Covid-19 and the Irish SME Sector: Supporting Recovery and Growth - A report commissioned by Vodafone Ireland in collaboration with Economist ...

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Covid-19 and the Irish SME Sector: Supporting Recovery and Growth - A report commissioned by Vodafone Ireland in collaboration with Economist ...
Covid-19 and the
Irish SME Sector:
Supporting Recovery
and Growth

A report commissioned by Vodafone Ireland in
collaboration with Economist Stephen Kinsella

Research by RED C
Covid-19 and the Irish SME Sector: Supporting Recovery and Growth - A report commissioned by Vodafone Ireland in collaboration with Economist ...
                                                                 The COVID-19 crisis has put significant            that will underpin and support SME recovery          Ireland’s SME sector will play a crucial role
                                                                 pressure on the vital small-to-medium              post COVID-19. We were delighted to work with        in driving strong economic recovery and
                                                                 enterprise (SME) sector in Ireland. Many           Stephen Kinsella who has provided further            providing jobs all over the country. I hope
                                                                 companies have been forced to make                 insight into the sector by benchmarking              that you will reflect on the findings of this
                                                                 considerable changes to their business             Irish SME performance against our European           report and consider the current challenges
                                                                 operating models overnight and others              counterparts.                                        and opportunities of this vital sector. We
                                                                 have had to close their doors for months                                                                must learn and adapt to support SMEs and
                                                                 to help protect public health. No matter           The good news is that despite many partial or        protect them in an uncertain local and global
                                                                 the size or nature of the organisation,            full closures during lockdown, SMEs remain           environment.
                                                                 COVID-19 has changed everything about              positive about their future. Technology
                                                                 how we do business.                                and training are key, with many planning to
Anne O’Leary                                                                                                        invest across these areas. Digitalisation was
CEO, Vodafone Ireland                                            Vodafone has commissioned this report,             identified as a key driver for this recovery, with
                                                                 working with economist, Stephen Kinsella, to       noteworthy growth potential for Irish SMEs
                                                                 investigate the impact of COVID-19 on Irish        who engage in digital transformation.
                                                                 SMEs. Vodafone has 2.3 million customers in
                                                                 Ireland and among those are thousands of           At Vodafone, we know that now, more than
                                                                 small and medium businesses. It is therefore       ever, connectivity and technology are at the
                                                                 vital for us to understand this sector so we can   core of enabling Irish businesses to operate
                                                                 serve it better, offer support where needed        in a digital society. After some big changes
                                                                 and contribute to its future sustainability and    to the way we work, many organisations are
                                                                 growth.                                            now doing business safely and successfully
                                                                                                                    and thinking about what comes next. The
                                                                 This study highlights SME investment plans,        tenacity, determination and innovation of Irish
                                                                 the opportunities and challenges they are          SMEs to carry on and to turn uncertainty into
                                                                 currently facing, digitalisation, the role of      opportunity came through strongly in this
                                                                 technology for future growth and the policies      study.

2   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Covid-19 and the Irish SME Sector: Supporting Recovery and Growth - A report commissioned by Vodafone Ireland in collaboration with Economist ...
Executive Summary
                                                                 The purpose of this report is to examine         We also found that policy supports to increase        we see larger firms have invested far more
                                                                 Ireland’s SME sector in three ways. First, we    SME digitalisation here can help overcome             in digital tools and processes and are more
                                                                 want to gauge the extent of SME reaction         the structural challenges in relation to low          resilient to crises as a result. One measure
                                                                 to COVID-19 and Brexit, and understand           productivity and domestic value added in              stands out: 65% of firms with 10 to 49
                                                                 how technology usage has changed in              comparison to their EU counterparts. These            employees have invested in cloud computing,
                                                                 reaction to this crisis. Second, we want to      policy supports include; designing flexible           while the number for smaller firms of 1 to 9
                                                                 place Irish SMEs in their European context.      digital investment schemes to help firms              employees stands at 47%.
                                                                 When it comes to technology adoption,            transition to the digital economy effectively
                                                                 innovation, and adapting to the future,          and ensuring equal access to high-speed               Prior to COVID-19, the OECD’s recent report on
                                                                 how do they compare? Third, we want to           connectivity for all firms regardless of location     Ireland’s SME sector, focusing on the last five
                                                                 understand what policy supports can best         and size. As we will see, firm size is a key factor   years up to 2019, showed a buoyant, resilient
Stephen Kinsella                                                 help SMEs prosper in a post-COVID world.         of technology adoption and resilience.                sector operating within a favourable business
Economist                                                                                                                                                               environment3.
                                                                 SMEs are a vital part of the Irish economy.      We are particularly interested in digitalisation
                                                                 The latest survey of SMEs by the CSO in          in this report as it results in new business          SME firms accounted for as much as 56%
                                                                 2018 shows they accounted for 99.8%              processes, creates new products and helps             of manufacturing employment and 74%
                                                                 of the total number of enterprises and           firms access new markets around the world.            of services employment4. Ireland has been
                                                                 67.5% of all persons employed1. Of these,        We find Ireland’s SMEs have a long way to go          very successful in generating high-growth
                                                                 micro-enterprises accounted for 91% of all       to fully embrace digitalisation, but that the         firms, which are a key driver of employment,
                                                                 enterprises2.                                    opportunity for them to do so is all the greater.     innovation, and productivity growth in the
                                                                 In relation to COVID-19, the research found      Comparing Irish and European SMEs by a range
                                                                 that Irish SMEs adapted where they could,        of indicators, from the integration of internal       That said, the sector had been not without its
                                                                 using digital tools wherever possible. In        and external IT processes like e-invoicing,           challenges. Prior to the start of the COVID-19
                                                                 particular, larger, rural-based businesses       to big data analysis and the use of artificial        pandemic, growth among Ireland’s SMEs was
                                                                 displayed a greater use of digital channels to   intelligence and robotics, Ireland’s SMEs             stagnant. Productivity was far from declining,
                                                                 access new markets than smaller, urban-based     tend to fare poorly, except in areas like cloud       but it was also not increasing, with Ireland’s
                                                                 businesses.                                      computing. When we look at firms by size,             direct SME export levels very low when

