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February 3, 2012

Europe still proving tough for tech companies

Europe remains a tough place for technology companies to do business, but its leaders are gradually coming to grips with the industry's needs.

By Vinod

‘The real issue is not sovereign debt, but the competitiveness of the marketplace," said Cisco’s EMEA president, Chris Dennison, speaking at CiscoLive!

Unfortunately one of the main weaknesses of the Euro is that the struggling countries in Southern Europe cant devalue their currencies, and endless cuts to services are only effective to a point. Dennison believes that its time to focus Government policy ondriving innovation and competition, with a focus on culling unnecessary regulation.

By way of comparison, the US spends 2.8% of its GDP on research and development, while European countries spend just 2%. While this difference doesn’t seem huge on paper, he noted, its $180bn in real terms – enough to be very useful right now.

The key for the European IT and technology workforce is to focus on differentiating its products. The continent has a high cost bracket workforce which means it will very rarely be able to compete on cost with the Asian manufacturers.

Historically the European technology industry has also struggled to get scale of production up to a competitive level to compete with US and other producers. Regionalism is still rife.

While in attendance at the World Economic Forum in Davos, Dennison said that most of the government officials want to pursue similar initiatives to the Cameron Government, and are focusing on education, particularly in the currently unpopular Maths and Science areas.

"We are seeing some early signs of real recognition and moves to action here," he said.

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In the UK the company has been working with schools to correlate unpopular and ‘nerdy’ subjects such as Maths and Science with athletic achievement and the Olympics, by tying the two together in the classroom.

Praise was also showered on the Turkish government’s new education strategy which will see 12 million tablets rolled out to school children, driving next generation technological literacy from a very young age, and to poorer students who would not otherwise have access.

He also rather controversially believes that net neutrality is slowing broadband uptake and industry growth.

Dennison believes that more and more European governments are realising that in order to get the required level of fibre investment, its companies need an incentive to do so – net neutrality has no business case in this regard. He believes this is keeping Europe’s broadband adoption rates low (by comparison to the rest of the first world)

Telecom France, for example, is making 40% profit and isn’t under any competitive pressure at home – he would like to see infrastructure builds opened up to the ISPs. This will help drive the rollout of full duplex fibre.

"I think progress is being made, the traffic lights are going from amber to green," he said.

Portugal was highlighted as a country with great success – its public-private partnerships have achieved 80% national fibre coverage.

He does believe that Europe finally sorting out its spectrum wrangles for 4G has helped, and this area will see significant investment in the future. Opening the 800MHz band (which is more penetrative) is a positive step, and the 2600MHz band is being priced fairly – which will spur additional investment and reduce the likelihood of a 3G-style blowout.

The unification of Europe’s data privacy legislation, producing a single set of laws for the whole region will be much more important than many think.

"It was previously difficult and costly to do business across multiple countries in Europe. The equalisation of legislation across these countries would be a huge step."

Dennison’s European predictions for 2012

– Further consolidation of the industry
– Strong companies to leverage cash
– US companies with cash tied up in Europe will be reluctant to expose it to US repatriation taxes – they will be looking to spend in Europe if the right opportunities present themselves
– App development will start to focus on third world to address their needs, rather than adapting first world apps as an afterthought
– Video in all forms, especially conferencing, will be huge in 2012
– ‘Big Data’ storage, with high security to become invaluable. Will require additional IP protection for the third world
– As the above take off, scaling, resiliency and security to remain the focus of CIOs and CTOs project builds

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