# IMMC.EESC-2017-01768-AC.ENG.xhtml.EESC-2017-01768-00-01-AC-TRA-EN.docx

EN

INT/823

INT/823

Digital Single Market / SMEs

Digital Single Market / SMEs

OPINION


  The European Economic and Social Committee


  The digital single market – trends and opportunities for SMEs

  (own-initiative opinion)

OPINION

The European Economic and Social Committee

The digital single market – trends and opportunities for SMEs

(own-initiative opinion)

Rapporteur: Pedro Almeida Freire

Rapporteur: Pedro Almeida Freire

Plenary Assembly decision

| Plenary Assembly decision | 30/03/2017 |
| --- | --- |
| Legal basis | Rule 32(2) of the Rules of Procedure |
| | Own-initiative opinion |
| | |
| Section responsible | Single Market, Production and Consumption |
| Adopted in section | 04/09/2020 |
| Adopted at plenary | 18/09/2020 |
| Plenary session No | 554 |
| Outcome of vote
  (for/against/abstentions) | 220/0/0 |

Plenary Assembly decision

30/03/2017

30/03/2017

Legal basis

Legal basis

Rule 32(2) of the Rules of Procedure

Rule 32(2) of the Rules of Procedure

Own-initiative opinion

Own-initiative opinion

Section responsible

Section responsible

Single Market, Production and Consumption

Single Market, Production and Consumption

Adopted in section

Adopted in section

04/09/2020

04/09/2020

Adopted at plenary

Adopted at plenary

18/09/2020

18/09/2020

Plenary session No

Plenary session No

554

554

Outcome of vote
  (for/against/abstentions)

Outcome of vote
  (for/against/abstentions)

220/0/0

220/0/0

1.Conclusions and recommendations

1.

Conclusions and recommendations

1.1The EESC pays particularly close attention to the impact of digital technology on European small and medium-sized enterprises (SMEs). In fact, 25 million SMEs form the backbone of the EU's economy. They employ around 100 million people, account for more than half of Europe's GDP and play a key role in creating value in every sector of the economy.

1.1

The EESC pays particularly close attention to the impact of digital technology on European small and medium-sized enterprises (SMEs). In fact, 25 million SMEs form the backbone of the EU's economy. They employ around 100 million people, account for more than half of Europe's GDP and play a key role in creating value in every sector of the economy.

1.2In hearings that the EESC held in a few countries (Belgium, Germany, Portugal and Romania) selected in respect of the 2019 Digital Economy and Society Index (DESI), it noted that many European SMEs, in particular micro- and small enterprises (93% of businesses in Europe) have been slow to adopt digital solutions. Those that have taken the plunge told the EESC that they faced a number of barriers hampering their operations.

1.2

In hearings that the EESC held in a few countries (Belgium, Germany, Portugal and Romania) selected in respect of the 2019 Digital Economy and Society Index (DESI), it noted that many European SMEs, in particular micro- and small enterprises (93% of businesses in Europe) have been slow to adopt digital solutions. Those that have taken the plunge told the EESC that they faced a number of barriers hampering their operations.

1.3The EESC recommends that every effort be made to remove the main barrier, which is the lack of comprehensive high-quality broadband coverage across Europe.

1.4It noted that SMEs' digital technology training needs in areas such as cybersecurity, artificial intelligence and blockchain are crucial, if not urgent. The EESC therefore recommends that schools offer compulsory courses in digital technologies and that SMEs be able to access training in these tools. In addition, appropriate and affordable continuing training for the self-employed, SME managers and their employees needs to be further supported and promoted.

1.5The EESC calls for appropriate national tax coordination in this field, as in half of the countries where hearings were held the lack of such coordination entails proportionately higher costs for SMEs than for large companies and hinders cross-border business. Indeed, ensuring fair competition between SMEs and large companies is essential for the proper functioning of the internal market.

1.6The EESC would like to see differences in legislation and excessive regulation, standards and labelling eliminated, as these are major barriers to the digital and cross-border operation of SMEs, entailing costs for compliance, wages and external expertise, which hamper businesses' growth.

