria (filters):
As a result, 10 areas have been defined as priorities:
1. Precision medicine and personalized and preventive medicine
2. Precision agriculture and food innovations
3. Digital sports and wellness
4. Industry 4.0
5. E-learning and education
6. Fintech 2.0
7. Digital trust economy
8. Humanized smart cities
9. Environment and sustainable development
10. Space exploration
The goal is to finance 1,000 startups, leading to the creation of 50 companies with individual values exceeding 1 billion CHF (unicorns) by 2030, including 5 companies valued over 10 billion CHF. These companies are intended to become a new driving force for the Swiss economy.
The analyses and action plans presented in the book "Deeptech Nation" can serve as a good inspiration for an in-depth discussion about Poland's future. Its long-term competitive and innovative ability will depend on solutions adapted to the challenges of the digital era in the areas of education, research and development, commercialization of research outcomes, the pace of development of new innovative ventures (startups), the ability to finance their development through venture capital funds, and the creation of ecosystems supporting business development.
The analyses and action plans presented in the book "Deeptech Nation" can serve as a valuable inspiration for an in-depth discussion about Poland's future. Its long-term competitive and innovative capacity will depend on tailored solutions to the challenges of the digital era in the following areas:
1. Education: Introducing modern and flexible educational systems that not only adapt to changing labor market needs but also foster technological and innovative skills.
2. Research and Development Activities and Commercialization of their Effects: Supporting research initiatives, especially in deep tech areas, to enable the transfer of research outcomes into practical applications and business.
3. Pace of Development of New Innovative Ventures (Start-ups): Creating an environment that promotes the establishment and growth of start-ups, with a focus on access to capital, mentors, and appropriate support structures.
4. Funding through Venture Capital Funds: Increasing the availability of funding for start-ups by developing local venture capital funds and attracting foreign investors.
5. Creation of Ecosystems Supporting Business Development: Establishing a conducive ecosystem that connects universities, businesses, investors, government institutions, and non-governmental organizations to create synergy and mutual development.
[i] Dominique Mégret, "Deeptech Nation. What future for the Swiss model?", Summer 2021, Slatkine Geneva; www.deeptechnation.ch
i[ii] Global Innovation Index 2021, WIPO 2021; IMD World Competitiveness Ranking 2021
[iii] For instance, in an ecosystem consisting of 1000 start-ups, the average value of one is about $5.1 million USD. In the case of 4000 start-ups (the size of the ecosystem in Boston), the average value of one company doubles to around $10 million USD - primarily due to network connections.
If you don’t understand what’s happening in your business factually and you’re making business decisions based on anecdotal data or gut instinct alone, you’ll eventually pay a big price.
Bill Gates, Microsoft co-founder
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