3   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Covid-19 and the Irish SME Sector: Supporting Recovery and Growth - A report commissioned by Vodafone Ireland in collaboration with Economist ...
compared to EU countries such as, Lithuania,        technology will play an even bigger role in how
                                                                 Estonia and Luxembourg with only about 6%           SMEs plan for recovery and growth. In fact,
                                                                 of Irish SMEs directly trading across borders.      our study shows that those SMEs who were
                                                                 As a small economy, there is a need to make         agile and adaptable and embraced technology
                                                                 exporting a part of the business ambitions of       managed to maintain some, if not all, of their
                                                                 more SMEs. One route to increased domestic          business operations.
                                                                 value added is digitalisation.
                                                                                                                     In order to obtain an informed view of the
                                                                 Without a doubt, the challenges facing SMEs         impact of COVID-19 on the SME community
                                                                 in Ireland have since been exacerbated by           in Ireland, the opportunities for growth and
                                                                 the arrival of COVID-19. In just four months        the role of technology in recovery, Vodafone
                                                                 between March and June 2020, around two-            commissioned this report to investigate:
                                                                 in-five micro-sized firms and one-in-two small
                                                                 and medium-sized firms faced a revenue              •   The impact of COVID-19 on revenue,
                                                                 shortfall. The total shortfall across the Irish         employment and workplace operations
                                                                 SME sector over this period is estimated to be          among SMEs
                                                                 between €6bn and €10bn, according to the            •   The economic outlook and investment
                                                                 ESRI.                                                   plans of Irish SMEs

                                                                 While the scale of interruption and uncertainty
                                                                                                                     •   Digitalisation and the role of technology
                                                                 of COVID-19 has been unprecedented in                   in supporting SME survival and growth
                                                                 recent history, Irish SMEs remain bullish, with a   •   The policy changes required to support
                                                                 high level of confidence (67%) in the future of         SMEs post COVID-19, particularly
                                                                 their own business. Half also anticipate growth         digitalisation
                                                                 in their business in the next two years.
                                                                 It has also become quickly evident that

                                                                                                                                                                          usiness in Ireland 2018 - CSO - Central Statistics Office, 2021
                                                                                                                                                                         Business in Ireland 2018 - CSO - Central Statistics Office, 2021
                                                                                                                                                                         SME and Entrepreneurship Policy in Ireland | OECD iLibrary, 2021
                                                                                                                                                                         Business Demography 2018 - CSO - Central Statistics Office, 2021
4   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
The Report                                                             Profile of SME Sample
The report is based on a nationwide survey of                            Less than 5 years 3%
500 SMEs operating in rural and urban areas                                    5 - 10 years 9%
in Ireland and across a wide range of sectors.
In addition, a European economic benchmark                                  11 - 20 years 27%                                 Less than €250,000 42%
analysis was carried out by leading economist,
Stephen Kinsella, to assess the opportunities
and challenges for SMEs in Ireland vis-à-vis
other European markets.                                                     21 - 30 years 33%
                                                                                                                              €250,000 - €500,000 14%

                                                                                                                              €501,000 - €1 million 7%

                                                                            31 - 50 years 19%
                                                                                                                                    €1 - 5 million 12%

                                                                            Over 50 years 7%                                        €6 - 10 million 2%
                                                                                                                                                                           1% €11 - 20 million
                                                                                                                                  Over €20 million 1%

                                                                                           Length of Time in Ireland                                     Annual Turnover

                                                                                                                                                                           10-49 21%

                                                                               Rural 34%
                                                                                                                                       1-9 75%

                                                                                                                                                                             50-249 4%

                                                                                                                  Urban 66%

                                                                                            Location of Company                                           Company Size

5   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth   (Base: All Irish SMEs, n=500, Urban=348, Rural=152, 1-9 n=217, 10-49 n=218, 50-250 n=65)
Business Impact                  The Role of                        Remote Working                    Investment
                                                                       & Future Outlook                 Technology

