Today, the global geopolitical landscape is shifting constantly, and multinational strategies are evolving with it. Chinese companies entering Europe increasingly talk about “In Europe, for Europe”, while foreign companies in China more often speak of “China for China”. Different slogans, perhaps, but both reflect the same reality: technological, energy, data and industrial sovereignty have moved to the top of the corporate and political agenda. Global trade is being reshaped, geopolitics is altering supply chains, and security, resilience and localization have become variables that companies can no longer ignore.
But in emphasizing protection, are we overlooking a deeper question? Sovereignty addresses what we cannot afford to lose. Competitiveness asks what we are still capable of creating. And the second may ultimately be harder to secure than the first.
From the internet to short-form video, from electric vehicles to generative AI, we are living through an era in which the journey from technological breakthrough to industry disruption keeps accelerating. The real point is that we do not know when the next disruption will arrive, where it will emerge, or who will create it.
Policy can protect industries we already know to be strategically important. It is far harder to plan for an industry that does not yet exist. Sustainable sovereignty, therefore, ultimately has to rest on competitiveness.
1. Europe Has Strong Cards. The Challenge Is Turning Existing Strengths into the Next Generation of Competitiveness
Europe has strong cards: world-class universities, research, engineering talent, industrial capabilities and capital, alongside globally competitive sectors such as aerospace, automotive, pharmaceuticals, chemicals, luxury and advanced manufacturing.
But after living and working in Europe for more than two decades, one question raises : can these existing strengths continue to generate the next generation of competitive advantage?
Mario Draghi, former President of the European Central Bank and former Prime Minister of Italy, identified slowing productivity, the innovation gap, energy costs and intensifying global competition as long-term challenges in his report on European competitiveness.[1] Yet I tend to see external competition from another angle. It may be painful, but it can also serve as a healthy wake-up call, reminding Europe that leadership is never permanent.
There is an old Chinese saying: “We thrive in adversity and decline in comfort.” It would be simplistic to attribute Europe’s competitiveness challenges to its social or welfare model. But one principle travels well across cultures and eras: a competitive economy needs not only to protect its champions, but also to keep producing challengers to those champions.
2. Europe’s Other Paradox: Champion Players Do Not Automatically Make a Champion Team
Europe has another distinctive feature: the European Union is not one country.
For that reason, I do not believe the answer to European competitiveness is to make 27 markets alike. Quite the opposite: each member state needs room to play its strongest cards, while talent, capital, technology and companies need to move more freely across regions and industrial ecosystems.
The International Monetary Fund (IMF) identifies regulatory fragmentation, the efficiency of financial intermediation, labor mobility and fragmented energy markets among the constraints on European innovation and scale-up.[2]
If we think of the EU as a football team, the strongest team does not require every player to play in the same way. It allows each player to excel in their own position while working effectively with the rest of the team.
The value of integration is not to eliminate differences, but to turn them into a greater competitive advantage.
This matters not only for Europe itself. It also affects how international companies should think about their own “Europe strategy”.
3. “Toyota Europe” Was Built One Country at a Time
I previously discussed Toyota in another piece, “From Chinese Champions to Global Players”. From the perspective of competitiveness, Toyota’s more than sixty years of development in Europe is equally revealing.
In 1963, Toyota established its first major foothold in Europe through Denmark. It initially entered Nordic markets where domestic automotive industries were relatively limited and import barriers were lower, before expanding gradually into other European countries.[3][4]
Its manufacturing footprint was not simply replicated from one market to another. Portugal hosted early European production; the United Kingdom later became a major vehicle and engine manufacturing base; Valenciennes in France became an important production site for the Yaris; and Poland, the Czech Republic and Türkiye developed distinct industrial roles of their own.[4][5]
Six decades later, we see an integrated “Toyota Europe”. But that European strategy did not exist fully formed on day one. It was built gradually: country by country, market by market, factory by factory, capability by capability.
The lesson I take from this is quite simple: a regional strategy does not necessarily begin with a regional map. It often starts with one place where the company can genuinely establish itself.
4. L’Oréal in Asia: A Regional Strategy Does Not Mean Making Every Local Market the Same
If Toyota illustrates how local nodes can gradually form a regional network, L’Oréal’s development in Asia shows what can happen at a more mature stage of localization: individual markets retain their strengths while creating regional synergies.
L’Oréal did not simply treat China, Japan and Korea as one homogeneous “Asian market”. Instead, it developed the “C-J-K Beauty Triangle” to identify and connect the distinctive innovation capabilities of the three markets. In 2020, L’Oréal piloted its Big Bang Beauty Tech Innovation Program in China before expanding it to Korea and Japan. In its first three years in China alone, the program engaged around 1,500 start-ups and incubated more than 50 projects.[6][7][8]
The three markets do not need to perform the same role. China can serve as a testing ground for digitalization, beauty tech and open innovation; Japan has strengths in skin and hair science and green technology; Korea has its own distinctive beauty innovation ecosystem. L’Oréal’s approach has been to recognize those differences and connect the most valuable capabilities.[6][7]
At the same time, China has evolved from being mainly a sales market into a base for R&D, production and regional management. China is now L’Oréal’s second-largest market globally and the headquarters of its North Asia region, while more than 60% of the products sold in China are locally produced.[9]
Of course, this is the kind of model that a mature multinational can build only after decades of accumulation. But it illustrates an important point: a mature regional strategy does not make every local market identical. It allows distinctive local capabilities to develop, and then connects them.