1.7The EESC considers that SMEs' access to financing is a priority in order to support the investments that these businesses make to adapt to the digital transformation of society, trade and consumption patterns and to the internationalisation of trade. It notes that the Enterprise Europe Network (EEN) is not sufficiently well known or used by European SMEs, or by the digital innovation hubs funded by the European Union. Enhanced dialogue and cooperation between the EEN and SME organisations would make the system more effective.

2.Impact of digital technologies on SMEs

2.1When the 2020 Digital Economy and Society Index was published on 11 June 2020, the European Commission's Vice-President, Margrethe Vestager, stated that "The coronavirus crisis has demonstrated how crucial it is for citizens and businesses to be connected and to be able to interact with each other online"
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2.2The European Commissioner for the Internal Market, Thierry Breton, pointed out that "The data we publish today [from the DESI]
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  shows that industry is using digital solutions now more than ever. We need to ensure this is also the case for small and medium businesses and that the most advanced digital technologies are deployed throughout the economy."

2.3The EESC also pays particularly close attention to the impact of digital technology on SMEs. In fact, 25 million SMEs form the backbone of the EU's economy. They employ around 100 million people, account for more than half of Europe's GDP and play a key role in adding value in every sector of the economy.
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2.4SMEs are deeply woven into Europe's economic and social fabric and are very diverse in terms of business models, size, age and entrepreneurs' profiles, and draw on a pool of diverse talent, of both women and men. They include the professions, although regulated professions that are subject to rules specific to their sphere of activity (such as pharmaceuticals, the judiciary, etc.) are not included as such in the definition of SMEs, micro-enterprises, middle-range industrial companies, traditional crafts businesses or high-tech start-ups.

2.5Recognising the impact of digital technologies on SMEs, the EESC agrees with the Commission's analysis and considers that the three pillars on which the Commission's SME Strategy for a Sustainable and Digital Europe
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  is based (capacity-building and support for the transition to sustainability and digitalisation; a reduced regulatory burden; and improved access to the market and to financing) are indeed priority areas. The EESC emphasises that SMEs need immediate financial support, because they have been hit very hard by the economic impact of the COVID-19 pandemic; as a result, their employees are more likely to lose their jobs.

The EESC therefore regrets that the Recovery Plan for Europe, which is intended to repair the economic and social damage caused by the COVID-19 pandemic, and which was adopted by the extraordinary European Council; held from 17 to 21 July 2020, is limited to EUR 750 billion, and that the 27 Member States have curbed their ambitions, particularly in the digital sphere, in order to gain the endorsement of the so-called "frugal" countries, as this will have an impact on financial support for the digitalisation of SMEs.

2.6The EESC notes that these pillars of the Commission’s strategy for SMEs to achieve a sustainable and digital Europe reflect the expectations expressed by SME representatives at hearings that the EESC held in four countries selected on the basis of the 2019 DESI (Belgium, Germany, Portugal and Romania) to assess the impact of digital technologies on SMEs, before this process was interrupted by the coronavirus crisis and the enforced lockdown. As a result, the EESC was unable to conduct hearings in Estonia or Ireland, which had been selected in view of their high rankings in the 2019 DESI.

3.General comments

3.1Digitalisation is a growth factor for SMEs (craftspeople, traders, the professions, service providers, etc.). More than half of retail sales in Europe are impacted by the internet, be they online sales or shop sales following online research (so-called "ROPO": Research Online, Purchase Offline)
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3.2The development of websites, social media, digital marketing and customer relationship management (CRM) software promotes the development of "digitised" SMEs. Software suites and data analysis programmes also contribute to optimal business performance. In this regard, the EESC notes that training programmes should enable users, including SME managers, to be trained in the use of these tools.

3.3Digital technology can also disrupt and lead to upheaval. "Disruptive" innovation is a process of market transformation set in train by digital challenges. The disruption changes a market by opening it up to as many people as possible and enables new players to capture ("disrupt") turnover within traditional value chains.

