Tech Index 2022: Conclusion

At the end of our last Tech Index report in 2020 we looked forward to seeing how a, then, highly confident tech sector would emerge from the COVID-19 crisis into the post-pandemic world.

There were concerns at the time about the long-term economic impact of the pandemic.

But few could predict how turbulent the world would become in the intervening two years. In that time we have seen existing challenges – supply chain disruptions and a simmering trade stand-off between the US and China – exacerbated by war in Ukraine, rapidly rising inflation, market volatility, a devastating cost of living crisis and the looming threat of recession across major economies.

Yet our latest Tech Index continues to find European tech companies in surprisingly confident mood. In fact, respondents express more confidence in the tech sector’s growth prospects than at any time since we began taking these biennial soundings among leading businesses.

Only when asked to comment directly on the current geopolitical climate does that sense of optimism diminish – with our overall Tech Score reduced, although still remaining relatively high.

Technology has proved itself

That sense of continuing confidence, perhaps, indicates that some important lessons have been learnt as businesses have navigated recent uncertain times.

First and foremost, there’s a clear belief that technology has proved itself in times of crisis. During COVID-19 that was for obvious reasons. Lockdown accelerated the adoption of key communication and banking technologies and the tech sector flourished while others were severely hit.

The game has changed in the current crisis to some extent. Now some tech companies with a consumer focus are under much greater pressure, both in selling their products and services and in raising finance.

The sky-high valuations companies were achieving only last year have fallen sharply, depressing M&A activity, with deal volumes sure to suffer for some time. Venture funds are pressing many of their portfolio companies to tighten their belts rather than lavishing them with cash.

But for tech companies with robust business models, particularly those serving industrial and commercial markets, there is still plenty of finance available to fund growth, whether organically or through acquisition.

That’s primarily because there’s a continued recognition that technology has a critical role to play in building economic resilience and opening new pathways to growth, even in tough economic times.

Key technologies such as Internet of Things, connectivity, AI/Robotics and 5G have the power to provide answers to a long-running dilemma – how to energize economies that for many years have been stuck in a cycle of sluggish growth and low productivity.

But that will only be the case if companies hold their nerve and keep investing in digital technologies. And it will depend on companies recognizing that the benefits of these technologies can only be realized if they pursue digital transformation in the deepest sense.

That means adopting new business models that re-invent the way new products and services are created and taken to market.

Better prepared

Companies are operating in an increasingly tough and complex regulatory environment. But many seem more at ease with that reality, having lived through recent significant changes in regulation, not least the introduction of the EU’s GDPR.

This time we see a desire among many businesses to be better prepared for new and evolving regulations in key areas, such as AI and fintech, to avoid the need to revise systems and processes once the regulation takes shape. There’s a recognition too that regulation can be an enabler and not just a constraint.

Even in areas where regulation differs across different jurisdictions, companies appear ready to find a way through the contradictions. A high proportion of our respondents have little positive to say about Brexit, for instance. That’s perhaps not surprising given that everyday trading has become more complex, approaches to regulation are diverging and important science and technology funding programmes, such as the EUR95 billion Horizon Europe funding initiative, have been derailed amid continued political manoeuvring.

Ever tighter national security controls are also proving an increasingly complex challenge, particularly where the line between defending genuine national security concerns and protectionism is blurred.

Yet confidence that the general economic environment will continue to support growth remains high and this may also indicate that lessons have been learnt from past downturns.

Rather than ditch important projects only to regret it later (something we saw frequently after the global financial crisis struck in 2008), today we see a determination to keep investing carefully but bravely in projects that can deliver long-term value. Many companies view these challenging times as an opportunity to innovate rather than retrench.

In that sense it’s encouraging to see that many companies are embracing the ESG agenda, although some are putting it lower down the list of immediate priorities.

The climate crisis demands that tech companies maintain that focus. They have a huge role to play (and much to gain) in making a success of the transition to clean energy and other sustainable technologies.

A central role

No sector of the economy is immune to the impact of such difficult and unpredictable conditions we now face. It remains to be seen if the current crisis is relatively short-lived or develops into one as deeply disruptive as the COVID-19 crisis.

The next two years will undoubtedly be incredibly challenging for the tech sector, as all others.

But for now, tech companies seem to believe, and with justification, that they can play a central role in helping to steer the global economy through the current economic storm and into better times.

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