Addressing barriers to digitalisation is crucial. Exploiting the full potential of digital transformation requires skills and managerial capabilities. Our analysis shows a strong correlation between managerial practices and digitalisation and evidence of digital skills gaps throughout Europe. The level of access to digital infrastructure is converging across Europe, but more needs to be done to accelerate the spread of fast connections. Although access to finance is not the major impediment to digitalisation, it can be a barrier for small firms.
To accelerate the pace of digital innovation and adoption, Europe must focus above all on three elements: an enabling ecosystem, the right kind of financial support for investment, and a European vision to counter the imbalances across the European Union. The EIB Group is playing an important role in all three aspects. As we recover from the pandemic, Europe will need to push forward with the green and digital transformation to lead the way.
|Debora RevoltellaDirector, Economics DepartmentEuropean Investment Bank|
Digital transformation in Europe
Digital transformation is a priority for European firms. Advanced digital technologies are associated with higher firm productivity, investment and innovation activities. Furthermore, businesses that have adopted digital technologies are able to cope better with the disruption unleashed by the COVID-19 pandemic. However, EU firms are lagging behind the United States in digital adoption. Before it is too late, Europe needs to rapidly embrace the potential of digital technologies, as well as address the challenges they bring.
Digitalisation affects investment and competitiveness and is thus a critical policy issue. The spread of advanced digital technologies, such as advanced robotics, 3D printing, artificial intelligence or the internet of things affects productivity and labour markets, as well as the transition risks arising from climate change. This report focuses on some of the key dimensions that affect the uptake of digital technologies by firms in the European Union and the United States and discusses the impacts of digitalisation on competitiveness and innovation along with its links to investments in addressing climate change.
Digital adoption rates in the European Union are lower than in the United States, but the uptake of advanced digital technologies is very heterogeneous across EU countries. Although there are notable success stories in Europe, the position of many countries may have to be strengthened as some are lagging behind in the dissemination and adoption of digital technologies.
Digital adoption rates (in %), by country
Source: EIB Investment Survey 2020.
Note: Share of firms that have implemented digital technologies. Firms are weighted using value added to better reflect the contribution of different firms to economic output.
Measuring digital adoption and assessing the extent to which digitalisation may be transforming and affecting different economies is challenging. For example, definitions and national accounting systems often differ between EU countries and the United States. To foster an evidence-based debate on the impact of digitalisation, the EIB Investment Survey (EIBIS) interviews more than 13 000 companies in the European Union, United Kingdom and United States every year. A key feature of the survey is that it puts the same questions to firms in 29 countries and asks them whether they have implemented digital technologies in their businesses. This approach allows us to capture adoption rates for very specific advanced technologies and at the same time assess the impact of digital transformation on different economies more generally.
This report takes stock of developments in the uptake of digital technologies, as well as their impact, across the European Union and the United States. It highlights the effects on firm performance and the constraints they face. Firms that have implemented digital technologies tend to perform better than non-digital firms: they invest more, are more innovative, have better management practices, grow faster and create higher paying jobs. Digital firms are also more likely to invest in tackling the transition and physical risks of climate change, an area in which EU firms invest much more often than US firms. Our analysis takes into account differences in digital adoption between small firms (with less than 50 employees) and larger firms, which typically are more likely to have implemented digital technologies in their businesses. By controlling for this size effect, we document that firms perform better because they are digital, not because of their size. The report concludes by highlighting the importance of developing effective public policies that provide incentives for investing in digitalisation to address the COVID-19 crisis and foster the green transition in Europe.
The EIB Corporate Digitalisation Index
The EIBIS Corporate Digitalisation Index explores the degree of digital adoption in the European Union and the United States from various perspectives. This composite index summarises indicators on digitalisation as well as firms’ assessments of digital infrastructure and investments. The EIBIS Corporate Digitalisation Index consists of six components: digital intensity, digital infrastructure, investment in software and data, investment in organisational and business process improvements, the use of a strategic monitoring system, and the digital outlook. It is based on firm-level data collected by EIBIS in 2020. Appendix A contains more details on the components and how the index has been constructed.
The EIBIS Corporate Digitalisation Index allows us to group countries according to firms’ assessment of digitalisation: frontrunners, strong, moderate and modest. Based on the index, Denmark and the Netherlands are the top two digital countries, followed by Finland and Sweden.
EIBIS Corporate Digitalisation Index
Source: EIBIS (2020).
Note: Firms are weighted using value added.
EIBIS Corporate Digitalisation Index key findings:
• The European Union, on average, falls short of the United States. There are, however, several EU countries that outperform the United States. European firms implement the internet of things technologies less often and are lagging behind in the construction sector in particular, which drags down the digital intensity score. What is more, EU firms tend to perceive digital infrastructure as a major obstacle to investment more often.
• The top performing EU countries, in selected areas of digitalisation, are: Denmark for digital intensity as well as investment in software and data; France for investments in organisation and business process improvements; Finland for the use of a formal strategic business monitoring system, Germany for the digital outlook; and the Netherlands for digital infrastructure. These results suggest that there is potential even for the best performers in one component of the Corporate Digitalisation Index to improve their performance further in the other dimensions.
EIBIS Corporate Digitalisation Index, by country
Source: EIBIS (2020).
Note: Firms are weighted using value added.