Five Important Economic Trends in Europe: And How Companies Can Tap into Them from the Netherlands
The European economy has been growing fast in recent years. In 2017, growth was 2.4% in the European Union (EU), and this year it is expected to be 2.3%. Taking into account the size of the EU, this is one of the largest absolute sizes of growth to be found in the world.
Europe is also setting, or helping to shape, a number of global trends. Companies with global ambitions therefore cannot afford to miss out on Europe.
This article identifies five of the trends in Europe, and how companies can tap into them from the Netherlands.
- From shops to online
The shift from brick-and-mortar shops to online shops is ongoing. In Western Europe, according to Forrester Data, online retail sales will grow at an average of 11.9% per year over the next five years. This is much higher than the growth of total retail sales, which stands at between 1 and 2% growth per year. By 2022, 21% of non-grocery retail sales are expected to be online. Online grocery sales are still small, but they are expected to grow relatively fast.
The largest online retail sales are recorded in the UK, Germany and France, both in total volume as well as in share of total retail sales. Growth in these markets shows no sign of slowing. The percentage of online sales in southern, central and eastern Europe are much lower, but the growth rates are higher.
McKinsey notes that vertical integration and start-ups are creating direct channels from producers to consumers for more and more products. Producers are effectively also becoming distributors and retailers. Logistics which is no longer only a cost factor because superior logistics also creates essential competitive advantages. Not only does business drive logistics, increasingly state-of-the-art logistics drives business.
In the Netherlands, the rapid rise of e-commerce industry is a major driver of logistics activity. Many of the companies with operations in Europe fulfil their online orders from Dutch warehouses that are leading in innovation. Opportunities for companies: producers of consumer goods can increasingly reach the consumer market directly, provided they have a strong online presence, and they have a logistics service provider that can deliver small shipments throughout Europe. The Netherlands logistics sector is leading in these developments.
“The world’s largest fully automated distribution centre is being built in the Netherlands by Dutch online retailer Wehkamp. It processes over 200,000 orders per day keeping pace with the accelerating growth in terms of orders and new customers”
- Production Closer to Consumption
Technology and consumer awareness are contributing to what appears to be the reversal of a long-term trend. For decades, production has tended to accumulate in low-cost production environments, with low wages, plenty of lands, and lax environmental and social laws.
In recent years, however, technology has made the availability of low-cost production factors less important. Delivery speed and tailoring of products to individual customer needs have become more important, and made possible with additive manufacturing (3-D-printing).
Frost & Sullivan projects additive manufacturing to grow at an annual rate of 15% in the next seven years. In Europe, the focus on additive manufacturing has so far been on automotive and machine parts. The revenue from 3D-printing in Europe will have increased from $1.81 billion in 2015 to $7.18 billion in 2025. Even though this is still a small part of the economy, it is not hard to imagine that 3D-printing will revolutionize supply chains and lower logistical cost and the need for warehousing in these sectors.
Consumers have, at the same time, become more aware of the environmental and social conditions under which the products they consume are made. This has negatively affected the image of products such as clothing and sports shoes. There is a growing appreciation for ‘home-made’ products.
“Companies that manage to make a digital and printable design of their products, will be able to reach their clients without the hassles of transportation, imports and storage. Dutch universities are active in additive manufacturing of a wide range of products. The Dutch city of Eindhoven is to be the first in the world to have habitable houses made by a 3D printer”
- Going Digital
Forrester predicts that 55% of total European retail sales will involve digital touchpoints by 2021 as a majority of mobile phone owners use their phones to research physical products before purchase. For companies targeting the consumer, this means that they will have to be able to interact with the consumer online and mobile. The volume of data traffic and the number and capacity of data transmission lines and data centres needed to handle this is skyrocketing. The growth of data traffic and the critical need for reliable data transmission brought about by developments like additive manufacturing and autonomous driving will accelerate. The risks of congestion in this data traffic are less visible but all the more serious than congestion in the flow of physical goods.
In the Netherlands, it was soon realized that being the distribution hub for physical goods in Europe cannot be sustained without also being the digital hub. The Netherlands is now Europe’s second largest data hub, and data centres in the Netherlands have been growing at double digits the last 10 years. The Dutch Data Centre Association also notes that, with more and more intelligent devices coming online and applications in need of high-speed connections, computing power needs to be moving from centralised data centres and towards regional data centres and micro-data centres.
Two main concerns of the growing reliance on data traffic are cybersecurity and power consumption. The Hague Cyber Security Delta brings all the players in data traffic and security together to stay abreast of cybersecurity threats. The construction of a ‘green’ datacentre in the port of Vlissingen, starting in October 2018, will consume 30 Megawatts of solar power and wind energy. Datacentres in the Netherlands are also starting to supply residual heat to households.
