Digitalization is often touted as a solution to issues like productivity and job creation, but evidence is still limited. It can help reduce transaction and search costs for businesses, especially SMEs, and enable new links. However, SMEs face challenges scaling up due to skills gaps, limited visibility, and finance costs. The EU is working to support SMEs through programs like the Enterprise Europe Network and Escalar, which provides mentoring, market access support, and later stage equity financing.
2. Digitalisation: setting expectations high
Digitalisation often named as a solution for a wide range of issues:
• Global productivity slowdown
• Creation of "good" jobs
• SMEs internationalisation
• Better information sharing
• Scientific progress
• Enhanced democracy / accountability
• …
However, it is still very difficult to provide reliable empirical
evidence.
3. How does digitalisation helps interlinking?
• Digitalisation can reduce transaction costs, especially in
international settings
• Digitalisation can reduce search costs
• Digitalisation can reduce experimentation costs
• Digitalisation help standardise business operations
4. What about SMEs?
By creating new business links, digitalisation can help SMEs scale-up
Different types of business linkages imply different risks and benefits:
• Small to big cannibalisation, hold-up, but profit from network
externalities
• Small to small more balanced relation, but evidence of
shorter lived export relationships
• Cross-sectoral links Digitalisation of non-digital sectors leads
to innovative links (e.g. manufacturing and IT services,
servitisation of industry)
5. Too high expectations?
What digitalisation cannot do:
• Digitalisation does not replace market knowledge
• Digitalisation does not remove legal issues:
• Product and service heterogeneous regulation
And even creates new types of costs, e.g.:
• Data anonymisation
• Data portability
• Liability issues
- Digitalisation does not necessarily come easy and cheap.
- Are SMEs well equipped to support this?
6. What is actually happening?
1. Increasing divergence in firms performance
• Few extremely productive firms at the productivity frontier
• Large mass lagging behind
Possible causes:
• Slowdown of technological diffusion
• Decrease in market contestability
• …
2. SMEs experience difficulties in scaling-up (in the EU)
Possible causes:
• Limited integration in value chains
• Access to equity finance
• Regulatory burden
• …
7. e-commerce in the EU
Source: European Commission, Digital Scoreboard based on Eurostat Community survey ICT usage
and e-commerce in enterprises
• What is the role of the e-commerce giants in the figure
above?
• How much of this is "new" trade?
2016 2015
SMEs Selling Online
% of SMEs
17% 16%
eCommerce turnover
% of SME turnover
9.4% 9.4%
Selling Online Cross-border
% of SMEs
7.5%
8. Integration of Digital Technology
Source: Europe's Digital Progress Report 2017based on Eurostat Community survey ICT usage
and e-commerce in enterprises
• Technological diffusion slower for SMEs
• Figures do not take into account quality of use:
• E.g. professional exploitation of social media requires skills
9. What kind of support do SMSs need for digitalisation to
create new linkages?
• Skills (scarce resource at the moment)
Technological, legal, analytical
• Visibility searchability requires well-developed platforms
exploiting network externalities size does matter!
• Mentoring strategy more important if markets less fragmented
• Finance Non negligible costs, since digitalisation needs to be
well managed to foster business linkages.
- Are well-known internet giants unavoidable?
- How to avoid SMEs be trapped in the low end of the value chain?
10. What is the EU doing?
Enterprise Europe network
The world’s largest support network for small and medium-sized enterprises (SMEs) with
international ambitions.
• Helps SMEs and entrepreneurs access market information,
overcome legal obstacles and find potential business partners
across Europe.
• Active in more than 60 countries worldwide, 3,000 experts from
more than 600 member organisations including:
• technology poles
• innovation support organisations
• universities and research institutes
• regional development organisations
• chambers of commerce and industry
11. Escalar
European Scale-up Action for Risk-capital
Aims at covering later stage equity gap, which is currently the biggest financial obstacle
for start-up to scale up in the EU
• Privately owned and managed investment funds, licensed and
regulated (ESCALAR funds)
• ESCALAR funds raise their own capital, and if successful receive
additional funds borrowed through issuing a bond by the EIB
• Bonds are guaranteed by the EU (leverage principle)
• Bonds to be paid back by ESCALAR funds at a fixed date
Inspired to the US Small Business Investment Company (SBIC)
What is the EU working on?