There is a clearly established link between SMEs' rate of adoption of high technology and growth. Europe's companies need to stay ahead of the game, and can club together to help each other, writes Per Werngren.
Per Werngren is owner and CEO of Idenet AB, a private cloud hosting provider based in Sweden
Policy-makers and avid newspaper readers looking for solid proof of economic recovery often rely on news coming from Fortune 500 companies to take the pulse of the economy. The truth is that Europe’s economic comeback depends much more on its army of small and medium-sized enterprises (SMEs) than on corporate elites.
SMEs may not grab the headlines but they constitute more than 99% of all European businesses, providing two out of three private sector jobs. As we celebrate European SME Week we have an opportunity to showcase their impact on growth and job creation but also to address the critical factors which may improve their performance. Recent studies show clearly that today’s “business X factor” for SMEs is the smart adoption of information and telecommunication technology (ICT).
ICT is not just a policy buzzword but a great enabler for businesses, regardless of size or activity sector. Whether you are a tech start up or a provider of traditional products or services, thanks to capabilities such as the use of social networks, cloud-based services and data analytics you can expand your business reach to new clients and markets.
One phenomenon in particular that has created new opportunities for SMEs is cloud adoption, which has sped up with the rapid growth of the digital economy. By offering access to capabilities and services that previously only multinationals could afford, cloud computing has created a level playing field for SMEs. At a time when cost-efficiency holds the key to economic survival, SMEs can benefit from cloud-based communication services such as Voice over IP calls to ensure smooth collaboration with employees, clients and suppliers based at home and abroad. Technological prowess facilitates worker mobility and provides access to a larger talent pool than the one available locally.
Bringing SMEs up to speed with the digital revolution is not just a matter of improving their quarterly profits, but also about creating European growth and jobs. The European Commission rightly pointed out in the Entrepreneurship 2020 Action Plan that in the digital age, no business can thrive without better use of ICT. The Action Plan emphasised that SMEs grow two to three times faster when they embrace technology. It also encouraged entrepreneurs to exploit the potential of the EU’s digital single market, which is expected to grow by 10% a year up to 2016. These recommendations mirror key findings of a recent Boston Consulting Group (BCG) study on the benefits of ICT adoption by SMEs, which was commissioned by Microsoft.
The BCG team surveyed more than 4,000 SMEs across all industry sectors in five countries —the United States, Germany, China, India, and Brazil – to find out the link between successful technology adoption and business performance. Unsurprisingly the study showed that, regardless of their home country, entrepreneurs who were early technology adopters increased their annual revenues 15% faster than their competitors. Moreover, they managed to create jobs twice as fast as other small businesses.
The transition of SMEs from “digital laggards” to “digital champions” can provide a much needed boost to a sluggish economic recovery. The BCG report found that, in those five markets, even if only 15% of SMEs that lag behind in technology implementation and 30% of SMEs who moderately use technology adopted modern and advanced IT tools, they could increase their combined revenues by €570 billion and create more than six million new jobs.
The list of digital opportunities for SMEs is long but the list of current barriers to technology adoption is, unfortunately, even longer. Among the most common obstacles mentioned by entrepreneurs are the perception that technology is too expensive, that broadband infrastructure is inadequate, that data security might be at risk, and – last but not least – that there is excessive red tape and regulatory costs. Removing these barriers will require a dialogue between policy-makers and SMEs but also more action on the part of the latter.
Owners of small and medium businesses often hesitate to roll out new technologies because they lack the expertise and staff to properly manage them. SMEs aiming to embrace technological change should connect to existing local or regional networks of IT experts who can share best practice. And there are many of them out there, including the International Association of Microsoft Channel Partners (IAMCP), which my company is a part of.
20 million European SMEs are the true backbone of our economy. EU and national policy-makers should act to facilitate adoption of new technologies through a clear regulatory framework designed in collaboration with entrepreneurs. This matter requires their immediate attention if they aspire to make Europe a hub for innovative SMEs and future industry leaders. Otherwise, we risk losing the benefits of this and next wave of technology adoption.