Covid-19 and The Irish SME Sector:
Supporting Recovery and Growth
A report commissioned by Vodafone Ireland in collaboration with Economist Stephen Kinsella Research by RED C
Foreword
Anne O’Leary CEO, Vodafone Ireland
The COVID-19 crisis has put significant pressure on the vital small-to-medium enterprise (SME) sector in Ireland. Many companies have been forced to make considerable changes to their business operating models overnight and others have had to close their doors for months to help protect public health. No matter the size or nature of the organisation, COVID-19 has changed everything about how we do business. Vodafone has commissioned this report, working with economist, Stephen Kinsella, to investigate the impact of COVID-19 on Irish SMEs. Vodafone has 2.3 million customers in Ireland and among those are thousands of small and medium businesses. It is therefore vital for us to understand this sector so we can serve it better, offer support where needed and contribute to its future sustainability and growth. This study highlights SME investment plans, the opportunities and challenges they are currently facing, digitalisation, the role of technology for future growth and the policies that will underpin and support SME recovery post COVID-19. We were delighted to work with Stephen Kinsella who has provided further insight into the sector by benchmarking Irish SME performance against our European counterparts. The good news is that despite many partial or full closures during lockdown, SMEs remain positive about their future. Technology and training are key, with many planning to invest across these areas. Digitalisation was identified as a key driver for this recovery, with noteworthy growth potential for Irish SMEs who engage in digital transformation. At Vodafone, we know that now, more than ever, connectivity and technology are at the core of enabling Irish businesses to operate in a digital society. After some big changes to the way we work, many organisations are now doing business safely and successfully and thinking about what comes next. The tenacity, determination and innovation of Irish SMEs to carry on and to turn uncertainty into opportunity came through strongly in this study. Ireland’s SME sector will play a crucial role in driving strong economic recovery and providing jobs all over the country. I hope that you will reflect on the findings of this report and consider the current challenges and opportunities of this vital sector. We must learn and adapt to support SMEs and protect them in an uncertain local and global environment.
COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
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Executive Summary
Stephen Kinsella Economist
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The purpose of this report is to examine Ireland’s SME sector in three ways. First, we want to gauge the extent of SME reaction to COVID-19 and Brexit, and understand how technology usage has changed in reaction to this crisis. Second, we want to place Irish SMEs in their European context. When it comes to technology adoption, innovation, and adapting to the future, how do they compare? Third, we want to understand what policy supports can best help SMEs prosper in a post-COVID world. SMEs are a vital part of the Irish economy. The latest survey of SMEs by the CSO in 2018 shows they accounted for 99.8% of the total number of enterprises and 67.5% of all persons employed¹. Of these, micro-enterprises accounted for 91% of all enterprises². In relation to COVID-19, the research found that Irish SMEs adapted where they could, using digital tools wherever possible. In particular, larger, rural-based businesses displayed a greater use of digital channels to access new markets than smaller, urban-based businesses. We also found that policy supports to increase SME digitalisation here can help overcome the structural challenges in relation to low productivity and domestic value added in comparison to their EU counterparts. These policy supports include; designing flexible digital investment schemes to help firms transition to the digital economy effectively and ensuring equal access to high-speed connectivity for all firms regardless of location and size. As we will see, firm size is a key factor of technology adoption and resilience. We are particularly interested in digitalisation in this report as it results in new business processes, creates new products and helps firms access new markets around the world. We find Ireland’s SMEs have a long way to go to fully embrace digitalisation, but that the opportunity for them to do so is all the greater. Comparing Irish and European SMEs