Small goes digital

How digitalization can bring about productive growth for micro and small enterprises

Addressing the economic realities of micro and small enterprises (MSEs) has never been more important. MSEs – defined as enterprises with 2 to 49 employees – contribute close to 40 per cent of jobs worldwide and play a crucial role in efforts to implement the 2030 Agenda for Sustainable Development and achieve the Sustainable Development Goals, yet they often remain trapped at low levels of performance and growth.

The present report deals with an urgent knowledge gap concerning such enterprises, specifically their ability to use digital technologies to increase productivity. It seeks to clarify why only exceptional MSEs have managed to fully exploit the opportunities offered by digital technologies, and it explores the specific benefits and barriers that the digital revolution has created for the average MSE.

As a major novel contribution, the report puts forward two models of how digitalization can lead to productivity gains in MSEs: one based on an enterprise’s internal capabilities, the other on external (environmental) influences.

The capability model emphasizes that moving from a simple to a sophisticated digital adoption strategy has virtually no impact unless this shift is complemented by improvements in other capabilities. Beyond digital adoption, MSEs need to have a minimum level of digital skills, innovation orientation and (in the case of more advanced enterprises) flexible management if they are to achieve significant productivity gains. The environmental model outlines how the local digital ecosystem, an MSE’s business network, and societal and policy influences affect such enterprises in various ways.

This report and its policy recommendations should be regarded as a call to action in its own right. Competitive MSEs that provide decent work can be engines of recovery and prosperity for the societies in which they are based. Supporting MSEs in the use of digitalization to improve their resilience and competitiveness is paramount to achieving this.