Key Findings
from Irish SMEs:
The findings in this report point clearly to a
need for greater structural supports to help
                                                                       70%                              43%                                75%                               25%
                                                                       suffered full or partial         claim they could not have          of SMEs have been unable to       aren’t confident their staff
Irish SMEs recover from a period of significant                        closures during lockdowns        functioned productively            facilitate remote working         have the necessary digital
uncertainty and instability, increase productivity                                                      without investment in                                                skills
levels, access new markets and encourage new                                                            technology
entrepreneurs and start-up enterprises. At the                         75%                                                                 50%
heart of the findings, digitalisation is identified as                 experienced some reduction                                          said scaling IT and phone         50%
a key driver for recovery, with significant growth                     in financial performance –       50%                                systems was the biggest           plan to invest specifically in
potential for Irish SMEs who engage in digital                         (an average of 34%)              of SMEs invested in technology     issue when trying to facilitate   digital skills training
transformation.                                                                                         such as communications or          remote working
                                                                                                        digital channels
                                                                       67%                                                                 Advantages include increased
                                                                       are confident in the future of                                                                        plan to invest in people
                                                                       their own business               Only 19%        of smaller Irish   productivity, fewer sick days
                                                                                                                                           and improved employee
                                                                                                                                                                             training in the next two years
                                                                                                        firms are ‘highly digitalised’
                                                                       anticipate growth in their
                                                                       business in the next 2 years

6   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
The SME Sector in Ireland: COVID-19 Impact                                                                                                                           Interestingly, larger, rural-based
                                                                                                                                                                     businesses displayed a greater use of new
                                                                                                                                                                     digital channels to access new markets
                                                                                                                                                                     than the smaller, urban-based businesses.
The economic and social fabric of                                to remain fully operational, with smaller and
Irish society has undergone a period                             rural-based businesses more likely to have
of sustained interruption, shock and                             partial or full closures. Unsurprisingly, those
uncertainty due to the COVID-19 pandemic                         who were completely shut were far worse off
- the tremors of which will be felt for                          than those experiencing partial or no closures,
some time to come. Despite the positive                          with an average 62% decrease in financial
economic outlook of Irish SMEs captured                          performance. On average, small businesses
for this report, there has been a significant                    experienced a one-third reduction in their
impact on small to medium sized business                         income.
across Ireland, many of whom require time,
investment and above all, stability to make
a full recovery.
                                                                                                                   Despite the challenges, many SMEs in               rising to two thirds for larger enterprises.
The OECD’s July 2020 survey of policy                                                                              Ireland displayed tenacity, innovation, and        Communication tools and mobile or
responses to COVID-19 for SMEs found that                                                            t             resourcefulness in adapting their operations       broadband connectivity were the most widely
they were likely to fail within three months                                                Red                    and business models to survive. What is            invested in; but close to 20% also invested in
without government supports5. Unlike                                                                               evident throughout this study is that SMEs         cloud-based services and new digital customer
larger firms, with access to internal financial                                                                    looked largely to digital tools and technology     software.
resources and external debt markets, SMEs                                                                          to support a transition to new ways of working.
typically access local banks to obtain credit,                         Perhaps the greatest indicator              They also increased their use of digital           Importantly, company size was a key factor in
are more limited in their customer base and                            of the impact of the pandemic               channels to access new markets or to create        tracing a firm’s ability to adapt to the COVID-19
supplier network, have less of an ability to                           on SMEs is that one in eight                new methods of reaching and engaging with          challenge. As the graph shows, smaller firms
offset or lower costs, and are less likely to buy                      businesses had to make                      customers when the bricks and mortar option        of less than nine employees were less likely to
and sell online.                                                       redundancies of up to 20% of                was no longer viable.                              make changes to their business in response to
                                                                       their workforce. This rose to                                                                  the crisis.
Between March and November 2020, only                                  11% for larger SMEs with up to              Half of all SMEs invested in new technology
three in 10 Irish SME businesses were able                             250 employees.                              during the first nine months of COVID-19,
                                                                                                                                                                          Coronavirus (COVID-19): SME policy responses, 2021

7   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Which of these changes were implemented
in your business due to Covid-19?

       Adapted or changed                                                                   27%
       your supply chains                                                            19%

       New technology to                                                                       31%
       support remote working                                                                        35%

       Increased use of digital
       channels to new routes
       to market (for example,
       trading online)                                                                                  38%

       New technology to                                                                                         48%
       communicate with                                                                                 38%
       customers                                                                                           41%                           In order to cope with Covid-19, Irish SMEs
                                                                                                                                         engaged in several strategies, including
                                                                                                                                         investing in new communication and digital
                                                                50 - 250 Employees          10 - 49 Employees          1 - 9 Employees   channels to access new markets and engage
                                                                                                                                         with customers or to support remote working.

