This article was co-authored by:

• Sebastiano Toffaletti, Secretary-General, European Digital SME Alliance
• Vinod Kumar, CEO, Vodafone Business 

SMEs are relevant to many aspects of our everyday lives and form the backbone of Europe’s economy. Their variety is immense, from fast-moving, digital-first start-ups, through to more traditional, strictly analogue high street businesses that have yet to acquire the skills to benefit from the latest digital innovations.

They employ 95 million people across 24 million enterprises.[1] Overall, this amounts to a contribution of €4 trillion to the EU value-added.[2]

However, especially for those SMEs that have yet to digitise, they are more significantly challenged by Covid-19 than larger businesses.

On the eve of the United Nations’ Micro, Small and Medium-Sized Enterprises day, we believe that now is an important time to highlight the important role that digital has to play in ensuring SME resilience, as well as the need for effective government policies focused on SME digital adoption and integration.

Such measures, aligned with the creation of comprehensive measures to build digital SME ecosystems, can ensure that SMEs emerge from this crisis stronger.

As Seán Kelly MEP, Board Member of SME Connect, notes, “Small and medium-sized enterprises are the backbone of the Irish and European economies, driving innovation and job creation across all business sectors. As our economies begin to open up once again, SMEs will be the driving force behind our recovery; now is the time to do everything we can to support them.”

Avoiding a new digital divide

It goes without saying that many SMEs are facing significant reductions in customer demand and disruption to their supply chain as a result of Covid-19. These impacts threaten to diminish the scope for SME economic recovery, particularly when compared to larger businesses.

Even before the crisis, larger businesses had an advantage over SMEs in progress on digitalisation and digital innovation.[3] However, Covid-19 has highlighted divisions between SMEs at different levels of digital readiness. More digitally advanced firms have been better placed to adjust and emerge stronger from the crisis.

Put simply, this could create a new digital divide.

Closing this divide will help SMEs to deal with the impacts of Covid-19, providing benefits to both businesses and the wider economy.

But it is more than just providing SMEs with a ‘technology solution’. It is also about improving the digital capabilities of SMEs and creating new ways of working. Increased access to information and more productive and integrated digital processes also helps foster innovation. It is this kind of innovation that can become the lifeblood of the new European economy.

However, there are a number of different barriers to SME digitisation, not least because they may not have access to digital tools or the organisational capability, resources and finances to effectively digitalise their operations.

In Germany, for example, studies have found that 67% of SMEs cite a shortage of IT skills among employees as an obstacle to digital technology adoption, while 32% blame a lack of adequate financing sources.[4]

In the long run, SMEs need to master new technologies if they want to stay competitive and thrive in this digital revolution. Digitalisation is a transformation process that changes the entire business model of companies and that needs to be supported by an ecosystem and digital skills. There is a need for EU companies and citizens not only to be users, but to become shapers of technology. By becoming an innovation economy, Europe will stay ahead in the fourth industrial revolution and ensure its future prosperity.

A time for policymakers to step forward

Recognising their importance to economies, governments are already starting to prioritise SME support through the Covid-19 pandemic. This can include free or subsidised access to broadband or software, grants and voucher schemes for software and equipment, access to educational tools, and training and specialist support. These are measures that we both very much support.

But we need to go further than this. The EU now has the opportunity to shape an SME innovation economy. SMEs need to receive a fair share of the EU’s budget for digital innovation to address a number of these challenges. The crisis can be the start of a comprehensive and sustainable digital transformation process building on digital SME ecosystems.

Séan Kelly agrees, claiming that we now have “an opportunity to ensure our SMEs are more adaptable and more resilient than ever before. We need a supportive digital policy framework and regulatory environment that empowers SMEs to seize the enormous opportunities presented by the digital transformation”.

Going forward, a multifaceted policy response is required to address the identified challenges to SME digitalisation. This is also needed because the crisis has hit some sectors in different ways. For some, sales are not possible; others have been able to keep trading, but with significantly lower volumes because they have not been able to embrace digital transformation.

Therefore, policies should be flexible enough to combine a range of measures to reflect the needs of different SMEs. Some may need to focus on cutting costs in the short term, or on training to increase capabilities and skills for the longer term. SMEs should have incentives and public support to embrace new technologies and to embark on their innovation journey.

There should be a focus on providing resources (e.g. vouchers for investment) and tools that facilitate digital transformation. However, such interventions need to be truly proactive rather than ‘opt-in’.

Such investment should also be aligned with a wider digitalisation strategy to digitalise the economy via business ecosystems, including in particular innovative SMEs and startups. It should build on comprehensive public-private partnerships and invest in and reskilling and upskilling programmes in digital technologies and digital literacy, especially for the unemployed or those at risk of unemployment due to Covid-19.

Finally, digital sovereignty should be a key policy consideration; SMEs should be able to take advantage of a digital ecosystem based on openness and interoperability. Policy should enable digital start-ups and innovative SMEs to better compete and scale up by addressing bottlenecks and unfair practices implemented by digital gatekeepers.

Vodafone will soon publish a new policy study on how digital can support SME resilience in the context of Covid-19. This will include new research on SME attitudes and responses to the crisis. We hope these insights will continue to inform this important debate and help to build a more digital future for SMEs across Europe.

[1] Eurostat, June 2020

[2] Eurostat, June 2020.

[3] According to OECD data, only 18% of EU27 and UK small businesses traded online in 2017, compared to 43% of large companies. Before the crisis, more than 90% of European SMEs consider themselves lagging behind in digital innovation (EC, 2018)

[4] KfW Research, 2016;