Understanding the potential macroeconomic impact of the implementation of technologies for digital business ecosystems in Europe Lorena Rivera León European Commission DG Information Society and Media Characteristics of the Potential users of the DBE

Lorena Rivera León – European Commission # 2 of 32 The power of DBE in promoting regional development DBE is a powerful instrument for narrowing the knowledge and wealth gaps among different regions in Europe DBE allows business connectivity and global talent identification DBE allows SMEs to increase their opportunities to integrate themselves into global value chains and global production networks DBE provides SMEs with more and better opportunities for upgrading their IT capabilities

Lorena Rivera León – European Commission # 3 of 32 Every business entity in Europe, irrespective of the size of the enterprise or the sector of activity DBE especially oriented to support connectivity among SMEs but also between SMEs and large enterprises around Europe There are more than 17 million SMEs in EU-25 (non-financial business economy) In 2003, 99.8% of EU-25 enterprises were SMEs. 91.4% of micro enterprises: 1 to 9 employees 7.3% of small enterprises: 10 to 49 employees 1.1% of medium enterprises: 50 to 249 employees 0.2% of large enterprises: more than 250 employees Who are the potential users of the DBE? Necessity to study European business characteristics, focusing on SMEs

Lorena Rivera León – European Commission # 4 of 32 Large presence of SMEs SMEs per 1,000 population in EU-25, 2003 Source: Eurostat – Industry, Trade and Services, 2006

Lorena Rivera León – European Commission # 5 of 32 Large presence of SMEs In average, there are 38 SMEs per 1,000 population in EU-25 (2003) Countries above this average are: –Italy, Spain, Czech Republic, Portugal, Hungary, Slovenia, Cyprus and Luxembourg Implementation of DBE would be particularly beneficial for these countries –These countries would benefit the most, in relative terms, from early implementation of the DBE

Lorena Rivera León – European Commission # 6 of 32 Large presence of micro enterprises European enterprises by size (totals), 2003 Source: Eurostat – Industry, Trade and Services, 2006

Lorena Rivera León – European Commission # 7 of 32 Large presence of micro enterprises European Micro enterprises per 1,000 population, 2003 Source: Eurostat – Industry, Trade and Services, 2006

Lorena Rivera León – European Commission # 8 of 32 Dominance of micro enterprises Demography matters, but also the industrial structure of each country In average, there are 35 micro enterprises per 1,000 population in EU- 25 (2003), in comparison with just: 3 small enterprises per 1,000 population 0.5 medium enterprises per 1,000 population 0.1 large enterprises per 1,000 population Countries above this average are: Micro enterprises: Italy, Spain, Poland, Czech Republic, Portugal, Hungary, Slovenia, Cyprus and Luxembourg Small enterprises: Spain, Portugal, Sweden, Austria, Denmark, Estonia and Luxembourg Medium enterprises: Czech Republic, Denmark, Slovenia, Lithuania, Latvia, Estonia and Luxembourg The industrial structure of these countries explains the proliferation of SMEs within their territory Political (incentives), economic and social frameworks can also influence the industrial mix: i.e. Luxembourg

Lorena Rivera León – European Commission # 9 of 32 SME concentration in 5 countries SME distribution in EU-25, 2003 Source: Eurostat – Industry, Trade and Services, 2006 More than 65% of EU-25 SMEs are concentrated in 5 countries Italy and Spain have more SMEs (in number) than 20 countries in the EU-25

Lorena Rivera León – European Commission # 10 of 32 SMEs as drivers of the European economy Source: Eurostat SBS size class SMEs employ about 67 per cent of the European workforce (EU-25, 2003). They employ 69 per cent of the workforce in the Czech Republic, 79 per cent in Spain, 82 per cent in Italy, 74 per cent in Latvia and 71 per cent in Lithuania. Number of persons employed, 2003 (% share of total)Value added, 2003 (% share of total) SMEs generate more than half (57 per cent) of EU-25 value added. They generate 57 per cent of the value added in the Czech Republic, 68 per cent in Spain and 70 per cent in Italy.