by a range of indicators, from the integration of internal and external IT processes like e-invoicing, to big data analysis and the use of artificial intelligence and robotics, Ireland’s SMEs tend to fare poorly, except in areas like cloud computing. When we look at firms by size, we see larger firms have invested far more in digital tools and processes and are more resilient to crises as a result. One measure stands out: 65% of firms with 10 to 49 employees have invested in cloud computing, while the number for smaller firms of 1 to 9 employees stands at 47%. Prior to COVID-19, the OECD’s recent report on Ireland’s SME sector, focusing on the last five years up to 2019, showed a buoyant, resilient sector operating within a favourable business environment³. SME firms accounted for as much as 56% of manufacturing employment and 74% of services employment . Ireland has been very successful in generating high-growth firms, which are a key driver of employment, innovation, and productivity growth in the economy. That said, the sector had been not without its challenges. Prior to the start of the COVID-19 pandemic, growth among Ireland’s SMEs was stagnant. Productivity was far from declining, but it was also not increasing, with Ireland’s direct SME export levels very low when compared to EU countries such as, Lithuania, Estonia and Luxembourg with only about 6% of Irish SMEs directly trading across borders. As a small economy, there is a need to make exporting a part of the business ambitions of more SMEs. One route to increased domestic value added is digitalisation. Without a doubt, the challenges facing SMEs in Ireland have since been exacerbated by the arrival of COVID-19. In just four months between March and June 2020, around two-in-five micro-sized firms and one-in-two small and medium-sized firms faced a revenue shortfall. The total shortfall across the Irish SME sector over this period is estimated to be between €6bn and €10bn, according to the ESRI. While the scale of interruption and uncertainty of COVID-19 has been unprecedented in recent history, Irish SMEs remain bullish, with a high level of confidence (67%) in the future of their own business. Half also anticipate growth in their business in the next two years. It has also become quickly evident that technology will play an even bigger role in how SMEs plan for recovery and growth. In fact, our study shows that those SMEs who were agile and adaptable and embraced technology managed to maintain some, if not all, of their business operations. In order to obtain an informed view of the impact of COVID-19 on the SME community in Ireland, the opportunities for growth and the role of technology in recovery, Vodafone commissioned this report to investigate: • • • •
¹ Business in Ireland 2018 - CSO - Central Statistics Office, 2021 ² Business in Ireland 2018 - CSO - Central Statistics Office, 2021 ³ SME and Entrepreneurship Policy in Ireland | OECD iLibrary, 2021 Business Demography 2018 - CSO - Central Statistics Office, 2021
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The impact of COVID-19 on revenue, employment and workplace operations among SMEs The economic outlook and investment plans of Irish SMEs Digitalisation and the role of technology in supporting SME survival and growth The policy changes required to support SMEs post COVID-19, particularly digitalisation
The Report
The report is based on a nationwide survey of 500 SMEs operating in rural and urban areas in Ireland and across a wide range of sectors. In addition, a European economic benchmark analysis was carried out by leading economist, Stephen Kinsella, to assess the opportunities and challenges for SMEs in Ireland vis-à-vis other European markets.
Profile of SME Sample
7%
19%
33%
27%
9%
3%
Over 50 years
31 - 50 years
21 - 30 years
11 - 20 years
5 - 10 years
Less than 5 years
Length of Time in Ireland
Annual Turnover
1%
Over €20 million
2%
€6 - 10 million
12%
€1 - 5 million
€501,000 - €1 million
14%
€250,000 - €500,000
42%
Less than €250,000
€11 - 20 million
66%
Urban
34%
Rural
75%
1-9
21%
10-49
4%
50-249
Location of Company
Company Size
(Base: All Irish SMEs, n=500, Urban=348, Rural=152, 1-9 n=217, 10-49 n=218, 50-250 n=65)
Key Findings from Irish SMEs:
The findings in this report point clearly to a need for greater structural supports to help Irish SMEs recover from a period of significant uncertainty and instability, increase productivity levels, access new markets and generate new entrepreneurs and start-up enterprises. At the heart of the findings, digitalisation is identified as a key driver for recovery, with significant growth potential for Irish SMEs who engage in digital transformation.