5. For Chinese Companies, the First Step May Not Be “Europe”, but Finding the Right Vertical
When Chinese companies discuss a “Europe strategy”, the first instinct is often to build a European organizational structure. From a governance perspective, that is entirely reasonable. But once operations begin, one reality quickly becomes clear: Europe is not one country.
Automotive, batteries, pharmaceuticals, industrial equipment, data centers and consumer goods all have their own European industrial maps. France and Germany can mean very different things to the same company.
So rather than pursuing broad European coverage from the outset, I increasingly favor a different starting point: identify the company’s own area of geographic and industrial depth in Europe.
The logic is similar to building vertical within an industry. Companies usually start with a segment where their capabilities are genuinely differentiated and where the market has a real need, then expand outward from that position.
By “vertical”, I mean the point where geography and industry overlap: one country, one industrial cluster, a group of key customers and suppliers, and a team with deep sector knowledge.
Then customer relationships, suppliers, talent networks and industrial connections can gradually deepen until that position becomes genuinely established.
Go deep before going broad. Build the vertical before building Europe.
Toyota’s European network rests on a series of strong national nodes with different functions. L’Oréal’s ability to connect innovation capabilities across Asian markets came only once localization had reached a much more mature stage. For many Chinese companies and other international investors today, the more realistic priority is to build real depth in one market and one industrial ecosystem first.
6. Foreign Competitors Can Also Become a Catalyst for European Industry
From a European perspective, foreign investment is usually assessed first through investment volume, jobs, factories, tax revenues and local sourcing. Those indicators matter.
But when an international company genuinely enters an industrial ecosystem, it also introduces another, harder-to-measure variable: competition itself.
The Organisation for Economic Co-operation and Development (OECD), in its work on the relationship between foreign direct investment and local SMEs, identifies supply-chain linkages, knowledge diffusion, skills, innovation and productivity as important channels through which foreign investment can generate spillovers.[10]
New entrants can act as a competitive catalyst, pushing incumbents to reassess their cost structures, speed of innovation and operating models. Chinese, Japanese, American and other international companies do not enter Europe to “improve European competitiveness”. They come for customers, growth and returns. But once embedded in local industrial ecosystems, they bring new cost benchmarks, product-development cycles, manufacturing approaches, supply-chain models and organizational rhythms. These changes may not always be comfortable, but they can prompt incumbent companies to reassess their own efficiency and competitive practices.
For that reason, I do not see European sovereignty and international competition as inherently contradictory.
The more interesting question is whether Europe can attract international companies willing to build real depth in local industrial ecosystems, and turn the resulting competitive pressure into greater industrial dynamism.
7. Perhaps What Sovereignty Really Needs to Protect Is the Capacity for Competition Itself
Seen this way, my own understanding of sovereignty also changes somewhat.
If protection ultimately means shielding incumbent companies from competition, it may end up protecting the past more than the future.
But if sovereignty protects critical capabilities, fair competition, market access for innovators, and the movement of talent and capital, then sovereignty and competitiveness can reinforce one another.
No policy can know in advance which company will next reshape the automotive industry, what technology will transform artificial intelligence, or where the next industrial disruption will begin.
What an economy may therefore need to protect is not only the position of today’s champions, but also the possibility that someone will still be able to challenge them tomorrow.
That is how I understand “disruptive competitiveness”: not the ability to predict the future, but the ability to preserve space for breakthroughs we cannot yet foresee.
Conclusion: Sovereignty Protects the Known. Competitiveness Creates the Unknown.
Europe’s move toward stronger industrial sovereignty is unlikely to reverse. But a more sovereign Europe does not necessarily have to be a more closed Europe, nor does it require all member states to become increasingly alike.
A stronger Europe may instead depend on each member state continuing to sharpen its own strengths, while talent, capital, technology and companies move more freely among those different centers of excellence.
For Chinese and international companies entering Europe, the logic is similar. Toyota’s European journey suggests that regional networks are built first on solid local nodes. L’Oréal’s more mature Asian experience shows that, at a later stage, regionalization can connect the distinctive capabilities of different markets.
For most Chinese companies entering Europe today, the priority is more immediate: find the geography and industrial ecosystem that best fit their strengths, and build real depth there.
And as companies from China, Japan, the United States and elsewhere increasingly enter Europe, competing, collaborating and interacting with local companies, they may themselves become part of Europe’s future competitiveness.
Sovereignty protects the capacity to participate in the next round of competition. Competition determines who remains. Disruptive competitiveness determines who gets to define the rules of the next round.
Disclaimer:
This article is based on an original piece published by the WeChat account “EU-CN_Ind_Insights” and edited by EqualOcean. The views expressed are solely those of the original author. No organization or individual may scrape this article or use it to train AI models without the rights holder’s authorization.
Sources
[1] European Commission: The Future of European Competitiveness (Draghi Report)
[2] International Monetary Fund (IMF): Europe’s Declining Productivity Growth: Diagnoses and Remedies
[3] Toyota Europe: History of Toyota in Europe
[4] Toyota Motor Corporation: 75 Years of Toyota, Activities by Region - Europe
[5] Toyota Europe: Manufacturing in Europe
[6] L’Oréal: North Asia Big Bang Beauty Tech Innovation Program
[7] L’Oréal: C-J-K Beauty Triangle and North Asia innovation ecosystem
[8] L’Oréal China: Big Bang Beauty Tech Innovation Program
[9] L’Oréal: China market and local footprint
[10] OECD: FDI-SME Ecosystems and Productivity Spillovers
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