Digital transformation and European small and medium enterprises (SMEs): A comparative study using digital economy and society index data

Abstract

Digital transformation is profoundly transforming SMEs' business activities, bringing about comparative advantages and associated risks. Previous studies on digital transformation and SMEs focus on technology adoption, innovation, new value creation, and dynamic capabilities. However, it is unclear how digital technology affects SMEs' specific business activities. We study SMEs' customer access, increasing competition, external funding or access to finance, rising input costs, skilled labor shortages, exogenous shocks, global crises, and regulatory issues. This study aims to fill the literature gap by exploring the impact of digital technology, using digital economy and society index (DESI) as proxies for the SME issues. We use DESI and SME data from a survey on European enterprises’ access to finance. We find that digital transformation strengthens SMEs' ability and flexibility to address main business issues. Furthermore, findings reveal that digitally transformed SMEs have fewer concerns about access to new and traditional customers, competition changes, access to finance, increasing input costs, external shocks, and regulatory changes. However, digital transformation also brings risks, such as the shortage of skilled labor and experienced managers and loss of inherent competitiveness. The novelty of our work lies in supplying quantitative knowledge on the link between digital transformation and European SMEs' critical business concerns. These findings substantially increase our understanding of the impact of digital change on European SMEs' business activities.