8   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
The European SME Sector
The European SME sector typically has                            very small firms (91% of all firms have less
high levels of productivity, digitalisation,                     than 9 employees, as mentioned above)
and innovation. We need to place Ireland’s                       and many sectors feature an over-reliance
SME sector in its European context to                            on exporting to a small number of larger
understand its scope for development.                            companies, as opposed to having a diverse
One measure of the development of a                              supply chain or customer relationships with a
country’s SME sector6 is the percentage of                       range of businesses across the EU. This is a key
value added created by domestic firms for                        structural feature of the Irish SME landscape,
export7. The EU average is 88.4%, meaning,                       and an aspect Ireland’s new SME Taskforce
across the EU, 88% of all value created                          report references directly.
and sold abroad is made by firms from
the EU. By this measure, Ireland features                        Therefore, due to their over-reliance on a small   Economic activity is heavily concentrated in        helping adjustments of households and firms.
one of the lowest scores in the EU at 58%.                       customer base and difficulty in obtaining          the greater Dublin area, where about 30% of         Ireland was characterised by a high degree
Countries like Denmark (71.9%), Latvia                           extended credit lines, Irish SMEs are more         the country’s employees reside and income           of disparity between larger regions that are
(79.3%), and Estonia (65%) fare far better.                      likely to experience significant disruption        per head is substantially higher than the rest of   ‘catching up’ to the EU average and those
                                                                 compared to their EU counterparts in a             the country. These income and concentration         ‘pulling away’ from the EU average than other
This may be because, relative to our EU                          lockdown or restrictive economic situation         disparities are among the highest in OECD           countries like Greece or Finland or Austria,
neighbours, Ireland has one of the lowest                        such as COVID-19.                                  countries.                                          underscoring the need for a considered rural
ratios of exporters to total enterprise numbers                                                                                                                         COVID-19 policy mix in Ireland.
in the European Union. This poor performance                     In addition to the size/value disparity between    The European Stability Mechanism considered
is partially reflected in Ireland’s deep                         firms, the Irish economy, including the            the role of regional disparities when trying to
connections to global value chains8, but it is                   growth potential of SMEs, is hampered by the       understand how regions might recover from
also a function of the size of most Irish SMEs.                  sustained economic disparity between its           COVID-19. They found models of specific
                                                                 urban centres and the rest of the country.         regional support were most effective in              Johnson, R., 2014. Five Facts about Value-Added Exports and

                                                                                                                                                                         Implications for Macroeconomics and Trade Research. Journal of
Relative to other EU countries, Ireland’s SME                                                                                                                            Economic Perspectives, 28(2), pp.119-142.
structure features a combination of many                                                                                                                                 SME and Entrepreneurship Policy in Ireland | OECD iLibrary, 2021

                                                                                                                                                                         Dollar, D., Khan, B. and Pei, J., 2019. Should high domestic value

                                                                                                                                                                         added in exports be an objective of policy?. Global Value Chain
                                                                                                                                                                         Development Report 2019, p.141.

9   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Regions Catching Up, Falling Behind











                         BE          DE          IE          EL         ES   FR     IT        NL      AT          PT   FI

                                     Lagging                 Catching Up      Catching Down        Pulling Away

                     SOURCE: ESM based on Eurostat and OECD. Luxembourg is omitted due to the limited number of regions

10   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Irish Economic Outlook & Business Confidence
Understandably, the economic outlook for
all Irish businesses, across all sectors is
exceptionally uncertain. This is particularly
true for SMEs who are also contending
with other economic shockwaves, such as
Brexit. Participants in this survey exhibited                                           How confident do you feel about the future of
local optimism, global pessimism, and                                                   your own business and the wider economy?
general uncertainty in their views about
the future.

Irish SMEs remain bullish, with a high level of                                                                          41%
                                                                          Don’t Know
confidence (67%) in the future of their own                                                           18%
business. In fact, 50% of businesses believe
that they will return to normal (i.e. pre-COVID
levels of activity) within the next 12 months,                             Confident
though one in three believe it will be 2022 or                                                                                    67%
later. Importantly however, 50% of SMEs see
significant growth potential in the next two
years, relative to the start of the pandemic,                           Not Confident
though smaller SMEs are less confident of                                                           15%
growth than larger ones, as highlighted in this
                                                                                          Economy               Own Business

