European technology companies should focus their efforts on the business-to-business (B2B) sector, leveraging and supporting their existing industrial base, rather than trying to compete against industry giants in the business-to-consumer (B2C) sector, according to a new report.

The global ICT industry generated about $2.8 trillion in sales in 2011 and is projected to grow by 17% between 2011 and 2015, according to A.T. Kearney's “The Future of Europe's High-tech Industry” report. But less than 10% of global ICT revenues are generated by European companies.

In particular, the European market is losing ground in key sectors such as semiconductors, consumer electronics and handsets, where American and Asian companies dominate, and European start-ups like Autonomy and Skype tend to be bought out by larger rivals from other regions before they can globalise.

Europe's deteriorating position on the global ICT market is due to a number of factors, such as fragmentation in the market, a shortage of public funding, the high cost of labour and a lack of raw materials.

Asian and North American economies also tend to focus more on R&D than their European counterparts, employing more researchers and accumulating more patents, according to the report.

However, some European firms are still very competitive in the B2B markets. For example, SAP is a leading enterprise software company, while Ericsson, Nokia and Alcatel-Lucent are among the leading suppliers of telecommunications equipment.

The report states that the time is ripe for high-tech companies to shore up Europe's position in the industry, but warns that they should pick their battles carefully. In segments that depend on efficient manufacturing for the mass market, for example, most of the economic activity will continue to take place in Asia.

Instead, Europe should be playing to its strengths, developing solutions for ICT segments that require local market knowledge, competence in complex solutions, high quality products and services, and a high degree of flexibility.

“In the high-quality, high-end area we can still differentiate in the world, but to beat Toyota or Ikea or whoever on low cost is very difficult,” said Jan Stenger, one of the report’s authors, speaking to Techworld.

“In general the European high-tech industry is known for high quality, for precision, and often for niche products, such as digital security and navigation. Quality and innovation both need to come together.”

Unlike Korea, Singapore and China, which have clear 20-year plans laying out how they intend to become global leaders in specific high-tech segments, the EU's digital agenda is mainly focused on how to digitalise the lives of European citizens.

Europe's national governments therefore need to select which high-tech segments to focus on, according to Stenger, and create new business models that do not simply mimic those of Silicon Valley but are built around the needs of European customers.

The European Commission also needs to come up with a “high-tech master plan” for Europe, that sets out clear targets for what needs to be achieved within a certain time frame, and encourages component manufacturers and application developers in different countries to collaborate with one another.

“We cannot set up a silicon industry only in France or a medical tech industry only in the UK; it needs to be a European approach with excellence clusters, and the European countries and universities and industries need to work together. Then we will able to scale up fast enough to compete with China or USA,” said Stenger.

European governments also need to ensure that their educational systems attract students to technology earlier, and pursue a targeted immigration policy to tackle the shortage of skilled professionals in high tech, encourage longer working lives and stimulate greater participation of women in the workforce.

The report concludes that if Europe manages to channel more of its limited resources into R&D, increase the supply of qualified personnel and establish the right strategic framework, it could improve its position on the global high-tech market, boosting exports and creating new jobs.