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Business Impact & Future Outlook
The Role of Technology
Remote Working
Investment
70%
suffered full or partial closures during lockdowns
43%
claim they could not have functioned productively without investment in technology
of SMEs have been unable to facilitate remote working
25%
aren’t confident their staff have the necessary digital skills
experienced some reduction in financial performance – (an average of 34%)
67%
are confident in the future of their own business
50%
anticipate growth in their business in the next 2 years
of SMEs invested in technology such as communications or digital channels
Only of smaller Irish firms are ‘highly digitalised’
said scaling IT and phone systems was the biggest issue when trying to facilitate remote working
Advantages include increased productivity, fewer sick days and improved employee wellbeing
plan to invest specifically in digital skills training
60%
plan to invest in people training in the next two years
The SME Sector in Ireland – COVID-19 Impact
The economic and social fabric of Irish society has undergone a period of sustained interruption, shock and uncertainty due to the COVID-19 pandemic - the tremors of which will be felt for some time to come. Despite the positive economic outlook of Irish SMEs captured for this report, there has been a significant impact on small to medium sized business across Ireland, many of whom require time, investment and above all, stability to make a full recovery. The OECD’s July 2020 survey of policy responses to COVID-19 for SMEs found that they were likely to fail within three months without government supports . Unlike larger firms, with access to internal financial resources and external debt markets, SMEs typically access local banks to obtain credit, are more limited in their customer base and supplier network, have less of an ability to offset or lower costs, and are less likely to buy and sell online. Between March and November 2020, only three in 10 Irish SME businesses were able to remain fully operational, with smaller and rural-based businesses more likely to have partial or full closures. Unsurprisingly, those who were completely shut were far worse off than those experiencing partial or no closures, with an average 62% decrease in financial performance. On average, small businesses experienced a one-third reduction in their income.
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Despite the challenges, many SMEs in Ireland displayed tenacity, innovation, and resourcefulness in adapting their operations and business models to survive. What is evident throughout this study is that SMEs looked largely to digital tools and technology to support a transition to new ways of working. They also increased their use of digital channels to access new markets or to create new methods of reaching and engaging with customers when the bricks and mortar option was no longer viable. Half of all SMEs invested in new technology during the first nine months of COVID-19, rising to two thirds for larger enterprises. Communication tools and mobile or broadband connectivity were the most widely invested in; but close to 20% also invested in cloud-based services and new digital customer software. Importantly, company size was a key factor in tracing a firm’s ability to adapt to the COVID-19 challenge. As the graph shows, smaller firms of less than nine employees were less likely to make changes to their business in response to the crisis.
Perhaps the greatest indicator of the impact of the pandemic on SMEs is that one in eight businesses had to make redundancies of up to 20% of their workforce. This rose to 11% for larger SMEs with up to 250 employees.
Interestingly, larger, rural-based businesses displayed a greater use of new digital channels to access new markets than the smaller, urban-based businesses.
Coronavirus (COVID-19): SME policy responses, 2021
Which of these changes were implemented in the business due to Covid-19?
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50 - 250 Employees
10 - 49 Employees
1 - 9 Employees
31%
35%
38%
48%
41%
Adapted or changed your supply chains
New technology to support remote working
Increased use of digital channels to new routes to market (for example, trading online)
New technology to communicate with customers
In order to cope with Covid-19, Irish SMEs engaged in several strategies, including investing in new communication and digital channels to access new markets and engage with customers or to support remote working.
The European SME Sector
The European SME sector typically has high levels of productivity, digitalisation, and innovation. We need to place Ireland’s SME sector in its European context to understand its scope for development. One measure of the development of a country’s SME sector is the percentage of value added created by domestic firms for export . The EU average is 88.4%, meaning, across the EU, 88% of all value created and sold abroad is made by firms from the EU. By this measure, Ireland features one of the lowest scores in the EU at 58%. Countries like Denmark (71.9%), Latvia (79.3%), and Estonia (65%) fare far better. This may be because, relative to our EU neighbours, Ireland has one of the lowest ratios of exporters to total enterprise numbers in the European Union. This poor performance is partially reflected in Ireland’s deep connections to global value chains , but it is also a function of the size of most Irish SMEs. Relative to other EU countries, Ireland’s SME structure features a combination of many very small firms (91% of all firms have less than 9 employees, as mentioned above) and many sectors feature an over-reliance on exporting to a small number of larger companies, as opposed to having a diverse supply chain or customer relationships with a range of businesses across the EU. This is a key structural feature of the Irish SME landscape, and an aspect Ireland’s new SME Taskforce report references directly. Therefore, due to their over-reliance on a small customer base and difficulty in obtaining extended credit lines, Irish SMEs are more likely to experience significant disruption compared to their EU counterparts in a lockdown or restrictive economic situation such as COVID-19. In addition to the size/value disparity between firms, the Irish economy, including the growth potential of SMEs, is hampered by the sustained economic disparity between its urban centres and the rest of the country.