3.4For example, the relationship of trust and proximity between an SME and its customers could create the impression that the SME’s activities are immune to penetration by digital technology. However, experience shows that this close relationship with the customer is never guaranteed. After all, consumers are willing to turn to other offers if they are more practical and advantageous
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3.5In the digital economy, consumers' legal protection does not have any impact on their behaviour. An internet offer to a consumer accustomed to a paperless service, which is accessible and easy to use and which includes legal protection safeguarding their interests, despite being less convenient, will have no impact on their behaviour
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3.6The positive, even overblown, discourse on digital disruption often concerns large companies with sufficient resources to invest in R&I and marketing. But what this discourse fails to recognise is that digital disruption can, for example, affect some of the professions, which are by nature highly fragmented and often have no budget for R&I. They can only take advantage of the digital solutions available on the market rather than developing their own, and are therefore more vulnerable to the digitalisation of their activity.

3.7The digital space also puts paid to some of the illusions of SMEs. For example, the fact of providing smaller-scale services, in a limited geographical area where development potential is just as restricted, may create the illusion that they are unaffected by the changes being introduced by the digital age. However, reality demonstrates that the opposite is true. For example, the hospitality sector would appear to be a service that cannot be relocated. Yet booking platforms have been able to capture a significant share of the value of this market, to the extent that representatives of the catering and hospitality industry claim that they should have anticipated this and created their own platform to keep reservations under their control and not be so dependent on these operators outside their industry
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3.8Moreover, digital disruption leads to work being redistributed. To give a few examples from the professions: in accounting, the highly manual work of entering accounting data is increasingly being done by the clients themselves, which reduces the work of the accountants as well as their margins, not to mention the fact that competitors are now emerging who offer online accounting.

3.9The risk created by the redistribution of work in the notarial profession is, for example, lower, but part of a notary's activities can be carried out by others; thus start-ups are offering to draft legally valid wills for EUR 70.
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3.10The redistribution of work is also affecting the medical sector, with websites offering online appointment scheduling and telemedicine to cover poorly served areas.

3.11Commercial collaborative platforms may also be unaware of European and national legal requirements on matters such as mandatory company registration, compulsory insurance, health and safety, worker and consumer protection, etc., that must be respected.

3.12In the light of all these economic, social and societal upheavals, the challenges of digitalisation should, therefore, become a permanent feature in social dialogue.

3.13SMEs form a heterogeneous category of economic players, ranging from bakers and pharmacists to those working in the professions, which means that policy on capacity-building and on support for the digitalisation of SMEs must be inclusive and easily applicable by SMEs, without giving rise to disproportionate additional costs or slowing down their core business in order for them to comply with the rules.

3.14The needs of SMEs are not limited to smart and inclusive legislation, however; they also cover skills development and continuous training and are based on a new vision for businesses. Indeed, the digital transformation of SMEs also affects business organisation and culture. And yet, many SME managers are not making digital transformation a strategy for their company. Digital transformation is not just about digital tools and processes; it is a new way of creating value by adapting business models to the digital context, on which managers should take the initiative.

3.15Moreover, SMEs face many barriers in terms of access to financing, affordable training and support for internationalisation. The Enterprise Europe Network, which is devoted to innovation and the internationalisation of companies and provides SMEs with information, advice on European law and support, is not very well known among businesses. Digital innovation hubs funded by the European Union (such as the European Digital Innovation Hubs run by Innoviris in Brussels, for example
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  ) also help to support the digitalisation of SMEs through training and funding, and to develop a digital entrepreneurial culture. Nevertheless, improvements in dialogue, analysis of SMEs' needs, and cooperation between the EEN and SME organisations would make the scheme more effective.

4.Specific comments

4.1This opinion is partly based on the conclusions of hearings held between July 2019 and the first quarter of 2020 with the social partners, SME federations, consumer associations, public authorities and others in four Member States: Germany, Belgium, Portugal and Romania. Hearings could not be held in Estonia or Ireland, which had also been selected, due to the coronavirus crisis.

