SMEs are the backbone of Europe’s economies. Yet, due to a lack of digitalization, I believe European SMEs will be left behind.
In a study made by Alibaba.com in collaboration with the United Nations and the International Trade Centre in 2022, we found that SMEs account for 99.8% of the market size in Europe, contributing 57% of the GDP and 68% of the employment rate.
In 2024, digitalization is one of the biggest opportunities available for SMEs.
In the past few years, business uncertainty, supply chain challenges and economic woes have driven companies to desperately pursue digital transformation.
A report from the European Investment Bank indicates that over half of European companies are investing in digitization to address this uncertainty and capture growth opportunities.
Meanwhile, according to consultancy McKinsey, the average annual total return for digitized businesses was 8.1% between 2018 and 2022, compared with 4.9% for non-digitized businesses. These analog businesses also saw operating expenses increase at nearly twice the rate of digitized businesses, impacting margins.
Anticipated growth opportunities and synergies from digitalization are high on the agenda for businesses globally. In fact, 89% of large global enterprises are undergoing digitalization and AI transformation. However, only 31% of the expected revenue increases and 25% of anticipated cost savings have been realized to date.
Digitalization Paradox
In Europe, we are currently observing a digitalization paradox. It has become a fantastic – and widely used – buzzword, inspiring large businesses to invest in new technologies, increasing demand for the technologies and tools and making digitalization costlier.
High costs – often including massive upfront investments – associated with digital transformation often discourage SMEs from pursuing it, particularly during periods of economic uncertainty. In this wave of industrial change, as larger businesses move forward and digitalize, SMEs across Europe are quickly being left behind.
We must do everything we can to support SMEs and strengthen their long-term growth prospects. What SMEs need is a digital revolution
SMEs are more vulnerable and have smaller sales networks, weaker risk resistance and fewer human resources. They will likely lose out on opportunities due to customers looking elsewhere, inadequate supply chains, or talent gaps.
In addition, we see some SMEs distrust digitalization. They ask themselves, “Why should I try something new and increase my own risk when I have been successful for the past few decades?” They distrust data security, new trading partners, their adaptability, and artificial intelligence.
When digitalization fails to be inclusive for SMEs and instead becomes a barrier to effectively competing with larger organizations, SMEs will inevitably fall at the first hurdle. Not only will this result in less competitive markets, with less innovation and fewer creative ideas, but it also poses a significant economic threat.
Role of B2B Marketplaces
Instead, we must do everything we can to support SMEs and strengthen their long-term growth prospects. What SMEs need is a digital revolution. And I believe that the revolution will be led by online B2B marketplaces.
An increasingly popular channel for B2B buyers and sellers, online B2B marketplaces leverage the best technologies from B2C platforms – from live streaming, innovative UX and lots more – to revolutionize the B2B buying experience. They can help businesses drive efficiencies, source more effectively, and unlock long-term growth opportunities.
Alibaba.com, our online B2B marketplace, has stood alongside SMEs for a long time, learning from them and grasping their needs to create an integrated B2B online business ecosystem that supports SMEs in multiple ways.
For instance, to increase transparency between SME buyers and suppliers worldwide, we launched B2B livestreams that virtually connect both sides. Livestreams provide buyers with an exclusive lens into the operations of a potential new partner, improving trust.
In addition, this simple technology completely minimizes the need for SMEs to go to factories in key manufacturing locations – instead, they can visit suppliers virtually from the comfort of their offices, saving money and time. In 2022 alone, more than 13 million viewers watched B2B livestreaming, a year-on-year increase of 198%.
In today’s world, we understand that the challenges SMEs face are manifold. And we know that online B2B marketplaces, and the opportunities for SMEs to digitalize their business through them, are a vital part of the puzzle to enable SMEs to keep up with the competition and thrive for decades to come.
Jijay Shen, is the General Manager for Europe at Alibaba.com, China’s largest integrated international online wholesale marketplace in 2022 by revenue, according to Analysys.
During fiscal year 2023, buyers who sourced business opportunities or completed transactions on Alibaba.com were located across over 190 countries. The marketplace connects suppliers to wholesale buyers outside of China, typically trade agents, wholesalers, retailers, manufacturers and SMEs engaged in the import and export business, and provides them with sourcing, online transaction, digital marketing, digital supply chain fulfillment and financial services.
Before joining Alibaba in 2021, Shen held leadership roles at Huawei Technologies.
To read the research cited by Shen, see below:
