SME digitalisation in the EU: Trends, policies and impacts

While megatrends such as the twin transition and demographic change continue to significantly impact economies and societies, global conditions remain in flux. The European Union stands at a critical juncture and is set to transition to become a more mature and self-sufficient entity. This critical moment is marked by two significant challenges: the ongoing Russian war of aggression against Ukraine and the imposition of higher tariffs by the United States on a wide range of goods. Alongside these challenges is the heightened instability in the Middle East, including the conflict between Israel and Gaza. To deal with these complex problems, the EU must move towards greater autonomy and strategic independence. In this context, the digital transition of the EU’s economy is a top priority. There are 25 million small and medium-sized enterprises (SMEs) driving growth, innovation and employment in the EU. SMEs account for 99 % of the EU’s businesses and over half of its gross domestic product, making them vital to the EU’s economic model. The EU has therefore established a vast array of programmes, particularly in response to the COVID-19 pandemic, to support SMEs in enhancing their level of digitalisation and increasing productivity and competitiveness. By leveraging digital technologies, SMEs can improve their operations, expand their market reach and develop innovative solutions to pressing challenges such as fighting climate change and increasing social cohesion. As the EU embarks on the twin transition towards a sustainable and digital economy, SMEs are set to play an even more central role, underpinning Europe’s competitiveness, prosperity and economic resilience.

The European Commission has established new priorities to bridge the competitiveness gap between the EU and other major global economies. As strategic guidance, the Commission has published the Competitiveness Compass for the EU, the Draghi report on the future of European competitiveness and the Letta report on the future of the single market. The key objectives include boosting productivity and competitiveness, creating a regulatory environment that fosters technological progress and strengthening the interconnectedness of research, innovation, data, skills and education. SMEs’ potential is hindered by skills shortages. The Commission’s Union of Skills initiative aims to address this challenge by strengthening education and training systems, supporting upskilling and reskilling through targeted programmes and creating the right conditions to attract and retain talent across the EU. The Commission is also striving to make EU policies and laws more straightforward and to implement and enforce them more effectively. By streamlining rules and reducing administrative burdens, the Commission aims to create a more favourable business environment, drive growth and pursue ambitious economic, social and environmental goals. The Commission’s efforts are expected to result in significant savings, with a 25 % reduction in administrative burdens for businesses and a 35 % reduction for SMEs, yielding EUR 37.5 billion in savings.

• Digital intensity varies across EU Member States. The EU average rate of basic digital intensity in SMEs as measured by the European Commission is 73 %, with Denmark and Finland being the only Member States to have already reached the EU target of 90 %. A geographical divide is evident, with northern and western European countries exhibiting higher rates of basic digital intensity than their southern and eastern counterparts.

• SME digitalisation is often driven by necessity rather than strategic planning, with external factors such as labour shortages or the COVID-19 pandemic acting as a catalyst for the adoption of digital tools.

• Continued government support is widely regarded as critical for sustaining SME digitalisation, with a focus on targeted initiatives, financial incentives and partnerships with technology providers.

• Digital adoption is hindered by a lack of investment in building digital resilience and by limited resources. The resulting lack of digital skills in some areas can be a significant barrier to digital transformation in SMEs, including e-commerce adoption.

• Member States have made significant progress in developing national digital and AI strategies, with the Recovery and Resilience Facility providing financial backing for reforms and investments that accelerate digital transformation.

• Member States offer financial incentives to support SMEs in their digital transformation and green transition. Successful support schemes and agile measures with minimal bureaucracy, such as voucher programmes, have helped SMEs access funding for digitalisation and innovation.

• The adoption of digital skills assessment tools to identify skills needs and inform targeted training remains limited among SMEs, particularly among smaller businesses and those in less digitised or more traditional sectors. To bridge this gap, SME associations, chambers of commerce and other industry organisations are essential in promoting awareness among SMEs of the importance of these tools and how to use them.

• The presence of large multinational corporations can boost digitalisation among nearby SMEs through positive spillover effects, but SMEs outside these networks often fall behind due to limited resources and weaker market incentives.

• Small and medium-sized workplaces (SMWs) are grouped into three types based on their level of digitalisation to study the impact of digitalisation on job quality in the dimensions of working time, work intensity, and skills and discretion.

  • Digital tools and collaboration. These SMWs use digital technologies to facilitate collaboration and communication among workers and tend to have a more flexible and autonomous work environment and lower work intensity.

  • Work automation and monitoring. These SMWs use digital technologies to automate tasks and monitor employee performance and tend to have a more controlled and structured work environment.

  • Low digital intensity. These SMWs make limited use of digital technologies and tend to have a more traditional and less flexible work environment. They are especially disadvantaged in regard to work autonomy and access to skills development and training.

• Develop coherent digitalisation policies with measurable targets, aligned with the EU Digital Decade goals, to support SMEs and drive long-term success.

• Invest in robust digital infrastructure to enable SME digitalisation and foster a resilient business environment.

• Foster innovation through collaboration among SMEs, larger firms, universities and research institutions, using innovation hubs, digital sandboxes and sector-specific networks to drive digital adoption.

• Invest in targeted digital skills development for SMEs, using flexible, modular training and updated educational curricula to address the digital skills gap and support business growth.

• Promote the responsible use of digital technology in SMEs, with tools used to enhance collaboration, social interaction and worker engagement, while raising awareness of the potential negative impacts of excessive automation and performance monitoring on workers.