Internal Market,Industry,Entrepreneurshipand SMEs

Digital Transformation Monitor

The need to transformlocal populations intodigital talent

May 2017

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The need to transform

local populations into

digital talentThe growth of digital talent is becoming increasingly important for the economic development of regions and cities.Digital talent can encourage entrepreneurship and innovative thinking, increase prosperity and lead to thediversification of local communities. By encouraging the development of digital talent, cities can decreaseunemployment and prepare their local communities to the future economy.

Impact at regions and cities level

The new digital era offers significantopportunities for boosting productivity,spurring growth and stimulatinginnovation. Digital transformation istherefore crucial to accelerate theEuropean industrial renaissance.

In the communication entitled “RegionalPolicy contributing to smart growth inEurope 2020”², the EuropeanCommission (EC) stressed the centralrole of regions in unlocking the growthpotential of the European Union (EU).Policy leadership at local level is thuscritical to drive forward local ecosystemsconducive to the development ofinnovations and for the digitaltransformation of local businesses,organisations and public services.

Today, all roads lead to digital. Thedigital economy cannot be limited to asingle rising business sector or region: itcorresponds to a whole new paradigmthat is revolutionising industries acrosstheir entire value chain, impacting bothpublic and private entities.

A global move towards digitaltransformation reshaping Europeanlocal economies

Especially established companies intraditional sectors such asmanufacturing or agriculture arebenefitting from the digitalisation oftheir sectors. The effects of the digitaltransformation are not limited to a fewselected sectors or industries. Digitaltechnologies can no longer be limited totech start-ups or the telecom sector. Thedigitial transformation is reshapingentire economies as no sector norindustry can remain untouched by thedigital wave.

The digital transformation of how wework is one of the great megatrends ofthe 21st century. By the end of 2016,about 3,2 billion people were connectedto the internet worldwide and by the endof 2013, those who have grown up withdigital started to outnumber those thathad to adapt to it.¹

Digital technologies are driving powerfuleconomic and societal transformations.Those that have grown up with digitalare running their entire lives on smartdevices, on the move, always connectedin real time. This generation expects theprivate and public organisations theywork for, buy from, and interact with tohave adopted the same lifestyle.

Digitalisation is therefore at the top ofthe agenda for nearly every public andprivate organisation. At the same time,the digital transformation offersnumerous new opportunities tobusinesses and local economies.

The digitalrevolution:a key driver ofeconomic growth

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Digital natives

outnumberdigital immigrants since 2013.

New digital trends such as cloudcomputing, mobile service devices orsocial media are changing the businesslandscape, reshaping the nature of work,the boundaries of enterprises as well asthe responsibilities of business leaders.

These trends spur innovation in businessmodels, business networking and thetransfer of knowledge as well as accessto international markets. Digitaltechnologies are reshaping the entireeconomy at local, national and globallevels and driving growth in regions andcities.

According to the Digital TransformationScoreboard³, 75% of the respondentsagreed with the statement that thedigital economy is a significantopportunity for their company. Most ofthese business leaders are thereforeoverwhelmingly positive about the waydigital allows them to create value,reaching more customers, more quickly,and more directly. They all see thepotential to use digital technologies topropel their business forward.

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of Digital TransformationScoreboard 2017

respondents regard digitaltechnologies as an opportunity.

75%

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The need to transform local populations into digital talent

Regions and cities as enablers ofdigital transformation

By actively encouraging sectors andsocial enterprises to participate in digitalinitiatives, regions and cities can lead theway in the digital transformation of theircommunities and turn them intoinnovative vibrant communities.

The digitalisation of these communitieswill not only encourage an influx of newinhabitants introducing new energy,thoughts and ideas but will also allow forbetter cooperation between citizens andenable the development of an innovativesharing economy thus securing thefuture prosperity of the cities or regionsconcerned.

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Digital trenddriving EU growthImportance of the ICT for EU regionsand cities

The ICT sector is already one of the keydrivers of the economy of Europeancities and regions. According to Eurostat,the value added of the ICT industry onthe European economy is aroundEUR 600 billion (almost 5% of GDP). Thesector accounts for around 25% of thetotal business investments in R&D in theEU.⁴

However, benefits from ICT in the US aregreater. Europe needs structural reformsand a consistent digital agenda tounleash similar impacts. The role of EUregional and local actors is critical for thesuccess of such structural reforms toaccelerate the implementation of thedigital agenda.

Spillover of ICT on other sectors

Beyond the ICT sector, digitaltechnologies are having an impact on theoverall economy of European regionsand cities. Since 1995, digitaltechnologies have driven half ofproductivity gains in the EU, thanks totechnological progress and investmentsin the sector.

Digital technologies have supportedmore than 20% of economic growth inthe world’s most advanced economies inthe period 2004-2009, according to aMcKinsey study. Even better, the digitaleconomy is expected to grow seventimes faster than overall European Uniongross domestic product in coming years.

Impact of digital on the Single Market

Digital technologies have a hugepotential to strengthen the SingleMarket. However, the level ofe-commerce and e-business varies acrossMember States and cross-bordertransactions are limited.