Opportunities for companies: companies that offer innovations in the secure and sustainable handling of the fast-growing data traffic will meet with much interest in the Netherlands and in Europe.
- Sustainability Becomes Mainstream
Alarming data and powerful images of climate change and ocean pollution are bringing about a fundamental change in the minds of European consumers. Health concerns and financial incentives are still the main drivers of consumer behaviour, but a growing majority of consumers now also prefer environmentally sustainable products. Being sustainable is now considered a responsibility, not just a virtue. Companies will increasingly need to explain the ingredients, sourcing and packaging of their products.
“Governments are pushing the energy transition, laying down long-term targets in laws. Five of the six of countries in the world that have such laws (Sweden, Norway, Denmark, Finland, France and Mexico) are in Europe. The Netherlands will expectedly become the seventh country to pass such as law, cutting its greenhouse gas emissions by 49% in 2030, and by 95% in 2050 compared to 1990”
The European Commission has set a target of 80% reduction of greenhouse gas emissions by 2050. For energy transition, this means a fundamental shift from fossil to renewable energy sources. The installed capacity of offshore wind energy in Europe has doubled in the last three years and will continue to grow by an expected 8% annually in the next ten years. The power production costs of offshore wind have fallen by two thirds in the last five years, from € 157/ MWh to just over € 50/MWh. This signals an important trend: renewable energy is becoming cheaper than fossil energy.
Opportunities for companies: Sustainability becoming mainstream offers new opportunities, provided companies are willing to innovate. Sustainable products are becoming trendy, such as Adidas’ UltraBoost shoe, all made from plastic debris found in the ocean. Households are taking their own initiatives to generate energy with solar, wind, geothermal and biomass sources. Companies supplying systems for large-scale renewable energy installations, such as offshore wind farms, but also those offering small-scale solutions, are finding a fast growing market. The Netherlands will invest more than € 15 billion in offshore wind energy in the coming ten years. The Netherlands is also the most disruptive country in the introduction of electric driving. Australian company Tritium, producing vehicle charging stations, has set up its European headquarters in Amsterdam.
- Growing at the Extremities
Europe is the only continent in the world where the natural population growth (balance of births and deaths) is flat. Central and southeast Europe are mostly seeing shrinking populations, and north and Western Europe are still seeing small increases. Only because of net immigration, the total population in the European Union is still growing slightly, at 0.3% in 2017.
The percentage of people over 50 is increasing, from 36% in 2010 to 44% in 2030. This means that around 1 million people will be leaving the workforce in Europe each year. The number of people in Europe older than 60 will increase by around 2 million per year.
The University Medical Centre in Groningen noted in 2014 that, on average, people in the Netherlands for instance, live four to six years longer than they did thirty years ago. Simultaneously, the age at which chronic illnesses develop has decreased by seven years for men and twelve years for women. In the future, more people will face chronic conditions such as cancer, heart and vascular diseases, diabetes or Alzheimer’s, earlier in their lives. Together with a longer life expectancy, this means that they will be chronically ill for a larger part of their lives. The ageing population and cost increases will propel healthcare expenditure towards 24% of GDP by 2050.
Opportunities for companies: The ageing population and the increase in chronic diseases bring about a fast-growing demand for products and facilities that cater to the need of the elderly. Improved systems for choosing the best cancer treatment for individual patients and non-invasive bone regeneration therapies are among the technologies developed in Singapore and Australia that would meet this demand. The Netherlands has a very open knowledge infrastructure, one of the best-documented populations in the world and high patient participation in clinical trials. This makes it a good starting points for companies in the healthcare sector entering the European market. Important shifts and trends are shaping the business landscape in Europe. Markets in movement force companies to rethink their business model and they create big opportunities those that are willing to embrace the changes and offer solutions. Europe, and the Netherlands in particular offer good insight into what is coming.
Director South East Asia and Australia
Netherlands Foreign Investment Agency (NFIA) (firstname.lastname@example.org, www.investinholland.com)
Online sales in Europe Growing 10 Times Faster Than the Retail Market, Forrester, 2018
Western Europe’s Consumer Goods Industry in 2030, McKinsey, 2018
Global Additive Manufacturing Market, Forecast to 2025, Frost & Sullivan, 2016
European Consumer Trends 2018, Mintel
State of the Dutch Datacenters 2018 Report, Dutch Data Center Association
Healthy Ageing, University Medical Centre Groningen, 2014.