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Economic activity is heavily concentrated in the greater Dublin area, where about 30% of the country’s employees reside and income per head is substantially higher than the rest of the country. These income and concentration disparities are among the highest in OECD countries. The European Stability Mechanism considered the role of regional disparities when trying to understand how regions might recover from COVID-19. They found models of specific regional support were most effective in helping adjustments of households and firms. Ireland was characterised by a high degree of disparity between larger regions that are ‘catching up’ to the EU average and those ‘pulling away’ from the EU average than other countries like Greece or Finland or Austria, underscoring the need for a considered rural COVID-19 policy mix in Ireland.
Johnson, R., 2014. Five Facts about Value-Added Exports and Implications for Macroeconomics and Trade Research. Journal of Economic Perspectives, 28(2), pp.119-142. SME and Entrepreneurship Policy in Ireland | OECD iLibrary, 2021 Dollar, D., Khan, B. and Pei, J., 2019. Should high domestic value added in exports be an objective of policy?. Global Value Chain Development Report 2019, p.141.
Regions Catching Up, Falling Behind
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Lagging
100%
90%
80%
40%
30%
20%
10%
0%
BE
DE
IE
EL
ES
FR
IT
NL
AT
PT
FI
Catching Up
Catching Down
Pulling Away
SOURCE: ESM based on Eurostat and OECD. Luxembourg is omitted due to the limited number of regions
Irish Economic Outlook & Business Confidence
Understandably, the economic outlook for all Irish businesses, across all sectors is exceptionally uncertain. This is particularly true for SMEs who are also contending with other economic shockwaves, such as Brexit. Participants in this survey exhibited local optimism, global pessimism, and general uncertainty in their views about the future. Irish SMEs remain bullish, with a high level of confidence (67%) in the future of their own business. In fact, 50% of businesses believe that they will return to normal (i.e. pre-COVID levels of activity) within the next 12 months, though one in three believe it will be 2022 or later. Importantly however, 50% of SMEs see significant growth potential in the next two years, relative to the start of the pandemic, though smaller SMEs are less confident of growth than larger ones, as highlighted in this graph.
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How confident do you feel about the future of your own business and the wider economy?
Don't Know
Confident
Not Confident
18%
37%
22%
15%
Economy
Own Business
Supporting Future Growth
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SMEs have identified a number of key supports to help drive growth, with financial aid the most common. Digital transformation and technology adoption is recognised by 47% as a key driver of future growth and 40% highlight access to new markets as a growth opportunity. It is clear that in order to weather the pandemic and drive future economic recovery, SMEs need access to a broad range of supports that reduce risk in the short term, in particular financial aid and grants. To remain competitive, businesses are looking to digitalisation and technology supports that drive innovation and business growth, and those that support access to new markets. Ensuring SMEs are incentivised to undertake these transformations this will be crucial.
Access to financial support, for example government grants and payment schemes
62%
47%
Which of these opportunities are available to you to support future business growth?
Digital transformation and technology adoption
Access to new markets
Opportunities to diversify products, services or routes to market
Reduction in business costs, such as commercial rent
None of these
85%
of SME’s can access at least one of these opportunities
Financial support is the most important common support businesses can access to aid future growth, though just under half also plan to gain from digital transformation and the adoption of the new tech.
The European Perspective
12
Ireland
600
In comparison to the EU, sentiment in Ireland appears much more certain in relation to economic policy than other markets, according to an analysis by Bloom and Co-Authors at Stanford. While Ireland exhibits large amounts of volatility caused by COVID-19, both Germany and the wider EU experienced a degree more since February 2020. The latest Economic Policy Uncertainty Index at November 2020, show Ireland at 285, Europe at 327, and Germany at 387, highlighting a remarkable lack of variation in the levels of uncertainty for Ireland, relative to Germany. This suggests Ireland was able to communicate policy certainty more adequately than its EU counterparts, due to very strong policy supports by the Government. According to our survey, more than 80% of SMEs accessed a Government service during the period and interestingly, 27% felt that the Government was providing enough support.