Although 66% of Internet users in 2016used it to buy or order goods or servicesfor private purposes, only 32% of themdo so from other EU countries. Bycontrast, in the US eCommerce is morecommon place with 75% of internetusers buying or selling online.

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Digital revolution:an untappedpotentialEurope needs to continue its efforts toachieve a genuine digital single market.Accelerating the level of digitaltransformation in European regions andcities is also essential to stimulate thegrowth of European SMEs and to provideconsumers with more choice atcompetitive prices.

Facing emerging challenges need to beovercome

Digital technologies are bridging vastdistances and converting the world into aglobal village, bringing global companiescloser to local economies. Regions andcities are the natural homes to facilitatecollaborations between business leadersand businesses that could be digitallytransformed as they bring together localresources and facilitate collaborationbetween local stakeholders (industry,policy makers and academia, etc.). Thesecollaborations have produced many ofthe smartest digital initiatives, greatlyincreasing the attractiveness of theparticipating cities or regions.

In particular, European regions and citiesare facing emerging challenges:

• Social: with more than 50% of theglobal and 78% of the Europeanpopulation living in cities, and closeto 700 million people moving to citieswithin the next decade, a huge stressis being placed on aging publicinfrastructures;

• Political: a lack of shared goalsbenefiting all constituents is keepingPPPs models from reaching their fullpotential;

• Economic: the global financial crisisand economic slowdown thatfollowed have dramatically reducedpublic budgets, whereas 85% of theEU’s GDP is generated in cities;

• Technological: ICT advances havereshaped traditional notions ofwhere people work, potentiallychallenging the “exclusive brainpower” that cities enjoyed in the past.

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The need to transform local populations into digital talent

Cities as supportive ecosystems forstart ups

Most start-ups are created in cities,where entrepreneurs and smallbusinesses can find the opportunities,services and infrastructure they need tothrive. City governments have a deepunderstanding of their local economies(including sectors, opportunities,strengths, weaknesses and needs), aswell as of their regional context. They arebest-placed to define the mostappropriate strategies to createfavourable local entrepreneurialecosystems.

Most city governments have policies andprogrammes tailored to the specificneeds of local entrepreneurs and smallbusinesses. The Digital TransformationMonitor provides detailed case studies ofsuccessful digital transformation inEurope. Overview of the cases of Espoo(Finland) and Côte d’Azur – Nice(France) are provided in boxes 1 and 2.

Box 1: Espoo: A DigitalisedCity

The city of Espoo is regarded as one ofthe high-tech hot-spots of Europe.

Espoo’s economy heavily depended onNokia before the company’s situationworsened and a massive wave of high-skilled technology experts were let go.⁵

However, Espoo used this opportunityto develop a vibrant start-up ecosystemby bringing together companies,educational institutions and careerplanning services to evaluate the needsof the market and relaunch the city’seconomic growth.⁶

By continuing to support the growth ofdigital talent as well as activelyengaging in the digitalisation of thecity’s traditional businesses, the localeconomic fabric was rejuvenated andthe innovative and entrepreneurialspirit of the community awakened.

The abundance of highly-skilled ICTworkers has led to increased interest inthe development of innovative digitalsolutions to tackle societal and/orenvironmental challenges, furtherencouraging the city’s innovativedevelopment and economic growth.

The Startup Sauna located at the AaltoUniversity campus in Otaniemiis is aprime evidence of the engagement ofstudents in the digital transformationprocess of local businesses. Theaccelerator is totally operated bystudents and was awarded the prize ofbest accelerator run by students of theworld in 2014.⁶

For more details about the Espoo case,please refer to the DigitalTransformation Monitor website:

https://ec.europa.eu/growth/tools-databases/dem/monitor

Box 2: Côte d’Azur – Nice: the importance of encouraging thedevelopment of digital talent

While the Côte d’Azur has been one ofthe global leaders in the use of ICTs, itsposition was significantly jeopardizedfollowing the departure of a series ofglobal leading tech companies from thecity in 2013-2015.⁷ ⁸

Suddenly the Côte d’Azur was facedwith a shortage of digital talents, whichthreatened the city’s image as a hub forICT companies. The city had tosignificantly increase its effortsregarding the growth of its local digitaltalent.

The city understood the importance ofdeveloping long-term strategies andstaying responsive to the fast-paceddigital territory.

The priority given to the digitaltransformation of businesses and theincrease in cooperations betweenbusinesses and policy makers led to thegrowth of numerous incubators andaccelerators as well as various theintroduction of policy measures aimedat encouraging ICT education.

The case of the Côte d’Azur clearlydemonstrates the importance of citiesremaining active with regard to localgrowth of digital talent and the positiveeffect their presence has on theinnovative development of cities.

