How can digitalisation of the EU economy be supported?

Main messages
  • Full potential of advanced digital technologies not yet reached in the EU
  • Support needed in relation to research and development, investments and skills
  • Suitable regulatory frameworks are vital for businesses to operate with confidence

Full potential of advanced digital technologies not yet reached in the EU

Digitalisation is not a new phenomenon and should be considered a continuous process rather than a one-off event. In the current context of the twin digital and green transitions, however, it is characterised by the accelerated deployment of advanced technologies and more rapid developments in innovations and applications in the economy than could be observed previously.

Several of the ‘game-changing technologies’ that are expected to have a disruptive impact on the economy, the labour market and society have not yet reached technological or market maturity in Europe. Policy must ensure that the EU does not fall behind other world regions, notably the United States and Asia.

The European Company Survey 2019 shows that about one-quarter of EU establishments have adopted digitalisation to a limited degree  and another quarter make significant use of computers but limited use of other technologies. Considering both that the survey covers only establishments with at least 10 employees and the fact that digitalisation intensity increases with establishment size, it suggests that the total share of EU establishments with limited digitalisation is even higher. In many eastern European Member States, the share of establishments with limited digitalisation is particularly high.

From a sectoral perspective, construction needs to catch up as regards digitalisation deployment. However, as regards individual technologies, there is also potential for improvement in other sectors. Robotics, for example, is already rather commonly deployed in manufacturing, while it is only starting to emerge in most services sectors, owing to a less structured work environment and greater challenges in automating tasks. Digitisation technologies such as 3D printing, the internet of things, and virtual and augmented reality, in contrast, are in use in various areas of the services sector, albeit generally in a pilot phase or at an early stage of adoption.

As digitalisation has been found to be related to innovation, internationalisation, favourable business performance and workplace well-being, further deployment should be fostered to help maintain and enhance the competitiveness and sustainability of the European economy. The rapid pace of technological innovation during the COVID-19 pandemic in 2020 shows that the capacities required for further deployment exist in the EU. Policy could support better exploitation of the available potential.

Policy pointers

  • To ensure that Europe reaps the benefits of digitalisation and does not fall behind other world regions, policymakers should explore ways to better support the digitalisation of European businesses. Existing support instruments in the field of innovation and technologies could be reviewed as regards their effectiveness and, if necessary, adapted. One opportunity to do so would be the state support linked to the European Commission’s Recovery and Resilience Facility, as a minimum of 20% of the expenditure under national recovery and resilience plans must be devoted to fostering digital transition.
  • Governments and social partners (in line with the EU social partners’ 2020 framework agreement on digitalisation) could make efforts to raise awareness among businesses of the potential benefits of digitalisation, by providing them with examples of how technologies can be applied in practice to improve and modernise products and services and the processes of delivering them, as well as with advice and consultancy on the design and implementation of digital solutions. This information and advice should cover the combination of different technologies, including artificial intelligence.
  • Special attention should be paid to supporting small and medium-sized enterprises (in line with the vision for Europe’s Digital Decade), as well as specific sectors and countries that need to increase the pace of digitalisation.

Support needed in relation to research and development, investments and skills

More operational support may  be required to increase the deployment of digital technologies in the EU economy. Among the main bottlenecks hampering the introduction of further technological advances in companies are the following:

  • limited capacities to conduct in-house research and development to advance the technical maturity of technologies and/or the business case for them
  • limited cooperation between innovation and research and development centres/hubs and businesses
  • lack of financial resources to invest in research and development or to purchase and implement digital solutions
  • lack of in-house skills in designing, implementing, running and maintaining digital solutions

These obstacles could be explicitly addressed through public support, particularly post pandemic, when it can be expected that the digitalisation dynamism observed in 2020/2021 will be further exploited in the economy, and that businesses unable to master the transition to the digital age are likely to substantially lose competitiveness. To achieve this, it may not be necessary to develop new instruments:  a wide range of innovation support measures are already in place across the EU. Some of these measures provide matching and networking assistance across different types of organisations (notably research organisations and businesses), as well as financial/investment support. Similarly, there is a variety of skills development programmes targeting workers with different occupational profiles and levels of educational attainment.

Policy pointers

  • Digitalisation support in Europe should focus on helping businesses to identify and use technological solutions. Based on existing initiatives, policy could further facilitate cooperation between technology developers and companies, notably small and medium-sized enterprises, and those in sectors that currently have limited digitalisation. This could be done through ‘matchmaking facilities’, but also through active support for the induction phase of collaboration, to ensure that expectations, understanding and processes are aligned across the different types of organisations. While previous efforts have prioritised such activities at local level, a more global perspective could be applied now, for example by taking advantage of the potential of digitisation technologies for such purposes.
  • Financial support for innovation and technologies should not be limited to the development of technologies. It would be beneficial, particularly for smaller enterprises and those less familiar with digital technologies, if financial support could also be used to plan and design how digitalisation could most effectively and efficiently be introduced into the workplace, to purchase hardware and software related to digital solutions, and to maintain and update it over time.
  • Skills development support should cover a broad range of pathways: from the provision of basic digital skills to training in highly specialised ones; from initial education to ongoing lifelong training; from in-house, on-the-job training to external formal education. Furthermore, a wide variety of occupational profiles should be considered. It is not only important to equip specialists with the expertise they need to drive digitalisation in European companies, as envisaged in the EU’s Digital Education Action Plan for 2021–2027: to properly support increasing digitalisation – and in line with the European Skills Agenda – it is also important that all workers have at least basic digital skills. Finally, managers should also be targeted to enhance their skills related to choosing the most suitable digital solutions for their specific business cases, planning and implementing those solutions, and managing human resources in a digital workplace.

Suitable regulatory frameworks are vital for businesses to operate with confidence

Research has found that regulatory frameworks are decisive for the deployment of digitalisation in the European economy. In particular, unclear legislation, or legislation that pre-dates the emergence of new technologies and hence does not fully address their particularities, can discourage companies from engaging in digitalisation as they may perceive the regulatory framework to be too unstable and unpredictable for solid business decisions, notably those entailing substantial investment.

Similarly, a lack of common standards on digital products, services or processes can constitute a burden for enterprises, especially if they are involved in international supply chains and if workflows have to be shared across organisations in different countries and disciplines. For companies that lack specialised staff who are able to handle differences in standards and manage the adaptation of in-house activities accordingly, or that lack the financial resources for the required adjustments, this burden can be so large that they disengage from digitalisation. Many small and medium-sized enterprises fall into this category.

Policy pointers

  • Technological and business standards related to products, services and processes based on technology should be harmonised across borders, particularly when it comes to digital technologies that facilitate international activities (as digitisation and the platform economy often do). Existing international authorities or newly established bodies could be tasked with establishing, enforcing and monitoring such standards.
  • Legislative frameworks should be reviewed to ensure that they are fit for purpose in the digital age and, if necessary, adapted (as specified in the Digital Services Act and Digital Markets Act). In the field of employment law, for example, this would involve an assessment of whether established concepts of employment status are compatible with innovative business models and work organisation patterns, such as those emerging from digitisation and the platform economy, which result at least to some extent in fragmentation of work and less stable contractual relationships. Furthermore, regulation of, for example, working time, health and safety, or data protection, ownership and use – through legislation or collective agreements – may need to be adapted and modernised to reflect the particularities of the digital workplace.
  • Other fields of regulation should also be reviewed and, if necessary, adapted. Examples are areas such as consumer protection and liability, where long-standing regulation may not fully address the implications of the digital age, and newer areas such as cybersecurity and cybercrime.

 

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