What are the Barriers to Digital Entrepreneurship in Europe and How Can the EU Address Them?

Analysis by Danaë LAZARI

Digital technologies are one of the most powerful catalysts for growth in national economies. They create jobs, reshape traditional industries, and speed up and improve the development and production of innovative products and services. The European economy is the largest in the world, if taken as a single unit, but its digital potential lies largely untapped, mainly due to the legal, technical and trust barriers in EU Member States that prevent digital entrepreneurs from starting or developing their businesses in Europe. This article will examine these barriers and assess the ways in which the EU can tackle them.

Barriers to digital entrepreneurship

Most of the challenges to digital entrepreneurship in Europe are brought about by the lack of cohesive action by Member States, and by the fragmentation, in terms of both impact and pace, in which the digitisation process takes place in Europe. A Deloitte study for the Commission’s DG Enterprise and Industry identified five main barriers to digital entrepreneurship in Europe:

  1. Low take-up and use of digital technologies by industries and SMEs. There is a growing gap between the most and least digitised sectors across Member States, as well as in the pace in which they are becoming digitised. Generally, industries primarily dealing with information and services are more digitised than industries such as hotels and restaurants.
  2. Low level of entrepreneurial skills and talent. The level of citizens who have a high level of skills in mathematics, science and technology (MST) are relatively lower in Europe than in other economies. With business becoming more and more digitised, these people are essential to the development of new and existing enterprises.
  3. Difficult access to finance and investments. Accessing finance is one of the most pressing problems for SMEs in Europe, especially because most funding options are managed by traditional finance institutions such as banks. This means that Member States often take different actions, resulting in fragmentation and difficulty accessing finance across borders.
  4. Lack of digital entrepreneurial culture in Europe. Digital entrepreneurs are regarded with varying levels of respect across Member States, and are dissuaded by social stigmas surrounding failed entrepreneurial ventures, social obligations, and the difficulties in attracting investors.
  5. Fragmented digital market. The European business landscape is fragmented, and smaller companies find it difficult and costly to expand abroad. The Commission’s Digital Single Market Strategy (DSMS) is a huge step in breaking down this barrier, but will not be realised until the end of this year at the very earliest.

How can the EU address these barriers?

To address barriers to digital entrepreneurship, the EU will need to undertake substantial policy reform. Digitisation occurs at varying speeds in various industries, and so the EU should tackle barriers and challenges using a multifaceted approach based on separate timeframes – the short, medium, and long term.

Capture d’écran 2016-03-28 à 11.18.21
The DSMS being discussed in the European Parliament – by European Union 2016, European Parliament, licensed under CC BY-NC-ND

Successful realisation of the DSMS is the best tool by which the EU can address these barriers in the short term. The DSMS aims to “tear down [barriers]” by making the EU’s single market suitable for the digital age. Its three pillars focus on better online access for consumers and businesses to online goods, creating an environment where digital networks and services can prosper, and maximising the growth potential of the digital economy. However, wording of the DSMS has been relatively vague regarding the actual strategies by which it can achieve these policy aims, possibly belying a fragmented stance on the matter by Member States, which could impede its achievement by the desired deadline.

In the medium term, the EU can attempt to attract and build a pool of citizens with high levels of MST skills by providing incentives for enterprises and high education institutions to create attractive curriculums that drive successful entrepreneurship. It can also act as a magnet for skilled TCNs by coordinating a more cohesive and attractive visa plan than the existing blue card scheme. It can help SMEs develop and use viable alternative sources to traditional funding in the same way as it now promotes Crowdfunding for SMEs struggling to access finance. The EU can also encourage the use of digital technologies to be undertaken by as many industries as possible, in order to close the existing digitisation gap between industries and encourage a high take-up of digital technologies relative to external rising economies.

The lack of digital entrepreneurial culture in Europe is one of the most important, yet difficult issues to overcome. SMEs represent 99% of businesses in the EU, and depend highly on entrepreneurs. The EU can address this challenge through the implementation of policies aimed to foster an entrepreneurial mind-set and to assist networking in order to help people with good ideas find business partners (e.g. StartUp Britain). However, policy-making cannot forcibly create a culture where there is none, and the stigma of failure will need to be erased from the ground up. Therefore, policies that assist in the creation of an entrepreneurial culture may take the longest to bear fruit, but will also be the most beneficial for Europe’s digital entrepreneurs, and in turn, the EU itself.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s