Yale School of Management

Program on Financial Stability

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Governments Encourage SMEs to Adopt New Technology

June 15, 2020
: By Mallory Dreyer and Kaleb Nygaard

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In response to the COVID-19 pandemic, governments around the world are adopting measures to encourage small and medium-sized enterprises (SMEs) to implement new technology. 

Mandatory stay-at-home orders significantly impact foot traffic and revenue for many small businesses. Governments are encouraging firms to use new technologies to promote objectives such as establishing e-commerce sales channels, enabling employees to work remotely, increasing internet access, and moving to cashless payment systems. 

Instruments to encourage digitalization vary across countries but include the following: 

  1. Grants
  2. Loans 
  3. Free online platforms 
  4. Consulting and advisory services 

Grants

Some governments are providing direct financial support in the form of grants or subsidies to small businesses to encourage the adoption of technologies to enable remote working, online sales, or cashless payments. The design of such grant programs vary, with some programs targeting firms of specific sizes or stipulating specific usage while other programs have a broader range of eligible uses.

In Ireland, eligible SMEs can receive grants of up to EUR 2,500 (USD 2,827) to  develop an e-commerce platform or online trading platform. The Trading Online Voucher is available to SMEs with up to 10 employees and annual revenue of less than EUR 2 million. Firms are required to cofund 10% of the cost of the new technology. A firm could be eligible for a second voucher of up to EUR 2,500 if upgrades are required. 

Japan is offering multiple subsidies to firms as a part of the SME Productivity Revolution Promotion Project. These include a sustainability subsidy, a manufacturing subsidy, and an IT introduction subsidy. Specifically, the IT Introduction Subsidy provides grants to small businesses for projects to improve labor productivity by at least 3% after one year and 9% after three years. Size requirements vary across sectors, with manufacturing companies eligible if they have less than 300 million yen in capital and less than 300 full-time employees while retail companies are eligible if they have less than 50 million yen in capital and less than 50 full-time employees. Firms can receive up to 4.5 million yen (USD 42,118), which in addition to supporting new technology adoption, can retroactively cover the costs of leasing computers and other hardware to April 7. 

Singapore’s Ministry of Finance announced total measures of SGD 500 million (USD 359 million) to support businesses in digital transformation. These measures target firms of different sizes. The first measure, which targets sole traders and microenterprises, provides SGD 300 per month for five months to stall holders in “hawker centres, wet markets, coffee shops, and industrial canteens” to adopt e-payment platforms and avoid handling cash. The second measure expands an existing support program for SMEs, the SMEs Go Digital program, which assists SMEs in the adoption of new technology. The government is augmenting this program with a Digital Resilience Bonus of up to SGD 5,000. The bonus is available to firms that adopt electronic payment and invoicing solutions, in addition to business process and e-commerce solutions. Furthermore, food and beverage and retail firms that have already adopted such technologies can be eligible for SGD 5,000 if they adopt advanced solutions. The government also has announced a package that covers 80% of the value of remote working equipment, such as laptops, under the SMEs Go Digital Program.  

South Korea is also encouraging small businesses to go online. Under the government’s proposed “Digital New Deal” package, it will provide 160,000 SMEs with 4-million won (USD 3,315) vouchers for accessing remote work platforms, such as videoconferencing. 

Loans

Rather than providing direct grants to small businesses, some governments have announced lending programs for SMEs, with the requirement that firms use the loans exclusively for the adoption of new technologies. 

Bank Negara Malaysia, Malaysia’s central bank, announced multiple credit facilities for SMEs, one of which is the RM 300 million (USD 70.6 million) Automation and Digitalization Facility to improve productivity and efficiency. Eligible SMEs can obtain up to RM 3 million in financing at a 4% interest rate with a maximum term of 10 years. These funds are to be used exclusively for the purchase of equipment, machinery, hardware, software, and IT solutions and services. The facility is available through the end of 2020.  

Spain’s government announced the SMB Accelerate Plan which is a package designed to incentivize small businesses to adopt new technologies. One component of the plan is a EUR 200 million credit line through the Official Credit Institute (ICO) to lend to SMEs for the purchase and leasing of equipment and services for digitalization. Specifically, the government encourages companies to use the funding to purchase equipment and services for remote work.   

Other countries have similarly established lending facilities to encourage technology adoption. South Korea announced that it would increase total funding for small business loans to 1 trillion won, with 200 billion specifically allocated to encourage businesses to go online. Argentina also announced a 7.2 billion credit line for SMEs, with funds to be used exclusively for the purchase or lease of remote working technologies or products.  

Free online platforms

To help SMEs navigate government support programs, shift to remote working, and improve general business management or technical skills, many countries offer free online training courses and materials. In some cases, the governments themselves provide the training, and in other cases the training is provided by private companies (often technology companies) and facilitated by the government. Such platforms can assist SMEs in making the transition to new technologies, in order to resume operations, expand sales channels, or provide safer working conditions for employees. 

Ireland’s eiLearn platform provides learning resources and hosts training programs, workshops, and networking events online for SMEs affected by the crisis. The platform is operated by Enterprise Ireland, a government organization responsible for development and growth of Irish enterprises. Another Irish government agency, Skillnet, brings together private businesses and provides training support to SMEs. 

The governments of Italy and Austria both provide subsidized use of remote working technologies like videoconferencing, collaboration tools, internet access, and cloud computing. Austria also announced the creation of a virtual department store that would allow retailers to become more visible to existing digital stores like Amazon and Google. Spain’s SMB Accelerate Plan provides similar resources through its online portal. 

In Greece, the government announced a digital solidarity platform where large technology companies provide free online marketing and account management training to SMEs. The government also announced an initiative to help SMEs establish an online presence. 

The government of New Zealand created an online calculator tool that helps small businesses forecast their cash flow in the COVID-19 context. 

Consulting and advisory services

A question that many SMEs face in response to the COVID-19 pandemic is how to adjust their business models for the short and long-term. Many governments have introduced programs that supplement, or fully pay for, advisory services for SMEs. 

On April 3, the German government announced an assistance program that would cover up to EUR 4,000 in consultancy services to help SMEs find solutions for coping with the crisis and economic shutdown. SMEs quickly drew down the full amount allocated to the program and the government agency running the program announced that the program had closed sooner than anticipated. 

Korea included significant support for consulting services as part of its recently announced Digital New Deal. One measure of the plan is to provide 25,000 SMEs with free security testing and consulting services. The plan also includes funding for consulting services for companies looking to introduce remote working. 

In Spain, the government expanded its Digital Transformation Office program and improved its personalized advisory services. As part of a March 20 announcement, the government of Finland indicated that it would dedicate EUR 500,000 to subsidizing counselling and support services for entrepreneurs. The government of Costa Rica announced support for business development services to help companies navigate returning to economic activity once the crisis is over.