For more details about this case study,please refer to the DigitalTransformation Monitor website:https://ec.europa.eu/growth/tools-databases/dem/monitor

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1 ICT Facts and Figures 2015:http://www.itu.int/en/ITU-D/Statistics/Documents/facts/ICTFactsFigures2015.pdf2 European Commission, Regional Policycontributing to smart growth in Europe 2020, 2010http://ec.europa.eu/regional_policy/sources/docoffic/official/communic/smart_growth/comm2010_553_en.pdf

³ European Commission, Digital TransformationScoreboard 2017: Evidence of positive outcomes andcurrent opportunities for EU businesses, 2017:http://ec.europa.eu/growth/tools-databases/newsroom/cf/itemdetail.cfm?item_id=9076&lang=en

⁴ ICT Facts and Figures 2016: http://www.itu.int/en/ITU-D/Statistics/Documents/facts/ICTFactsFigures2016.pdf5 New York Times. Nokia layoffs, 2015:https://www.nytimes.com/2015/08/10/technology/after-nokia-layoffs-tech-workers-in-finland-regroup-and-refocus.html?_r=0

⁶ Startup Sauna, 2017, http://startupsauna.com/⁷ Le Monde. Texas Instruments Closure, 2012:http://www.lemonde.fr/economie/article/2012/12/18/texas-instruments-ferme-le-site-de-villeneuve-loubet-en-france-et-supprime-517-emplois_1807834_3234.html

⁸ L’UsineNouvelle. Samsung closes R&D Center, 2014:http://www.usinenouvelle.com/article/samsung-licencie-90-des-110-salaries-de-son-centre-de-recherche-a-sophia-antipolis.N294141⁹ European Commission. EU Skills Panorama 2014:http://euskillspanorama.cedefop.europa.eu/App_Controls/Documents/ShowDocument.aspx?documentid=84&amp

¹⁰ PwC, Cities of Opportunity 7: The living city, 2016: http://www.pwc.com/us/en/cities-of-opportunity.html

References

The need to transform local populations into digital talent

Encouraging Digital Talent

The digitalisation of cities and regionsrequires the development of digitaltalent. ICT jobs are in high demand aspast developments have shown them tobe much more resistant to crises thanmost other jobs. According to the EUskills panorama 2014, employmentgrowth in the EU from 2013 to 2015 willbe driven by service sector jobs,especially in higher-skilled areas such asprofessional services, business servicesand computing.⁹

Currently the market absorbs more thanthe annual output of ICT graduates fromuniversities and the education systemunderlining the need for cities andregions to actively encourage thedevelopment of local digital talent.

At the same time, this increasing demandfor ICT workers represents a hugeopportunity for job creation in theseregions and cities which local policy-makers and other relevant stakeholdersshould not miss. By supporting thedevelopment of digital talent, cities andregions can significantly reduceunemployment among theircommunities.

Those cities and regions wishing todigitalise their communities andencourage the growth of digital talent

thus have to make significant effortswith regard to encouraging ICTeducation, building favourableinfrastructures to the development of theICT sector, supporting increasedcooperation between the private andpublic sector as well as facilitating accessto finance for innovative start-ups.

Only once these commitments have beenrealised can digital talent ensure thecity’s or region’s economic growth andprosperity.

Preventing a digital divide betweenEuropean regions and cities

If many European stakeholders at locallevel have already come to realise theimportance of the digital revolution as akey driver of competitiveness andeconomic growth, a significant numberof European regions and cities are stilllagging behind in terms of digitaltransformation and do not act asfavourable ecosystems for innovation.

According to the PwC study “Cities ofopportunity 7”, only 4 European cities(see table 1 below) are ranked in theglobal top 10 for both “Intellectualcapital & innovation” and “Technologyreadiness”, two critical dimensions forlocal ecosystems to allow innovations tothrive and to act as engines for digitaltransformation.¹⁰

Source: PwC (2016), Cities of Opportunity 7¹⁰

Table 1: Top 10 global cities for intellectual capital & innovationand technology readiness

RankingIntellectual capital

and innovationTechnology readiness

London

San Francisco

Paris

Amsterdam

Toronto

New York

Los Angeles

Tokyo

Sydney

Chicago & Stockholm

Singapore

London

Amsterdam

New York

Stockholm

Hong Kong

San Francisco

Tokyo

Paris & Toronto

Los Angeles

1

2

3

4

5

6

7

8

9

10

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About the Digital Transformation MonitorThe Digital Transformation Monitor aims to foster the knowledge base on the state of play and evolution of digital transformation inEurope. The site provides a monitoring mechanism to examine key trends in digital transformation. It offers a unique insight intostatistics and initiatives to support digital transformation, as well as reports on key industrial and technological opportunities,challenges and policy initiatives related to digital transformation.

Web page: https://ec.europa.eu/growth/tools-databases/dem/

This report was prepared for the European Commission, Directorate-General Internal Market, Industry, Entrepreneurship and SMEs;Directorate F: Innovation and Advanced Manufacturing; Unit F/3 KETs, Digital Manufacturing and Interoperability by the consortiumcomposed of PwC, CARSA, IDATE and ESN, under the contract Digital Entrepreneurship Monitor (EASME/COSME/2014/004)

Authors: Laurent Probst, Bertrand Pedersen & Jill Wenger, PwC

DISCLAIMER – The information and views set out in this publication are those of the author(s) and should not be considered as theofficial opinions or statements of the European Commission. The Commission does not guarantee the accuracy of the data included inthis publication. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use whichmight be made of the information contained in this publication. © 2017 – European Union. All rights reserved.