COVID-19 and the Irish SME sector: supporting recovery and growth

Throughout the last 12 months, businesses have demonstrated a great ability to adapt and overcome challenges presented to them.

It has been particularly inspiring to see the resilience and determination displayed by the small and medium-sized enterprise (SME) community in Ireland, who have experienced many setbacks during the COVID-19 crisis.

SMEs account for a large majority of businesses in our economy, playing a pivotal role in innovation, job creation and economic development. They account for 99.8% of the total number of enterprises and 67.5% of all persons employed.

This important sector now faces an uphill battle to reach new customers and markets, find new income streams to generate cash flow, while becoming more efficient and agile in a bid to future-proof their business.

The impact of the pandemic

Our new SME report, COVID-19 and The Irish SME Sector: Supporting Recovery and Growth, carried out in collaboration with economist, Stephen Kinsella, was based on a nationwide survey of 500 SMEs operating in rural and urban areas in Ireland and across a wide range of industries.

The purpose of the study was to gauge the extent of SMEs reaction to COVID-19 and Brexit and understand how technology usage has changed in response to these crises.

Second, we wanted 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 wanted to understand what policy supports could best help SMEs prosper in a post-COVID world.

The report has revealed the extent to which SMEs relied on technology for survival in the last 12 months and their willingness to continue to invest in digital transformation in order to future-proof their business, support growth and compete internationally.

In fact, 43% of respondents claim they could not have functioned productively without investment in technology.

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.

However, the SME community sees the cost of investment in technology as a significant barrier, compounded by a lack of access to capital to support them in their digital transformation.

According to the report, SMEs also face other challenges in relation to embracing technology.

Driving digital transformation

While cost is the highest obstacle, trust in suppliers (36%), integration with older systems (32%), and having the right in-house capabilities (28%), are also common issues for SMEs wanting to invest.

Businesses also identified a critical need to upskill employees in the coming years, especially in relation to 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. 

Significantly, the European economic benchmark analysis, completed by Professor Stephen Kinsella, revealed a widening gap between Irish and European SMEs in relation to digitalisation.

Businesses here scored mid-table for the level of digitalisation of its firms versus other European countries, even before the pandemic hit. Ireland is one of the lowest in the EU in terms of the adoption of digital tools, behind Denmark, Latvia and Estonia.

For example, nearly half (49%) of Latvian firms, are described as having a high use of technology, versus only 31% of Irish firms.

This is largely due to the nature of the SME market in Ireland, which is primarily made up of micro firms (1-9 employees) who do not have the same access to finance to make significant changes to their digital infrastructure.

According to the report, only 19% of smaller Irish firms are ‘highly digitalised’, while just 24% of larger firms are.

A positive outlook

On a positive note, Irish SMEs are largely optimistic about their business when they look to the future.

Overall, they appear to be more certain in relation to economic policy than other Europeans, with 67% indicating a high level of confidence in the future of their own business.

In fact, 50% 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.

With this willingness to invest and a positive business outlook, there are significant opportunities for Irish SMEs to view the pandemic as a catalyst to embrace digitalisation.

To learn more about the impact of the pandemic on business in Ireland, and why technology has been highlighted as a core enabler of their future ambitions, read the full report.