May 26, 2020

The potential of digital transformation for SMEs | Economy


For a decade we have been observing a paradigm shift that affects the way in which companies access information and communications technologies (ICTs). The transformation towards the new digital economy, characterized by mobile Internet access along with the use of the cloud, involves leaving aside the investment in ICT capital goods in favor of access to this technology through payment for services to demand. This reality opens up opportunities especially for SMEs in various dimensions.

The new model offers more flexibility. Companies have the possibility of obtaining those ICT services that meet their needs at any time without having to assume the cost associated with the investment, as well as the technological uncertainty of a sector in constant change. Additionally, there are efficiency gains derived from the reduction of investment costs in physical and human capital specialized in ICTs. The use of the cloud or digital business planning tools generates operational cost savings, freeing up resources that can be used for other investments that improve productivity and growth. The payment of ICT services on demand also prevents companies from assuming the costs derived from the obsolescence of this capital (with rates of up to 30%). Thus, the new digital paradigm allows SMEs to reach scale without the need for high investments in assets or human capital specialized in ICTs. Fundamental aspect for SMEs and start-ups due to their lower financing capacity and their limitations to hire specialized workers.

Finally, the digital economy facilitates innovation and competition. Companies can access the latest technological applications and infrastructures through the cloud more quickly and at a lower price, since cloud providers are mostly developers of ICT solutions. Avoiding irreversible investments in hardware allows greater flexibility for experimentation, which is key to the growth and consolidation of younger companies. The digital transformation as a whole has the potential to facilitate the entry of new companies, especially SMEs, since if the entry costs, in the form of ICT capital investment requirements, decrease, small companies have more entry facilities into the market. Likewise, decision-making based on data allows identifying emerging needs and developing new businesses.

Eurostat data suggests that the digital transformation of Spanish SMEs is somewhat delayed compared to the European average, so policies aimed at facilitating it and thus improving productivity and innovative capacity are an urgent measure.

Noelia Cámara, BBVA Research.

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