2020 was a year like no other. The coronavirus pandemic disrupted every facet of life, and SMEs – the heartbeat of local communities and economies – were hit extremely hard by the lockdowns and shifts in consumer behavior. Coupled with disruptions in supply chains and difficulties to access capital, each of these led to the complete paralysis of business ecosystems across the world.
in Europe, companies are looking at the EU recovery funding as a potential source of relief to get back on track. Many see it as a tool to upgrade their business models to the digital era. There may be obstacles ahead, however, as a number of countries, including those in Central Europe, have historically struggled to absorb the EU’s funding.
To overcome the shortcomings of the past, the European Commission and the 27 independent national governments of the EU need to provide fast-track solutions to directly support SMEs, build resilient entrepreneurial ecosystems and support political leadership that sees digitization as key priority.
SMEs in Crisis: Why Do They Matter and What Are Their Needs?
SMEs are the backbone of Europe´s economy. They account for 99% of EU businesses, with 24 million companies across the EU. They generated more than half of the EU’s gross domestic product and employed about 100 million workers before the beginning of the pandemic.
SMEs have been particularly hard hit by the COVID-19 crisis. Government-induced lockdowns, hygiene requirements, social distancing and consumption at home severely affected the way businesses operate. At the same time, there is a set of macrotrends affecting SMEs, such as the shift to online shopping, reliance on data-driven marketing, and consumer behaviour shifting to the “always-on” mode.
While SMEs are a diverse group, they do have common needs when it comes to digitization. The fundamental areas to digitize across any sector include accounting, marketing, transactions, cybersecurity, HR and payroll systems, access to collaboration and learning. However, companies often lack the resources and funding to go fully digital. Their reliance and dependency on non-digital third party vendors for non-core business functions also make them vulnerable to market shocks such as the one caused by the pandemic.
Considering these circumstances, SMEs need support in educating what digitization is and what it means for their business. They also need help in identifying areas where they need to focus their digitalization efforts, and in finding access to suitable solutions and financial support.
Digital Recovery of SMEs in Central Europe
Central Europe’s ability to stay competitive in the increasingly digital global markets largely depends on SME’s ability to adapt to the digital era. As the traditional drivers of growth, such as cheap labor and traditional manufacturing, they are beginning to lose their momentum and the track record of effectively using structural funds is rather wobbly. As such, the challenge couldn’t be more pressing. What can be done to leverage the EU Recovery funding to cure ailing SMEs in the region?
First of all, making access to funding as simple as possible will be one of the cornerstones for success. Potential instruments can include match funding, grant schemes, voucher schemes supporting digitization and IP protection, as well as lean and digital loans. What is key is that these solutions come with very little administrative barriers for entrepreneurs, and support SMEs directly without them having to go through complex institutional bureaucracies.
Secondly, governments should heavily invest in building digital entrepreneurial ecosystems. This could mean creating innovation centres where SMEs can get advice and learn how to improve their business thanks to new technologies. These hubs could also connect top-notch technology research with private sector opportunities. For more systemic solutions, a state-run one-stop-shop helping SMEs on their digitization journey such as Singapore’s Go Digital platform and Canada’s Digital Main Street could serve as a great example for the CE region to accelerate their digital readiness.
To achieve a long-term impact, these platforms need to incorporate a digital education element. Yet the education part alone will not attract busy entrepreneurs. It is therefore vital that these hubs (whether they are virtual or physical) also provide concrete benefits such as free consultancies and services essential for the core operations of SMEs, or access to funding. One important note to keep in mind – designing an attractive roster of services will require an intense public-private collaboration.
With EU recovery funding set up and ready, all it takes is visionary political leadership that is willing to make these bold choices. The funds represent a historic opportunity for SMEs in Central Europe and beyond to recover from the pandemic and allow them to drive the green and digital transformation of the continent.
It would be a great shame to miss out on this chance.