Discussion Paper
McKinsey Global Institute
February 2019
O
n many metrics, the European economy and its businesses
have been grappling for years to capture the full potential of
current and previous generations of digital tools. It is now more than
time to double down on Europe’s efforts to succeed in digital
transformation, especially when a new set of digital technologies such
as artificial intelligence (AI), are becoming more technically pervasive.
On average, Europe’s digital gap with the world’s leaders is now being
compounded by an emerging gap with the world’s leaders in its
development and corporate use of AI technologies. Without faster and
more comprehensive engagement in AI, that gap could widen,
especially for those European countries with relatively low AI-
readiness.
One positive point to note is that Europe may not need to compete head
to head but rather in areas where it has an edge (such as in business-to-
business [B2B] and advanced robotics) and continue to scale up one of
the world’s largest bases of technology developers into a more
connected Europe-wide web of AI-based innovation hubs.
Using the most recent data from McKinsey’s digital survey in 2017, the
same gap remains. Europe is not standing still, but the pace of AI
diffusion and investment remains limited. Although Europe’s GDP is
comparable with that of the United States and just ahead of China’s, the
digital portion of Europe’s ICT sector today accounts for around 1.7
percent of GDP, lower than the share in China at 2.1 percent and only
half the 3.3 percent share in the United States. While large Western
European companies are continuing to expand their use of early digital
technologies, the share of fully digitized companies increased by less
than 10 percent a year between 2010 and 2016.
Europe has some solid assets to bring into play in the next wave of AI.
For instance, it has close to six million professional developers—more
than in the United States. Yet Europe’s disadvantage in digital diffusion
seems likely to spill over into AI, where a new gap is appearing. Early
digital companies have been the first to develop strong positions in AI,
yet only two European companies are in the worldwide digital top 30,
and Europe is home to only 10 percent of the world’s digital unicorns.
Europe has about 25 percent of AI startups, in line with its size in the
world economy, but its early-stage investment in AI lags behind that of
the United States and China.
Further, with the exception of smart robotics, Europe is not ahead of
the United States in AI diffusion, and less than half of European firms
have adopted one AI technology, with a majority of those still in the
pilot stage. AI initiatives remain fragmented in Europe, and investment
in AI is nothing like the size of that in the United States or China.
Europe attracted only 11 percent of global venture capital and corporate
funding in 2016, with 50 percent of total funds devoted to US companies
and the balance going to Asia (mostly China). That share was about the
same in 2018. Only four European companies are in the top 100 global
AI startups.
Available data on diffusion are scarce, but our blend of survey research
demonstrates that European companies may lag behind their US
counterparts in their adoption of big data architecture and of the
advanced machine learning techniques that are the foundations of AI—
with 12 percent less use than in the United States. A possible gap may
exist between Europe and the United States on the use of AI tools such
as smart workflows, cognitive agents, and language processing—a 16
percent gap to date. Moreover, European AI is yet to be deployed
broadly in enterprises rather than in one or only a few functions.
Europe still suffers from a digital gap. Given that digital technologies
are the bedrock of diffusion of AI technologies, the risk is that Europe
could fall further behind the world’s leaders on AI technologies and
miss out on a significant source of potential new economic dynamism.
We know that AI shares winner-takes-most characteristics with the
previous wave of digital technologies, and that therefore there is an
urgent imperative for Europe to build on current strengths and pockets
of best practice—and up its game. In short, Europe needs more AI,
different AI, and all of it more quickly. This paper offers some brief
thoughts on a road map of priorities that need to be in the mix.