The digital transformation of small and medium-sized enterprises

The impact of innovation on European small and medium-sized enterprises

Small and medium-sized enterprises (SMEs) remain the backbone of the European economy, because of their high share of employment and value added. However, a renewed focus on innovation and digitalization is required for these companies to retain their global competitiveness.

While digital transformation offers SMEs opportunities to innovate and grow, significant barriers remain preventing the realization of these opportunities, and slowing the process of digitalization within this market segment. In this Europes Monitor we point out what the opportunities and challenges are, and how SMEs can potentially deal with them.

Macroeconomic update Europe

With the European economy growing further, the rate of this expansion has decreased in the second quarter of 2018, matching earlier expectations. Inflation dynamics have gained some momentum, as the output gap has moved from negative to positive. In the first quarter of this year, labour costs in the European Union have grown at the fastest rate in the last ten years, also adding some upward pressure to inflation, albeit considerable differences exist between countries. Nonetheless, price rises are kept in check because of a weaker growth momentum. This will keep the ECB from raising interest rates until well into 2019.

The Dutch Economy is 'over the top'

In 2017, the Dutch economy fired on all cylinders, leading to one of the highest growth rates in Western Europe. Although momentum remained strong in 2018, we expect the economic growth rate to decline, as a diminishing pool of surplus labour and productive capacity puts the brakes on economic growth. Unemployment has declined significantly in the Netherlands, and an increasing percentage of companies consider the availability of labour a constricting factor for further growth. In the housing market, friction between supply and demand has led to strong price increases. The near team outlook for the Netherlands remains favourable, although especially trade related risks could endanger the current growth path.