KfW Research: Digitalisation in the SME sector is progressing – but only in small steps

• Forty per cent of enterprises have completed digitalisation projects
• SMEs now invest a total of EUR 19 billion per year
• Businesses spend EUR 17,000 on average on digitalisation
• Coronavirus crisis will speed up digital transformation

According to a current representative analysis by KfW Research based on the KfW SME Panel, SMEs have stepped up their digitalisation measures. The analysis found that of the 3.8 million small and medium-sized enterprises in Germany, 40 % of have now completed digitalisation projects successfully in the past three years (2016 - 2018), and the share continues to rise. The number of SMEs with completed digitalisation projects thus rose by 10 percentage points or 380,000 from the previous period (2015 - 2017) to a good 1.5 million. The growing trend towards digitalisation is evident across the entire SME sector. Enterprises of all size classes and sectors are investing more in the introduction of new or improved digital technologies for processes, products (including services) or business workflow.

However, not everything is rosy. Average digitalisation expenditure per company has not risen in the past three years and remains at EUR 17,000. The entire German SME sector spent a good EUR 19 billion on digitalisation in 2018, only a fraction of their expenditure on traditional innovation (EUR 34 billion) and investment in material assets such as buildings, machinery, equipment etc. (EUR 220 billion). And even if digitalisation efforts are generally increasing across the breadth of the SME sector, the fact remains that the larger the enterprise is, the more likely it is to implement digitalisation projects and the more money it is likely to invest. Large SMEs with more than 50 employees still represent the size class with the highest share of enterprises that have completed digitalisation projects (67 %), while only 45 % of very small businesses with not more than five employees have completed such projects. Sectoral differences still remain: While nearly half of knowledge-based service providers (e.g. media service, IT and information service providers, law firms, tax consultancies and management consulting firms) as well as research and development-intensive manufacturers (e.g. engineering, electronics and chemical firms) implemented a digitalisation project, just under one third of construction firms did the same.

“Digitalisation is increasingly reaching all areas of the German SME sector, but the vast majority of small and medium-sized enterprises continue to take small steps”, Dr Fritzi Köhler-Geib, Chief Economist of KfW Group, summarised. “The ongoing coronavirus crisis will mark a turning point and act as a catalyst of digital transformation in the SME sector. The competitive advantages resulting from digital business models, products and processes are now becoming particularly clear. They have allowed the uninterrupted operation of many businesses that would otherwise have ground to a halt because of the coronavirus restrictions. Many businesses are now suddenly forced to go digital. They are trialling work-from-home arrangements and virtual cooperation, setting up digital sales platforms as shops and restaurants remain closed, or are replacing paper-based processes with digital ones. Much of this will remain after the crisis – and grow.”

The current study by KfW Research on digitalisation in SMEs can be accessed at:
www.kfw.de/KfW-Konzern/KfW-Research/Digitalisierung

Details about the database:
The current analysis by KfW Research on digitalisation in the German SME sector is based on a special evaluation of the representative KfW SME Panel, which has been conducted annually since 2003 as a tracking survey of small and medium-sized enterprises in Germany. The basic population of the KfW SME Panel includes all private-sector companies with annual turnovers of up to EUR 500 million. The main survey of the 17th wave was conducted in the period from 11 February to 21 June 2019.