Best practices for SMEs to digitalize the right way

In 2016, the World Bank uncovered a worrying trend: big companies in the developed world were far more productive per employee than small and mid-sized enterprises (SMEs). The reason was straightforward: smaller companies weren’t making sufficient use of digital tech.

Unlike their rich-world counterparts, SMEs didn’t enjoy what the World Bank called digital dividends, the benefits and opportunities that came from adopting ICT. Generally speaking, digitalized firms grow faster, enjoy greater productivity, and get broader access to international markets. SMEs were found to be analogue laggards in an increasingly digital world.

The International Monetary Fund paints a similarly gloomy picture for Europe in particular. Smaller firms there saw a larger decline in productivity after the Great Financial Crisis than larger companies, and were hit harder by this decline, regardless of industry or economic sector.

Mind the (digital) gap

If you have a job, you are statistically likely to work for an SME, usually defined as a business with fewer than 250 employees. The United Nations estimates that formal and informal SMEs make up more than 90% of companies worldwide, accounting for 70% of total employment and up to half of global GDP.

Making smaller companies just as productive as large ones is therefore key to boosting economic prosperity and reducing income inequality.  Digital transformation can close the gap.

Research by the University Consortium of Malaysia found that SMEs engaged in e-commerce saw productivity increase by 27%. And a study by Huawei in 2018 found that using data management solutions could increase SMEs’ productivity by up to 60%.

Digitalization also breeds resilience. SMEs that digitalized were twice as likely to find new business opportunities during the pandemic, according to Vodafone. 

All of this happens because digital tech allows small businesses to spend less time on administrative processes, giving them more time for value-creating activities such as product development.

Closing the gap, and ensuring that SMEs receive their fair share of digital dividends is key to boosting economic prosperity and reducing income inequality. Accordingly, governments have strong incentives to help nudge SMEs toward digitalization.

In collaboration with Arthur D. Little, a consultancy, Huawei has reviewed some best-practice examples from around the world. Several are listed below.

Bundle up. Having an online storefront is not enough. To transform successfully, SMEs need bundled support, including e-payments, security, accounting, and e-marketing. Singapore’s Start Digital initiative provides “digital packs” to help companies take the first steps, usually via banks and telecom operators. SMEs can choose two solutions, which they can use free of charge for up six months before starting to pay a monthly fee.

Use grants to make tech affordable. The Hong Kong government gives SMEs vouchers to upgrade or buy new equipment or online solutions that boost productivity. It also has kiosks that allow SMEs to enter basic information about their business, then search eligibility criteria among all government funding schemes with instructions on how to apply.

Provide one point of contact. The Acelera PYME program in Spain includes digital solutions, tools, financial information, and advice customized for SMEs.

Skill up your people. Singapore’s skills agency (under the Ministry of Education) provides training, workshops and digital skills development for SMEs.

Map out success. In Germany, Mittelstand 4.0 Competence Centres provide road maps with detailed guidance and close supervision to ensure that enterprises achieve their vision.

As noted elsewhere in this edition of Transform, SMEs generate 70% of government tax revenue, 80% of all technological innovation, and 90% of all employment. For governments around the world, these and similar programs should pay for themselves many times over.