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Monday, 9 March 2015

Olympic Champion of the Servants? The Netherlands gets increasingly fed by the breadcrumbs that the other countries leave for it and seems to be happy about that.

The Netherlands has an industrial and commercial services heritage that largely outsizes the tiny size of the country, turning The Netherlands in one of the 20 largest and arguably one of the most successful economies in the world.

And undoubtedly, The Netherlands is still the globally leading agricultural force. It has an estate of fruit, vegetables, potato and cereal seedlings and seed-stocks and a general knowledge of refinement techniques for agricultural produce, that is second to none in the world. So far the good news...

The bad news is that The Netherlands seems to slowly lose track to other countries in Europe, the United States and the Far East; especially when it comes to sheer innovation and technological development.

The current emphasis of The Netherlands seems to lie on the development of less distinguishing products and services, which are increasingly vulnerable for competition from other countries all over the world. In the process, the country allows the circumstance to occur, that gathered knowledge, technological evolvement and fundamental research and development are more and more outsourced to other countries.

To this concept I was triggered by a tweet of Kees Verhoeven, a Member of Parliament for D66, the liberal-democratic party in The Netherlands:

Tweet of Kees Verhoeven,
MP for liberal-democrat party D66
Click to enlarge
 Kees Verhoeven: “I had to skip this one, but the establishment of the European headoffice of #Netflix in Amsterdam is a good omen for the Dutch (internet) economy.” 

My answer to the tweet of Kees Verhoeven,
Click to enlarge
I responded to him: “I wonder whether that is indeed a good sign? The link with tax avoidance is easily made and such headoffices seldomly yield many jobs!”

Of course I cannot prove that Netflix establishes its European headoffice in The Netherlands merely for fiscal reasons and probably the company does not. 

I guess that the multilinguality of the Dutch population, the perfect air links of Schiphol Amsterdam Airport with the rest of the world and the advanced data and traffic infrastructure play also an important role for this decision by the Netflix management. Still, that is not the point…

My point is that – in my humble opinion – The Netherlands increasingly turns into a country, which picks up the breadcrumbs that other countries, large companies and institutions leave for it. Very efficient and cost-effective in the execution of its job, but increasingly harmless as a competitor in heavyweight technological areas, in which the real money is earnt.

Instead of standing on its own two feet with its own products, innovations and a substantial number of globally leading companies, the country seems to become more and more satisfied with being the Olympic Champion of the Servants. To me, that is a worrisome development:
  • As the focus of The Netherlands increasingly lies on the low-cost distribution of imported goods and bulky materials – domestically as well as all over Europe – through cargo vessels and trucks, The Netherlands has seemingly turned into the official ‘mailman’ of China and the Far East: cautiously taking care that every consignment is delivered at the perfect place and perfectly on time, but with a relative importance that is becoming more and more futile;
  • With its massive web of tax rulings and its generally favourable fiscal legislation with many mischievous loopholes in it, The Netherlands is the spider in the web for multinationals, large popgroups (f.i. U2 or Rolling Stones) and wealthy persons to avoid (‘some say’ evade) their corporate and income taxes.

    This led to a host of ‘fake’ head-offices and letter-box firms in the country, that are simply there to easily avoid taxes; not for the entrepreneurial atmosphere in The Netherlands;
  • And last, but not least, another new spearhead in The Netherlands is data storage, hosting and data distribution for large internet companies and internet services providers. The consequence is that The Netherlands is currently establishing a massive data hosting infrastructure (i.e. internet backbones) and large number of data storage centers for companies as Microsoft, Google, Amazon and the likes of them.

    Very high profile and convenient for these large US companies, but futile when it comes to real numbers of jobs and genuine innovation.

The real, painful question is, however, why The Netherlands does hardly have such globally leading, technology-driven companies anymore like Apple, Samsung, Facebook, Google, Uber, AirBnB, Twitter or Spotify?!

A few very large companies, like Philips, Unilever and Shell are unmistakenably of Dutch descent. Nevertheless, the last two are already half-British and operate in a nearly stateless environment, in which the Dutch heritage becomes less and less important for them.

The third one, Philips, is more and more changing from a cutting edge technological juggernaut – a so-called ACME-company (A Company Manufacturing Everything) – into a trading house, that mainly sells products under its own name, which have been developed and built elsewhere. While that is totally normal for other companies, it is unworthy to the legacy of Philips.

Philips has become a company that slowly sells all its family jewels. Televisions and monitors, microprocessors, computer equipment and a large share of its consumer electronics division have already been sold in the past, while the lighting division  Philips' bedrock in earlier times  is currently for sale. 

