Companies, nations and even continents are all striving to facilitate digital innovation and power the transformation of their economies and fortunes. As a recent report from EU innovation agency EIT Digital reveals, digital transformation of industry promises to have a significant impact upon European society. It’s a vision that is not being achieved at the moment however, and EIT Digital CEO Willem Jonker warns that Europe risks falling further and further behind the United States and China.

For Europe to regain lost ground, it needs to up its game in terms of innovation.  The struggles faced by Europe are in many ways bewildering, as the Global Innovation Index produced by Cornell, INSEAD and WIPO frequently has European nations dominating the top positions, suggesting that European nations have the infrastructure, talent and finance to have a thriving innovation ecosystem.

Entrepreneurial Europe

A new entrepreneurial index produced by Imperial College Business School highlights some of the challenges however.  The European Index of Digital Entrepreneurship Systems (EIDES) aims to rank each of the 28 EU Member States across a range of metrics to gauge their ability to support entpreneurialism.

Many of these metrics are similar to those used in the Global Innovation Index, with things such as the educational infrastructure in each country, their ability to provide finance to entrepreneurs, the legal framework around business creation and development, and general ease of doing business common across both indices.

Where they differ however is in aspects such as attitude towards entrepreneurship, self-employment rates and other factors that are crucial to providing an environment that supports the concept of entrepreneurship as well as the act of entrepreneurship.

They also examine the strength of the innovation ecosystems in various countries. This strength is measured across four metrics:

• Density, which explores the number of new and young firms, what proportion of overall employment they represent and the presence of high-tech clusters.
• Fluidity, which measures the movement and reallocation of talent, and the number of high-growth firms.
• Connectivity, which examines the number of university spinoffs and the quality of venture capital networks.
• Diversity, which explores factors such as the level of diversity in the economy, labor mobility and immigration flows.

All of these factors were placed into the melting pot to derive an index not only of how supportive each nation was in regards to entrepreneurship, but how they scored in particular areas.

The score for each country is divided into a ‘stand-up’ category, which covers things such as the ability for talented individuals to find themselves doing entrepreneurial work; a ‘start-up’ category, which includes the ease with which these people can create a new business; and a ‘scale-up’ category, which covers the ease with which successful early-stage startups can grow.

Nordic success

The Nordic nations have historically always scored highly in the Global Innovation Index, with Finland, Denmark and Sweden all appearing in the top 10 of the 2018 edition, so it’s perhaps no surprise to see all three countries dominating the EIDES league table. Indeed, Denmark comes out on top, followed by Sweden with the tiny principality of Luxembourg coming between Finland and a Nordic whitewash.  Of the larger European powers, Germany comes in 5th place, with the United Kingdom closely behind in 6th.

The success of the Nordic nations should perhaps come as no surprise, as Helsinki was rated the best startup ecosystem in the world in last year’s Global Startup Ecosystem report, which was compiled based upon data from over 1 million companies spread across nearly 100 cities around the world. Whilst the US remains the market leader in terms of share of VC investment, there is a clear shift towards Europe and Asia, with China leading the pack.

What that report reveals is that both innovation and startup activity are not so much a national thing at all, with cities and regions tending to focus entrepreneurial energies and outputs. For instance, Helsinki is very strong in areas such as AI and life sciences, London has clear strengths in fintech, and Munich in mobility.

Spreading success

As the EIDES report illustrates however, there remain considerable challenges, both in terms of spreading the startup bug more widely within countries, but also across Europe as a whole, with eastern states performing poorly in relation to their western peers.

A recent study from McGill University explores how innovation can thrive in smaller towns and rural communities.  The authors examine seven successful high-tech firms that reside in five small towns in the east of Switzerland. Each of the firms is a global leader in their niche, and the researchers set out to explore how they were able both to thrive and innovate, despite operating in largely homogeneous communities.  The researchers are particularly keen to explore whether factors such as company size, stakeholder network or external partnerships help to provide the degree of thought diversity that their local communities fail to provide.

“We hypothesize that diversity has various dimensions, some of which are not related to urban density,” they say. “In our analysis, we identify different types of diversity mentioned by interviewees in order to provide corroborative evidence supporting the claims made recently by some economic geographers, as well as the observations on the nature of rural social networks (which were unconnected to economic or innovation concerns).”

The three dimensions mentioned above to increase the exposure to diversity by each firm each manifested themselves in unique ways:

• Internal workforce – The first strategy firms deployed was to try and create a diverse workforce. Given the relative homogeneity of the local community, this typically required firms to spread their recruitment net widely and try and attract talent from the major metropolitan areas within Switzerland or from overseas.
• Open cultures – A second clear strategy observed in the firms was to adopt an open culture whereby employees were encouraged to interact across organizational silos. The authors believe that in many ways this kind of culture reflects the small town vibe of their host communities.
• External networks – A third core strategy then was to develop broad external networks that allow them to access diverse sources of knowledge. These typically come from clients, universities and conferences, with firms all too well aware of the importance of non-local knowledge to their business.

With things like Brexit on the horizon, the connectivity that the researchers identify as being crucial to the success of these rural entrepreneurs is not something that can be taken for granted.  If Europe is to encourage entrepreneurship however, it might do well to heed the lessons given by the Nordic countries, each of which scored very highly for connectivity and openness.