(Which countries have protected both health and the economy in the pandemic?, 2021) Coronavirus (COVID-19): SME policy responses, 2021
500
400
300
200
100
0
Economic policy uncertainty index
Europe
Germany
Jan 19
Feb 19
Mar 19
Apr 19
May 19
Jun 19
Jul 19
Aug 19
Sep 19
Oct 19
Nov 19
Dec 20
Jan 20
Feb 20
Mar 20
Apr 20
May 20
Jun 20
Jul 20
Aug 20
Sep 20
Oct 20
Nov 20
Economic data for Europe allows us to assume that, at the macro-economic level, there is no trade-off between the health of the population and economic recovery . Countries that have strong policy supports for closed businesses have fared better than countries that have not. The SME sector across Europe has absorbed the shock caused by COVID-19 aided by a suite of domestic and pan-European supports for working capital, warehousing of arrears, worker supports, and improving access to finance. At the EU and Irish levels, there are many opportunities to recover from the shock of COVID-19. With sustained access to financing and new market access opportunities, the key challenge is to decide upon the digitalisation strategy for the firm, the technology tools to invest in, and the strategy to access these new markets.
Digitalisation of SMEs in Ireland - The Challenges and Opportunities
Digitalisation is defined by the world’s leading research and advisory company, Gartner, as the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business . It is integral to the growth and resilience of enterprises, both large and small. Our study shows that there are two important drivers of economic recovery for the SME sector post COVID-19. The first is the scale and scope of the range of supports around working capital—this is keeping firms alive long enough to rebuild once the recovery takes over. The second is investment in technologies to access new markets and create new products. In addition, developing training and talent initiatives to take advantage of new tools and processes on the horizon. The world post COVID-19 will be more integrated and more online so Irish firms will have tremendous opportunities to serve world markets.
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It is clear from the findings in this report that technology was and is a key enabler of business adaptation throughout the pandemic, with many SMEs recognising the need to make significant changes to their digital infrastructure. It is certainly evident that those SMEs who embraced digital transformation were more responsive and flexible during the pandemic. The trends around innovation, investment, and new market entry, enabled by digitalisation were apparent before COVID-19, but have been accelerated by the pandemic. In fact, over 43% of SMEs claim they could not have functioned productively during the pandemic without investment in technology – this is higher among those in rural areas and outside Dublin. Therefore, making policy interventions like the National Broadband Plan, the rollout of 5G and other digital transformation and innovation supports, along with financial aid.
Additionally, 51% of all firms said they will invest in digital technology and transformation, with 80% of those planning to invest in the next two years.
Hensellek, S., 2020. Digital Leadership. Journal of Media Management and Entrepreneurship, 2(1), pp.55-69.
Despite this willingness to invest, SMEs in Ireland face a number of barriers in relation to the adoption of technology. 58% of firms face at least one issue, such as the cost of investment, choosing the right supplier to suit their needs, integrating new systems with older ones, sourcing the right product or service or having the in-house capability to manage IT infrastructure. Though cost is the highest obstacle to adopting new technology, trust in suppliers and integration with older systems are also common issues for SMEs wanting to invest. As this graph indicates, larger firms – those with between 50 – 250 employees, are more intent on investing in this area than smaller firms. Investment in technology is vital to increase SME productivity and Ireland lags behind its European neighbours in this area. There is much to improve for small to medium sized SMEs with significant potential if they embrace digital change.
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Adoption of new technology
26%
29%
Internal digital capabilities to manage IT infrastructure, including administrator training
The availability of the right digital product or service for your business
The integration of newer technologies with older systems
Selecting the right supplier for your needs
The cost of investment in digital infrastructure
Skills, Training and Remote working
In addition to the adoption of new technologies, SMEs see a significant need to upskill employees in the coming years, especially in digital skills. One quarter of SMEs lack confidence in the digital skills of their employees and almost half plan to invest in digital skills training and development. This rises to 65% for larger SMEs. Interestingly, just under one quarter of SMEs surveyed were facilitating remote working at the time of this study, and the majority were urban-based enterprises. This suggests an inability to do so due to the nature of their business or the lack of understanding of how their business could operate remotely. Of those who have operated remotely, challenges were identified with scaling systems and precarious working conditions, but for many it has also brought increased productivity, fewer sick days and improved employee wellbeing.
