Industry & Business

The Government has formally accepted a report entitled ‘The Digitalisation of small and medium enterprises in Ireland’ from Andrew McDowell, Vice President of the European Investment Bank. The report, a collaborative project between the Advisory Hub of the European Investment Bank and the Department of Business Enterprise and Innovation, investigates how to increase digital technology diffusion among Irish SMEs, especially in traditional sectors.

The report highlights that almost 40% of traditional Irish indigenous companies completely lack digital assets and Ireland lags behind leading countries in terms of e-business processes and e-business technology adoption. The project also found a limited appetite from traditional Irish SMEs for digital investment in products, process or business models due to the existence of market failures in relation to accessing finance and awareness of the benefits digital technologies can bring.

The report recommends that the Irish Government adopt measures ensuring:

• the benefits of digitalising traditional sectors of the economy are well understood by different stakeholders; and
• traditional SMEs that are willing to seize digital opportunities have access to adequate funding.

Recommendations from the report are already being used to strengthen digitalisation best practice in three other EU countries.

Pat Breen, TD, Minister for Trade, Employment, Business, EU Digital Single Market and Data  said: “We know digital technologies are becoming increasingly disruptive and they offer potentially huge opportunities for SMEs to grow, scale and find new markets.” He added: “The increased operational efficiency associated with digitalisation reduces costs and improves  competitiveness for individual SMEs. From a macro perspective, the widespread diffusion of digital technologies will serve to improve Ireland’s productivity and protect its competitiveness from unsustainable cost growth.”

Andrew McDowell, European Investment Bank Vice President, said: “Enabling business to harness digital technologies is crucial to expand into new markets, develop new products, create jobs and compete globally. The new joint European Investment Advisory Hub – Innovation Advisory report highlights Ireland’s leading role adopting online trading and outlines how increased investment in digitalisation of manufacturing and services can create skilled jobs. The European Investment Bank looks forwarding to supporting implementation of measures outlined by the report and further increasing innovation financing for companies across Ireland.”

Supporting SMEs in terms of access to finance has been a cornerstone policy for Government in recent years and Government policy remains focused on ensuring that all viable SMEs have access to an appropriate supply of credit from a diverse range of bank and non-bank sources.

On this, Minister Breen said: “In light of the continuing commitment to ensuring SMEs have appropriate access to credit, I am delighted to announce that the Department of Business, Enterprise and Innovation is in the process of developing a pilot scheme aimed at addressing the difficulty that SMEs have in accessing finance in order to obtain the benefits of digitalisation.

“The development of this pilot, combined with the Future Loan Growth Scheme to be launched in the coming weeks, are targeted Government of Ireland measures to address a clearly defined market failure in that they will provide competitively priced finance on favourable terms to eligible SMEs.”

Details of the Study

The Study firstly defines Digitalisation and finds the concept is not just about acquiring IT equipment and systems. It includes increasing integration of ICT in all types of products; increasing automation in production helping to bring about gains in productivity and resource efficiency; and changing customers’ behaviour through smart and connected products and services.

The Study found there is very limited appetite from traditional Irish SMEs for digital investment in products, process or business models due to the following market failures:

• Knowledge gap: With the rapid pace of change in digital technologies, many companies have difficulties to decide when to invest, up to what level and in which innovative field. Often, companies are working with a budgeting logic instead of an investment logic and digitalisation is considered to be a cost factor and not seen as an opportunity. Ultimately, not enough companies know how to translate the use of technologies into economic impact, and how to build a new incremental business.
• Financing gap: SMEs are often unwilling to apply for loans given the high cost of credit in Ireland. Banks are reluctant to provide loans, often with a higher risk profile, for investments in digital technologies. Furthermore, due to information asymmetry banks often lack the expertise to assess projects with a strong digital component.

The study has developed and proposed tailored targeted solutions and financing instruments, both short and longer term, to mitigate these challenges to be considered by the Irish Government.