KfW Research: KfW SME Digitalisation Report – pandemic-induced momentum continues

• Share of small and medium-sized enterprises with completed digitalisation projects rises to 33%
• Digitalisation expenditure continues on a high level, at EUR 29.3 billion
• Digitalisation activities are heavily concentrated in large SMEs

The new KfW SME Digitalisation Report by KfW Research has revealed that the digitalisation push triggered by the COVID-19 pandemic in Germany is still ongoing, particularly in small and medium-sized enterprises. The share of small and medium-sized enterprises with completed digitalisation projects rose from 31 % in the previous period to 33% (figure relating to the 2020-2022 period). The number of SMEs with completed digitalisation projects thus rose by nearly 100,000 on the previous year’s survey to 1.2 million businesses. SMEs’ spending on digitalisation projects remained on a high level and amounted to EUR 29.3 billion in 2022.

The growth in the share of businesses with digitalisation projects is primarily due to the development among small businesses with fewer than five employees, 29 % of which carried out relevant projects in the period under review (2019-2021: 27 %). They make up the bulk of SMEs in Germany, accounting for 79 % or 3.2 million businesses. Their increased digitalisation activities thus heavily influence the share for the SME sector as a whole. It remains the case, however, that the share of SMEs with completed digitalisation projects grows with the size of the enterprise. Among large SMEs with 50 and more employees, the share of companies going digital is 62 %, more than twice as high as among small businesses. There are many reasons for this. Larger businesses tend to have a higher degree of automation and more complex information requirements, so that they present more starting points for digitalisation. In addition, they usually also have higher skills to apply digitalisation. Not least, it is easier for larger enterprises to fund digitalisation projects.

There are also large differences across sectors: Businesses active in research- and development-intensive manufacturing are clearly in the lead with a share of 54 % of digitalisation projects. These include enterprises of the mechanical engineering, electrical engineering and chemical industries. They are followed by knowledge-based service providers with a share of 37 %. These include, for example, media, IT and information services, law firms, tax consultancies and management consulting firms. In the construction industry, on the other hand, the share is a mere 23 %.

Small and medium-sized enterprises focus their digitalisation projects mainly on the digitalisation of interactions with customers and suppliers. These account for 55 % of all digitalisation projects in the SME sector. Much less common, however, are digitalisation projects involving the introduction of new digital marketing and sales strategies (25 %) or the introduction of digital products and services (24 %).

Digitalisation activities among SMEs continue to be heavily concentrated in larger companies. They account for the largest share of digitalisation expenditure as a whole – EUR 11.5 billion, or 40 % – even though they represent a small share of 2 % of small and medium-sized enterprises. Over time, the concentration of digitalisation expenditure has actually increased. In 2016 that share was just 37 %. At the same time, the share accounted for by micro-businesses fell from then 31 % to now 23 %.

“The fact that the digitalisation push triggered by the COVID-19 pandemic in the SME sector continues is good news”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“Given the great challenges the ongoing transformation to a digital economy and society poses for our country, further efforts are necessary. Various starting points are possible for stimulating digitalisation activities in the SME sector. They range from developing and improving the digital skills of the workforce through reducing funding barriers and giving greater attention to the strategic importance of digitalisation to expanding the country’s digital infrastructure. Only in this way can small and medium-sized enterprises unlock their full potential in the digital transformation and preserve and enhance their competitiveness.”

The current analysis by KfW Research can be retrieved from KfW-Digitalisierungsbericht Mittelstand 2023.

The dataset:

The KfW SME Digitalisation Report is based on the KfW SME Panel (KfW-Mittelstandspanel), which has been conducted since 2003 as a recurring postal survey of small and medium-sized enterprises in Germany with annual turnover of up to EUR 500 million. The KfW SME Panel provides representative data for all SMEs of all sizes and across all industries in Germany. The survey of the 21st wave of the KfW SME Panel was conducted in the period from 6 February 2023 to 16 June 2023. A total of 11,328 businesses took part in the current survey.