11   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Supporting Future Growth                                                                                                                                         Financial support is the
                                                                                                                                                                most important common
SMEs have identified a number of key
supports to help drive growth, with                                                                                                85%
                                                                                                                                of SME’s can access
                                                                                                                                                                 support businesses can
                                                                                                                                                               access to aid future growth,
                                                                                                                                                               though just under half also
financial aid the most common. Digital
transformation and technology adoption is                                                                                       at least one of these            plan to gain from digital
                                                                                                                                    opportunities                transformation and the
recognised by 47% as a key driver of future
                                                                                                                                                                adoption of the new tech.
growth and 40% highlight access to new
markets as a growth opportunity.
                                                                        Which of these opportunities are available
It is clear that in order to weather the
pandemic and drive future economic
                                                                        to you to support future business growth?
recovery, SMEs need access to a broad range
of supports that reduce risk in the short
term, in particular financial aid and grants. To                                    Access to financial support, for example
remain competitive, businesses are looking to                                     government grants and payment schemes
digitalisation and technology supports that
drive innovation and business growth, and
                                                                             Digital transformation and technology adoption                             47%
those that support access to new markets.
Ensuring SMEs are incentivised to undertake                                                          Access to new markets                         40%
these transformations this will be crucial.
                                                                                         Opportunities to diversify products,
                                                                                               services or routes to market
                                                                        Reduction in business costs, such as commercial rent                27%

                                                                                                              None of these          15%

12   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
The European Perspective
In comparison to the EU, sentiment in                             Economic data for Europe allows us to assume                             Economic policy uncertainty index
Ireland appears much more certain in                              that, at the macro-economic level, there is no
relation to economic policy than other                            trade-off between the health of the population
markets, according to an analysis by Bloom                        and economic recovery9. Countries that have                       600
and Co-Authors at Stanford. While Ireland                         strong policy supports for closed businesses
exhibits large amounts of volatility caused                       have fared better than countries that have not.
by COVID-19, both Germany and the wider                           The SME sector across Europe has absorbed                         500
EU experienced a degree more since                                the shock caused by COVID-19 aided by a
February 2020. The latest Economic Policy                         suite10 of domestic and pan-European supports
Uncertainty Index at November 2020, show                          for working capital, warehousing of arrears,                      400
Ireland at 285, Europe at 327, and Germany                        worker supports, and improving access to
at 387, highlighting a remarkable lack of                         finance.
variation in the levels of uncertainty for                                                                                          300
Ireland, relative to Germany.                                     At the EU and Irish levels, there are many
                                                                  opportunities to recover from the shock of
This suggests Ireland was able to                                 COVID-19. With sustained access to financing
communicate policy certainty more                                 and new market access opportunities, the key
adequately than its EU counterparts, due                          challenge is to decide upon the digitalisation
to very strong policy supports by the                             strategy for the firm, the technology tools to
Government. According to our survey, more                         invest in, and the strategy to access these new
than 80% of SMEs accessed a Government                            markets.
service during the period and interestingly,
27% felt that the Government was providing                                                                                            0
enough support.



                                                                                                                                                 Ma 9

                                                                                                                                                 Ma 9

                                                                                                                                                 No 9

                                                                                                                                                 No 0
                                                                                                                                                 Ma 0

                                                                                                                                                 Ma 0


                                                                                                                                                 Ap 9


                                                                                                                                                 Ap 0
                                                                                                                                                 De 9

                                                                                                                                                 Se 9

                                                                                                                                                 Se 0
                                                                                                                                                 Ju 9

                                                                                                                                                 Ju 0



















                                                                   (Which countries have protected both health and the economy in

                                                                   the pandemic?, 2021)                                                                  Ireland    Europe     Germany
                                                                     Coronavirus (COVID-19): SME policy responses, 2021

13   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Digitalisation of SMEs in Ireland:
The Challenges and Opportunities
Digitalisation is defined by the world’s                          It is clear from the findings in this report         Additionally, 51% of all firms said they
leading research and advisory company,                            that technology was and is a key enabler of          will invest in digital technology and
Gartner, as the use of digital technologies                       business adaptation throughout the pandemic,         transformation, with 80% of those planning to
to change a business model and provide                            with many SMEs recognising the need to               invest in the next two years.
new revenue and value-producing                                   make significant changes to their digital
opportunities; it is the process of moving                        infrastructure. It is certainly evident that those
to a digital business11. It is integral to the                    SMEs who embraced digital transformation
growth and resilience of enterprises, both                        were more responsive and flexible during the
large and small.                                                  pandemic. The trends around innovation,
                                                                  investment, and new market entry, enabled by
Our study shows that there are two important                      digitalisation were apparent before COVID-19,
drivers of economic recovery for the SME                          but have been accelerated by the pandemic.
sector post COVID-19. The first is the scale
and scope of the range of supports around                         In fact, over 43% of SMEs claim they could
working capital—this is keeping firms alive                       not have functioned productively during the
long enough to rebuild once the recovery                          pandemic without investment in technology
takes over. The second is investment in                           – this is higher among those in rural areas
technologies to access new markets and                            and outside Dublin. Therefore, making policy
create new products. In addition, developing                      interventions like the National Broadband
training and talent initiatives to take advantage                 Plan, the rollout of 5G and other digital
of new tools and processes on the horizon.                        transformation and innovation supports, along
The world post COVID-19 will be more                              with financial aid.
integrated and more online so Irish firms will
have tremendous opportunities to serve world
markets.                                                                                                                                                                  Hensellek, S., 2020. Digital Leadership. Journal of Media

                                                                                                                                                                          Management and Entrepreneurship, 2(1), pp.55-69.

