SMEs compete with larger companies by investing in tech: Study

WALLDORF, GERMANY: SAP AG and Oxford Economics announced survey findings by the Oxford Economics research program, sponsored by SAP, that show small and midsize enterprises (SMEs) around the world and across industries are making major changes to their business models, products and go-to-market strategies.

SMEs are also competing with larger companies by investing in technology to improve operations and become more efficient, said a study report.

The survey of 2,100 executives from SMEs in 21 countries shows they believe they are equipped to compete with larger firms and have some clear advantages over them.

The findings overturn some industry stereotypes of smaller companies as local or regional entities that are largely technophobic. The survey looked at SMEs with an annual turnover of US $20 million-$750 million across the globe.

Eric Duffaut, president, Global Ecosystem and Channels, SAP AG, said: "The overarching finding of the study was that successful SMEs are going outside of their home market to accelerate growth. And by doing so, they face fierce competition from large multinational corporations and more empowered customers in new markets."

"In their new international or even global landscape, business network and latest technology innovations are more and more required by SMEs to evolve their business models and effectively compete," added Duffaut.

Findings from the research include:

SMEs are expected to grow outside their home markets while facing increasing global competition at home.

* The number of firms expecting to generate as much as 40 per cent of their revenue internationally jumps by 36 per cent in the next three years.

* Fifteen per cent of respondents currently do business in six or more countries today, a figure that is expected to rise to 35 per cent in three years based on survey responses. More than one-quarter of respondents cite increasing global competition among the top three trends affecting their business today.

* Nearly 60 per cent say competition from companies in other countries has increased substantially in the past two years. And 59 per cent say they are competing more with larger companies now than in the past.

SMEs are forming networks around the globe.

* Over half of respondents say they increasingly are forming partnerships with suppliers and other vendors located in countries outside their home markets. A similar number are increasingly collaborating with other firms via online business networks and platforms to help drive innovation and growth.

* Nearly 40 per cent of SMEs cite forming strategic partnerships and alliances as a key challenge as they remake their companies for the global marketplace. North American companies (60 per cent) and both the largest (60 per cent) and most profitable (62 per cent) firms are more likely than companies from Latin America (50 per cent) and those with a profit margin below zero per cent to say they have boosted collaboration with other firms via online business networks and platforms. Cloud computing and social media are believed to be important enablers.

SMEs recognize they must embrace business transformation to compete.

* Two-thirds of all companies surveyed are at some stage of the transformation process (about to begin, in process, or recently completed), with transformation understood to help achieve significant changes to their company's business models, technology, product offerings, or go-to-market strategy.

* Technology is important for SMEs and a major element of transformation. Investing in new technologies appears to be a top strategic priority as SMEs remake their businesses for the global marketplace, including business management software, data analytics, mobile, social media, and cloud computing. Almost two-thirds strongly believe technology helps them achieve longevity and sustainable growth.

* Overall, 35 per cent of respondents identify themselves as early adopters; the figure rises to 42 per cent for discrete manufacturers and to 47 per cent for firms in North America. Additionally, less than one-third of respondents say their firm lacks the technology capabilities of larger competitors and only slightly more than one-quarter say they struggle to understand how technology can create measurable benefits for their firm.

Innovative technology is a key to help enter new markets and create strong customer relationships.

* More than one-third of respondents cite creating a culture of innovation as a leading priority in their transformation efforts. Regionally, emerging markets* (55 per cent) and Latin American companies (58 per cent) place an especially high emphasis on innovation. Emerging-market companies also are more likely (54 per cent) to expect growth to be driven by new product and service offerings than those in developed markets (43 per cent).

* Mobile is the leading technology driver of competitive advantage for SMEs as well as an important driver of innovation; respondents cite improved innovation as the biggest benefit of mobile adoption, more than other technologies considered.

SMEs are job engines but face cultural obstacles to technology adoption.

* Nearly half (46 per cent) of respondents are actively hiring employees to support their growth activities. SMEs face the same issues as their larger competitors; 39 per cent find it increasingly difficult to recruit people with the right skills.

* According to 31 per cent of responses, encouraging employees to use mobile technology is one hurdle, while 35 per cent say lack of understanding of the benefits of cloud computing is an issue. And 43 per cent of SMEs indicated they have trouble encouraging employees to embrace social media.

"The road ahead is well marked for SMEs," said Edward Cone, managing editor and senior analyst at Oxford Economics. "Globalization, transformation and technology will be the hallmarks of successful small and midsize companies."