SMEs are going digital to survive COVID-19 crisis but government support needed – OECD

Small and medium-sized enterprises (SMEs) are increasingly turning to digital technologies and online sales to help them survive the COVID-19 crisis but it is vital for governments to provide support and assistance during the transition, according to a new OECD report.

The Digital Transformation of SMEs says adoption of new digital technology by small businesses is accelerating – 70% of SMEs have further intensified their use of digital technologies due to COVID19. But SMEs still lag considerably behind larger firms – their access to key digital technologies typically is half of that of bigger companies. Public policies to help companies go digital are crucial as business owners often lack skills, and access to advice and infrastructure to make the shift.

New digital practices range from smart working solutions to online sales. Digital platforms have played a key role in connecting SMEs to markets and suppliers and helping them maintain operations during the crisis.

The report provides examples of government support to date – both financial and non-financial – to help SMEs adapt prior and amidst COVID-19. They include voucher schemes in Portugal, tax incentives in Israel and expert consultancy programmes in Germany. Many OECD countries offer tax breaks to reduce the cost firms incur for training their workers. Many also deploy digital hubs, testing facilities or networking platforms to allow SMEs to access technology, data and digital services.

The report adds, however, that the challenges that existed before the COVID-19 pandemic remain and some risks, such as attacks on digital security, have intensified. Hackers have been exploiting SMEs’ lack of preparedness, lower investment in digital security, and, often, limited understanding of the consequences of the security threats. As firms go digital, their degree of exposure is likely to increase, as well as the impacts of attacks, either because of supply-chain disruptions or because hackers use SMEs as a back-door entry to larger firms. 

At the market level, concerns remain about SME data protection, or distortions in competition, such as more dominant firms locking in certain technologies. At the broader level, the SME digital gap contributes to increased inequalities among people, places and firms. And the COVID-19 crisis has already exacerbated the impact of existing digital divides, which are strongly associated with gaps in productivity, scaling up, innovation and growth.

Pre-COVID barriers to SME digital adoption remain too: access to infrastructure; low interoperability of systems; a lack of data culture and digital awareness; internal skills gaps; financing gaps for covering high sunk costs to transform; uncertainty about liabilities and responsibilities when engaging in new digital activities; risks of reputation damage etc.

Policy makers have a strong role to play in removing regulatory barriers and market distortions, and enabling greater SME uptake, such as through the digitalisation of public services. The report says policies should be carefully adapted to the specific industries SMEs operate in, as well as their specific business functions.

Download the report The Digital Transformation of SMEs.