European Hustle

The Digital Revolution – Digital Disruptors

Over the last three articles we have explored big societal changes that are occurring right now, as well as those that we still have to initiate ourselves, but that will inevitably have to be implemented.
In this final article, we ask ourselves: what drives all these changes and can and/or should we stop them? One answer is: globalisation.

The increased ability for capital, companies and workers to cross borders freely and collaborate on new and innovative projects together is a key factor in the Digital Revolution. However, there is little we can do to stop globalisation. Any efforts to decouple from the larger world and its many systems realistically will damage a country’s economy and if taken to the extreme will cause severe stagnation. Countries like Cuba and North Korea are prime examples for stagnating economies that have ceased to make any meaningful technological or economical advancements (not to mention social progress!). The Brexit referendum in the United Kingdom and Donald Trump’s trade and foreign policies similarly have also left their respective economies worse off than before, despite not many of their protectionist policies having actually been implemented yet.

As such the answer must be that if we cannot stop globalisation without harming ourselves, we must own and manage it. Educational and labour force reforms are one aspect of this, faster and more efficient legislation is another. But in order to legislate better, legislators need to understand who is responsible for disrupting the markets. Far too often, the focus of new European legislation rests on companies like Google, Facebook or AirBnB and Uber. Not only are these companies all based in California and not in Europe, but they do not drive innovation anymore. All of these companies were revolutionary years ago, but now they have grown into large corporations that protect the status quo (read: themselves) and try to keep up, as new innovations threaten to dethrone them. Much as Microsoft dethroned IBM decades ago and how Google and Apple then cut into Microsoft’s market dominance with smartphones and tablets (not to mention how they successfully killed previous mobile phone giants, like Motorola, Ericsson and for some years also Nokia). While Google, Microsoft and Facebook continuously try to innovate, they are unable to do it all themselves and they are aware of it. That is why Facebook constantly buys its own competition, be it Instagram or WhatsApp. Facebook also unsuccessfully tried to buy SnapChat, which is its biggest competitor among the younger generations.

Meanwhile, Google tries to assert its market dominance by creating a diverse portfolio of products that can be interlinked and relies not only on buying young start-ups, but also by building its own in-house start-ups as new branches in its bid to keep reinventing the wheel, as well as every other human invention to come after it.

Microsoft and particularly Apple are employing a slightly different strategy that should worry us far more. They are actively working on creating monopolies in their industries. Microsoft started this process decades ago, by bundling newly sold PCs with Windows operating systems. This has resulted in a de facto monopoly of operating systems on PCs that not even open source (= free and adaptable) alternatives like Linux were able to compete with. Because the majority of people use Windows, many software and hardware companies ended up building their products around Windows to stay competitive, which only further reinforced the OS monopoly.
Apple is trying the same thing by utilising their own brand loyalty. Their app store, streaming platforms and programmes are all exclusive to Apple devices and operating systems and they are now also starting to remove universal hardware components, so that they may sell more Apple-exclusive accessories, such as headphones to their consumer base. Where hardware was once built to universal standards, it is now segmented into brands, reducing connectivity, compatibility and potentially also cooperation between people that use different platforms. It is essentially protectionism on a hardware level.

Why are these tech giants behaving like this? Because they know their brand sells and will continue to sell, but that the true source of innovation is not them, but SMEs and they need to protect themselves if they want to survive ‘the next big thing’.

Many technologies that have become everyday household items for us, such as flat screen TVs, or smartphones have their origins at least in part in cross-border Research & Development projects conducted by SMEs, often using both national and international public funding instruments. While big corporations flood the global markets with their versions of the product, the technologies behind these products at times were achieved at the very least in part by innovative SMEs. Television is a prime example. There are only seven LCD panel manufacturing companies worldwide, but over 40 big TV manufacturers (and many more smaller ones) that then sell those same panels to consumers, using known brand names like Sony, Philips Toshiba, Samsung and more.

Big corporations play a significant role in facilitating innovation and they help bring innovation into consumers’ living rooms, but too often we focus on big names and brands and fail to give credit to the small innovation engines that often enable the big names to sell us their branded products.

SMEs are effectively the backbone of any economy. While large corporations tend to attract more investment to a country than SMEs, they are also more likely to leave any country or outsource their jobs to another. In Europe, 99% of businesses are Small Businesses and they create over 85% of new jobs, according to the European Commission. A broad market consisting of many SMEs also ensures competition in the market and makes monopolies harder to form. The Commission’s SME Preformance Review 2017 finds that 2016 marked the third consecutive year of steady increases in EU-28 SME employment and EU-28 SME value added.

Malta, Croatia, Slovakia, Portugal, Cyprus, Lithuania and Luxembourg were the front runners in SME employment growth in 2016, surpassing 3% growth. Bulgaria, Croatia, Ireland, Malta and Romania led the statistics for SME value added with over 5%.

Small Business claims SMEs created 62% of new jobs in the U.S. since 2009. A study published in Elsevier concludes that SMEs also play a significant role in growing economies in developing countries.
SMEs achieve all this, despite huge obstacles placed before them in the form of overzealous governments and huge corporations that try to either buy or destroy them, before they become a serious threat to them.

When governments claim that they created new jobs or improved the economy, they are taking credit for SMEs creating new employment opportunities in their respective countries.
Unfortunately, SMEs also do not apply for many patents in the EU, which may be why they get bought up or supplanted by their larger competitors. This could point towards barriers for SMEs in the patent application procedures or requirements in the European Union.

EPO (European Patent Office) President Benoît Battistelli says: “In order to be competitive SMEs need to innovate – and to protect their inventions. These case studies demonstrate that patents can be a springboard for success for smaller companies and make all the difference to their business, especially in gaining access to funding. They provide concrete examples of how intellectual property can be leveraged to create value, jobs and growth.”

The importance of SMEs for any economy cannot be stressed enough. That is why it is all the more bizarre that most efforts to regulate or manage globalisation always target large corporations and end up hurting SMEs. SMEs need to be at the forefront of people’s minds when they think about the economy and globalisation. SMEs are responsible for many of today’s changes, which disrupt many of our daily lives and sometimes cost us our old jobs, but they are also chiefly responsible for keeping our economies going and providing employment for billions of people worldwide. Instead of trying to stop them, we should embrace the innovation engines that these digital disruptors truly are and enable them to create more sustainable jobs in fields of the future. We already know what the future looks like and we should prepare ourselves for the market shifts that we have already started to experience. Google has understood this and is learning from SMEs now, but will the rest of the big tech giants follow their example? If not, they will likely soon succumb to new innovative SMEs that will take their place. Governments have to become aware that our familiar labour markets will become unrecognisable in just a few years from now and need to act accordingly before it is too late and we end up with a new worldwide two-class society.

Dominik Kirchdorfer
Dominik is a European writer and entrepreneur of Austrian and Polish descent. His passion is storytelling and he wants to do everything in his power to give the story of Europe a happy ending. He is currently the President of the EFF - European Future Forum, Editor In-Chief of Euro Babble and EU Adviser to the Austrian Savings Banks Association. Dominik recently published his first SciFi novel, The Intrepid Explorer: First Flight under the nome de plume Nik Kirkham. Twitter: @NikKirkham

Leave a Reply

Your email address will not be published. Required fields are marked *