This article is part of a series in which OECD experts and thought leaders — from around the world and all parts of society — address the COVID-19 crisis, discussing and developing solutions now and for the future. Aiming to foster the fruitful exchange of expertise and perspectives across fields to help us rise to this critical challenge, opinions expressed do not necessarily represent the views of the OECD.
Join the Forum Network for free using your email or social media accounts to share your own stories, ideas and expertise in the comments.
As Europe transitions from crisis management to fiscal management, we cannot overlook the role micro, small and medium enterprises (MSMEs) will play in Europe’s economic recovery. Ensuring that the economic recovery is accelerated and inclusive is both the challenge and the opportunity. As the digital economy becomes increasingly synonymous to the economy, we must also apply a digital lens to everything we do—especially when it comes to helping European MSMEs survive and thrive.
The reality for European MSMEs is still rather dire. According to a 2020 study conducted by McKinsey across France, Germany, Italy, Spain and the United Kingdom, more than half of the MSMEs surveyed feared that their businesses may fail within the next year. According to our own study on the state of MSMEs in the Nordics, 28% of MSMEs are currently solely focused on their survival. One of the major contributors to the viability and survival of MSMEs is revenue: worryingly, 70% of MSMEs saw a decline in revenue as a result of the pandemic. A change in sales had a major impact on revenue, with 58% MSMEs in Europe seeing a decline in sales according to the State of Small Business Wave VI Report.
Read Nordic MSMEs prepare for a more digital and sustainable post-pandemic landscape from Mastercard
MSMEs—the fundamental engine for job creation and employment—are also laying off staff, which bodes negatively for a swift economic recovery. Twenty-five percent of MSMEs in Europe have already cut jobs and staff and, in our analysis in the Nordics, we saw an average of 32% of MSMEs decrease their number of employees. The challenge is that, despite vaccinations and the prospect of an easing of lockdowns, European MSMEs are still rather pessimistic about the future, which could lead to reluctance to investing in growth opportunities or new staff.
If we want to help MSMEs fulfill their role as a catalyst for the post-pandemic economic recovery, there are three opportunities that we, as entrepreneurial support organisations, must embrace.
Ensure all European MSMEs can succeed in the digital economy
While the digital maturity of MSMEs varies across the region, one thing is clear: the pandemic accelerated the imperative to digitise. Those who weren’t already part of the digital economy have been left behind. As we monitor income inequality and information inequality, we must also focus on digital inequality. Digital inequality can and will exacerbate income inequality. As such, we must help MSMEs embark and continue their digitisation journey. This might mean ensuring equal access to broadband and data, to building digital skills, confidence and trust, to ensuring that digital tools and platforms are designed with MSMEs in mind.
Read from the Forum Network: "Competitive Dysfunction: Why competition law is failing in a digital world" by Valéria Faure-Muntian, Member of the French National Assembly
The truth is that digitisation is shorthand for a host of changes including low-cost, global communications and networking; new employment relationships; platform business models; virtual and integrated supply chains; innovative finance; automation; big data; and artificial intelligence. These dynamics and trends are profoundly reshaping how all business is done. The onus is on almost every MSME to digitise in order to survive and thrive in this changing landscape. At a minimum, every business needs some combination of new digital capacities to promote themselves via social media in new and organic communications with customers and suppliers, digitise internal processes, appear in free and paid searches and on maps, and participate in digital platform marketplaces that change the dynamics of value creation and competition. This requires new capabilities and significant investments of time and money—a burden being mostly borne by the MSME itself. The imperative is that all sectors, from public to private, help share the responsibility to help MSMEs digitise and drive digital equality.
Read the report: "OECD SME and Entrepreneurship Outlook 2021" and find out more about new evidence on the impact of the crisis and policy responses on SMEs and entrepreneurs
Design interventions and products that are cheap and easy
Two common constraints faced by European MSMEs are time and cash. Entrepreneurial support organisations across sectors must ensure the services, tools, capital, and training they offer are simple and easy. In our own interviews of MSMEs in the Nordics, respondents noted that while there is an explosion of products and solutions geared toward MSMEs, they do not have the bandwidth to investigate all their options and manage multiple providers. This is especially true of women entrepreneurs we surveyed—who were further time constrained due to additional responsibilities at home. In the public sector, while many governments offered support to MSMEs that ranged from grants to tax deferral to non-banking financial support, many MSMEs found the process to apply for support complicated and time consuming. The imperative is to design interventions bearing in mind MSMEs’ needs and recognise the constraints of scarcity of time and money. One recommendation is to go where the MSMEs are—whether digital platforms or chambers of commerce. In our own work at the Mastercard Center for Inclusive Growth, we are providing digital skills and financial health nudges on digital marketplaces to encourage MSMEs to save. This way, MSMEs don’t have to hunt for training or proactively plan; rather, the nudges and rules of thumb become part of their business as usual activities in a more seamless way.
Collaborate rather than compete
MSMEs will be key in achieving an accelerated and inclusive economic recovery. The attention on the segment is both needed and inspiring. However, sectors working toward supporting MSMEs are operating in silos—which is fuelling inefficiencies, confusion, duplication and even cannibalisation. The scale of the challenges ahead of us are unprecedented in recent history; normal ways of working will not suffice. The call to action for multinational companies like Mastercard, intergovernmental organisations like the OECD, civil society and governments around the world is to take the time to share and learn from one another; to take a more holistic and nuanced approach to the problems ahead of us, and to make the new normal about collaboration, partnership and collective success.
Read the OECD COVID-19 Policy Response One year of SME and entrepreneurship policy responses to COVID-19: Lessons learned to “build back better”
Whether you agree, disagree or have another point of view, join the Forum Network for free using your email or social media accounts and tell us what's happening where you are. Your comments are what make the network the unique space it is, connecting citizens, experts and policy makers in open and respectful debate.