Digital technologies powering growth: the €628 billion opportunity for the EU’s SMEs [Promoted content]

As political leaders gather this week in Spain for the European SME Week, new research suggests that digitalising SMEs could unlock EUR 600 billion for the EU’s economy. 

The European economy is at a critical juncture, with SMEs at the forefront. Rapid technological innovation, a turbulent geopolitical environment, an ongoing energy crisis, and increased competition on the global stage has led to the EU setting punchy goals to go green, go digital, and do so in line with European values – all within the next few years. 

The EU’s digitalisation targets as they relate to business, outlined in their Digital Decade programme, are important and ambitious: by 2030, at least 90% of SMEs should have a basic level of digital intensity, and at least 75% of European companies should be using advanced technologies such as artificial intelligence (AI), cloud computing, and big data. 

The digital transformation of businesses can bring incredible benefits to the European economy. But achieving these objectives will not be possible without significant support for Europe’s 25 million SMEs – representing 99% of all businesses and two thirds of private sector jobs. There is still a long way to go: the recent State of the Digital Decade report shows that Europe is simply not on track to reach its 2030 goals. 

There is no lack of willingness from SMEs – in fact, new research from Sage sheds light on the expanding digital needs and ambitions of European SMEs, with 85% saying that digital tech is crucial to their growth plans. This research is grounded in an extensive analysis that encompasses the voices of over 15,000 SME representatives across 15 Member States. It reflects the real-world successes, challenges, and aspirations of SMEs across the continent. 

Most importantly, the research supports an incredible €628 billion economic growth opportunity for the EU from bringing the slowest adopters of technology in line with the average SME, making digitalisation one of the most powerful growth levers available to policymakers today.

So, what are the concrete steps policymakers can take to foster the environment SMEs need to thrive? The good news is that several ongoing policy proposals, if implemented swiftly and in a holistic manner, could hold the key to boosting digital adoption.

The research shows important links between the adoption of digital solutions, tackling late payments, and increasing cash flow. Whilst it is recognised that investments in digital tech deliver great returns, upfront costs and cash flow remain the key barriers. We find, for example, that 20% of EU SMEs are struggling with cash flow, and that those grappling with liquidity invest 44% less in technology. More importantly, an incredible 50% of EU SMEs still see financing as a key barrier to digital transformation, a challenge which intensifies for the smallest SMEs and threatens to leave them behind.

But digitalisation itself holds the answer! Of the SMEs that identify cash flow as a key barrier to their operational success, over half (52%) view e-invoicing, for example, as a tool capable of accelerating their cash flow and 69% believe it could positively impact their cash flow. Meanwhile, 63% of SMEs identify digital technology as playing a beneficial role in helping to manage their cash flow and late payment issues. This underlines the need and potential benefits of policy to accelerate the digitalisation and investment ‘flywheel’ in support of sustainable productivity growth.

The EU’s newly proposed Regulation on combating late payment in commercial transactions – part of the “SME Relief Package” – as well as the Directive on VAT rules in the Digital Age (ViDA), which aims to introduce mandatory e-invoicing across the EU, are great examples of existing policy initiatives that have the potential to boost SME growth. Their real impact though will depend on the support by Member States to help SMEs overcome other barriers such as digital uptake, literacy and skills as well as boosting investment incentives, for example through the tax system.

Another key takeaway from the study is SMEs’ generally positive sentiments towards the potential of new technologies such as AI and digital ID to support growth, as well as their struggle to unlock that potential. On AI, almost three quarters of those who have adopted it (71%) identify it as a driver for innovation and efficiency but only 32% of adopters believe that AI is working well for them today. Moreover, 92% of SMEs discern risks with AI, of which ethical issues, data loss and privacy concerns, as well as fraud, emerge prominently. Meanwhile, 80% are confident that the introduction of a digital ID will benefit their business. 

As the EU readies legislation on both AI and digital ID, it will be critical to ensure that this provides confidence to SMEs about managing the potential risks and encourages them to be bold about experimenting with and adopting AI.

Finally, the research calls out the opportunity to leverage digital solutions to facilitate SMEs’ sustainability reporting. Over two thirds (68%) of EU SMEs in the study are feeling more pressure to reduce their environmental impacts from their customers and 75% have made representations to their customers about their sustainability. Despite this, only 9% have processes in place to measure, track, and report on their sustainability data, highlighting the cost and complexity of doing so today. With policymakers aiming to increase sustainability reporting for both small and large businesses to reach the objectives of the European Green Deal, it will be crucial to implement simple and standardised reporting frameworks and user-friendly digital tools that can help SMEs with their compliance.

Let’s look beyond the numbers; the resounding message in this report is a strong call to action for policymakers to forge robust policies and investment incentives to facilitate digital transition for SMEs and realise this growth. With the European elections fast approaching, it is critical that policymakers do not lose momentum if SMEs are to achieve the digital transformation targets set out in the Digital Decade programme. 

With the right support, Europe stands on the edge of unlocking a staggering €628 billion growth opportunity. As a first step to unlocking this opportunity we need to stop seeing digitalisation as a burden and embrace instead the opportunity that SMEs themselves already see – digital technology as the key to becoming more productive, competitive, and sustainable.

For more information, take a look at the report and press release at Sage UK’s Digital Newsroom.