Integration of SMEs in global digital value chains
Smart use of information technologies: the integration of SMEs in global value chains
The transforming power of information technology in SMEs
Information technology is one of the strongest drivers for competitiveness, innovation and change in our modern economy. ICT is changing our lives – the way we socialise, work, shop, search for information, and communicate. A few figures to capture the emerging trends:
- Two billion people are now connected to the Internet and this number is growing by 200 million per year.
- Information technologies cut across all industries and services and create wealth, growth and jobs. More than 75% of the value added created by the Internet is in traditional industries. The ICT’s main impact is through the modernisation of traditional activities. Smart innovation enabled by the Internet and ICT developments leads to higher productivity and has benefited all industries.
- ICT enables all forms of innovation, from social to organisational and technological innovation. ICT boosts businesses’ efficiency and competitiveness in the global market.
- The advent of Internet has changed the global business landscape. Internet accounted for 10% of GDP growth over the past 15 years. Recent ICT developments like Enterprise 2.0, cloud computing, social networks, etc. are enabling dynamic new and smaller companies to develop and bring to market innovations that before were too expensive to develop.
- European SMEs grow two-three times faster when they embrace the Internet.
- For every job destroyed by the emergence of the Internet, 2.6 new jobs were created. Still, the huge potential of ICT-enabled business innovations remains to be unleashed by European SMEs.
Nevertheless, small businesses, accounting for 99% of all European enterprises and contributing in many sectors up to 80% of all employment, are the ones suffering the most from limited understanding of ICTs and their potential, limited budget for ICT investments and difficulty in recruiting ICT professionals.
EU Policy background
The need for a more efficient use of ICT to improve the efficiency and competitiveness of enterprises and entire sectors has been fully recognised by Member States and the Commission and features at the top of the political agenda:
- The EU 2020 flagship "Industrial policy for the globalisation era ", one of the seven flagships of the Europe 2020 Strategy, recognises the increasing interconnectivity of international value chains and emphasises the strategic importance of an improved use of ICT for industrial competitiveness and innovation. Particular emphasis is given to a more innovative use of ICT throughout sectoral value chains to streamline business transactions and boost overall competitiveness.
- The EU initiative "Small Business Act" for Europe, recognised the importance of promoting ICT related innovations, through a series of sectoral demonstration actions to help SMEs participate in global digital supply chains.
- The flagship initiative Digital Agenda for Europe, urges for accelerating the full implementation of a vibrant Digital Single Market and for effective interoperability between IT products and services to build a truly digital society.
- The Innovation Union flagship aims to remove obstacles to innovation – like market fragmentation, slow standard-setting and skills shortages – which currently prevent ideas getting quickly to market. It aims to ensure that innovative ideas can be turned into products, services and business models that create growth and jobs.
- The Commission’s Communication “Adapting e-business policies in a changing environment: the lessons of the Go Digital initiative and the challenges ahead" recognised the need for a better collaboration among Member States and regions on promoting e-business policies for SMEs, and encouraged the creation of a European E-business Support Network for SMEs (eBSN), as a platform for open policy coordination and exchange of good practices.
- The Commission’s Communication “Reaping the benefits of electronic invoicing for Europe" stresses the need to achieve mass market adoption of eInvoicing by reaching SMEs, through the development of interoperable processes and standards along the supply chains, including e-invoicing. It recognises the merits of the large-scale demonstration actions launched to increase the participation of SMEs in digital supply chains in different industry and service sectors, and announces the continuation and expansion of such initiatives.
Realising the weak position of SMEs in this context, the DG Enterprise and Industry established the eBSN (European e-Business Support Network for SMEs), as an open policy coordination platform for eBusiness, bringing together over 200 decision makers and renowned experts in the field of e-Business. eBSN shares experiences and best practices and discusses strategic policy direction in Europe. So far, eBSN has actively supported policy analysis and benchmarking, shaped new policy trends, generated synergies between national policies and inspired new e-Business policies through the exchange of good practice.
eBSN analyses the evolution of eBusiness policies and shapes policy action at the European level: eBusiness policies for SMEs have evolved as they tried to adapt to the changing needs of enterprises. Starting from general ICT awareness raising and financing basic ICT investments and Internet connectivity, eBusiness policies have matured towards personalised eBusiness coaching, and more recently towards a more holistic, sector oriented, policy approach promoting smart use of ICT and the integration of SMEs in industrial value chains.
The challenge: combating in supply chains
Naturally, the first step for SMEs to embrace the Digital economy is to go on-line, by establishing their own websites. A web presence is necessary for an SME, but is not enough. There are millions of websites on the net competing for visibility and for attracting the interest of potential clients.
At the same time, industrial value chains are becoming increasingly sophisticated and global. New business trends are emerging. The competitiveness of SMEs increasingly depends on their capacity to connect better and do business with larger enterprises, to integrate global value chains and thus become international business partners. Smart use of information technology can help SMEs achieve this.
But there are also great inefficiencies in industrial value chains, due to the fragmentation of the regulatory and technological outlook, notably across borders. The proliferation of different business models and standards result in a lack of interoperability between different technological solutions and disrupt efficient information flows along value chains. SMEs in particular risk elimination from global value chains, due to shortage of appropriate, affordable and interoperable ICT solutions to link them with large business partners.
Moreover, several Member States have been increasingly promoting smart use of ICT along industry-specific value chains, following different approaches and standards, risking to add complexity and fragmentation in cross-border trade.
So the huge potential of smart use of ICT in value chains, notably by SMEs is still largely underexploited.
