Germany and the United Kingdom are combining their efforts to link artificial intelligence companies with Europe’s large industrial firms. The agreement might provide European technology businesses with something that investment capital on its own cannot ensure: customers who are willing to pay for their innovations.
Germany and the United Kingdom have announced a technological partnership which could alter the way European businesses compete in the field of artificial intelligence. Instead of focusing solely on developing ever more powerful AI models, the two countries are trying to link up emerging tech companies with large manufacturers, financial institutions and energy companies. The financial advantage comes from turning technological developments into commercial products that industrial customers will really buy.
On the 8th October the governments unveiled their new Industrial Tech Corridor, with major German companies such as Siemens, Bosch, Allianz and RWE providing support. As stated in the British government’s official announcement, the scheme will link technology businesses with industrial customers and investors and at the same time increase cooperation in the areas of robotics, artificial intelligence and quantum computing. The partnership does, however, raise a curious question as to whether Europe could compete more effectively with the major American technology companies by focusing on the industries in which it already has considerable expertise?
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For a long time Europe has had the problem of converting its promising technology companies into businesses that can compete on a global scale. The European Investment Bank states that annual venture capital investment in American companies has been six to eight times higher than that in the European Union. This financial imbalance has meant that European startups have found it difficult to grow without having to depend on foreign investors, moving their operations or ultimately being taken over by bigger international companies.
The latest partnership might offer yet another means of achieving expansion. Rather than relying entirely on venture capital, European technology companies could obtain paying customers from Germany’s well-established industrial firms. For instance, Siemens is involved in industrial automation and manufacturing technology, and Bosch has a great deal of experience in automotive components and engineering. There are opportunities within both of these industries for AI systems which can improve production efficiency, lower operational costs and assist in the growing automation of factories.
Cedrik Neike, a member of Siemens’ managing board and president of Digital Industries, explained the commercial logic behind the initiative:
“The greatest value of AI will come not from the technology itself, but from its application in the real economy.”
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The agreement is already linked to a number of business expansion plans, with the robotics company MicroAGI based in Munich aiming to expand its operations in London by creating 180 high-paying jobs, while the British AI software developer Quantexa plans to create a dedicated sovereign unit in Germany. Proxima Fusion also intends to expand its activities at Culham in England and may thus increase its workforce there fourfold by 2028.
The governments have also decided to boost their combined financial support for research into quantum technology to about €19.5 million. As stated in the German government’s joint statement of October 8, the increased funding will enable five more research projects to be supported, making the total number of projects that are being backed equal to ten. Although these investments are fairly small in comparison to the huge amounts being spent in the United States on artificial intelligence infrastructure, they might contribute to the development of technologies which have potential future uses in the fields of finance, manufacturing and computing.
A greater economic benefit could thus be achieved by linking public research funding with demand from the private sector; smaller technology companies would be able to produce products for existing industrial customers and thus earn income while at the same time reducing their need for frequent fundraising.
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There is still a valid counter-argument, namely that industrial partnerships do not in themselves lead to profitable businesses and that government announcements do not ensure future investment or customer contracts. European companies continue to encounter problems relating to financing, regulatory differences, high electricity costs and competition from American technology providers. Moreover, even AI products that are successful may rely on computing infrastructure and software developed outside Europe.
The European Central Bank’s research into AI adoption also shows that its commercial use is still uneven. Even though artificial intelligence is becoming more common among businesses in Europe, only 7 per cent of the firms surveyed in the euro area said they were using it significantly. This means that there is still a great deal of potential, but it also highlights the difficulties involved in incorporating AI into daily business operations.
The Industrial Tech Corridor therefore needs to show results that go beyond the signing of cooperation agreements and the announcement of funding. Investors should keep an eye on whether the companies taking part obtain major commercial contracts, whether the proposed expansions actually take place and whether industrial AI applications result in measurable improvements to productivity. The governments intend to bring together industry leaders and technology companies for further discussions later this autumn.
It is not necessary for Germany and Britain to create the world’s biggest artificial intelligence model if they want to benefit from the technological revolution; their greater opportunity could be in helping existing industries become more productive and in setting up profitable markets for European technology companies. Should the partnership be a success, Europe’s competitive advantage could then come not from the laboratories working on artificial intelligence but from the factories and businesses that put it into practice.