Road Kill On The Infobahn

In Europe, the hype has arrived. ""Tide waits for no man,'' read a recent European Commission report. ""This is a revolutionary tide, sweeping through economic and social life. We must press on.'' ""This'' is the fabled Infobahn, or Information Highway. And as in the United States, it is rapidly becoming the object of desire in Europe. Industrialists and Eurocrats alike talk dreamily of the jobs it will create, the growth it will spur, the lives it will enrich. There's only one catch. In nearly every segment of the information-technology industries, European competitors are all but invisible. And unless something changes soon, European companies aren't going to be on the Information Highway, they'll be under it -- run over by companies with American and Japanese license plates.

In Europe, the evidence of American strength -- and Europe's startling weakness -- is overwhelming: American and Japanese companies control 75 percent of the market for computers. That figure will only increase as mainframes are replaced with PCs -- an industry the Americans already own (chart). Tying the machines together into seamless networks -- a highly profitable market segment -- is also almost solely an American province. EDS, a provider of computer services, has almost no non-American competition in Europe. Computer chips? Dataquest, the market-research firm, last year named Motor-ola its ""European vendor of the year.''

For European business, this is not the way the '90s were supposed to go. With internal barriers coming down and the creation of a market 340 mil-lion strong as a strategic base, giants like Siemens, the German electronics firm, were going to be on the offensive. Lester Thurow, the well-known MIT economist, actually wrote a book saying that in the global competition for markets among the United States, Europe and Japan, Europe would triumph. Now, at a moment of historic flux in the electronics industries, Europe is instead on the cusp of becoming a techno-colony of the United States and Japan. Its trade deficit in electronics, according to a recent McKinsey & Co. study, is soaring. Says Rudolf Bayer, a professor at the University of Munich: ""This is an industry which may someday be bigger than autos, and we are giving it up.''

In computers, Europe's big mistake was copying the wrong American model: the old IBM. The four biggest European firms -- Britain's ICL, Germany's Siemens, France's Groupe Bull and Italy's Olivetti -- all concentrated on mainframe computers at the expense of PCs. Not surprisingly, they ended up with IBM-like problems. Their costs, figures one analyst, were 30 to 50 percent higher than their U.S. and Japanese competitors', in part because their products were needlessly complex. Horst Nasko, vice chairman of SNI, Siemens's computer unit, says it used to use 150 parts just to make a computer keyboard. (Today it's down to just four.) Nor did the Europeans make a better mousetrap: in 1993 Europe's computer makers earned only 24 percent of their revenue from products introduced in the last 12 months, compared with 60 percent for their rivals.

Last year total losses for Europe's major computer firms came to $780 million. By far the healthiest is Britain's ICL, mainly because it's 80 percent owned by Fujitsu. The Japanese firm has transferred both cash and manufacturing prowess and now believes that ICL will be consistently profitable. But ICL, like all the other European makers, has one major problem: it has virtually no presence in the U.S. market -- the world's biggest for computers. Nearly all of Europe's efforts to penetrate the United States have flagged. Groupe Bull bought Honeywell's computer business and Zenith Data Systems, a PC producer, both to lit-tle effect. Just last week the French government got approval from the European Commission to provide $2.1 billion in aid to Groupe Bull, the state-owned computer company.

Some analysts argue that Europe's shellacking in computer hardware is of little consequence technologically; making PCs and laptops is now a game of low costs and speed to market, not innovation. But even in the so-called sweet spots of electronics -- software, networking services and microchips -- the news is only slightly better. In semiconductors, Siemens is once again profitable (though barely) after years of bloodletting, and SGS Thomson, a joint Italian-French venture run by a former Motorola executive, has surged into the top 10 worldwide. Germany has two companies in the top 10 worldwide for software sold to businesses. One of them -- SAP -- stands out because it has done what many European high-tech firms haven't: established a large presence in the United States, where SAP will produce nearly $300 million of its projected $1 billion in sales. Says Helmut Gumbel, a Gartner Group analyst in Munich: ""SAP gives the lie to those who say European companies aren't creative or quick enough to win in these markets.''

Perhaps, but the Europeans are falling behind in other crucial markets. Specifically, the hottest component of the fledgling Infobahn in the United States -- the linking of computers into vast, high-speed networks that can carry voice, data and video. Networks in Europe have been painfully slow to develop, for one major reason: with the exception of the United Kingdom, Europe's telecommunications industry looks a lot like America's did before the breakup of AT&T -- each nation dominated by one slow-footed monolith. Each makes a fine living off everyday phone service and by charging outrageous rates for links to the networks needed, say, to tap into the Internet. In Germany, for example, it is 20 times more expensive to cruise the Net than it is in the United States, and that has bottled up the market for new computers and services.

Change, to be sure, is coming. Europe intends to deregulate telecommunications by the end of 1997, and Germany of late has been threatening to break ranks with the EC and move even faster. Its companies are all frantically trying to expand their ties to dominant American companies. Siemens was one of the first companies to adopt Microsoft's Windows NT software system, and it opened a laboratory in Redmond, Wash. -- Microsoft's home.

Still, governments in Europe can seem blissfully unaware of the competitive disaster they are overseeing. Recently a German politician was asked what his government could do to develop an Information Superhighway. Oh, he responded, it was top priority all the way. The current situation has to end. This stop-and-go traffic is intolerable. After all, the autobahn is the very soul of Germany. The pol's name was Helmut Kohl. They don't call it the Old World for nothing.

U.S. PC firms dominate the Europeans in their own backyard


SECOND QUARTER 1994 (MARKET SHARE IN PERCENT)





Compaq              12.1


IBM                 11.4


Apple                6.8


Hewlett Packard      6.8


Olivetti(*)          5.1


Vobis(*)             3.6


AST                  3.3


Dell                 3.2


Escom(*)             3.2


Digital Equipment    3.1


ZDS/Groupe Bull(*)   3.1


Toshiba              3.0


Siemens Nixdorf(*)   3.0





SOURCE: INTERNATIONAL DATA CORP. 


(*) EUROPEAN COMPANIES