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KfW SME Digitalisation Report 2020

Digitalization activity fell before Corona, ambivalent development during the crisis

Digital transformation is viewed as an important source of innovation. It influences and drives enterprises’ innovation activities in various ways. Thus, digital data represent important input for innovation and digital technologies make it possible to develop innovative products and services, improve efficiency, create new forms of interaction with customers and business partners and accelerate innovation cycles. Digitalization is often the technological basis that makes innovation possible in the first place. The great importance of digitalization for innovation activity is illustrated by the fact that 72% of innovative SMEs carry out digitalization projects at the same time. As a general-purpose technology, digitalization is a beacon of hope for increasing the competitiveness of broad sections of the economy and for kick-starting productivity growth.

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Numerous studies have found that, like innovation projects, digitalization has benefits for the economy and individual businesses alike. Another positive outcome that deserves to be mentioned is that businesses that have expanded in-house digitalization in the past years can be seen to have a steadier workforce than enterprises that have invested little or nothing in digitalization. Not least, the current coronavirus pandemic has brought to light the advantages of modern information and communication technologies and digitalized workflows, while laying bare existing deficits in Germany.

We define digitalization as the implementation of projects that involve introducing or improving the use of digital technologies in an enterprise’s processes, products, and services and in its contacts with customers and suppliers. It also includes measures aimed at building corresponding skills within the enterprise and implementing new digital marketing and sales strategies.

The penetration of information technologies into the economy and society is not a new trend. Nevertheless, the current digitalization wave is a far-reaching process that is generating profound changes in the economy and society. This is also true because, in an international comparison, Germany merely occupies a mid-range position in the current digital transformation. It ranks 12th within the EU 28 on the Digital Economy and Society Index of the European Union (DESI). The country also merely ranks 18th in integrating digital technologies into business processes. According to the Wirtschaft DIGITAL economic monitoring report, Germany does not possess any pronounced digitalization-specific strengths. The report identified a pronounced export weakness in information technologies as a symptomatic consequence.