Economic Growth

Europe’s small businesses proved resilient to COVID-19 pandemic disruption. Here’s what that means for SMEs

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Smaller companies proved more resilient to COVID-19 pandemic disruption than larger firms Image: Unsplash/seanpollock

Johnny Wood
Writer, Forum Agenda
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  • SMEs make up 99% of all enterprises in the EU’s non-financial business economy and almost half of its employees, according to Eurostat data.
  • Smaller companies proved more resilient to COVID-19 pandemic disruption than larger firms in this sector.
  • But SMEs tend to lag in technological adoption - and changing that could help them further.

Amid the turmoil of the COVID-19 pandemic, lockdowns and supply chain disruptions forced many companies around the world to close their doors and lay off workers.

In Europe, the European Commission announced a $3.8 trillion package of support to tackle the pandemic’s impact. But data from Eurostat shows that small and medium-sized enterprises (SMEs) were more resilient to the impact of these troubled times than larger companies.

As in many world regions, SMEs – businesses with fewer than 250 employees – dominate the European Union’s economic landscape, generating both jobs and opportunities for growth.

Percentage of size class in the non financial business economy
Companies with fewer than 50 people make up 99% of the EUs non-financial business economy. Image: Eurostat

Within this group, micro and small enterprises with fewer than 50 employees dominate, accounting for 99% of all enterprises in the EU’s non-financial business economy and almost half of its employees in 2020.

In contrast, corporate players and large firms account for just 0.2% of this sector but employ more than 35% of its workforce.

SMEs: Small but resilient

At its height in 2020, the impact of the pandemic caused economic activity in Europe’s non-financial business sector to shrink, with significant job losses.

Value added at factor cost – a measure of the gross income from operating activities after adjusting for operating subsidies and indirect taxes – in the sector fell by 6%, decreasing from $7.1 trillion in 2019 to $6.7 trillion the following year.

SMEs proved their resilience by recording $3.5 trillion in value added at the pandemic’s height, down from $4 trillion in 2019, which represents a smaller, 5%, decrease.

Employment numbers also fell across the sector, a 3% drop from 131.5 million in 2019 to 127.7 million post-pandemic.

COVID-19: Output and jobs

Although output and jobs contracted, the number of enterprises operating in the EU’s non-finance business economy increased by 1%. However, while the number of SMEs increased, there were 3.4% fewer larger enterprises than before the pandemic.

Percentage of enterprise size class across economic activities in the EU
Distributive trades, manufacturing and construction employed more than half of SME staff in 2020. Image: Eurostat

In 2020, the 23.3 million SMEs recorded in the sector employed 82 million people – 64% of the total employed.

As the chart shows, more than half of these were employed in three economic activities: distributive trades (wholesale and retail trades and the repair of household goods and motor vehicles), manufacturing, and construction.

Future-proofing SMEs

One lesson from the impact of the pandemic is that SMEs need to be prepared for whatever sudden events or economic shocks lie ahead.

Small and medium-sized companies play a significant role in the global economy, accounting for around 90% of all the world’s firms, more than two-thirds of all jobs and contribute up to 70% of global GDP. Supporting this backbone of the global economy is vital.

The World Economic Forum’s Future Readiness of SMEs report identifies the organizational capabilities and orientations small and medium-sized firms need to future-proof their operations. The report highlights best practices SMEs can adopt to leverage their size, networks, people and technology to support sustainable growth, market resilience and make a positive societal impact.

Smaller firms have fewer communications channels and decision-making processes than larger firms, for example. Greater agility enables them to use their smaller size to react quickly and effectively to market emergencies – like the pandemic – and implement a new business plan.

Technology is another key driver of growth, but many smaller companies are either reluctant, or lack the resources, to embrace Fourth Industrial Revolution technologies like AI or IoT.

The Small and Medium Sized Enterprises Futures Network provides a framework of policy tools to help policymakers or industrial associations around the world to lower barriers and encourage adoption of cutting-edge technologies.

Removing barriers to technological adoption helps bring SMEs in-line with larger firms and corporations by streamlining operations, boosting profitability, expanding markets and other benefits.

In a fast-changing business, political and social world, SMEs need to become better prepared to tackle sudden economic and political shocks, building the resilience needed to navigate an uncertain future.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

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