Europe is starting to reform its investment environment, but there’s notime to lose. Standout companies can take the lead with bold strategic
This article is a collaborative effort by Anna Kortis, Jan Mischke, Kim Baroudy, Solveigh Hieronimus, SylvainJohansson, and Tunde Olanrewaju and is part of McKinsey’s multiyear series on the future of Europe.
There’s been no shortageof attention on Europe’scompetitiveness and investment gap.1It has beenthe focus of influential reports by Mario Draghi andEnrico Letta2and of ongoing European Commissionefforts spanning dozens of initiatives, ranging fromthe building of at-scale AI gigafactories to exploringthe creation of a 28th regulatory regime forinnovative companies.3At the same time, European
rising incomes that enable many of the thingsEuropeans care about: better health and educationoutcomes, better physical and social infrastructure,investments into climate change mitigation andadaptation, and investments into security and
The critical catalyst:Business investment
Competitiveness and growth are shaped by amultitude of factors, such as an efficient businessenvironment, a robust innovation ecosystem, anda productive workforce. Business investment is apractical proxy for current competitiveness as well
That’s where the private sector comes in. Whilethe continued reform process and completionof the single market is critical, Europe’s leadingcompanies could now play the central role inushering in a new era of growth and prosperity.Investors are already identifying opportunities6:
When the landmark Draghi report on Europeancompetitiveness was released in 2024, itestimated an additional €800 billion needed to bemobilized annually to start closing the continent’s
But more can be done. This article extends ouranalysis of the critical contribution companiescan make to a European economic renaissance,including through a more strategic approach
Reaching this level of ongoing business investmentrequires implementing numerous regulatory changesas well as other initiatives detailed in a study byMcKinsey and the World Economic Forum that
to collaborating with the public sector to shape
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There are ten public sectorgrands projetsthat can restore Europeancompetitiveness.
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forward would be twofold: advancing broad-scaleregulatory reform while also accelerating specificprivate projects with, if needed, targeted support.While systemic reform is essential and transformative,it will take time. Focusing on unleashing ten to 20
few ambitious firms making bold moves while manyothers advance incrementally.14For instance, inexamining a sample representing about 15 percentof US GDP, MGI found more than two-thirds ofproductivity growth was driven by 44 standoutcompanies between 2011 and 2019, while as fewas 13 standout companies drove two-thirds of theequivalent German sample’s productivity growth(Exhibits 2 and 3). The bottom line is that the
What’s needed: Standout companies
A handful of companies could make a materialdifference to Europe’s economic trajectory.13McKinsey Global Institute research shows that
Measuring Europe’s investment gap
Since the global financial crisis, Europe’sprolonged slump in private investmenthas been especially pronounced infuture-shaping industries.1In the past five
€2 trillion more in digital technologiesthan their European peers.2From January2024 through September 2025, theannualized gap amounted to €580 billion
€300 billion for start-ups and scale-ups(Exhibit). And in traditional manufacturingindustries, China is out-investing Europe
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ExhibitExhibit <1> of <6>
European technology companies invest a fraction of their US peers incapital expenditure and R&D as well as start-ups and scale-ups.
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Exhibit 3Exhibit <4> of <5>
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These standout companies drive productivitygrowth mostly through one or more of five boldstrategic moves. Four of them are about growing
3.reshaping customer value propositions through
4.building scale and network effects
1.scaling the most productive business models or
5.transforming operations to raise labor efficiency
2.shifting portfolios toward the most productive
And there are already examples both within Europeand overseas that provide inspiration for the kindof bold steps that can and should be replicated and
For instance, a decades-long partnership withBelgian nano-electronics research institute IMECand a more recent partnership with France’s MistralAI offer a new model of collaboration to scaleadvanced hardware and software in Europe. Theyallow IMEC to ramp up advanced pilot lines forpre-competitive R&D (such as sub-two-nanometerchips, supported also by the EU Chips Act, the
While driving economic vitality requires Europeto become more dynamic in nurturing standoutcompanies—which includes potential
