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Cavallini S., Soldi R. (2021) “The state of digital transformation at regional level and COVID-19 induced changes to economy and business models, and their consequences for regions”

Committente: European Committee of the Regions. 
Periodo: 2021
Url: The state of digital transformation at regional level and COVID-19 induced changes to economy and business models, and their consequences for regions

The COVID-19 pandemic has raised awareness among individuals and across business sectors on the importance of digital connectivity, technologies, services and solutions. The digital transformation of society and economy had begun well before the occurrence of the pandemic but the health crisis initiated in January 2020 made, out of necessity, the digital transformation movement a more universal one. This study focuses on understanding the state of digitalisation of small and medium-sized enterprises (SMEs) in European regions, and of the level of territories’ readiness in supporting their digital transformation. The overall scope of the study is to highlight which policy actions regional authorities should prioritise in order to successfully support and accelerate the digital transformation of business. In the introductory part, digital transformation is defined and its state of play at the regional level is analysed against the four main components of digital infrastructure, digital skills, digitalisation of public services, and digitalisation of businesses. These components are set in the EC Communication on ‘Shaping Europe’s digital future’ and will be used in the next years to measure progress in Europe’s digital transformation. A first evidence drawn from the analysis is that most of the indicators proposed by the EC to monitor this progress are not available at the regional level. Data availability failure at the subnational level is a recurrent constraint faced in the development of this study. Whereas the territorial dimension of digital transformation is evident (for example, consider broadband infrastructure deployment which is so closely linked to territorial features), European official statistics fail in properly informing policymakers at this level. There is a divide between rural and urban areas in terms of fast and ultrafast coverage of digital infrastructures. Even though broadband connectivity was already almost universally achieved in 2019 (99.9%), fast or ultrafast connectivity coverage, which nowadays is actually a prerequisite for using the latest available technologies and services, is uneven. This limits the competitive advantage that may be generated by digital transformation. There are also important differences across European regions, and a rural-urban divide, in terms of users’ digital skills. On the other hand, the last eGovernment report (Van der Linden et al., 2020) highlights that in some countries e-services made available to citizens at the regional and local level are few and unlikely to create a pull effect in promoting digital competencies. Still on eGovernment services, statistics show that even in this area there is a rural-urban divide and that the COVID-19 pandemic did not help in closing the gap. Actually, in some countries differences between individuals living in urban and rural areas widened in 2020. The fourth and last component of the digital transformation envisioned by the EC relates to businesses, whose digital transformation is at the core of this study. Digital transformation of business is defined in several ways and serves different purposes, but, overall, its definition always implies a change in the way work and business are done. The change relates to business operations, organisation and culture, and implies the structural use and integration of digital technologies, processes and competencies in order to create value, new services and products as well as innovation. A 2020 global survey (McKinsey, 2020) has found that acceleration of digitalisation in business caused by the COVID-19 pandemic is significant and often quantifiable into ‘years’. The way of doing business has been affected, for example by the increase of customer demand for online services and online sales/purchases, by the adoption of remote working, and by the migration of business assets to the cloud. Business models have changed accordingly. Whether these changes are permanent or not is unclear but public authorities at all levels have a role to play in building on the surge in digital transformation of business triggered by the pandemic. Are regional authorities ready to do it? In Part 1 we propose a framework to measure digital preparedness in regions (DPR) with respect to SMEs’ digital transformation. Our approach in designing this framework includes the conceptualisation of its components and of the corresponding indicators; an indicators’ data gap analysis; and the proposal of a set of ten measurable indicators at the regional level which are intended to reflect the level of DPR. This exercise was highly constrained by the lack of data. The gap analysis highlights that many key areas cannot be properly measured and monitored at the regional level. Examples of areas suffering a lack of data include the provision of eGovernment services to business, the quality of the connection (download speed, upload speed, latency) used by business, availability of ICT human resources, ICT usage and e-commerce in enterprises, and cybersecurity. The Digital Economy and Society Index (DESI), which has a national scope, has no equivalent at the regional level and the majority of the data collection processes the DESI relies upon do not collect data in regions. In Part 2, we provide eight examples of successful initiatives undertaken by regional authorities with the aim of accelerating the digital transformation of business in their regions. This evidence clearly demonstrates that although some interventions were initiated as a result of the pandemic, others started well before January 2020 and sometimes experienced adaptation, or further development, in order to support businesses during the COVID-19 crisis.

