German small and medium-sized enterprises (SMEs) are gradually advancing in their digitalisation efforts, according to recent findings from the KfW SME Panel. The survey indicates that 35% of SMEs have completed digitalisation projects between 2021 and 2023, marking an increase from previous years. This represents a five percentage point rise compared to the period before the COVID-19 pandemic.
The KfW SME Panel annually surveys SMEs across various economic sectors. It defines digitalisation as initiatives that enhance or introduce digital technologies within internal processes, products, and interactions with customers and suppliers.
Dr. Volker Zimmermann, a digitalisation expert at KfW Research, noted: “Businesses typically take digitalisation steps in economically favourable times. Thus, the current increase departs from the pattern of behaviour otherwise observed and is remarkable.” He added that many businesses perceive a significant need for digital measures due to anticipated shifts towards digital offerings and sales channels.
In 2023, German SMEs invested EUR 31.9 billion in digitalisation projects, which is EUR 2.6 billion more than the previous year when adjusted for inflation. Despite this growth, expenditure on digitalisation remains considerably lower than investment in fixed assets, which totaled EUR 250 billion.
Larger SMEs with over 50 employees contributed significantly to this expenditure, accounting for EUR 12.9 billion or 41% of total spending on digitalisation. In contrast, smaller businesses with fewer than five employees spent only EUR 4 billion.
On average, SMEs allocated EUR 25,000 to their digital projects in 2023—a 23% increase since before the pandemic. However, there remains a stark disparity between small and large firms; while small businesses spent an average of EUR 8,000 on digitalisation, larger companies invested around EUR 216,000.
Dr. Zimmermann emphasized: “In the past years, large SMEs succeeded in continuously widening their lead in digitalisation. Unless they significantly increase their digitalisation activities, small businesses run the risk of being left behind.”
KfW Research's position paper "Managing the transition, strengthening growth" provides further analysis on Germany's economic status and offers recommendations for future action across five policy areas.