14   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Despite this willingness to invest, SMEs in
                                                                                       Adoption of new technologies
Ireland face a number of barriers in relation
to the adoption of technology. 58% of firms
face at least one issue, such as the cost of                               Internal digital capabilities to                               37%
investment, choosing the right supplier to                                     manage IT infrastructure,                                34%
suit their needs, integrating new systems                               including administrator training                          26%
with older ones, sourcing the right product or
service or having the in-house capability to                                 The availability of the right                             35%
manage IT infrastructure. Though cost is the                                   digital product or service                             33%
highest obstacle to adopting new technology,                                            for your business                          29%
trust in suppliers and integration with older
systems are also common issues for SMEs                                                The integration of                                      43%
wanting to invest.                                                                   newer technologies                                      40%
                                                                                      with older systems                           29%
As this graph indicates, larger firms – those
with between 50 – 250 employees, are more                                                                                               34%
                                                                                     Selecting the right
intent on investing in this area than smaller                                                                                           34%
                                                                                 supplier for your needs
firms. Investment in technology is vital to                                                                                               37%
increase SME productivity and Ireland lags
behind its European neighbours in this area.                                                                                                       48%
                                                                               The cost of investment in
There is much to improve for small to medium                                                                                                    43%
                                                                                   digital infrastructure
sized SMEs with significant potential if they                                                                                            35%
embrace digital change.

                                                                                       50 - 250 Employees     10 - 49 Employees          1 - 9 Employees

15   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Skills, Training & Remote Working
In addition to the adoption of new
technologies, SMEs see a significant need                                                                             Issues around remote working
to upskill employees in the coming years,                                                                             Note. 24% of SMEs facilitate home working
especially in digital skills. One quarter
of SMEs lack confidence in the digital
                                                                                                  Scaling Systems
skills of their employees and almost half                                                                                                                      50%
                                                                                          (IT, Phone Systems, etc.)
plan to invest in digital skills training and
development. This rises to 65% for larger                                         Increased employee productivity                                        41%
SMEs.                                                                                                                                                                 among rural
                                                                        More precarious work or working conditions                                 36%
Interestingly, just under one quarter of SMEs                                                                                                                            (70%)
surveyed were facilitating remote working at                                            Decreased sick days taken                             31%
the time of this study, and the majority were
                                                                                 Decreased employee productivity                             29%
urban-based enterprises. This suggests an
inability to do so due to the nature of their                                     Decreased employee physical or
business or the lack of understanding of how                                          mental health and wellness
their business could operate remotely. Of                                         Increased employee physical or                            28%
those who have operated remotely, challenges                                          mental health and wellness
were identified with scaling systems and                                                 Increased sick days taken               13%
precarious working conditions, but for many it
has also brought increased productivity, fewer
sick days and improved employee wellbeing.
                                                                                                                                              Remote working has brought challenges
                                                                                                                                              with scaling systems and precarious working
                                                                                                                                              conditions, but for many it has also brought
                                                                                                                                              increased productivity, fewer sick days and
                                                                                                                                              improved employee wellbeing.

16   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
The European Perspective
An analysis across 21 OECD countries                                                                 Does this establishment buy or sell goods on the internet?
found that a 10% increase in mobile
broadband penetration causes 0.6%-2.8%                                  60%                                                                                                                                                                                                                      53
increase in GDP per capita12. Despite the
wide-ranging benefits of digitalisation,                                50%                                                                                                                                                                                                                 45        45
data indicates that SMEs lag in adoption of                                                                                                                                                                                                                                            39
                                                                                                                                                                                                                                                                        36                                 37
nearly all technologies in comparison to                                40%                                                                                      35                                        38                                                                34
                                                                                                                    31                           32                                                                             31        31        32        32
larger businesses13.
                                                                                                          30                     30
                                                                                                                                                      28 27 28        28        28        29 30 29 28 30        30 29 30
                                                                                                                                                                                                                                     28        29                  30
                                                                        30%                                                           25 25 26                             26        26
                                                                                                                           23                                                                                                                            23
                                                                                       20 20 19 2020 20        21        21 22                                                                                             20
In their 2019 survey of 26,000 firms across                             20%       16
Europe, Eurofound placed Ireland solidly mid-
table for the level of digitalisation of its firms.                     10%
There is an interesting outlier in the data,
however, with just 30% of small firms in Ireland                         0%
(10-49 employees) saying that they sell                                           BG BE HR LV LU                         SI   EE PL AT DE ES                           IT       NL FR LT              IE        PT SK RO SE CZ EL DK MT FI HU
online. For larger firms (50-249 employees)
that number jumps to 38%14. The graph below                                                                                                                      10 to 49                       50 to 249
highlights how different the picture is for
Ireland, relative to other European nations,                      Ireland has much to learn from small, highly                        of technology, versus only 31% of Irish firms.                                      SME and Entrepreneurship Policy in Ireland | OECD iLibrary, 2021

