By Leanne Storan Director, Tax and Law and Eanna Brennan, Director, Strategy, EY Limerick.
Digitalisation can be a great leveller for Irish SMEs Irish SMEs have responded to the impact of the Covid-19 pandemic by accelerating online and digital initiatives and placing an increased focus on sustainability. These are among the main findings of the latest global EY SME survey which showed that although 82% of Irish SMEs have been negatively impacted by the pandemic to date, the resulting disruption has also amplified opportunities for digitalisation and a pivot toward the development of more sustainable business models. Indeed, more than half (54%) of those surveyed plan to change business models in response to new market conditions. The EY survey examined the impact of the pandemic on more than 5,600 SMEs in 16 countries across the world, including 310 in Ireland. The largely positive response to the challenges thrown up by the pandemic is particularly heartening for a country like Ireland where SMEs form the bedrock of the economy, accounting for 99% of active businesses and employing around 68% of the private sector workforce. The importance of the SME sector to the Mid-West region is even more profound. According to the 2020 CSO Business Demography survey, SMEs in the Mid-West employed around 122,000 people, accounting for 82% of total business employment in the region. While every Irish SME has been impacted by the pandemic to one extent or another, it is interesting to note that 13% of them say it has had a positive impact on their business. Furthermore, 21% have seen only a slightly negative impact and have been able to perform well despite the pressure and the uncertainty. Unsurprisingly, revenue and profit margins were the areas hardest hit. However, 45% of Irish SMEs said there was actually no change in their revenue or that they had seen turnover increase despite the pandemic. A similar number (47%) said there had been no change in their profit margins or that they had seen an increase. And 79% of Irish SMEs said that their brand reputation had either remained intact or improved. Many of these impacts are likely to be short-term or transient in nature. As we move on from the pandemic and Brexit, SMEs will have to meet new challenges presented by an increasingly competitive global marketplace. In that light, the longerterm effects of the disruption experienced over the past two years are to be welcomed. Irish SMEs have responded by accelerating digitalisation initiatives with more than a third (36%) of them reimagining their business processes online, and one in 10 (11%) planning to move to an e-commerce or online-only model. That gathering momentum will have long term positive impacts for Irish SMEs generally, and for the highly exportfocused SME community in the Mid-West in particular. For
a long time, Irish SMEs have found themselves effectively locked out of a range of markets such as fashion, health and beauty, consumer products, and food and beverage due to high entry costs and highly competitive established brands. Local entrepreneurs with innovative, original products with well-crafted brands and a clear understanding of their customers and their needs are using digital tools to establish a market presence and voice. Authenticity of brand and product, deep understanding of target markets and skilled and persistent digital engagement with customers are critical to unlocking online growth and entrepreneurs and SMEs in the Mid West region have shown themselves well capable of doing all of this on a global basis during the pandemic. In short, digitalisation has the power to act as a great leveller which allows local SMEs to take on global brands and win. It also has enabled businesses to withstand disruption and take advantage of the opportunities thrown up in its wake. The pandemic may have uncovered levels of digital exposure that many businesses didn’t realise they had, but organisations with sophisticated digital platforms and systems were able to react quickly with less disruption – both in terms of flipping to remote working with no notice, but also in how they served their customers and their ability to continue to generate revenue. Sophisticated technology, data and systems are increasingly what help businesses differentiate themselves from the pack in today’s world. Today’s high-growth businesses are firmly focused on digital customer experience, CRM, supply chain optimisation, and projects that utilise technologies like AI and robotic process automation to improve business efficiency. And these technologies are now available within the cloud on a pay as you use service model bringing them within the reach of even the smallest SMEs. Of course, the impact of the pandemic has by no means been uniform. We only have to look at hospitality and tourism businesses here in the Mid-West to witness at first hand how some sectors have suffered more than others. That said, businesses that invested in their digital capabilities, both from operating and sales perspectives, have found the necessary changes in business and operating models more achievable. Finally, it was also encouraging to see that 60% of Irish SMEs say that running a sustainable business is very or extremely important to them. It is clear that health and wellbeing as well as environmental sustainability have increased in consumer consciousness. SMEs that can demonstrate how they can make a difference in these areas are more likely to prosper rather than succumb to threats in this regard. www.limerickchamber.ie
19