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Scaling Systems (IT, Phone Systems, etc.)
Increased employee productivity
More precarious work or working conditions
Decreased sick days taken
Decreased employee physical or mental health and wellness
36%
Issues around remote working
Note. 24% of SMEs facilitate home working
Decreased employee productivity
Increased employee physical or mental health and wellness
Increased sick days taken
28%
13%
Highest among rural enterprises (70%)
Remote working has brought challenges with scaling systems and precarious working conditions, but for many it has also brought increased productivity, fewer sick days and improved employee wellbeing.
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An analysis across 21 OECD countries found that a 10% increase in mobile broadband penetration causes 0.6%-2.8% increase in GDP per capita . Despite the wide-ranging benefits of digitalisation, data indicates that SMEs lag in adoption of nearly all technologies in comparison to larger businesses . In their 2019 survey of 26,000 firms across Europe, Eurofound placed Ireland solidly mid-table for the level of digitalisation of its firms. There is an interesting outlier in the data, however, with just 30% of small firms in Ireland (10-49 employees) saying that they sell online. For larger firms (50-249 employees) that number jumps to 38% . The graph below highlights how different the picture is for Ireland, relative to other European nations, when you consider the difference in firm size. COVID-19 has forced many of the other firms who were not buying or selling online to start, therefore, accelerating the trend towards digitalisation, described above.
Ireland has much to learn from small, highly digitalised EU countries like Denmark, Croatia, Malta, Latvia, Lithuania, and Estonia. These countries feature highly digitalised SMEs which use lots of different technologies to build, buy, and sell. Nearly half (49%) of Latvian firms, for example, are described as having a high use of technology, versus only 31% of Irish firms. Eurofound data shows that only 19% of the smaller Irish firms are ‘highly digitalised’, while just 24% of larger firms are, as the chart shows. By comparison, 35% of smaller Danish firms are highly digitalised, versus 46% of larger Danish firms .
SME and Entrepreneurship Policy in Ireland | OECD iLibrary, 2021 SME Performance Review - Internal Market, Industry, Entrepreneurship and SMEs - European Commission, 2021 Eurofound. 2021. European Company Survey 2019 - Workplace practices unlocking employee potential. [online] Available at: [Accessed 27 January 2021]. European Company Survey 2019 - Workplace practices unlocking employee potential, 2021
10 to 49
50 to 249
BG
HR
LV
LU
SI
EE
PL
LT
SK
RO
SE
CZ
DK
MT
HU
20
21
22
25
26
28
29
30
31
32
36
42
45
19
23
27
35
38
34
39
53
37
Does this establishment buy or sell goods on the internet?
Recent research has also shown that digitalisation drives innovation, which increases productivity over the medium term. One measure of innovation is the ‘innovation potential’ score. Using 2019 data, Eurostat calculated a measure of R&D potential across many countries. A score of five would indicate all industries in a country were investing in R&D, a score of one indicates no industries invest in R&D. The EU-28 average is 2.58, Ireland’s score is 2.47, ranked 19th from 27 . Firms will see both improved financial returns and business performance as they invest in technology and employee training. However, investing for tomorrow imposes a cost on today. It is this upfront cost that results in reticence by many SMEs to invest in these areas.
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SME Performance Review - Internal Market, Industry, Entrepreneurship and SMEs - European Commission, 2021 SME Performance Review - Internal Market, Industry, Entrepreneurship and SMEs - European Commission, 2021
Highly digitalised
CY
EU
FL
UK
High computer use, limited use of other digital technology
High use of robots and other digital technology, limited computer use
Limited digitalisation
Measures of Digitalisation by Country
Policy Recommendations - Supporting the SME Sector in Ireland
In the initial phases of the COVID-19 crisis, European and Irish governments prioritised support for SMEs by introducing short-term financial relief measures to mitigate the challenges they faced. In addition to short-term relief, the OECD recognised that governments are increasingly focused on strengthening the resilience of SMEs in a structural way and supporting growth through the adoption of new technologies and practices that may enable them to strengthen their post-crisis competitiveness. In Ireland, the Programme for Government: Our Shared Future sets out that “central to our recovery will be our SME community” and certainly the establishment of the SME Growth Taskforce will focus on building an ambitious long-term strategic blueprint beyond COVID-19. As Ireland begins to look towards recovery, it is vitally important that policy fosters conditions that holistically support the sector into the future.
