Europe is missing innovation

An interview with Peter Stracar CEO for GE in Central and Eastern Europe

Peter Stracar
12 July 2016

Globalization is now often challenged in countries which were its main proponents. Brexit merely exemplifies a trend among societies that has impact on both politics and business. Yet we live in times of unprecedented technological growth. Visegrad Insight talks to a CEO of a global multinational company about his strategic outlook in such turbulent times.

How does the prevailing sentiment in the world, about closing borders and protecting sovereignty affect the strategy of a global company like yours?   

The reality is that large or global companies are becoming increasingly distrusted, and there is a strong feeling that the political system is failing to address the challenges. Globalisation is being attacked as never before and there is a growing feeling, not only in Europe but in the world at large, that economic nationalism will solve the problems. It will not. We have been in these territories, economically-speaking, several times in the past hundred years. Attempts to isolate did not work. And it will not work this time either.

Nevertheless, you still have to address this sentiment?

It is reminiscent of when we had all those discussions about transatlantic partnerships, between the US and Europe or when US was negotiating with Asia, the so called Trans-Pacific Partnership (TTP). There was again that very similar sentiment “This is for the big companies. This is what large multinational conglomerates want because they will benefit the most.” The reality is that we didn’t need this very much at all. 

Large-scale companies, like GE and many others, they are anyhow already globalised. And this tendency now to de-globalise, to protect more, to go back to national markets, we don’t welcome it, but we will be able to deal with it because we have the resources. GE has more than 420 factories globally and R&D centres all over the world. We need them to operate more locally because the global approach is not going to work in the same way as before. But who will really pay the price? The small and medium companies which will struggle, and they will be cut off from access to markets. And that’s the reality that nobody speaks about.

Before we discuss this impact on society, the consumer and the small and medium enterprises, could you tell little more about how you actually are adjusting? As a global company, you are localising factories, you are localising production, how is this process being understood in Central and Eastern Europe?

Central Europe – that’s a good point. We should be the last region supporting that trend. Simply because our economies are very open and dependent on export since our domestic markets are generally not that big. So it’s difficult to sustain strong positions by just counting on domestic consumption. CEE has that strong orientation on exports, the region is open to investors and there is a large share of international business actually operating here. So something like the Brexit is the last thing that Central Europe really needs.

If the world is getting more closed off, it will operate more nationally, and we will have to adjust to it. This means we will have to operate on a more fragmented base and serve the markets locally, adjust our products and adjust our strategies. It is not that we prefer this eventuality. It is not that we are proponent of it, but we believe that we have the flexibility, technology and resources, skills and talent to do this locally. There will, of course, be a price for this change; it will be more expensive and CEE is going to lose its competitiveness…

…for every customer, at the end of the day. If you would try to advocate against this trend, against the shutting down of globalised solutions, who do you think would be your political allies? I’ve read a note of Jeffrey Immelt, in which he says GE is not waiting for the US government, you are already global – as you said – and will still stress export. That you will do whatever it takes, and try to avoid politics. But it seems like you need some political allies.

Our company is always independent. The reality is that we do not have a control over the political situations around the world. So we may have opinions, we may raise our opinions, we may have a view of what would work, but, in the end, it is role of the political system to go and find the right solutions. We simply live in the environments they create, and this is what our Chairman was just talking about it.

It’s important to see the world as it really is. And we recognize that, in principle, we need to solve the issues before other companies solve them and to not be dependent on what somebody else will do. So when the US Export Bank Exim didn’t prolong financing, we decided then to look elsewhere. Frankly, we had no choice; it was not that just what GE required but the customers require export financing, so if we can’t get it in the US, we will get it in Europe. And again this is the power that a large company like GE has, because we can make those products in Belfort in France, and we use French Coface financing to export to Egypt or other places. That’s the flexibility we have.

Let me move to another point. What do you think on the new digital strategy developed by the EU? How much do you see an opportunity with this?

The digital arena is a good example. The reality today is that, when we look at cloud computing – a US company is leading in that area, when we look at social networking – a US company is leading in that area as well. What Europe is partly trying to do is, “oh, let’s regulate it,” “Let’s prevent competition through regulation,” and “let’s establish data localisation, put up walls, put up barriers”. Countries or regions that wall themselves off with data localization requirements will not be able to reap the full benefits of a digital revolution.

The real issue in Europe is missing innovation. We are missing out because there is not enough innovative spirit, because America was at that time much stronger with venture capital and a more mature entrepreneurial environment which pushed American digital companies. We are now shifting to the next stage – to the digitalisation of the industry where Europe is strong. So the time is now, that we learn and grab the opportunity instead of dreaming of new regulations which will safeguard Europe.

At the Prague European Summit in June Mrs. Kristalina Georgieva (European Commissioner for Budget and Human Resources) spoke about Europe being the largest world economy. I think she missed the point a bit, in a sense that it would be the largest economy if there were no borders really, or if there was a single market.

I think Europe is the largest economy, and Europe has made tremendous progress towards a true common market, especially when we look at where Europe was thirty years ago. Given the Brexit and the developments in other countries, the trend now is pushing back. And there are a lot of areas where the common market is by far not yet strong enough. The digital sector is an example of one of those areas.

As learning from mistakes being done in other sectors such as the energy market, we need to encourage strong competition because this will force innovation. As an added benefit, it will, on a political level, put pressure on governments to think about more creative policies. And the second very important topic is – simplify the process.

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Consider the private sector, many companies which are very strong in their area, are simply missing out on the innovation wave. Look at the retail business for instance, at least I am not aware of a strong retailer, who has been able to build up a strong e-business. What I observe in some industries, the well-established and traditional players are afraid of taking the next step despite their good position to be successful. They are afraid of the risk, and most companies are getting too big, too bureaucratic, too centralized with complex rules, which slows down the process. The answer is to simplify: regulate what has to be regulated and just reduce the bureaucracy on the system overall.

And lastly, we should not be afraid of global competition. Europe is an export-orientated market, we need to embrace it, protectionism will not help us. I see a new era with possibilities for growth fueled by the Industrial Internet and open markets. The path forward I see is fueled by competition among member states, and by industry that is on the cusp of a digital revolution. This will be the next wave of competitiveness.

Concerning, that last point; you said before that Europe is more innovative than anywhere else in the world regarding the number of patents, the sheer volume of innovation, but it lacks the financial and sales elements to make it truly successful. 

Yes, I think that we have, in Europe, tremendous industrial strengths, and this is what we have also seen in our company; there are tremendous engineering capabilities here. I think where we need to accelerate is in the digital sector and this is a huge opportunity that Europe should exploit: the connection between our industrial strengths with the newest technologies.

And when it comes to innovation – Europe needs to find ways to commercialize it. Finally innovation must have a commercial end; otherwise, it doesn’t create actual value or have any economic impact.

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