The State of Research and Innovation in Europe: Are We Still in the Game vs. the USA and China?

Europe has fallen behind in the global technology race. Despite outstanding talent, top-tier universities, and a market of 450 million consumers, it relies heavily on American tech solutions (cloud services, software, search engines, AI models) and lags behind Chinese advances (electric engines, solar panels, batteries).

The result is technological vulnerability and geopolitical weakness (see US tariffs and the war in Ukraine).

The new European Commission is now trying to change pace and get back in the game. In Brussels, the Research & Innovation Days have just taken place – the EU’s annual event showcasing the state of innovation – and for the first time, we saw something ambitious.

A common EU industrial strategy was presented to overcome fragmentation among the 27 member states, along with a new plan to increase investment in R&D, foster greater public-private collaboration, and turn research into global enterprises.

The Context

Let’s take a step back. Europe’s industrial strategy stems from the Draghi Report, which outlined three key areas of action: innovation, energy transition, and defence.

One year after the current Commission took office, Mario Draghi’s “wake-up call” at the State of the Union address in the European Parliament highlighted how little had been achieved so far (around 10%). Still, things are starting to move.

Innovation has finally moved to the center of the European agenda. In her opening speech at the Research & Innovation Days, Ursula von der Leyen went as far as to declare the Commission’s determination to make Europe the world leader in research and innovation, (!) outlining a three-pillar strategy based on talent, funding, and growth:

• Attracting top talent: The Commission announced a €500 million package, doubling grants for researchers relocating to Europe, and launching a new 7-year “super grant” to provide long-term stability to leading scientists.
• Boosting funding: The Horizon Europe program will see its budget doubled to €175 billion. The initiative has already generated over 30 Nobel Prizes and proven an economic return of €11 for every €1 invested.
• Scaling frontier research into successful businesses: A new “Competitiveness Fund” will be launched alongside Horizon Europe to foster growth in strategic sectors such as AI and green technologies. A new strategy for startups and scaleups will also remove regulatory barriers, close funding gaps, and unlock venture capital for high-tech firms.

The Problem: Why Europe Fell Behind

As Henna Virkkunen, Executive Vice-President of the EU Commission for Technological Sovereignty, Security, and Democracy put it:

In Europe we invent breakthrough technologies, but then we see them scale elsewhere. The issue is not ideas, but the system that fails to support them.

Some key figures:

• Commercialization: Europe excels in research, producing 32% of global scientific publications, but only one-third of these innovations are commercially exploited.
• R&I investments: The EU invests 2.2% of GDP in research and innovation, compared to 3.6% in the USA and 2.6% in China. The gap widens when considering private investment (Eurostat 2025).
• Startup scale-up: Only 7 European unicorns in 2024, compared to 140 in the US and 70 in China. 90% of European startups struggle to get past Series B funding due to limited venture capital and fragmented markets (27 member states with different tax and financing rules).
• Risk culture: European companies and pension funds still see startups as too risky, failing to adopt a portfolio approach (investing in 100, counting on 10 to generate outsized returns).

The Solution: 5 Concrete Actions to Close the Gap

“We cannot afford to be mere spectators of the technological revolution. We must be protagonists, or risk becoming irrelevant”

Ekaterina Zaharieva

European Commissioner for Startups, Research, and Innovation.

 

The Commission is working on five main levers:

1. Increase and direct investments

• Goal: Raise R&I investments to 3% of GDP by 2030 (currently 2.2%), with at least 50% from private funds (currently 30%).
• How:
  • Double the Horizon Europe budget (currently €95.5bn over 7 years) and simplify access for startups and SMEs.
  • Tax incentives for private investment in R&I (e.g., tax credits for VC and corporate venture).
  • European sovereign funds for critical technologies.

2. Create a true single market for innovation

• Goal: Eliminate barriers that fragment the market (e.g., different rules on procurement, taxation).
• How:
  • Harmonize rules for startups and scaleups by defining a “28th Regime,” a single legal framework valid across all 27 EU states.
  • Allocate 5% of EU public procurement (€2 trillion/year) to innovative SME and startup solutions.
  • Talent attraction and development: initiatives like “Choose Europe” have quadrupled applications from foreign researchers.

3. Bet on scaleups, not just startups

• Goal: Turn European startups into global champions (today only 10% surpass 100 employees).
• How:
  • A €20bn European scaleup fund to co-invest with private VCs in growth-stage firms (EIC Fund model).
  • “Corporate venturing” programs to encourage large European corporations (e.g., Siemens, Airbus, Enel) to invest in startups.
  • Complete capital markets union to facilitate financing and tech IPOs.

4. Accelerate research on dual-use technologies

• Goal: Leverage synergies between civil and defense research (e.g., AI, robotics, semiconductors). The ESG taboo has been broken: the European Defence Fund and Horizon Europe will both invest in technologies that strengthen security and competitiveness.
• How:
  • Extend the EIC (European Innovation Council) mandate to fund dual-use projects.
  • European technology hubs fostering civil-military collaboration (e.g., HEDI – Hub for EU Defence Innovation).
  • Open standards to avoid dependency on non-EU suppliers in critical sectors (cloud, 5G).

5. Engage citizens and companies

• Goal: Build a culture of innovation in Europe.
• How:
  • “Open innovation” programs involving citizens in co-designing solutions (e.g., smart cities, health).
  • Lifelong learning: invest in workforce upskilling.

Priority Areas for European Investment

1. Clean tech for energy transition: green hydrogen, offshore wind, renewables, circular economy, advanced materials.
2. Digital technologies, AI, and deep tech: AI, microchips, quantum computing, cybersecurity – the backbone of Europe’s digital sovereignty.
3. Health: biotechnology, advanced therapies, cancer research, digital health.
4. Defense and dual-use technologies: to strengthen both security and industrial competitiveness.

What Managers Can Do

The European Research and Innovation Days 2025 showcased the Commission’s initiatives to accelerate research and innovation through legislation, funding, and incentives – creating new levers to boost productivity and growth for European companies.

Now it’s up to managers to seize them:

• Increase corporate investment in R&I by dedicating a higher share of revenues to innovation.
• Collaborate with startups: launch corporate venturing and open innovation programs.
• Promote upskilling programs for employees.

At CEC European Managers, we are working towards this.

What about you?

Silvia Pugi

Deputy Secretary General at CEC European Manager

and Chair of CEC European Managers’ Working Group on Innovation for a More Competitive EU