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SME and Entrepreneurship Policy in Ireland | OECD iLibrary, 2021
Policy Considerations
• • •
There is a need for ongoing government policy support, prioritising the opportunities presented by the use of digital. There is clearly no ‘one size fits all’ approach to ongoing SME support. Instead, a tailored approach is required, particularly to enable SMEs to cross the digital divide. Despite the strong evidence that digital is a key enabler of SME resilience, there is a divide between large and small SMEs. government policy should address this digital divide by addressing the financial constraints that impede the ability of SMEs to digitalise.
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A prerequisite for all digitalisation policies is sufficient access to high-speed connectivity. A lack of access prevents SMEs adopting and optimally using digital solutions, even if there is a clear business case for digital investment. To address this, Vodafone’s Digital Deployment report identified potential measures including, but not limited to, easier access to infrastructure, fewer obstacles to obtain building permits and making spectrum available quickly and at a reasonable cost. The EU Recovery Fund may be best placed to facilitate investment and ensure widespread access to high-speed connectivity at a national level. In order to close the wider digitalisation gaps, and in particular, the usage and adoption gaps between large and small firms, a key starting point is closing the connectivity gap to enable further digitalisation. If SMEs are unaware or unable to gauge the benefits of digital tools for their business, they are less likely to adopt such technologies, particularly given their lower financial capacity. To address this, governments may want to consider voucher schemes to support high-speed connectivity targeted to SMEs in specific sectors that are most impacted financially and least digitalised, or to SMEs more widely. Funds from the EU Recovery Plan could provide the resources required to close this gap at a national level. Additionally, the Irish Government’s €3.4billion COVID-19 Recovery Fund, set out in budget 2020, is also a vehicle which could deliver support for investment in digital infrastructure. As part of this budget, the Government has also pledged €5million to be allocated to support Ireland’s Digital Hubs network. Digital Hubs, coupled with high-speed broadband, can play an important role in supporting rural businesses and economies to grow and flourish.
Ensuring access to high-speed connectivity
Closing the connectivity divide between large and small firms.
A flexible and guided digital investment scheme
Government should provide further direct support to enable digital investment, but allow for flexibility so SMEs can choose the most appropriate technologies or tools for themselves. SMEs across sectors, and even within sectors, are likely to have different digital investment needs, meaning advocating one-size-fits-all solutions is unlikely to be effective for all. To address this, government may want to consider offering a mix of support measures, including: flexible grants or vouchers earmarked for digital investment, incentives for the financial system to lend to SMEs for digital investment, training in sector-relevant digital skills and/or sector-specific online resources. Likewise, as part of the Irish Governments budget 2021, previsions have also been made to support SMEs to prioritise investment in digitalisation. For example, the commitment to a remote working strategy and the introduction of a tax relief for broadband usage for remote workers, in recognition that connectivity is now a fundamental utility for employees.
Conclusion
Like businesses across the world, the story of Ireland’s SMEs throughout the pandemic has been one of uncertainty, financial insecurity, and increased anxiety. However, it is also a story of adaptability and resilience, with SMEs capitalising on new opportunities to build and grow their businesses. What is clear throughout this report is that rather than remaining stagnant and pessimistic, Irish SMEs are keen to continue implementing change and make plans to support the future of their business. They have recognised a need to make changes to their operations that will address long-standing challenges that existed even before the pandemic but have now become more apparent. Technology has been identified as a core enabler of their strategic ambitions, with SMEs showing an appetite to invest in digital solutions and IT capability within their business, and in new tools to support customer engagement, expansion of new markets and diversification of their supply chains. However, as has been captured by this research, due to the demographic make-up of Irish SMEs, of which the vast majority are micro-businesses, their ability to make the capital investment required is challenging. Therefore, as the cornerstone of Ireland’s economy and a core driver of post pandemic economic recovery, it is of the utmost importance that financial support and practical policies are in place to allow SMEs invest in digitalisation and compete with EU and global SMEs within the digital economy.
