Europe's Execution Gap: Why Knowledge Isn't Converting Into Scale

Europe hosts world-class researchers, strong industrial sectors and reputed universities, but still faces persistent difficulty converting knowledge into industrial scale, productivity growth, and globally visible technology companies. The US, for instance, has built six companies with market valuations above one trillion dollars — a scale of corporate value Europe has yet to produce.

For GFCC member Dr. Bernadett Petri, Managing Director at the Hungarian Development Promotion Office, Europe does not lack capabilities. The problem is that capabilities are not converted into scale and economic power as quickly or as intensely as in the United States.

During the July Monthly Call, Dr. Petri argued that Europe's external innovation gap — whether measured against the US or China — is closely tied to its internal divide: countries in Central and Eastern Europe play a small role in EU innovation priorities, despite holding a historically strong industrial base and a high level of technical education in electronics, manufacturing and engineering.

The Execution Gap

Europe's biggest competitiveness challenge today is translating research excellence into industrial scale and economic value — what Petri calls the "execution gap." This stems from several compounding factors:

a) Lower R&I investment: the EU invests €270 billion a year, less than the US invests alone.

b) Lower private R&D funding: 1.3% of GDP, against 2.4% in the US.

c) A fragmented regulatory framework across member states.

"Between the end of 2019 and mid-2024, labor productivity per hour worked increased much more in the US than in the euro area. This difference cannot be explained only by R&D spending. It reflects how innovation is absorbed by firms and how fast technology is deployed, how easily companies can scale across the large market and how quickly capital reaches the most promising ventures," Dr. Petri explains.

For her, fragmentation hinders the ability of businesses to scale up. While a company that wants to scale and grow in the US encounters one large regulatory, capital and consumer market, European businesses face a patchwork of national rules with different administrative cultures and procurement systems.

"The deeper challenge is the execution gap. Europe excels at producing knowledge. But it is less good at turning that knowledge into large companies," Dr. Petri argues.

The Innovation Divide

While Europe has seen an improvement in innovation performance of over 11% since 2019, progress varies significantly across countries and regions. For Dr. Petri, this internal innovation divide creates barriers to competitiveness within Europe.

Her proposal is to build European innovation ecosystems that pool capacity across the continent rather than concentrating it in a handful of hubs. "Europe cannot close the innovation gap while deepening its internal innovation divide", she concludes.

The solution isn't to weaken excellence — Europe needs it, and EU programs should keep building on it — but excellence alone won't build continent-wide competitiveness. What's missing are stronger pipelines: from research to industrial application, from funding to deployment, from regional capacity to European value chains, and from public investment to private scale-up.

For Hungary and Central and Eastern Europe, that means confronting a specific strategic question: how to convert a technology-intensive industrial presence — decades of manufacturing and engineering know-how — into homegrown knowledge and regional innovation capacity, rather than remaining a production base for innovation designed elsewhere.

For the EU, the question runs the other way: how to design funding instruments that don't simply reinforce the regions and sectors that are already strong, but build the capacity for continent-wide competitiveness.