Now the company has only a few key product ranges left: medical equipment and consumer lifestyle products. And to makes things worse: Philips has become a company, which got more and more in the spotlights for various large-scale scandals and criminal investigations, as a consequence of corruption and for breaking international rules for competition.

Of course, there are still a number of very successful companies remaining in The Netherlands, like Akzo Nobel (chemicals, lacquers and paints), DSM (bulky as well as tailored chemical products), NXP (microprocessors) and ASML (lithographic machines for the microprocessor industry). 

Akzo Nobel and DSM are strongholds in their respective markets and the latter has invented some very competitive new products that can effortlessly face the competition elsewhere. And NXP and ASML are – not coincidentially – former Philips subsidiaries (!) that started a successful life on their own, as once these both belonged to the so-called family jewels emerging from the renowned Philips NatLab (i.e. Philips fysical laboratory). 

Perhaps NXP and ASML are indeed better off without the Philips umbrella above them, although to these eyes that is not yet a given fact.

Still, there is no reason for The Netherlands to rest on its laurels and enjoy its success.

For instance ASML is basically a one-trick-pony, unfortunately, that currently suffers from Chinese espionage attemps and the general urge of this country to copy and counterfeit everything that raises their interest. At this very moment the company is indispensable for the microprocessor industry, but whether that stays so, remains to be seen.

Besides that, three of these four companies (Akzo, NXP and ASML) are quite procyclical and dependent on the economic mood in the world for their success. And all these four companies are of course very good in what they do, but not so outstanding that the world can’t ‘exist’ without them. In a way, they are all rather companies of the 20th century than of the 21st century.

Whether there will be a real Dutch, 21st century company or not remains the question, under the current scientifical and technological atmosphere in our country. I don’t see such a company emerge at the moment, as all the really decisive new companies seems to be of US and Chinese descent

And there is an even more worrisome development for the future of The Netherlands: the exodus of topmanagers from The Netherlands to other countries, making the Dutch legacy less importance for the originally Dutch companies, where they work.

The following snippets were printed in the Volkskrant:

After the plants, the ICT department and the call centre, Dutch multinationals also move their topmanagers to Asia and the United States.

Of the 23 investigated Dutch multinationals with a quotation at the stock exchanges, already 14 moved one of or more members of their executive board to an office abroad. In half of the cases, this move took place within the last five years.

Until now, economists, policy makers and politicians reckoned that only the low-skilled labour poured away from The Netherlands. The brain-intensive jobs within the Dutch economy – the many jobs for topmanagers and highly skilled investigators – would remain in ‘the polder’, was their opinion. Hence, this exodus touches a soft spot, according to various economists.

According to Professor Strategic Management and Entrepreneurial Policy Henk Volberda of the Erasmus University Rotterdam, these emigrating managers lure the research centres away from The Netherlands. The necessity for the large multinationals, like Philips and DSM, to do their scientifical work and research and development in The Netherlands, diminishes as a consequence.

Also the Rathenau Institute in The Hague makes the connection between the exodus of the topmanagers and the diminishing need to keep ‘the smart guys’ in The Netherlands. According to researcher Jasper Deuten, there is a declining trend in the Dutch research activities and the Dutch home base draws more often the shortest straw, as the location-of-choice for new research labs.

Under the current lack of really decisive new companies and inventions in The Netherlands, it is a disturbing development when the ‘old’, established companies do outsource their ‘brain workers’ to locations abroad. Especially, when there is not a new influx of knowledge-intensive companies from abroad.

The power of the Dutch economy has traditionally been, that it gave more ‘bang for your buck’ through:
  • the entrepreneurial spirit in the country;
  • the ground-breaking research, culminating in surprising and extremely successful inventions and;
  • the outstanding quality of the Dutch products and agricultural produce.

These factors all compensated for the relatively high wages in the country. Dutch products might traditionally have been relatively expensive, but their quality compensated undoubtedly for the higher prices.

Now, there seems to be a decisive shift from highly skilled factory work and knowledge-intensive commercial services and ICT jobs, towards lower qualified service-oriented jobs, distribution jobs and maintenance jobs.

The real problem of a concept like ‘Netherlands, country of distribution’ (i.e. Nederland Distributieland) is that other countries can become just as good in it as we are now, as a competitive edge is very hard to maintain for a prolongued period of time. And probably they will… 

What will then be the next driver for jobs in The Netherlands?!

Of course globally leading companies are not established overnight – although even that is not always a fact anymore in the internet age. Still, at least the Dutch government  and the Dutch financial and corporate establishment should start with creating an environment, that could become a breeding ground for genuine innovation and groundbreaking developments. 

Simply establishing another brainport near a large city is not enough for that, when the real brains are not needed anymore overhere.