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6 May 2022

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The gap between digital and non-digital firms is widening in the EU

Nearly half of the firms in Europe report that they have invested in digitalization in response to COVID-19. During the pandemic, digital companies performed much better than non-digital ones, widening the gap between digital and non-digital companies. Since the beginning of the pandemic in 2020, digital companies were less likely to experience a sharp decline in sales, and instead used the crisis to accelerate digitalization. They were more productive, more innovative, grew faster, and paid higher wages.

Digitalisation index

These results come from a new study by the European Investment Bank (EIB) called 'EIB Investment Survey: Digitalisation In Europe 2021-2022'. The EIB is the long-term lending institution of the European Union and is owned by the EU member states. It makes long-term financing available for investment in order to contribute towards EU policy goals both in Europe and beyond. The newly-released report includes the EIB Corporate Digitalisation Index, a cross-country ranking of digital adoption efforts in EU countries and the United States.

As digitalisation advances, the digital divide in Europe is also widening. Smaller firms and firms located in regions with a lack of digital infrastructure are at risk of being left behind. Three areas need to be prioritized in Europe, according to the study: an enabling ecosystem, a European vision to curb imbalances in the EU, and adequate policy support to address finance and skills gaps.

Advanced digital transformation

According to EIB Vice-President Ricardo Mourinho Félix, during the pandemic, digital transformation became essential for firms' survival and accelerated the transformation of the European economy. “Yet we are also observing that the crisis forced many firms to put more complex digitalisation processes on hold. As we are entering a “new normal,” it will be crucial to restart these processes and accelerate the pace of advanced digital transformation in the European Union.”

“Most EU companies tell us they used the pandemic as an opportunity to transform and start their digitalisation process. But over the period, the divide among firms increased, with less responsive ones facing the risk of falling behind. A lack of skills remains the main barrier to firms’ investment. In response, we need multifaceted policies to support digitalisation: technical assistance, skills and access to finance all play a role,” said EIB Chief Economist Debora Revoltella.

Many changes are likely to stay

Due to the pandemic the pace of digital transformation accelerated. Digitalisation has brought many changes, including remote services, remote working and online meetings, which are likely to remain. The survey reports that 46% of European firms have taken steps to become more digital - for example, by providing services online.

Despite the general digital transformation trend, the adoption of advanced digital technologies has stalled as firms delay more complex digitalization processes during the crisis. The share of EU firms implementing these technologies, such as 3D printing, advanced robotics and IoT-projects in their business remained more or less constant in the period from 2020 to 2021, reaching 61% in 2021, compared with 63% in 2020 and 58% in 2019.

Top performing countries

Finland and Malta were the top two digital countries in 2021, followed by Denmark, Austria, the Netherlands and Sweden. The EIB Corporate Digitalisation Index explored the extent of digital adoption in both Europe and the United States from six different composite perspectives. The top performing EU countries in each area of digitalisation were: the Czech Republic for the use of advanced digital technology, Finland for digital infrastructure and using formal strategic business monitoring, which is an indicator of management practices, Austria for taking advantage of digitalisation during the Coronavirus pandemic, Cyprus for investment in software and data, and Sweden for investment in employee training.

Source: European Investment Bank

58% of US firms took steps to become more digital during the COVID-19 crisis, compared with 46% of EU firms. Moreover, the United States (66%) has a higher share of firms using advanced digital technologies than the European Union (61%).

During the pandemic, 53% of EU firms that had already adopted advanced digital technologies invested further in digitalisation. This compares to 34% of EU firms that were non-digital and used the crisis as an opportunity to begin investing in their digital transformation. In the United States, there is also a widening digital divide, but non-digital firms are more dynamic. During the crisis, 64% of US firms that had already adopted advanced digital technologies invested further in digitalisation, while 48% of US firms that were not digital started investing in digital technologies.

Firm size is a major factor determining the corporate digital divide. A larger firm is more likely to be on the right (or digital) side of the corporate digital divide.

Photo credit: Kilian Karger

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