Going micro-multinational

It's the startup Cinderella story for most web entrepreneurs: Alibaba. It's the Chinese online trading company created by an internet-savvy teacher Jack Ma from his apartment and which is now set to take on the world.

The Economist magazine recently estimated Alibaba's online transactions to have been worth 130 billion euro over the last year - that's more money than passed through Amazon and eBay combined.

And as Alibaba continues to expand, those with an eye on the success of European startups are asking a simple question: why China? What does Alibaba have that European startups don't?

For a start, the company can rely on a very large market - in fact, China's online market is well on its way to becoming the world's largest.

European startups, on the other hand, have to contend with the lack of a single digital market. They need to weave their way through the different legal regimes - and different languages - of the EU's 27 member-states.

But there's more to it than that. There are those who argue that investors in Europe just don't get the online economy's business model - one which doesn't rely on immediate returns.

Innovate or perish

The European Commission - the executive of the European Union - has been campaigning hard on the need to invest in innovation.

Maire Geoghegan-Quinn, the European Commissioner for Research, Innovation and Science, threw down the gauntlet last October. Speaking at the launch of the StartUp Europe initiative - a program designed to promote European startups - Commissioner Geoghegan-Quinn said Europe's large firms weren't the answer to innovation.

"We need to compete and win in cutting-edge sectors like nano-technology, robotics, clean energy and life-sciences," Commissioner Geoghegan-Quinn said. "We need more medium-sized firms able to occupy top positions in niche markets. We need more young firms with high-growth potential."

In other words, the very tech startups which European investors tend to overlook.

Commissioner Geoghegan-Quinn argued that countries which have embraced innovation have proved more resilient in tough times.

"We've seen that countries like Germany and Singapore, who placed innovation at the centre of their economic policies, have been better able to weather the economic storm," she said. "We had the arms race, we had the space race, now we have a global innovation race."

But European investors can be reticent when it comes to supporting young - and youthful - tech startups.

Ann Mettler is the executive director of the Lisbon Council, a knowledge economy think tank based in Brussels. She says the caution of European investors has led some local startups to seek opportunities elsewhere.

"There's a startup in San Francisco that was started by a Belgian entrepreneur called Xavier Damman," Mettler says. "It's called Storify. And [Damman] tried for many years to get it off the ground here in Belgium. It never worked. He went to San Francisco. He teamed up with some other people. They got a one or two million dollar investment."

"I remember asking Xavier: what did you do? Did you write a business plan? And he said: 'forget about a business plan. The investors said: show me user adoption.' So it's very much about getting people to use your product, even if you can't immediately commercialize that. This is a new kind of making money, a new kind of business model. […] Here in Europe we were very slow to understand that giving something away for free does not mean that you can't make money off it eventually."

Think macro, start micro

The challenge for Europe is to embrace the idea of micro-multinationals. The definition sounds like a contradiction in terms, but Mettler says these companies make perfect sense.

"A micro-multinational is a startup that is essentially a multinational from day one - thanks to digital technologies, and particularly the internet," Mettler says.

"So, if you think about how in the past multinationals have emerged, they were first based in a region in one country, and maybe then they expanded nationally, and then, maybe, they expanded in Europe, then finally they went global. This process used to take years, if not decades. Today you can trade across the globe, essentially from day one."

"These companies do not have the kind of legacies as big companies. Yes, you are a big company, but that also means that you tend to be quite slow. […] These startups are very fast. They can respond to new customer preferences in real time. They can source talent from around the globe. So, the sky is the limit."

What this all means is that providing European micro-multinationals with the right economic environment is now the challenge for legislators, at an EU level - but, more importantly, at the level of member governments.

Because those in the industry now argue that the next big thing to come from Europe may well be a micro-multinational. And perhaps it should be.