The State of European Innovation

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Siemens rivals took notice of German talent some time ago. In 2004, General Electric (GE) set up a research and development center near the University of Munich in the heart of Siemens country. "Germany is a cradle for technology," says Nani Beccalli-Falco, Brussels-based CEO of GE International. "We wanted to draw upon the talent."

Removing the Incentive

But more is needed before Europe is as innovative as its rival across the Atlantic. Venture capital funding in Europe is still far below the U.S. level. Only Britain can boast truly world-class research universities. And European governments still reflexively try to protect domestic industries, which in the long term anesthetizes companies to competitive pressure and removes the incentive to innovate. Says Ann Mettler, executive director and founder of the Lisbon Council, a Brussels-based think tank: "The sectors where you see a lot of innovation are the sectors where you see a lot of competition."

In this special report on innovation in Europe, we highlight a half-dozen companies, large and small, that have harnessed bright ideas, novel business models, or breakthrough technologies to change the world. From Switzerland's Asset4, which has pioneered the collection, analysis, and distribution of nonfinancial corporate data, to Dutch startup European Climate Exchange, whose electronic network handles 85% of Europe's exchange-traded carbon credits, these companies are world leaders in emerging areas.

Even giants such as Nokia and Danone (DANO) must make constant leaps of innovation to stay competitive in brutally competitive industries. Please enjoy our special report, including slide shows on top European inventors and innovation hot spots.

Ewing is BusinessWeek's European regional editor . Fishbein is a reporter in BusinessWeek's Paris bureau .