4.2The EESC points out that the purpose of the hearings in the aforementioned countries was to provide "grassroots" evidence to support and feed into European action and policy on SMEs' take-up of digital technologies.

4.3In order to assess the impact of digital technology on SMEs, the EESC has selected the following from among the five DESI indicators
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  :

·the integration of digital technology by businesses, the latter including three indicators that the EESC considered relevant: the percentage of SMEs trading online, SMEs' turnover generated by e-commerce and the percentage of SMEs trading online and across borders.

4.4Among the countries selected by the EESC for the indicator mentioned above in respect of the 2019 DESI, Ireland and Estonia lead the way in e-commerce and the integration of commercial aspects of digital technology, followed by Belgium, which also ranks above average.

4.5Germany ranks at the average and Portugal below average. Romania is one of the countries lagging furthest behind.

4.6The majority of the hearings (Belgium, Germany, Portugal) reported disparate broadband network coverage, with urban areas having decent coverage, while rural and peripheral areas do not. 4G is not even available in some parts of one country (Portugal). And yet, shaping the digital future of Europe and its SMEs presupposes the development of large-scale digital solutions and the interoperability of essential digital infrastructure. Indeed, the EESC notes that connectivity is the key pillar of the digital transformation of SMEs.

4.7Training in digital technologies is a need identified by all those who spoke during the hearings. Education and vocational training in digital technologies are sorely lacking and prevent SMEs from being able to recruit competent staff in this field (Portugal and Romania). Training in digital issues for SME employees to become competent and up to date in areas such as cybersecurity, artificial intelligence and blockchain is crucial, if not urgent (Belgium). The current situation is characterised by a superficial knowledge of digital tools that will not suffice for much longer (Germany).

Workers also need digital skills to keep their jobs and succeed in an increasingly digital and rapidly changing labour market (Germany). Digitalisation may even lead to fears of job losses in some highly automated sectors (Germany).

4.8SMEs are not sufficiently equipped or trained to manage the risks generated by malicious cyberactivity (Belgium and Germany). As a result, some traditional SMEs even question the value of developing an online business (Portugal). Those that have gone digital find it difficult to make use of the large data repositories available to larger companies and are reluctant to use advanced tools and applications based on artificial intelligence (AI), for example, which places them at a competitive disadvantage vis-à-vis larger companies (Germany). At the same time, SMEs across all sectors are highly exposed to cyber-threats and often have to rely on external experts, which generates additional costs.

4.9The lack of appropriate national tax coordination creates proportionately higher costs for SMEs than for large companies in half of the countries where hearings were held (Belgium, Portugal) and hinders cross-border activities.

4.10Differences in legislation and excessive regulation, standards and labelling are also barriers to the digital and cross-border operation of SMEs (Belgium and Portugal), as they generate compliance- and wage-related costs, to the extent that some SMEs are seeking to relocate (Belgium). For example, the entry into force of the General Data Protection Regulation has obliged SMEs to employ their staff in developing internal procedures for managing personal data, inform their customers, etc. Sometimes they have had to turn to external consultants, which has diverted them from their business development priority, generated costs and slowed down their core business (Belgium).

4.11The digital development of SMEs may also be hampered by the inertia of national legislators: training and education in digital technology and support for SMEs in their digital deployment are not considered strategic priorities (Romania).

4.12In view of the economic, social and societal risks generated by the digital revolution, all of the stakeholders heard in the countries concerned felt that it was essential for the social partners and SME representatives to be involved both in drawing up legislation that affected them and in social dialogue.

Brussels, 18 September 2020.

Luca Jahier

The president of the European Economic and Social Committee

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Forrester, European Cross-Channel Retail Sales Forecast, 2015 to 2020

https://www.forrester.com/report/European+CrossChannel+Retail+Sales+Forecast+2015+To+2020/-/E-RES115375
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DVD rental shops, weakened by the rise of VOD and downloads, are proof of this fragility. The emergence of stakeholders such as Amazon, which offers a reliable and prompt home delivery service for an identical price on the basis of a catalogue, has led many consumers to favour online shopping — even though they still browse in bookshops in their free time.