                                                                                                                                                                                                                          SME Performance Review - Internal Market, Industry,
when you consider the difference in firm size.                    digitalised EU countries like Denmark, Croatia,                     Eurofound data shows that only 19% of the                                           Entrepreneurship and SMEs - European Commission, 2021
COVID-19 has forced many of the other firms                       Malta, Latvia, Lithuania, and Estonia. These                        smaller Irish firms are ‘highly digitalised’, while                                 Eurofound. 2021. European Company Survey 2019 - Workplace

who were not buying or selling online to start,                   countries feature highly digitalised SMEs which                     just 24% of larger firms are, as the chart shows.                                   practices unlocking employee potential. [online] Available at:
                                                                                                                                                                                                                           [Accessed 27 January
                                                                  example, are described as having a high use                         Danish firms15.
                                                                                                                                                                                                                          European Company Survey 2019 - Workplace practices

                                                                                                                                                                                                                          unlocking employee potential, 2021

17   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Recent research has also shown that                                                                               Measures of Digitalisation by Country
digitalisation drives innovation, which
increases productivity over the medium term.
One measure of innovation is the ‘innovation                              100%
potential’ score. Using 2019 data, Eurostat16
calculated a measure of R&D potential across
many countries. A score of five would indicate                            80%
all industries in a country were investing in
R&D, a score of one indicates no industries
invest in R&D. The EU-28 average is 2.58,
Ireland’s score is 2.47, ranked 19th from 2717.                           60%

Firms will see both improved financial returns
and business performance as they invest in
technology and employee training. However,
investing for tomorrow imposes a cost on
today. It is this upfront cost that results in
reticence by many SMEs to invest in these                                 20%

                                                                                 AT BE BG CY CZ DE DK EE EL ES EU FL FR HR HU IE                          IT   LT LU LV MT NL PL PT RO SE   SI   SK UK

                                                                                  Highly digitalised

                                                                                  High computer use, limited use of other digital technology
     SME Performance Review - Internal Market, Industry,
   Entrepreneurship and SMEs - European Commission, 2021                          High use of robots and other digital technology, limited computer use
     SME Performance Review - Internal Market, Industry,
   Entrepreneurship and SMEs - European Commission, 2021                          Limited digitalisation

18     COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Policy Recommendations: Supporting the SME Sector in Ireland
In the initial phases of the COVID-19                                     Policy Considerations
crisis, European and Irish governments
prioritised support for SMEs by introducing                               	
                                                                          •There is a need for ongoing government
short-term financial relief measures                                       policy support, prioritising the
to mitigate the challenges they faced.                                     opportunities presented by the use of
In addition to short-term relief, the                                      digital.
OECD18 recognised that governments are                                    	
                                                                          •There is clearly no ‘one size fits all’
increasingly focused on strengthening the                                  approach to ongoing SME support.
resilience of SMEs in a structural way and                                 Instead, a tailored approach is required,
supporting growth through the adoption of                                  particularly to enable SMEs to cross the
new technologies and practices that may                                    digital divide.
enable them to strengthen their post-crisis
                                                                          	Despite the strong evidence that digital
                                                                             is a key enabler of SME resilience,
                                                                             there is a divide between large and
In Ireland, the Programme for Government:
                                                                             small SMEs. government policy should
Our Shared Future sets out that “central to
                                                                             address this digital divide by addressing
our recovery will be our SME community” and
                                                                             the financial constraints that impede
certainly the establishment of the SME Growth
                                                                             the ability of SMEs to digitalise.
Taskforce will focus on building an ambitious
long-term strategic blueprint beyond
COVID-19. As Ireland begins to look towards
recovery, it is vitally important that policy
fosters conditions that holistically support the
sector into the future.

