How the tech market is increasing its intra-European focus
All global markets were affected by the pandemic, but few were hit as hard as the technology sector. In fact, Covid had more of a negative impact on Europe’s technology industry than the 2008/2009 financial crisis, with production slumping to just 19% in the second quarter of 2020 – the biggest decline since the Second World War (Orgalim). After the pandemic subsided, there was hope that the market would quickly regulate itself again, but reality has been a different matter. With new challenges such as the conflict between Russia and Ukraine bringing enormous economic turbulence and supply chain disruptions, the market is still suffering from five major, unforeseen factors.
- High inflation – millions of consumers are cutting back on their spending
- Labour unrest – frequent strike action across Europe
- Energy shortages – rising prices for electricity and gas cause companies to cut back
- Geo-political uncertainty – causing even more disruptions and making calculations less feasible
- Extreme weather – damage and disruption to supply chains due to more frequent extremes
Reactions to these challenges
Despite recent strains, the general trend of the tech market’s past decade has developed upwards. According to Eurostat, total extra-EU trade (imports + exports) in high-tech products increased from €482 billion to €777 billion between 2011 and 2021. This corresponds to an average annual increase of 4.9%.
China and the USA remain the most important trading partners for the European market (Eurostat), although forecasts for 2023 look more subdued.
A forecast by Forrester predicts growth of only 3.6% for European technology spending this year – 170 basis points less than the previous forecast – thanks to the combination of high inflation, energy crisis and new possible geopolitical tensions.
The challenges of recent years have also highlighted just how problematic overdependence can be, with the traditional trade route from Asia coming under considerable pressure. As a result, many European tech companies are trying to become less dependent on Asia and North America and rely more on intra-European networking.
According to a recent WEF survey, 77% of economists expect companies to optimise their supply chains by diversifying their production rather than relying on a single source or country. Thus, the evolution could move from a supply chain to more of a supply network.