KfW Research: German SMEs have insufficient digital capabilities, need more training

• One in three businesses are unable to meet their needs
• Coronavirus crisis is making training activities more difficult
• Enterprises see lack of training offers and high costs as an obstacle

Digitalisation is an integral part of SMEs’ day-to-day operations. For more than 80% of small and medium-sized enterprises, it is imperative that their employees have foundational digital skills such as knowing how to use computers, tablets and standard software. One fourth of them have a great or very great need for advanced digital skills such as programming and statistical data analysis skills. However, a supplementary survey conducted as part of the representative KfW SME Panel also revealed that one third of enterprises (33%) are currently unable to meet their digital skills needs. Businesses hit by the coronavirus crisis are more likely to experience gaps and deficiencies than those that have remained unaffected (37% vs. 26%).

The deficiencies differ across economic sectors, with retailers and wholesalers most affected, at 43%. A lack of employees with necessary digital expertise was also reported by an above-average proportion of manufacturing firms (40%). In the construction sector, on the other hand, the relatively few companies that have a (very) great need for digital skills are able to meet their requirements relatively well, with only 24% reporting bottlenecks.

The gap between required and existing skills in the workforce poses great challenges for SMEs. Structural changes in technology are making digital skills increasingly important, and a lack of such skills hampers rapid digitalisation. Small and medium-sized enterprises have clearly identified this problem and are attempting to address it. Four in ten digitalisation projects in the SME sector involve developing relevant skills in the workforce through recruitment or further training. But the current pandemic is one of the factors that have stopped in-company training dead in its tracks. In 2020, 38% of SMEs scaled back their training, and half of them cancelled their activities altogether. According to the most recent supplementary survey under the KfW SME Panel, there are two main reasons for this:

• From the respondents’ point of view, not enough suitable offers are available. This problem was reported by 27% of small and medium-sized enterprises that have a great need for digital skills. This likely applies not just to reservations regarding content or teaching methods but also to the crisis-induced cancellation of face-to-face events.

• Cost is another major obstacle to training and a crucial problem for one fourth of businesses (25%). Enterprises that have been affected by the coronavirus crisis were much more likely to report this than unaffected enterprises (33% vs. 13%). That is because acute losses in turnover and liquidity gaps necessarily reduce training budgets.

“The coronavirus crisis and the resulting drop in training activity are contributing to the fact that SMEs’ efforts to improve their workforce’s digital skills have stalled. That is bad news because we are in the midst of a structural digital transformation. Investments of the future require digital expertise”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “It is therefore crucial for businesses, the workforce and the overall economy to rapidly expand training activities. Enterprises that have been hit by the coronavirus crisis in particular need advisory services and financial support for in-company training. Increasingly diverse career biographies make it equally important to promote individual continuing professional development. The guiding principle is self-directed lifelong learning – but not in isolation. A further education campaign could improve productivity and competitiveness already in the short term. In the long term, digital skills must be given greater importance in schools and daycare centres.”

The current Focus on Economics by KfW Research is available at www.kfw.de/fokus