Digital Transformation Supports Success for SME and Community Economies

Marco Capuano Feb 14, 2023 Community Economy SMEs

The COVID-19 pandemic has accelerated digitalization for SMEs, particularly through their investment in digital technologies, Internet of Things (“IoT”), big data, cloud technologies and e-commerce, artificial intelligence (“AI”) and virtual and augmented reality. This data, gathered in a joint research initiative by the Organisation for Economic Co-operation and Development (OECD), Facebook and World Bank, show that between 25% and 62% of SMEs across the 37 countries included in the OECD increased digitalization of their business processes in 2020.

According to Statista, spending on digital transformation should reach 2.8 trillion USD by 2025, up from 1.8 trillion USD in 2022. However, roughly 38% of SMEs still lack clear plans for embracing digital transformation. This is mainly because of financial constraints and limited digital skills within their workforce.

Digital Transformation Supports Success for SME and Community Economies
Image by on Freepik.

Why is digitalization so important to the success and growth of SMEs, and therefore a Community Economy? Digitalization is a key driver of productivity and innovation for any size company (Booz & Company, 2013), but especially critical to SMEs in a number of important ways:

  1. It makes it easier for SMEs to participate in global value chains (GVCs), find customers, receive and make payments, and comply with regulations and requirements that vary from country to country. SMEs become more competitive when improved access to information and data lowers costs and increases efficiencies.
  2. It helps SMEs grow by overcoming some of the barriers to entry into global markets.
  3. It brings innovation that helps new businesses and entrepreneurs to emerge.
  4. It promotes inclusion and competition by enabling businesses to enter underserved markets.

SMEs are generally more flexible than larger companies, respond faster to market developments, and are more inclined to differentiate their products to meet customers’ needs. For example, in the furniture and automotive sectors, SMEs supply many of the required parts and components to larger firms.

Creative and innovative SMEs can challenge and transform a sector and contribute to the development of new industries, but equally important to their impact on the market is the role that SMEs play in economic development; their success directly supports community economic health in both urban and rural areas. In short, if an SME succeeds, its community benefits from its success when the business is then poised to:

  • create jobs
  • support educational institutions
  • pay taxes and keep money in the community
  • partner with and support the success of other SMEs
  • contribute to a culture of entrepreneurship, and
  • drive change and innovation.

In a handful of best case scenarios in OECD countries, both governments as well as public and private organizations have implemented programs that support SMEs in digitalizing their services: from digital skills training and e-commerce guides to coaching webinars and facilitating access to financial support.

These are successful efforts, but more can and should be done to support SMEs. Long term measures tailored to the SMEs’ specific characteristics (early stage innovative startups, established startups, growing SMEs, stagnant SMEs, micro businesses, local businesses, international SMEs, etc) will increase SMEs’ chances of success through

  • a clear regulatory framework.
  • easy and affordable access to digital infrastructure and market conditions that increase their access to global digital commerce.
  • improved access to financial support.
  • enhanced access to Big Data, artificial intelligence, block chain and financial technologies.
  • creation of an open, collaborative and inclusive business ecosystem.
  • connection with global partners.

Given the link between the success of SMEs and economic health on the local level, it’s in everyone’s interests to support innovations, business practices and measures that bring long-term, sustainable growth and prosperity to building a robust and connected Community Economy.