KEY ISSUES FOR DIGITAL TRANSFORMATION IN THE G20

Important differences in ICT adoption and usage exist between large and smaller firms, with SMEs facing
several barriers to adopting ICTs and digital technologies in their operational activities, in particular in
having the resources to acquire the necessary complementary knowledge-based assets, such as
organisational and human capital. There are also important differences across manufacturing and services
sectors.
While recent years have shown a growing trend towards buying ICTs as a service, SMEs lag in their
adoption of cloud computing and other sophisticated digital technologies. It is essential to help promote
adoption of these digital technologies among SMEs because they can help overcome some of the
traditional barriers to investing in digital technologies, including the often high, upfront sunk costs of these
investments, and allow them to switch more rapidly from one technology to another to avoid being locked
in. Comprehensive national digital strategies that take into account SMEs, policies that facilitate access to
finance, and SME engagement with competency centres and/or technology diffusion extension services
can be helpful in this regard.
A number of key indicators such as firm entry and churning rates suggest that business dynamism in many
G20 economies and OECD countries has declined over time, especially following the crisis. Based on entry
rates, declining business dynamism appears particularly strong in ICT-producing and ICT-using sectors,
raising concerns about innovation. At the same time, when analysing patterns in ICT use, there appears to
be a considerable gap in technology adoption between plant size and age, with plants that are both
younger and smaller less likely to use data management software than those that are larger and older.
Boosting business dynamism and promoting the growth of start-ups and innovative SMEs, as well as
supporting start-ups and SMEs in leveraging digital technologies, are important areas for policy action.
Policies that can help include facilitating access to finance, building on the G20/OECD High-level Principles
on SME Financing. Pro-competitive product market regulations and employment protection legislation that
is not overly stringent can also foster firm dynamism and the adoption of certain digital technologies.
Policies that facilitate the mobility of workers as well as training and skills development are important to
help smaller firms compete with larger, established incumbents.
The ability of SMEs to swiftly adopt new technologies, to learn by doing, innovate, and optimise their
production, is constrained by their small scale, limiting their ability to reap the benefits of the digital economy.
It is essential to foster use of more sophisticated digital technologies among SMEs, especially cloud computing,
which allows smaller firms to overcome some of the barriers associated with the high-fixed costs of ICT
investment. The overall success of SMEs in embracing digitalisation in G20 economies also depends on a
sufficiently dynamic business environment, where innovative digital start-ups can grow and reach scale, and
where the least productive firms are eventually closed down or restructured. Recent analysis suggests that
young and small firms are often much more affected by poorly designed regulatory frameworks than large and
incumbent firms, limiting their growth and reducing overall business dynamism. Policy action to boost the
growth prospects of start-ups and SMEs is thus essential.