Amid rising geopolitical tensions and increasing instability, the economic resilience and competitiveness of Europe’s small and medium-sized enterprises (SMEs) have become paramount for Europe’s economic growth and global influence.
The digitalisation of business is central to this effort. Recognising its transformative potential, the European Union has set an ambitious course with its Digital Decade and Digital Compass initiatives, aiming to reshape the economic landscape by 2030.
Progress has been achieved across Member States, yet a stark digital divide persists: while Nordic and Western members forge ahead, others face entrenched barriers. Financial constraints and critical skill shortages are but two of the hurdles SMEs must overcome.
SMEs, including microenterprises, constitute most companies in the EU. Consequently, their widespread digital transformation is indispensable for cultivating a more competitive, sustainable, and robust economy. Digital adoption allows SMEs to dramatically boost productivity and streamline operations. This direct link is codified in EU frameworks. The Digital Compass, for instance, formulates four cardinal priorities to steer Europe’s transformation: the digitalisation of businesses (particularly SMEs), the promotion of digital skills, investments in digital infrastructure, and the digitalisation of public services.
Inspired by these directives, Member States have designed national strategies. While some are overarching, many governments—such as Spain with its separate SME Digitalisation Plan 2021–2025—have correctly recognised the unique character of SMEs’ challenges and implemented parallel, tailored strategies to accelerate deeper digital uptake.
The persistent digital divide
Despite concerted efforts, a measurable digital divide remains. Some Member States have successfully fostered conditions for SME digitalisation, establishing themselves as clear leaders. Nordic SMEs consistently top the charts, with Finland, Denmark, and Sweden exhibiting the highest digital intensity.
Conversely, Eastern and Southern Member States face persistent barriers, unable to match their neighbours’ pace. This gap is evident across all indicators, from basic internet use to the adoption of advanced applications such as e-commerce, big data, and Artificial Intelligence (AI).
The persistence of this gap threatens to create a ‘two-speed Europe’, hindering the Union’s ability to compete on a global scale, notably against the United States and China.
Obstacles to digital potential
Data analysis and expert interviews have identified the primary obstacles impeding the digital journey of SMEs.
Firstly, financial constraints are reported as a major hindrance. A lack of capital prevents critical investments in both digital tools and essential employee training. Although funds and support initiatives exist across most EU countries, many opportunities go untapped.
SMEs often struggle to access them because the systems are frequently cumbersome and overly complex, involving discouraging reporting requirements. This fragmentation of support and lack of clarity surrounding public funding acts as a significant deterrent.
Secondly, personnel and skills shortages are decisive factors. SMEs frequently lack the dedicated staff to manage complex digitalisation projects or the in-house ICT specialists with the necessary skills to plan and execute digital change.
As a consequence of this dual challenge, SMEs often adopt a reactive, piecemeal approach—addressing immediate needs rather than undertaking strategic, long-term digital transformation.
In this context, digital training is crucial. Skills gaps lead to limited awareness of digitalisation’s benefits and can foster resistance to change. This is especially true among managers in smaller firms. Since training can be costly, and limited personnel makes covering for an absent employee difficult, providing incentives for both employee and managerial training is a viable way forward.
Effective policy approaches
Eurofound research highlights a diverse range of policy measures that have proved effective.
Vouchers, for the purchase of technology or digital consultancy services, are flexible and highly popular solutions for SMEs. A successful model is the Irish Trading Online Voucher, later expanded into the Grow Digital Voucher, used for new software, training, or IT configuration.
Collaboration and partnerships are another effective strategy. This includes linkages among SMEs, between SMEs and larger companies, and with innovation and skills development centres. SMEs operating in the value chains of larger companies often benefit, as partners may invest in supplier innovations and share knowledge.
Sector-specific partnerships are particularly useful as they translate general regulations into a more easily digestible language that addresses unique industry needs. Examples include Austria’s COMET projects and Portugal’s competitiveness clusters.
Other instruments, such as loan schemes and grants, are important funding sources but often involve burdensome reporting requirements that discourage smaller businesses, forcing them to rely on their limited internal resources.
Additionally, European Digital Innovation Hubs (EDIHs) are operational across the EU, serving as ‘one-stop shops’. They offer a wide range of services, including digital maturity assessments, skills training, expert advice, and ‘test before invest’ services. While EDIHs represent a vital contact point, raising awareness among SMEs of their substantial potential remains an ongoing task.
Tailoring support and monitoring
To ensure SMEs’ competitiveness and innovative drive, national and EU stakeholders must develop more coherent strategies and user-friendly support systems. This requires reducing unnecessary bureaucracy to help time- and money-constrained firms navigate the landscape of available instruments.
Promoting collaboration remains an efficient way to stimulate digital adoption, encouraging the development of clusters involving large companies, SMEs, and start-ups, and improving SME access to knowledge and competence centres.
Given the constraints, training must be flexible and modular. On-the-job training is a highly effective method, allowing employees to gain practical skills without being removed from their roles, thereby lowering costs and enabling immediate, real-world application of new expertise.
Finally, effective monitoring of digitalisation policies is crucial. While a few governments have developed detailed high-level systems, fragmented and superficial oversight is the norm, often focusing only on participation rates or expenditure, rather than real impact-driven assessments. Experts advocate for systems that incorporate structured evaluation frameworks and independent oversight.
Bridging this digital divide requires more than general policies; it demands measures tailored to the unique needs of SMEs and a concerted effort to translate complex EU objectives into a clear, comprehensible language for business owners.
Elena Biaggi is a post-graduate trainee in Eurofound’s Working Life Unit.
