Digitalisation has reached German SMEs, but they are not investing much in it so far

Digitalisation has reached German SMEs, but they are not investing much in it so far

Digitalisation has reached German SMEs, but they are not investing much in it so far

The FINANCIAL -- There are 3.76 million SMEs in Germany, and the share of those that concluded digitalisation projects successfully in the past three years (2015-2017) is growing.

According to a current representative analysis conducted by KfW Research, 30% of the country’s small and medium-sized enterprises have invested in the introduction of new or improved digital technologies for processes, products (including services) or business operations. The share of digital transformers grew by four percentage points on the previous year’s survey. Encouragingly, the share of digital transformers has grown across SMEs of all size classes and nearly all economic sectors. In other words, digitalisation is gradually spreading across the SME sector.


However, aggregate expenditure on digitalisation projects in the SME sector remains relatively low, at EUR 15 billion in 2017 (EUR 14 billion in 2016). SMEs invest eleven times more in machinery, buildings, equipment and similar items (EUR 169 billion). Each SME on average still spends EUR 17,000 on digitalisation, roughly the same as in the previous year.


A strong correlation exists between digitalisation activity and company size in the German SME sector. The larger the enterprise, the more likely it is to implement digitalisation projects and the more it is likely to invest. SMEs with more than 50 employees carried out twice as many digital projects as small businesses with fewer than five employees (49% vs. 28%), and they spent 24 times more on digitalisation measures (EUR 147,000 vs. EUR 6,000). The low digitalisation efforts of small businesses are a cause for concern because these businesses represent the bulk of German SMEs (81%). There is a risk of a divide emerging between large, heavily digitalised SMEs and small SMEs left behind in the digital transformation. This will probably affect the competitiveness of these small businesses.


The most common projects involve the digitalisation of contacts with customers and suppliers (56%), closely followed by the renewal of IT structures (53% of respondents). Less common are the development of specific expertise (38%), the reorganisation of workflows (25%) and the introduction of new marketing and distribution strategies (25%). The digitalisation of products or services makes up only 21% of all projects.
Besides size, the sector in which a small or medium-sized company operates also has a strong influence on digitalisation activities. Hardly surprising is the fact that knowledge-based service providers such as the media, IT service providers, law firms, tax accountants and management consultancies (37%) are particularly active. The same is true of R&D-intensive manufacturers (36%) in industries such as engineering, electronics and chemicals. Digitalisation projects play only a minor role in the construction sector (19%).


The KfW analysis also highlights the significance of human capital as an important source of digitalisation projects in the SME sector. The share of enterprises that employ graduates and expand the digitalisation of their business is 43%, around two thirds higher than businesses without graduates.
“The future competitiveness of German SMEs will depend very much on successful digital transformation and creating modern, sustainable business models. Our current analysis shows that many things are moving in the right direction, but there are still a number of areas where economic and education policymakers need to intervene”, said Dr Jörg Zeuner, Chief Economist of KfW Group. “Barriers to digitalisation have to be further dismantled, such as employees’ lack of IT skills, the poor quality of Internet connections, unresolved issues relating to data security and data protection, and problems in adapting the corporate structure and workflow management.”