In 2017 the European Commission published a report highlighting the importance of boosting innovation across the European Union, after statistics emerged highlighting the clear east-west divide in entrepreneurship across Europe.
This regional divide is compounded by huge disparity in research support for eastern Europe, with just 4.8% of Horizon2020 research funding going to the 13 countries that joined the EU in 2004, despite these nations representing 17% of the EU population.
It’s a situation that the EU’s European Institute of Innovation & Technology (EIT) is hoping to improve after it was awarded a 25% increase in its budget by the European Commission, in part to address the east-west entrepreneurial divide.
“There is so much potential across Europe that is waiting to be untapped, and we regularly have conversations with successful entrepreneurs who didn’t realize the potential they had until they were given the opportunity to create a business,” EIT governing board member Ana Trbovic told me recently. “We want to do more to unleash the potential of all 500 million Europeans and place innovation at the heart of Europe’s future.”
The 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.
The index includes factors 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.
They also consider aspects such as the 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. Countries such as Switzerland and the Nordic nations have historic strengths in terms of innovation and entrepreneurship, but the index highlights the clear divide between east and west Europe, with each of the accession 8 states performing poorly in relation to the historic western powers.
No lack of talent
What is not lacking in these countries is technical capabilities, with Coursera’s Global Skills Index highlighting the strong technical skills in many eastern European countries.
The Index, which is built from the 39 million or so learners that are enrolled on several thousand courses, provides a talent benchmark for countries. The Czech Republic comes 2nd in terms of technical skills, with Poland and Belarus also ranking highly.
Despite this strong technical skillsbase however, the Index revealed a profound lack of business skills across eastern Europe, which may be undermining any attempts to encourage entrepreneurship more broadly across the EU.
Developing business skills
This is a challenge that EIT are attempting to tackle head on. They have a range of educational programs that aim to provide students with the skills and expertise to turn their ideas into successful businesses. There have been over 2,300 graduates to date from 347 partner universities, although just 41 of those universities are from Accession 8 countries.
In a nod to edtech startup Minerva, they encourage students to spend time in various countries during their studies. Minerva students get to live and study in seven cities around the world, each tailored to provide cultural immersion to students alongside their studies and work experience internships. While EIT don’t go to that extent, they do nonetheless aim to provide a rounded education, so that graduates gain not only the technical skills required to create a business, but the business and cultural skills to do so at scale across Europe.
“We’re looking to grow our partnership network to around 750 universities in a bid to enhance our ability to innovate and bring knowledge to market,” Trbovic says. “This network allows students to follow a pan-European program and gain the business and cultural skills required to create a thriving business.”
Spreading the net
Of course, providing budding entrepreneurs with business-related skills is a relatively small part of building a successful startup. Factors such as the ease of raising capital and the legal framework to both create businesses and protect intellectual property all play a major role, as does the availability of human capital to grow your team.
Ordinarily, incubators, accelerators and other startup support services should provide such networking opportunities, but recent research from Harvard Business School suggests they may be selling entrepreneurs short.
The value of networks comes when you are able to tap into expertise and experiences outside of your own, but the study suggests that many of the entrepreneurs participating in incubators and accelerators are already pretty familiar with their peers in the program.
The research reveals that entrepreneurs have a clear tendency to gravitate towards programs that contain people they already know, and once on those programs, to stick with this cluster of familiar faces rather than expanding their network. This reluctance to step outside of the familiar significantly undermines their attempts to learn and improve their business.
Back in 1977, Thomas Allen proposed the Allen Curve to explain the importance of proximity to collaboration. It suggests that collaboration diminishes as a function of distance. Indeed, even simple conversations are significantly less likely to occur when people are over 10 meters apart.
MIT research from a few years ago found that the Allen Curve still pervades today, even as digital tools have emerged to break it down. The study examined over 40,000 published papers and 2,350 patents from MIT researchers over a 10 year period, and mapped out a network of collaborators across the university, before then examining the locations of each collaboration, particularly in relation to the departmental and institutional membership of each researcher.
Stemming the tide
Given the paucity of such networks in smaller regions, it’s perhaps understandable that many of the entrepreneurs that do exist in these countries are going to where the networks are rather than waiting for the networks to develop where they are.
A recent survey from Startup Heatmap highlighted how many entrepreneurs from central and eastern Europe are flooding west in the hope of growing their business. The report found that 16% of founders from the region had already chosen to go west, with many choosing to go the U.K. and the Benelux.
This has helped to create a European startup landscape whereby some 29% of founders began their business in a country other than their place of birth. Of course, it’s perhaps pertinent to say that 40% of these foreign-born founders are from outside the EU itself, and we’re in an age where the GMAC have recently penned an open letter from around 40 business schools urging Donald Trump to relax immigration rules to ensure businesses get the talent they need, so there is a strong argument for supporting talent regardless of their passport.
Things are seldom so straightforward however, not least due to the growing concern about the rise in populism in regions where economic decline is becoming terminal. While there may be much to recommend allowing talent to congregate where networks are strongest, this will inevitably result in large metropolises hoovering up the majority of talent, and leaving large swathes of Europe left behind.
What’s more, with each new technological change, this gap between the rich and the poor gets wider, prompting the geopolitical shifts we’re already experiencing to be exacerbated. It’s perhaps no surprise, therefore, that the EU are so determined to deliver research and innovation across all member states. Time will tell whether they’re able to achieve it.