Lorena Rivera León – European Commission # 11 of 32 Different business/industry structures within the EU-25 Source: Eurostat SBS size class and Schimiemann, 2006 Special focus on Italy and Spain: high importance of micro enterprises in terms of employment and value added when compared with the EU-25 averages. In Italy, micro enterprises account for 47.1% of total employment and 31.7% of total value added. In Spain, micro enterprises contribute to 38.6% of total employment and 26.8% of total value added. In these two countries, large enterprises accounted for a relatively low share of employment and value added. The use of DBE could be highly beneficial for these countries. In Slovakia, the United Kingdom and Finland large enterprises have a relatively large presence within the non-financial business economy.

Lorena Rivera León – European Commission # 12 of 32 A vulnerable SME structure Total SMEs growth rate, Source: Eurostat – Industry, Trade and Services, 2006 and Observatory of European SMEs The countries with the largest concentration of SMEs have seen their number of SMEs decrease considerably in the last 10 years A change in industrial dynamics is not plausible, given the short period of time SMEs large mortality rate due to vulnerability DBE as a tool for reducing SMEs vulnerability

Lorena Rivera León – European Commission # 13 of 32 SMEs serving primarily two sectors SMEs by sector, 2001 SMEs concentrated in two sectors: services and trade Manufacturing industry less important by number of enterprises but relevant in value added and employment Source: Eurostat – Industry, Trade and Services, 2006 and Observatory of European SMEs Note: Numbers are presented in thousands SMEs.

Lorena Rivera León – European Commission # 14 of 32 SMEs structure by country and main activity, 2001 Source: Eurostat – Industry, Trade and Services, 2006 and Observatory of European SMEs

Lorena Rivera León – European Commission # 15 of 32 SMEs and employment change Changes in employment by size class and sector, EU-25: (overall % change) The overall percentage change is the net result of gains/losses through movements between activities, between size classes (enterprises that grow or shrink), and births and deaths of enterprises. Source: Eurostat SBS size class and Schimiemann, 2006

Lorena Rivera León – European Commission # 16 of 32 SMEs structure by country and sector, 2003 SMEs accounted for more than 75 per cent of persons employed in EU-25 in the construction sector, and hotels and restaurants. They also accounted for more than 50 per cent of total employment in manufacturing, distributive trades and business activities. SMEs contributed to more than 75 per cent of total value added in the construction sector (EU-25, 2003), and for more than 50 per cent in distributive trades, hotels and restaurants and business activities. The Italian case. Special role of Italian micro enterprises in distributive trades, real estate, renting and business activities, construction and hotels and restaurants. –They provided an absolute majority of sectoral value added and up to two thirds of the workforce (share of total employment between 58 per cent and 67 per cent). Source: Eurostat SBS size class and Schimiemann, 2006

Lorena Rivera León – European Commission # 17 of 32 SMEs by main activity in the 5 largest countries SMEs are concentrated mainly in 4 activities Business services SMEs are predominant in Italy, Germany and France Construction SMEs are concentrated in the UK Manufacturing industry SMEs are dominant in Italy, with the largest value added in the EU in 2000 Retail trade SMEs are predominant in Spain. Source: Eurostat – Industry, Trade and Services, 2006 and Observatory of European SMEs Note: Numbers are presented in thousands SMEs.

Lorena Rivera León – European Commission # 18 of 32 SMEs and labour productivity Apparent labour productivity: measure of the average value added (or wealth created) by each member of the workforce within an enterprise. In 2003, apparent labour productivity in the EU-25 was highest for energy, mining and quarrying, and lowest for hotels and restaurants. In manufacturing, construction, hotels and restaurants, and transports and communications, there is a pattern of increasing labour productivity according to the enterprise size. –Mainly due to economies of scale. –Connecting enterprises through DBE will help them to increase their productivity In mining, quarrying and energy activities, micro enterprises recorded the highest labour productivity in EU-25. In distributive trades, real estate, renting and other business services, SMEs had higher apparent labour productivity than large enterprises. Source: Eurostat SBS size class and Schimiemann, 2006

Lorena Rivera León – European Commission # 19 of 32 Source: E-business 2006 But... Are these SMEs engaged in e-business? The e-Business Index 2006 by firm size Yes, but with great differentials in comparison with large enterprises Average SME Index equal to 62 for the use of ICT networks Weak use of internal applications and supply chain integration (especially among micro enterprises) Relatively important use of e-Marketing and sales Note: Index = 100 for Large enterprises.