Case Studies
Technology, agility and the ability to turn a crisis into a new opportunity was central to the survival of many SMEs in Ireland, including Dublin-based Flying Elephant and Elite Event Management in Killarney. Dublin Events Company Flying Elephant used technology to transform their operations, becoming a digital-first business. Based in Cookstown Industrial Estate in Tallaght, Dublin 24, Flying Elephant creates bespoke builds for events such as concerts and festivals. In 2020, the business led by Michael Keenan was set to have its biggest year yet. However, when the pandemic hit, every job for the months ahead was cancelled. Michael and his team wasted no time in coming up with an innovative solution to use the resources and products they had at their disposable to service a different need and customer base. Equipped with reliable connectivity from Vodafone, they were able to make the most of their digital know-how to launch online very quickly and began using the leftover materials to make bespoke office furniture for employees now working remotely. Now the company offers a wide range of custom-made, 100% Irish furniture products – from garden furniture to standing desks to wine racks. Michael Keenan, Flying Elephant Co-founder After an unpredictable start to the year and having to adapt their offering during the coronavirus pandemic, Flying Elephant ended up expanding their business in 2020. The company now employs 20 full time-staff and doubled its Tallaght warehouse to 25,000 sq ft.
"Every job was cancelled"
We were already set up with our landline and our internet. Vodafone’s service made our lives easy because we had good, quick internet and because we basically changed into an online business overnight."
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Oliver Kirwan, Co-founder Elite Event Management
Resilience isn’t an option for Irish businesses - it’s a necessity. We’re pivoting from a bricks and mortar business to a tech company, and we’re able to use the mobile broadband we get from Vodafone to do our business anywhere."
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The COVID-19 crisis has put significant pressure on the vital small-to-medium firms (SMEs) sector in Ireland. Many companies were forced to make considerable changes to their business operating models overnight and others had to close their doors for months to help protect public health. No matter the size or nature of the organisation, COVID-19 has changed everything about how we do business. Vodafone has commissioned this report, working with economist, Stephen Kinsella, to investigate the impact of COVID-19 on Irish SMEs. Vodafone has 2.3 million customers in Ireland and among those are thousands of SMEs. It is therefore vital for us to understand this sector so we can serve it better, offer support where needed and contribute to its future sustainability and growth. This study highlights SME investment plans, the opportunities and challenges they are currently facing, digitalisation, the role of technology for future growth and the policies that will underpin and support SME recovery post COVID-19. We were delighted to work with Stephen Kinsella who has provided further insight into the sector by benchmarking Irish SME performance against our European counterparts. The good news is that despite many partial or full closures during lockdown, SMEs remain positive about their future. Technology and training are key, with many planning to invest across these areas. I am pleased to see that there is not significant disparity between urban and rural SMEs and that despite a worrying economic outlook many anticipate growth in the short to medium-term. Digitalisation was identified as a key driver for this recovery, with noteworthy growth potential for Irish SMEs who engage in digital transformation. At Vodafone, we know that now, more than ever, connectivity and technology are at the core of enabling Irish businesses to operate in a digital society. After some big changes to the way we work, many organisations are now doing business safely and successfully and thinking about what comes next. The tenacity, determination and innovation of Irish SMEs to carry on and to turn uncertainty into opportunity came through strongly in this study. Policy makers and government stakeholders need to prioritise and invest to facilitate and support the digitalisation of Irish SMEs. We need a flexible and guided digital investment scheme, backed up by guaranteed access to high-speed connectivity, in order to support SME resilience and their path to recovery. Ireland’s SME sector will play a crucial role in driving strong economic recovery and providing jobs all over the country. I hope that you will reflect on the findings of this report and consider the current challenges and opportunities of this vital sector. We must learn and adapt to support SMEs and protect them in an uncertain local and global environment.
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