Resilient European SMBs Embrace Technology and Optimism Amidst Economic Challenges

By Derk Bleeker, President EMEA at Sage

Europe has been no stranger to economic challenges in the last year. High inflation, the energy crisis, and Russia’s invasion of Ukraine have challenged political unity within the European Union (EU) and created a bleak economic backdrop for the region. For small and medium businesses (SMBs), which constitute 99% of companies in the EU, economic pressures have resulted in a particularly acute "cost of business" crisis, with strains on profitability and cash flow raising concerns for their survival.

However, new research from Sage and Strand Partners confirms once again the incredible resilience and adaptability of small and medium businesses. It finds that SMBs in major EU countries are now increasingly optimistic about their prospects and that their business confidence has increased more markedly than their global peers. The findings show that almost three-quarters (73%) of EU SMBs are confident about the success of their business, compared to 24% this time last year. This highlights the region’s potential for SMB-powered growth.

Adoption of technology is critical to business confidence

The key to EU SMB confidence bouncing back has been the adoption of new technologies, sparking further appetite for investment in tech in the future. According to the research, over a fifth (21%) of SMBs in major EU countries said that adopting new technology helped improve productivity and subsequently business performance and confidence. Additionally, the EU businesses surveyed anticipate increasing their tech investment by 18% in the next year, more than those in other regions like the UK (13%) and South Africa (14%).

This shows a further need for the EU to take a leadership position in technology adoption and the digitization of the economy to provide the infrastructure, tools, and capabilities that SMBs need to remain productive and capitalize on their ambitions. Nurturing and enabling an environment where tech can thrive also boosts the economy. Countries like France are already pushing to lead the way in Europe’s tech scene, with French startups raising billions in 2022 despite the global tech slowdown.

Outlook across EU countries

The EU is a uniquely diverse social and economic tapestry, and while there is consistency in the results of our research in relation to business sentiment, the findings also bring out the unique strengths and challenges in each country. In Spain and Portugal, for instance, SMBs are very confident about their growth potential – Portuguese SMBs have a particularly high wealth mindset and would aim to double the worth of their business if they came to sell it. Meanwhile, Spanish SMBs are the happiest of all SMBs globally with their productivity levels.

French SMBs, having been severely impacted by rising costs, are nonetheless confident about where their business will be in 12 months’ time. Meanwhile, in Germany, SMBs are more likely than those in other countries to recognize the value in buying new tech, attributing business confidence to investing in equipment.

The opportunity for optimism and growth for the EU

Previous research by Sage and the CEBR has shown that SMBs are key to driving the economic recovery and are set to play a major role in weathering economic headwinds.

SMBs are clearly resilient when faced with slowdowns and can adapt quickly by creating their own knowledge networks and ecosystems for support. However, their confidence should not be mistaken for invincibility. More continuous government support, as well as significant investment in strengthening the digital ‘fabric’ of the European economy and society – on both an EU and country level - are urgently needed to ensure SMBs can continue as the engine of both EU and global economic recovery and growth.

Encouraging progress is being made – for example, the EU has set out ambitious targets and plans for e-invoicing all intra-EU business by 2028, which will not only create opportunities for innovation in the tech sector but will also fuel a wave of digitization that will drive up productivity, improve cash flow, and create a more level playing field for all businesses in the EU. However, it is important that EU institutions and governments go further in taking a pro-digitization approach so these SMB businesses that form the backbone of Europe’s economy are not left behind.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes