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Research Report

INTO THE CLOUDS: European SMEs and the Digital Age

Copyright Date: Oct. 1, 2016
Published by: Atlantic Council
Pages: 22
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Table of Contents

  1. (pp. 1-1)

    The European Commission’s Digital Single Market strategy has laid the groundwork for ambitious changes in Europe’s cloud-computing landscape. Given the potential to add up to one million new digitally dependent jobs in the EU, the Commission should take further steps to accelerate cloud adoption, especially among small and medium-sized enterprises, including:

    1. promoting policies that reinforce the global nature of the cloud;

    2. enhancing the business-to-business (B2B) and business administration aspects of cloudcomputing adoption;

    3. setting policies aimed at building operational and legal trust in Europe’s cloud environment;

    4. incentivizing public sector procurement and e-governance as instruments to promote SME cloud adoption;

    5. increasing awareness-raising...

  2. (pp. 1-1)

    In the European Union, Scandinavian countries and Italy are stand-out adopters of cloud computing relative to their gross domestic product (GDP) per capita and digital competitiveness. Germany is a stand-out laggard.

    Wealthier, advanced economies of core Europe—Austria, France, the United Kingdom (UK), the Netherlands, and Belgium—are underperforming in cloud-computing adoption given their GDP per capita.

    Political risk, concerns about data protection and organizational disruption weigh more heavily on German small and medium-sized enterprises (SMEs) than some of their Organization for Economic Co-operation and Development (OECD) counterparts contributing to low cloud adoption rates. A majority of German SMEs (61...

  3. (pp. 2-2)

    It was only a few years ago that a majority of people believed that “the cloud” required a raincoat. Today cloud computing has become one of the keys to the digital industrial revolution—transforming business models, means of production, and marketplaces. Cloud adoption was expected to increase by 42 percent in 2015 as the rate of adoption by governments and companies accelerated globally. And it is expected to grow from $180 billion in 2015 to $1.3 trillion by 2018.²

    In 2010, the European Union began looking at ways to promote cloud adoption in earnest under the Digital Agenda for Europe...

  4. (pp. 3-3)

    Cloud computing has the potential to be one of the most transformative economic innovations of the twenty-first century—allowing companies and government agencies to scale resources quickly, increase portability and accessibility, reduce costs, and increase productivity. Cloud computing can transform important supply chain-reliant sectors like advanced manufacturing, chemicals, and retail. This is particularly true for SMEs, which can take advantage of network effects and lowered barriers of access for sophisticated, IT-intensive applications. The marginal rate of return is higher for SMEs whose fixed costs can be lowered—jolted by the economies of scale of the collective resources across companies’ user...

  5. (pp. 4-6)

    Despite the economic evidence supporting cloud adoption and the political weight the EU has put behind it, the potential of cloud computing in Europe remains unrealized. This is particularly true among the EU’s twenty million SMEs, which comprise 99 percent of European businesses.13 According to one Eurostat survey,14 cloud adoption in the EU hovers around 19 percent of European firms—slightly lower for SMEs—whereas 37 percent of American small businesses have already taken to the cloud.15

    The picture in the EU is striking. Cloud adoption across the EU falls broadly into five clusters: a northsouth cluster of high adopters...

  6. (pp. 7-9)

    What does this mean? Why are some of the most advanced industrial economies in Europe underperforming in their industrial cloud-computing adoption as a function of their GDP per capita and their digital competitiveness? And in particular, why is Germany—Europe’s largest economy, most competitive exporter, and political leader—not getting its head in the clouds more quickly? Cloud adoption in Germany is growing. But the rate of adoption remains anemic, especially compared with the favorable economic conditions in Germany.

    If SMEs are the bellwether of economic competitiveness, then examining the motivations and concerns of the German small business and Mittelstand...

  7. (pp. 10-14)

    The European Commission and member-state governments recognize that policy and—perhaps equally important—the political environment have not kept pace with cloud technology. Vice President Andrus Ansip expressed the view that Europe must avoid “the real risk of falling behind when others race ahead” in cloud adoption.38

    The European Commission’s Cloud strategy, launched in 2010 as part of its Digital Agenda, was initially designed to iron out irregularities across the single market. It focused on standardizing the cloud environment in Europe by reducing standards-based fragmentation, promoting interoperability, and developing model terms of service to smooth out contractual uncertainty. It also...

  8. (pp. 15-15)

    At the 2016 Hannover Messe trade fair, German Chancellor Merkel emphasized the role that common European—and transatlantic—approaches must have if Germany is to be successful in an era when data processing is one of the primary sources of value in advanced industrial economies.55 But that success begins at home. Cloud adoption by businesses—particularly SMEs, which stand to benefit most from cloud-based data storage and processing—will be an important litmus test for Europe’s digital future. The EU and member states like Germany must work more to address the unknowns, concerns, fears, and particular needs of the skeptics...