Geographically, on top of Europe’s excellent links to physical trade networks, the region’s time zone advantage is becoming even more important as more business happens online: on average, one can talk to people in countries accounting for 99% of the rest of the world’s economy without anyone having to be online before 8am or after 6pm. China and the US can only connect so conveniently to 68% and 64%, respectively, of the rest of the world.
Institutionally, European firms can benefit from years of intergovernmental effort at opening markets. The European Union has assembled the world’s largest network of preferential trade agreements, powerfully expanding the region’s business opportunities. And from a reputational standpoint, Europe benefits not only from global links but positive links. According to one study, 16 of the world’s 20 most reputable countries are in Europe, and a “good reputation means more exports, more investments, more people coming to visit”.
Europe’s advantages could convert a vulnerability into a strength.
Many fear that Europe’s internal fragmentation dooms the region’s companies to fall behind in a winner-takes-all world where scale economies (allegedly) matter more than ever. But the winner-takes-all trend also has its limits because globalization is not leading to homogenization. Globalization is actually creating a more diverse business environment; a world tailor-made for connecting Europe’s internal diversity to its broad external linkages.
While Europe’s internal diversity makes it harder to achieve the fast scaling that American and Chinese companies can in their home markets, it forces European firms to develop capabilities for cross-country adaptation that rivals can find hard to master. Therefore, European companies should look for growth opportunities where catering to differences creates more customer value than a pure focus on driving costs down via global standardization.
The digital flows boom expands opportunities to apply this strategy online. Look, for example, at Spotify’s sensitivity to national and local cultures as it expanded from Europe to the world. Additionally, differentiating on privacy – given Europe’s regulatory lead in this area – can become an advantage for Europe’s digital sector.