Lorena Rivera León – European Commission # 20 of 32 E-business differentials by firm size (small vs. large enterprises) Connectivity matters for Small Enterprises! Source: E-business Survey, 2006

Lorena Rivera León – European Commission # 21 of 32 E-business differentials by firm size (small vs. large enterprises) Connectivity matters for Small Enterprises! Source: E-business Survey, 2006 There are not large differentials between large and small enterprises when connecting online with suppliers and customers. 54 per cent of small companies place orders for supply goods or services online. 38 per cent of total order up to 10 per cent of goods/services online, and 16 per cent more than 10 percent. There are no differences between small and large enterprises when receiving orders from customers online. –The sectors connecting/receiving online orders from customers more frequently for small companies are: Tourism, Telecommunications and the Pulp and Paper sector. –Most important sectors for large companies when receiving orders from customers online are: Telecommunications, Tourism and Consumer electronics. –Small enterprises in Poland, Finland and the United Kingdom are those which receive the largest share of orders from customers online in the EU-10. The lowest performers are Italy, Spain and the Netherlands. 84 per cent of small companies consider that “e-business” constitutes a part of the way they operate, in comparison with 81 per cent of large enterprises (E-business Survey, 2006).

Lorena Rivera León – European Commission # 22 of 32 E-business differentials by firm size Overall index (based on firm-weighted data), 2006 Overall Index: ICT networks, e- Integration of internal processes, e- Procurement and supply chain integration, e-Marketing and sales There is approximately 50 SMEs engaged in e-business for every 100 large enterprises. Benchmarking ICT adoption and e- business by country is complex. Results could reflect other factors such as industry structure. However, Nordic countries are in general the most active users of e- business among SMEs. Differences are not pronounced and not clear among countries like France, Germany, Italy, Spain and the UK. Note: Firm-weighted data express e-business adoption as “% of firms within a size-band with a certain activity”. Source: E-business 2006

Lorena Rivera León – European Commission # 23 of 32 Impact of industry structure in ICT use for business E-business index 2006 for 10 EU countries Note: Benchmark based on firm-weighted data (Indexed values: highest score = 100). Firm-weighted data express e-business adoption irrespective of the size of the company. Results are mainly determined by the situation in smaller firms, as there are more small companies than large ones. Source: E-business 2006 Finland is the e-business benchmark in a comparison of 10 EU selected countries. The connectivity between enterprises is quite advanced in Finland, Sweden and Denmark, compared to most other EU countries. The results of the benchmarking suggest a pronounced digital divide between small and large firms. –In Italy, sectors dominated by small firms are much more prevalent than in other countries. This structure is reflected in the score of Italy in the benchmark. The DBE, as a ‘non-traditional’ application of ICT for business, could help the sectors (and SMEs) of these countries to overcome the digital divide.

Lorena Rivera León – European Commission # 24 of 32 SMEs and Open Source Software Companies using OSS Note: The total is weighted by employment and should be read as “enterprises comprising … % of employment in the 10 sectors”. Figures for size-bands are in % of enterprises from the size-band. SMEs average is the average from micro, small and medium enterprises. Source: E-business Survey 2006 OSS systems may help to “unlock” SMEs from specific ICT service providers The use of OSS increases sharply by firm size Operating systems based on OSS are widely used by large companies (47 per cent). This is not the case for SMEs (only 13 per cent of total).

