The market for software is truly global, and so are many good-management practices in the industry’s three segments: mass market, enterprise solutions, and professional services. But a 1998 McKinsey survey of 100 software companies around the world found clear distinctions between practices in Europe and those in the United States.¹ The most important problems facing the industry involve internationalization, sales and marketing, pay and stock options, and staff turnover. In all these areas, Europe trails the United States.

First, European companies are relatively slow to sell their products abroad: US companies, despite their huge home market, internationalize earlier (Exhibit 1). Nonetheless, Europe does have some outstanding competitors in the global race—not only well-known giants such as SAP in Germany, but also new firms that could act as role models for others in Europe. Take Intershop, which is developing applications for electronic commerce: in 1996, it spent $10 million, more than its entire annual revenue, on internationalization (which included moving its headquarters from Jena, Germany, to San Francisco). Today, Intershop’s products reach more than 70 countries, and in the first three quarters of 1999, sales increased by more than 130 percent, to almost $21 million. But in Europe, such...