Comprehensive region-wide approaches covering both the supply and the demand side of the digitalisation of SMEs are found in Niederösterreich (Austria) and Bayern (Germany). Four other cases focus on actions of regional authorities stimulating the supply side of digitalisation: in Galicia (Spain), digitalisation of SMEs is pursued through a multi-pronged approach which has its core in the establishment of sectoral digital innovation hubs. In the Northern and Western region of Ireland, the digitalisation of traditional indigenous SMEs is targeted using the pulling effect of technology and digital services providers (I&C companies). A similar approach is found in Nord-Vest Romania, where a digital innovation hub is used to create a digital innovation ecosystem; and in OostNederland where SMEs’ digital transformation needs are matched with approaches/technologies of other SMEs. Lastly, two additional cases, in Grand Est (France) and Lombardia (Italy), focus on the demand side of digitalisation with SMEs applying for support principally provided in the form of grants/vouchers. With a view towards widening the understanding of how LRAs favour the digital transformation of SMEs, and on the type of support they may provide in the short- and medium-term, we designed a questionnaire for an online consultation. The consultation was jointly carried out by the European Committee of the Regions and EUROCHAMBRES, the Association of European Chambers of Commerce and Industry, and was distributed to their respective stakeholders, covering European local and regional authorities, chambers of commerce and industry, and other informed stakeholders. It was open from 30 April 2021 to 4 June 2021. Over this period, a total of 87 contributions were received from 21 EU Member States. Part 3 illustrates and analyses the answers to the survey which focuses on four areas: digital preparedness in regions, changes in business models driven by the digital transformation, impact of the COVID-19 outbreak on the digital transformation process, and actions undertaken/expected to support SMEs’ digital transformation. When broadband started being introduced in the early 2000s, the focus for policymakers was primarily on its deployment. Currently, the focus in the digital domain is equally divided between the deployment of fast and ultrafast broadband and its uptake by society and the economy. Some pioneers, as in the case of the Bayern Region with its Digital Bayern I initiative, already started capitalising on the investments made on digital infrastructure in the mid-2000s. But the COVID19 crisis comes as a call for everybody as it has made the unused potential of digital technologies evident. Building on the evidence collected through desk research, including the case studies and the findings of the survey, this study concludes (Part 4) that specific contextual conditions are needed to favour the digital transformation of SMEs. In particular:

  • The digitalisation of the interaction between public authorities and business is still inadequate in some countries. As e-services require the use of information and communication technologies by businesses and citizens, this inadequacy does not produce the necessary pull effect on the whole society. There is a need for public authorities to create synergies and shared milestones at the planning stage between the transformation process of the public and the private sectors (R1). 
  • Digital transformation provides an opportunity to improve cohesion across the EU and within countries and should not generate further divide and differences between high performing and low performing territories. It is necessary to reduce the rural-urban digital divide in businesses’ operational conditions (R2); achieve digital cohesion by reaching out to as many SMEs as possible (R3); and avoid the negative externalities that digital transformation may have on jobs and on exclusion from the labour market (R4).

Still drawing on the experiences illustrated in the case studies and the evidence gathered through the consultation, Part 4 also includes suggestions on how LRAs may prepare to support the digital transformation of SMEs. In particular:

  • Since one of the most important barriers to the digitalisation of SMEs is the cost of its implementation, it is necessary to facilitate access by SMEs to external capital in order to support the implementation of a digital transformation path (R5). LRAs are in the position of designing the appropriate financing instruments for digital transformation and define ad-hoc access rules for SMEs.
  • Making digital maturity assessment tools available to SMEs is a way to raise their awareness on the competitive advantages implied by a digital transformation and also to create an entry point for these SMEs into a digital transformation path. Entities with a Europe-wide presence across territories, such as the chambers of commerce, may take the lead in involving SMEs in massive digital maturity assessment campaigns (R6). 
  • ICT companies, their aggregations (e.g. ICT clusters), or intermediaries for digital innovation such as DIHs which are offering digital products and solutions to the market shall be used as a leverage to initiate the digital transformation of SMEs (R7). LRAs should contribute to facilitating the creation of physical and virtual tech marketplaces that use digital innovation as a service (DIaaS).
  • Besides the technical push by ICT companies/aggregates/innovators, SMEs also need organisational and business expertise for the transition of their business models towards new paradigms. Intermediaries such as the chambers of commerce may facilitate this transition by framing it into territorial policies for competitiveness and economic growth (R8). 
  • Regional authorities shall identify the actors in their territory who are potential providers as well as beneficiaries of knowledge, technologies and innovation to create collaborative integrated digital innovation ecosystems that can become a stable reference system for the digital transformation of SMEs in the region. Strategies for competitiveness, innovation and economic growth should be coupled with those for digital transition (R9).

As a last point, this study has demonstrated the presence of several and important data gaps to properly inform policymakers on the state of play of digital transformation of business at the regional level. This constrains progress monitoring and benchmarking at the subnational level. If the Commission’s vision is for ‘A Europe fit for the digital age’, it has to widen the geographical scope of existing data collection processes and regularly collect information for at least some basic indicators at the regional level (R10). This may possibly be supported by further modernising or (digitally) transforming the current EU data collection processes.