       SME and Entrepreneurship Policy in Ireland | OECD iLibrary, 2021

19        COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Ensuring access to high-                                          or unable to gauge the benefits of digital          A flexible and guided digital
                                                                  tools for their business, they are less likely to
speed connectivity                                                adopt such technologies, particularly given         investment scheme
A prerequisite for all digitalisation policies is                 their lower financial capacity. To address this,    Government should provide further direct
sufficient access to high-speed connectivity.                     governments may want to consider voucher            support to enable digital investment, but
A lack of access prevents SMEs adopting                           schemes to support high-speed connectivity          allow for flexibility so SMEs can choose the
and optimally using digital solutions, even                       targeted to SMEs in specific sectors that are       most appropriate technologies or tools for
if there is a clear business case for digital                     most impacted financially and least digitalised,    themselves. SMEs across sectors, and even
investment. To address this, Vodafone’s                           or to SMEs more widely. Funds from the EU           within sectors, are likely to have different
Digital Deployment report identified potential                    Recovery Plan could provide the resources           digital investment needs, meaning advocating
measures including, but not limited to, easier                    required to close this gap at a national level.     one-size-fits-all solutions is unlikely to be
access to infrastructure, fewer obstacles to                      Additionally, the Irish Government’s €3.4billion    effective for all. To address this, government
obtain building permits and making spectrum                       COVID-19 Recovery Fund, set out in budget           may want to consider offering a mix of
available quickly and at a reasonable cost.                       2020, is also a vehicle which could deliver         support measures, including: flexible grants
The EU Recovery Fund may be best placed to                        support for investment in digital infrastructure.   or vouchers earmarked for digital investment,
facilitate investment and ensure widespread                       As part of this budget, the Government has          incentives for the financial system to lend to
access to high-speed connectivity at a national                   also pledged €5million to be allocated to           SMEs for digital investment, training in sector-
level.                                                            support Ireland’s Digital Hubs network. Digital     relevant digital skills and/or sector-specific
                                                                  Hubs, coupled with high-speed broadband,            online resources.
Closing the connectivity                                          can play an important role in supporting            Likewise, as part of the Irish Governments
divide between large and                                          rural businesses and economies to grow and          budget 2021, previsions have also been made
                                                                  flourish.                                           to support SMEs to prioritise investment in
small firms.                                                                                                          digitalisation. For example, the commitment
In order to close the wider digitalisation gaps,                                                                      to a remote working strategy and the
and in particular, the usage and adoption gaps                                                                        introduction of a tax relief for broadband
between large and small firms, a key starting                                                                         usage for remote workers, in recognition that
point is closing the connectivity gap to enable                                                                       connectivity is now a fundamental utility for
further digitalisation. If SMEs are unaware                                                                           employees.

20   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Like businesses across the world, the                             However, as has been captured by this
story of Ireland’s SMEs throughout the                            research, due to the demographic make-up
pandemic has been one of uncertainty,                             of Irish SMEs, of which the vast majority are
financial insecurity, and increased anxiety.                      micro-businesses, their ability to make the
However, it is also a story of adaptability                       capital investment required is challenging.
and resilience, with SMEs capitalising on                         Therefore, as the cornerstone of Ireland’s
new opportunities to build and grow their                         economy and a core driver of post pandemic
businesses.                                                       economic recovery, it is of the utmost
What is clear throughout this report is                           importance that financial support and
that rather than remaining stagnant and                           practical policies are in place to allow SMEs
pessimistic, Irish SMEs are keen to continue                      invest in digitalisation and compete with EU
implementing change and make plans to                             and global SMEs within the digital economy.
support the future of their business. They
have recognised a need to make changes
to their operations that will address long-
standing challenges that existed even before
the pandemic but have now become more
apparent. Technology has been identified as
a core enabler of their strategic ambitions,
with SMEs showing an appetite to invest
in digital solutions and IT capability within
their business, and in new tools to support
customer engagement, expansion of new
markets and diversification of their supply

21   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
Case Studies
Technology, agility and the ability to turn                       Based in Cookstown Industrial Estate in          “We were already set up
a crisis into a new opportunity was central                       Tallaght, Dublin 24, Flying Elephant creates
to the survival of many SMEs in Ireland,                          bespoke builds for events such as concerts       with our landline and our
including Dublin-based Flying Elephant                            and festivals. In 2020, the business led by       internet. Vodafone’s service
and Elite Event Management in Killarney.                          Michael Keenan was set to have its biggest
                                                                  year yet. However, when the pandemic hit,         made our lives easy because
                                                                  every job for the months ahead was cancelled.    we had good, quick internet
                                                                  Michael and his team wasted no time in           and because we basically
                                                                  coming up with an innovative solution to use      changed into an online
                                                                  the resources and products they had at their
                                                                  disposable to service a different need and        business overnight.”
                                                                  customer base.                                   Michael Keenan, Flying Elephant Co-founder

                                                                  Equipped with reliable connectivity from
                                                                  Vodafone, they were able to make the most        After an unpredictable start to the year and
                                                                  of their digital know-how to launch online       having to adapt their offering during the
“Every job was cancelled”                                         very quickly and began using the leftover        coronavirus pandemic, Flying Elephant ended
Dublin Events Company Flying Elephant used                        materials to make bespoke office furniture for   up expanding their business in 2020. The
technology to transform their operations,                         employees now working remotely.                  company now employs 20 full time-staff and
becoming a digital-first business.                                                                                 doubled its Tallaght warehouse to 25,000 sq ft.
                                                                  Now the company offers a wide range of
                                                                  custom-made, 100% Irish furniture products
                                                                  – from garden furniture to standing desks to
                                                                  wine racks.

22   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
“Resilience isn’t an option
                                                                        for Irish businesses - it’s a
                                                                         necessity. We’re pivoting from
                                                                        a bricks and mortar business to
                                                                        a tech company, and we’re able
                                                                        to use the mobile broadband
                                                                        we get from Vodafone to do our
                                                                         business anywhere.”

                                                                        Oliver Kirwan, Co-founder
                                                                        Elite Event Management

23   COVID19 AND THE IRISH SME SECTOR: Supporting Recovery and Growth
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