Lorena Rivera León – European Commission # 25 of 32 SMEs and Internal Process Integration The DBE provides support for management by enabling transparency of all business processes. The DBE also supports collaborative and cooperative processes within and between SMEs (i.e. information and knowledge sharing). ‘Cooperation’ means splitting a common task into sub-tasks which are performed by different SMEs involved in the cooperation. ‘Collaboration’ means that several SMEs work together on the same task at the same time. The DBE supports cooperation among enterprises participating in a value chain (or global value chain)

Lorena Rivera León – European Commission # 26 of 32 SMEs and online cooperation and collaboration within the value system Percentage of firms Source: E-business Survey 2006

Lorena Rivera León – European Commission # 27 of 32 SMEs and B2B online trading Percentage of firms Source: E-business Survey 2006 In average, only about 11% of SMEs use software solutions or internet- based services for e-procurement. There is a massive gap between the percentage of SMEs placing at least some orders online (53 per cent) and those that use special software for this (11 per cent). Companies which do not use a special software, place orders mainly through websites or extranets of suppliers. The digital back-office integration of procurement related processes is not advanced in these cases. * Notes. The analysis is driven in 10 sectors: food and beverages, Footwear, Pulp and Paper, ICT manufacturing, Consumer electronics, Shipbuilding and repair, Construction, Tourism, Telecommunications and Hospital services.

Lorena Rivera León – European Commission # 28 of 32 SMEs and supply chain integration Use of SCM and ICT links with suppliers Source: E-business Survey 2006 Supply chain management (SCM) software can help companies to match supply and demand through integrated and collaborative interaction tools. In average, 11 per cent of SMEs have adopted a SCM system, in comparison with 34 per cent of large firms. The share of SMEs reporting ICT links with suppliers is lower than the share with an SCM system. Possible explanation: many SMEs have software for managing their inventory and supplies internally, without integrating suppliers directly through the system. This reveals that they use a form of SCM which is not interactive between different companies. Notes. The total is weighted by employment. Figures in size-bands are in % of enterprises from the size-band.

Lorena Rivera León – European Commission # 29 of 32 SMEs receiving orders from customers online Percentage of firms Source: E-business Survey 2006 In average, 26 per cent of SMEs enable customers to order products online. There is practically no difference between SMEs and large companies in this respect. The e-commerce share is higher in ICT- related industries (ICT manufacturing, telecommunications) and in tourism. There is a gap between the percentage of SMEs receiving at least some orders online (26 per cent) and those that have special software for doing so (11 per cent). This confirms that SMEs use rather “simple” forms of e-commerce: receiving orders by without any system integration of the related information and document flow.

Lorena Rivera León – European Commission # 30 of 32 Similar drivers for the uptake of e-business between SMEs and large enterprises Source: E-business Survey 2006 The most important reason, as stated by SMEs, to engage in e-business is to “gain competitive advantage”. While the most important reason for large enterprises is “Customers’ expectations”. “Suppliers’ expectations” are less important as a driver of e-business adoption for SMEs. These results indicate that customers have more negotiation power than suppliers. Notes. The total is weighted by employment. Figures in size-bands are in % of enterprises from the size-band.

Lorena Rivera León – European Commission # 31 of 32 SMEs drivers for the uptake of e-business Source: E-business Survey 2006 There are some sectoral differences when analyzing the SMEs drivers for the uptake of e-business. Customers are clearly the key driving force in tourism and in ICT-related industries. Evidence of the existence of new forms of ICT-enabled customer service. Customers are increasingly being integrated into planning, decision making and production processes. DBE helps SMEs to connect with potential customers and suppliers

Lorena Rivera León – European Commission # 32 of 32 Why the SMEs are not yet adopting the DBE? The DBE cannot be adopted by 1 single SME. A critical mass of adopters within a specific territory is necessary to guarantee DBE sustainability There is a need of policy development at the regional level, driven by the regional/local catalysts Regional/local catalysts would ensure that these actions are taken by the local authorities/government, industry associations, and any other entity that has the capacity to influence policy making in favour of the DBE adoption.