Let's say Europe against all odds succeeds in creating the seeds of some promising AI scale-ups. How will they prevent the US, Korea and China from cherry-picking and buying those out just like in all the previous IT-tech waves?
> BERLIN (Reuters) - The German government is taking steps to counter a surge in Chinese bids for stakes in German technology companies, including the creation of a billion-euro fund that could rescue such firms in financial trouble, a government source told Reuters.
Most succesful EU companies are 100+ years old due to taxes, bureaucracy and big company bullying. I find posts about the startup scene in most if not all EU countries laughable. Western Europe is too regulated and expensive (taxes) and Eastern Europe is too corrupt and politically unstable. Southern Europe is too hot and distracting. Maybe it has mafia as well. 20% VAT? Come on, that's outright theft. Hungary as 27% VAT. Portugal has 23% VAT. France has 20% but they also tax the crap out of companies and private citizens, especially if you're well off. Germany is over regulated, even the dogs barking hours is regulated. How do you expect tech startups to survive in this environment? Oh wait there's Ireland which gets lots of rain (people are cool working indoors) and has small taxes, except for VAT which is 23%. That one could work.
Yes, in the US you can have something like 5%/10%. But it's not the main price determiner.
Also several company regulations don't exist for companies < 50 employees. Same as the US/Canada
I believe entrepreneurial and investment culture is a more important drive of innovation and startups than regulations. And yes, fewer people will give you an Angel investment in Europe for a murky business plan, while in the Valley you might get 100k for showing something in your laptop to an Angel over coffee.
But the thing about VAT is that it’s unimportant for most businesses. When selling B2B you just subtract all the VAT you paid from the VAT you owe. The only kind of business that is seriously affected by VAT is highly price-sensitive B2C, and technology startups usually aren’t that.
Even there I'm not sure it matters, unlike corporate tax it's a local tax, so it's still an even playing field and it will have the same impact to everyone in the market.
If you buy some computers for $100, do some work, and manage to sell your services for $1000, you get to reclaim $20 of VAT but you have to pay $200 of VAT, so a 20% VAT rate costs this hypothetical business 18% of its revenue, which is hardly "unimportant".
And a typical tech company would be taking in far more than 10x in revenue than what they are spending on VAT-able goods.
EDIT: But see below.
If you’ve ever done business in the EU, you know that prices are negotiated and quoted excluding VAT. The VAT rate literally is totally irrelevant to B2B pricing.
If you’re selling B2B from one EU country to another, you don’t even need to collect VAT. Another reason why its rate is irrelevant to EU startups.
Can you name even one AI product that is sold directly to consumers? Most if not all is B2B and there VAT is not used as it is a tax on consumption levied at the consumer, not other businesses.
I thought pavlov was under the impression that the VAT you pay when buying automatically cancels out with the VAT you charge when selling, so the only people who VAT affects are end users.
Do also remember that all your competitors are bound by the same rules, so from a purely economical standpoint prices in a given country with VAT will just appear x% higher accross the board, and then the real question is more of disposable income.
To be perfectly honest I am no expert in VAT, but I do know that a country like Denmark with 25 % VAT is also ranked in the top 5 countries to do business in.
Also don't know what you mean by "As a business you stll have to buy stuff to recover VAT" but oh well maybe you can clarify.
In other words, "if you can't make at least a 20% profit on the value you add, you're not allowed to make a profit at all". This stifles innovation at the margin.
This is only true if you're big enough. If you're a small business, you pay the inflated rate or go to prison.
Just searching for "VW Steuern" reveals:
https://www.google.com/search?q=vw+steuern&ie=utf-8&oe=utf-8
"Volkswagen nutzt Luxemburg zum Steuernsparen"
"VW darf Milliarden-Bußgeld teilweise von Steuer absetzen"
"Der VW-Konzern nutzt ein fragwürdiges Steuersparmodell"
"Grüne wollen wissen: Wo zahlt Volkswagen wie viel Steuern"
"VW-Skandal: Steuern hinterzogen"
"Steueroasen: Wie deutsche Großkonzerne den Steuerzahler um ..."
The only problem for Europe so far, is that critical mass has not been achieved yet. Maybe it will eventually, hard to tell.
SAP, Nokia, ...
Search Engines, I don't think there is money to be made from this respecting the user privacy, we will see if DDG proves me wrong.
Nokia was destroyed by Microsoft, they forced Nokia to sell only Windows Phones and then MS bought them. But there are many electronics companies in EU for other domains, not sure if there is a need to compete with cheaper Chinese firms on phones.
I think it could be the culture, people may not be into get rich quick schemes and may want to work on more mingfull stuff then created a FB alternative.
The consumer side did suffer from Elop’s strategy (he also somewhat neglected the carrier network products), but the larger issue was that some carriers were so dependent on Nokia for mid-to-high-end handsets that when cheaper alternatives emerged they switched wholesale (I was at Vodafone at the time, and work at Microsoft now).
As to the rest, I don’t see Europe being a contender in chip manufacturing (even though ARM originated in our side of the Atlantic), and I don’t think patents would hold us back.
What does hold us back is the lack of significant manufacturing capabilities in those domains. There are a few electronics manufacturers and small fabs, but they cater to niches.