Small Business Digitalization: Insights
Five insights into the state of digitalization for small businesses in the European Union (EU) include Small and medium-sized enterprises (SMEs) in the EU spending a very small amount of their budgets, with SMEs in Germany spending €14.9 billion, on digitalization in 2017. Also, 12% of EU SMEs were found to be using some type of big data source in 2018. Financial challenges, digital insecurity, and lack of knowledge and skills in the usefulness and adoption of digital technology are some challenges that SMEs in the EU face in their quest to adopt digital technology for use in their businesses. Detailed information on these insights is below.
- SMEs in the EU makeup 99.8% of all enterprises and 66.6% of all employment. SMEs in the EU are diverse and have adopted digital technologies at different times and stages. Based on their uptake of the Internet of Things, big data, and cybersecurity, SMEs in the EU are grouped into front runners, developers, appliers, followers, and non-innovators, which indicate to what extent companies are engaged in digital innovation.
- Concerning big data, 12% of the European SMEs were found to be using some type of big data source in 2018. However, the adoption rates of big data were slower than key digital technologies such as social media and eInvoicing.
- Regarding cybersecurity adoption, SMEs in Europe don’t normally have the time, resources, and energy to ensure that they are well protected from attack. This is despite half of cyber attacks currently targeting small businesses.
- According to the EU, more than 90% of European SMEs currently consider themselves behind others in digital innovation. This is because of various difficulties that these SMEs face in adopting digital technologies. One challenge faced by SMEs in their quest for digital transformation is financial constraints.
- SMEs have limited capital that places a constraint on their ability to invest in their digital transformation and use of new technology. According to Euractiv Network, only 17% of SMEs in the EU sell their goods or services online and just 25% pay to advertise their products or services online.
SMEs Spending on Digitization
- According to Mckinsey, many SMEs in the EU have small budgets to use for digitization technology and effort should be made to increase this to tap into the benefits of digital technology.
- In Germany, digitalization in SMEs is growing as 30% of the 3.76 million SMEs have invested in new or improved digital technologies for products, processes, or business operations. SMEs in the country spent €14.9 billion on digitalization projects in 2017, an increase of around €1 billion compared to 2016. In addition, the knowledge-based and other service providers sector had the highest aggregate digitalization expenditure totaling €6 billion.
- The amount spent on digitalization by SMEs in Germany heavily depends on the size of the company, with enterprises that have less than five employees spending €6,000 on digitalization on average in 2017. Enterprises with 50 and over employees spent about 24 times more than what small businesses spent at about €150,000.
Lack of Skills and Information on Digitization
- SMEs in the EU face the challenge of a lack of information on digitalization. This includes a lack of information on how to become digital and a lack of awareness about the potential gains from using digital tools and how to apply the tools to their operations.
- This lack of information leads to uncertainty on the net benefits of digitalization and slows the process of SMEs adopting digital technology to help improve their businesses.
- According to the EU, SMEs face a significant challenge of acquiring the necessary skills to benefit from digital technologies. Also, many people employed by SMEs lack the digital skills needed to operate state-of-the-art digital technologies, with 45% of SMEs in a survey saying this is true.
- The fact that managers and owners of SMEs lack skills and knowledge related to digitalization prevents them from recognizing the potential of digital technologies and discourages companies from investing in digital skills development.
The Challenge of Digital Insecurity
- Small businesses in the EU face the challenge of data insecurity in their effort to digitalize. Digitalization comes with information security and privacy risks that make SMEs hesitant to adopt new technology.
- According to the EU, 60% of SMEs in the EU that were victims of cyber attacks did not recover from it and shut down within six months. Many SMEs in the EU are, therefore, aware of the threat of having an online presence and the financial costs of cybercrime.
- In the Netherlands, two out of five SMEs suffered from digital fraud in 2017, with 57% experiencing financial damage.
- Data insecurity has been mentioned as one of the main reasons why SMEs in the EU are reluctant to adopt digital technologies.