The policy response: the integration of SMEs in global value chains
DG ENTR launched, in the frame of the eBSN, the EU initiative to promote the smart use of information technologies and the integration of SMEs in global industrial value chains. The objective is to modernise industrial value chains through the smart use of ICT and help notably SMEs better connect to larger enterprises and become fully integrated international business partners. The focus of these actions is on SMEs, notably how to help them get connected and offer them a better position in the globalised world.
The initiative will result in simplified business processes, common data communication standards, better return on ICT investments, and efficiency gains, notably for the smallest enterprises. While it is conceived and designed for the smallest enterprises, the ultimate beneficiaries will be the entire European economy.
This initiative is complementary to the actions included in the Digital agenda and a key step towards the implementation of the Digital Single Market.
This initiative consists of a series of demonstration actions, with the objective to catalyse the creation of interoperable eBusiness frameworks that would help link SMEs to larger enterprises in an efficient way.
The broader tangible and intangible benefits for the different types of stakeholders are expected to be:
- facilitating the entry into the market of new, dynamic players;
- strengthening business relations between SMEs and big companies;
- helping SMEs become fully integrated international business partners;
- streamlining business processes;
- increasing returns on investments in ICT;
- improving business transactions;
- reducing administrative overheads or errors;
For larger companies:
- increasing their innovation capacity by partnering with other innovative SMEs,
- enhancing customer satisfaction through more flexible, personalised services;
- shorter time-to-market;
For the economy and society:
- promoting a more dynamic and competitive economy,
- facilitating the market entry of new players, on fair terms.
Six major demonstration actions have started already namely in support of the automotive industry, the fashion industry, the transport and logistics sectors, the tourism industry, the agro-food supply-chain and the construction sector.
First results are remarkable. The business benefits of digital supply chains lie on significant efficiency gains, speedier and affordable integration of SMEs, cost savings, better time management, error-free communication, demand-driven production, but also better services to customers, new market opportunities and better time to market. In the actions completed already, there are good prospects for mass market adoption through sound industry-led leadership and European standardisation initiatives.
Altogether some 20 000 small enterprises have been involved in all of these projects. The added value is not limited to the number of direct beneficiaries, but lies also in the creation of new models that can be adopted to have a major impact in the real market.
The demonstration action for the fashion industry (http://www.ebiz-tcf.eu) figured significant business benefits and SMEs involvement:
- The costs related to order management dropped by 65% in one year.
- The average response time for an order dropped by 50%.
- The rate of errors in order processing dropped from a 10% average to null;
- Over 150 small companies from the textile and footwear sector, from 20 European countries participated in digital supply chains, i.e. integrated IT solutions in their daily business transactions, during the action, while over 4.000 enterprises were touched by dissemination actions;
- Among those, some reference brands, namely BATA, shoes and accessories world wide, ZEGNA, high segment menswear world wide, Marco Polo, clothing retail.
- An MoU was signed among key industry stakeholders and leading sectoral associations, to further promote the results and stimulate real market roll-out;
- After the end of the pilot project, a CEN workshop agreement was established to further maintain, extend, validate and promote the interoperability framework, through the official standardisation bodies.
The demonstration action for the automotive industry (Auto-gration) demostrated clearly the business case for ICT uptake:
- Easier entry to the market through low-cost, easy to use, interoperable solutions: SMEs get connected in less then one day
- cut of manual data entry by 80%, fewer errors, lower operational costs
- reduction in telephone and fax inquiries for stock availability by 60-80%
- 30% increase in staff productivity
- Business agility: immediate information on products and their availability help to select best suppliers and quickly respond to customer needs
- Wider market opportunities: source from a larger network of suppliers and gain access to new customers in new locations in Europe and beyond
It also triggered remarkable industry leadership:
- An MoU was signed among key industry stakeholders, leading sectoral associations (CLEPA, FIGIEFA and Odettem International) and ICT vendors, to maintain, promote and extend the auto-gration framework and stimulate real market roll-out;
- VDA (the German Automotive association, representing 50% of the automotive industry in Europe) issued an official recommendation to adopt auto-gration for their SME eInvoicing solution;
- Odette and its national organisations plan to issue auto-gration as best-practice recommendation;
- B2B marketplaces and ICT vendors specialising in the automotive industry, engaged to adapt their commercial solutions to become "Auto-Gration compliant", thus ensuring interoperability;
- So far, major automotive manufacturers (VW, BMW, Renault, Skoda Auto) already explore implementing auto-gration in their daily business processes.
The demonstration action for the transport and logistics industry (DiSCwise) demonstrated impressive potential for concrete business benefits and led to promising industry follow-up actions:
- The Common Framework helped to lower the technical boundaries. Faster roll-out of new services, activation of new users and reduction of implementation costs by 70%.
- Speeded up SMEs integration to large logistics networks from 35 days to 3 days, through offering web-based switch-on-off services, user-friendly and affordable for SMEs.
- Facilitated and accelerated co-modal transport organisation notably for smaller businesses, and reduced transport costs.
- Increased effectiveness and speed of billing to customers and eased working capital requirements.
- Active liaison has been established with the standardisation bodies and consortia, with a view to ensure its further maintenance, extension and industry uptake through the standardisation processes.
The demonstration action for the Tourism industry (TOURISMlink) is on-going. It started in January 2012 and will be completed by June 2014.
The demonstration action for the Food supply chain (eFoodChain) is on-going. It started in January 2012 and will be completed by June 2014.
The demonstration action for the Construction sector (Connect & Construct) started in January 2013 and will be completed by December 2014.