European competitiveness at risk if these challenges are not addressed
Europe has the right foundations for success: world-class research, deep sector expertise, and a growing base of AI innovation. 72% of all businesses agree that Europe has the infrastructure and landscape needed to scale globally, while 55% rate Europe as a competitive global hub for AI and innovation.
Europe does not a lack ambition, but there are challenges preventing businesses from moving from experimentation to strategic reinvention. If these are not addressed, Europe will struggle to remain competitive on the global stage.
The burden is becoming increasingly visible. While businesses are investing 26% more in AI in 2026 than the year before, an estimated 42% of total tech spend is absorbed by compliance with national and international regulation. Without clearer, more proportionate policies that reduce fragmentation and reward ambition, Europe risks missing out on the transformative growth and productivity gains from AI that underpin long-term competitiveness. Meanwhile, a third of businesses cite the absence of incentives as a handbrake on investment, suggesting the right support is not available for many.
Europe must keep pace with global challengers in order to realise the opportunity of AI. Failing to do so, could have long-term implications - not just in economic terms (as much as 75% of the difference in incomes between countries can be explained by the differences in the rate of adoption of productivity-enhancing technologies) but also in terms of the societal benefits that can be achieved when organisations harness the most transformative uses of AI.
Over the past 18 months we’ve seen a fundamental shift in European businesses as they move AI from the edge of their organisations into the core. This report captures that shift clearly: 54% of businesses now use AI, up from 42% last year.
We see the same thing at Synthesia. Almost 90% of the CAC 40 and DAX 40 use our platform, and we help more than half of the largest companies in other key European markets work better. From what we see, it is no longer a question of whether AI will matter, but how fast organisations can turn AI into a competitive advantage.
Paradoxically, while adoption is broader, meaningful integration is still surprisingly rare. Only 22% of businesses are using advanced AI for transformative change, while most remain at basic or experimental stages. The technology is there and is the willingness, but often companies don’t know how to deliver when AI becomes a board-level, strategic priority. The result - teams run pilots, prove value, and then stay small, waiting for clear top-down direction.
The reason for this is pretty simple. Businesses don’t buy AI models, they buy outcomes. They want AI tools and services that plug directly into workflows and when that link from model to workflow to KPI is missing, AI stays stuck as a side project.
Interestingly, startups in Europe have already internalised this. We’re seeing a new wave of AI-native companies that are globally competitive from day one. They build with AI at the centre of their product and operations, not as an add-on. They learn faster, they scale faster, and they’re often the first to show what “AI-powered” can really mean.
Policymakers also increasingly understand that if we want a competitive European economy we have to protect and enable startups, not constrain them with regulatory complexity. When founders are asked what would make them stay, their answers are very practical: 26% want a more predictable and stable tech policy environment and 22% ask for clearer, more proportionate regulation.
Another related area of concern is the cost of this complexity. Businesses now estimate that 42% of their total tech spend goes towards regulatory compliance. For European AI startups in particular this is simply unsustainable. When almost half of your tech budget is defensive, it’s very hard to play offense.
At Synthesia, we’ve been advocating for simplification of European rules: smarter, clearer, more predictable regulation that builds on international standards. This protects people and values without wrapping innovation in red tape or relying on simplification short cuts like size based carve-outs that discourage both scale and investment in the long term.
My message to leaders reading this report is simple: treat AI as a core pillar of your strategy, not a side project. The choices we make now, on regulation, on capital, on how serious we are about adoption, will decide whether we’re just observing how others use AI from the sidelines, or whether we’re building the next generation of transformative technologies here, at home.
Victor Riparbelli
CEO
Synthesia
56% cite greater availability of funding elsewhere
50% cite faster ability to scale internationally
46% cite better access to global markets
45% cite lower operational costs
40% cite more favourable or predictable regulation
The startup challenge
The challenges to European competitiveness outlined in this report are experienced across company sizes and sectors. However, when considering Europe’s prospects for the future, the impact on high-potential startups is particularly concerning.
Europe’s AI startup landscape is one of the continent’s strongest assets. However, these businesses are increasingly considering moving abroad as they find themselves at the confluence of the factors described above. 38% of European startups say they would consider leaving Europe to scale their business. These companies are often the most advanced AI users and developers of the most innovative products and solutions.
Why they're considering leaving:
Europe’s startups are proudly European but have global ambitions. However, these practical challenges make it harder to take the next steps to go from a proven concept to becoming a global company from a European base. When asked what would convince them to stay, 65% reported that more clear, more proportionate and stable regulatory environment that supports innovation would play a key role. 51% cited greater availability of funding (both VC and growth funding and increased public funding), and 27% reported faster ability to scale both within and without Europe.
What's at stake
Losing the next generation of European tech leaders
When a startup relocates, Europe doesn't just lose a company – it loses the jobs, the investments, the tax revenue, the supply chains, and the innovation spillovers that come with building a global champion. Perhaps most crucially, it loses the next generation of European AI leaders.
Scaling somewhere else
The risk is particularly acute because Europe's startup ecosystem is one of its strengths. The continent produces innovative founders, world-class research, and deep sector expertise. But if those founders can't scale at home, they'll scale somewhere else.
Innovative companies leaving
Europe is already facing a skills challenge – 45% of businesses cite shortages of AI and digital skills as their greatest challenge to adoption. When innovative companies leave, they take their best talent with them, making that skills gap even worse.
For startups and high-growth firms in particular, these factors increase the likelihood that scaling internationally, including outside Europe, becomes the fastest and most commercially viable route. This reflects a reality that fragmentation means entering a new European market is substantially the same experience as entering a non-European market for many businesses. There is, for example, no automatic entry point to access all 450 million EU consumers, but instead a painstaking process of navigating an additional 26 separate systems.
If Europe’s challenges drive high-potential companies to relocate, it loses those very AI leaders with the potential to drive the continent's ambition. This risks compounding a competitiveness gap and leaving Europe ever further behind global competition. This is why Europe must act now to address these challenges and make the most of its strengths.
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Nicolas Do Huu
CTIO and co-founder
Iktos