This chapter delves deeper into the various challenges faced by Ukrainian SMEs in adopting digital transformation as well as solutions to overcome these. Barriers like lack of awareness, digital skills shortages, sectoral specificities, and financial constraints complicate sustainable digital progress, making targeted support essential. The chapter therefore provides a benchmark of existing tools for SME digitalisation in Ukraine against the blueprint developed by the OECD for policymakers and suggests avenues for further support services.
Enhancing Resilience by Boosting Digital Business Transformation in Ukraine
Abstract
When successful, the digital transformation provides many benefits to businesses. Smaller firms, however, tend to struggle to engage and thrive in their digitalisation journeys (Knuth, Saha and Poluschkin, 2021[1]). Although there has been a steady uptake of digital technologies by SMEs in Ukraine over the last decade, they still lag larger businesses in terms of digital progress. This contributes to inequalities among firms, and, in turn, people and places (OECD, 2021[2]). Previous and ongoing crises, such as the COVID-19 pandemic and Russia’s invasion, aggravated these inequalities (Qureshi, 2020[3]).
The hurdles SMEs face in adopting digital technologies include structural barriers such as the lack of information and awareness of digital tools and benefits, as well as digital skills gaps that impede managers and employees from identifying the digital solutions suitable to adapt their business models and processes. Another central barrier concerns difficulties SMEs encounter in accessing finance to invest into the digital transformation. Certain gaps and challenges also remain with regards to their access to the digitalisation ecosystem and networks, as outlined in the previous chapter. (Godlovitch and Bodin, 2022[4]).
A 2021 survey of Ukrainian companies (Knuth, Saha and Poluschkin, 2021[1]) illustrates the main challenges SMEs face in their digitalisation journey, highlighting access to finance and a lack of experienced employees as main obstacles (Figure 3.1).
Percentage of respondents, 2021
Note: Data refer to a survey sample of 500 companies. This includes companies of all sizes – micro, small, medium, and large enterprises – from all sectors and regions of Ukraine. The German Economic Team interviewed either the owners or managing directors or, in the case of large companies, top managers or high-ranking executives in each of the 500 companies throughout May and June 2021.
To tackle these challenges, SMEs need targeted support that is tailored to their broad range of individual needs (OECD, 2023[5]). This can take the form of a wide range of financial and non-financial services and tools. In 2021, the OECD developed a blueprint for policymakers to implement these (Figure 3.2). The document foresees 1) digital one-stop-shops providing information, raising awareness on the benefits of digitalisation and acting as single points of contact for support, 2) digital maturity self-assessment, 3) sector-specific digital plans that enable a study of sectoral digital needs and opportunities and offer a “digitalisation roadmap”, 4) digital skills enhancement and capacity building, and 5) financial support to help SMEs start their digitalisation journey and to support their digital strategies, skills and technologies. This chapter conducts a benchmark analysis of existing support services available in Ukraine against (and beyond) this blueprint.
Source: OECD analysis, (OECD, 2021[6]).
The EEPO’s extensive experience in offering business support programmes can be leveraged to provide tailored digitalisation support for SMEs
To help overcome the challenges faced by SMEs, the EEPO provides a great range of online business support services. Since its creation in 2016, it has developed and implemented a series of targeted support programmes for SMEs through the Diia.Business online platform and its different sub-platforms. Diia.Business offers a wide range of online services helping to set up and manage a business, including initiatives tailored to the different stages of business growth, e.g., for aspiring entrepreneurs and exporters. Moreover, the EEPO is constantly working on expanding the variety of its support services. A recent addition to its support portfolio, for instance, includes a new course for entrepreneurs on how to develop a “trend framework for innovation” (reflecting on developments in AI, ERP, and robotic automation, and outlining measures that can help integrate such tools into businesses)1. The EEPO is constantly working on further developing Diia.
However, existing, and planned business support with specific reference to digitalisation is rather limited, especially for SMEs that are just starting to digitalise. Online tools are likely to be accessed primarily by SME managers or employees who are already internet-savvy. While Diia.Business Centres throughout Ukraine offer free offline business consultations with certified consultants, they do not provide programmes tailored particularly to SMEs aiming to start their digitalisation journey, nor are they tailored to other SME-specific needs, such as their levels of digital maturity or the sector they operate in.
SMEs are unaware of digitalisation benefits and lack programmes tailored to their digital maturity levels
Despite the EEPO’s various support services, SMEs in Ukraine tend to use basic digital tools, while larger enterprises are leading in technology adoption (Knuth, Saha and Poluschkin, 2021[1]). Over a third of Ukrainian firms have websites (35%), while 29% use social media (2021). Fewer SMEs, however, have adopted more advanced digital services like cloud computing, IoT or big data analysis. Ukrainian SMEs appear to lag behind their counterparts in OECD countries as well as some of their EaP peers in terms of digital adoption (see Chapter 1).
Managing an initial digital transition and getting accustomed to digital tools, however, can drive further adoption and accelerate the use of more advanced digital services, as technologies are often complementary. For instance, complementarity exists “(i) between different technologies (e.g., back and front-office management software); (ii) with firms’ assets or investments (e.g., technical, managerial and general cognitive skills, financing capacities, organisational capital, intangible assets and R&D investment); and (iii) with policies (e.g., the propensity of the regulatory environment to promote competition and efficient resource allocation)” (OECD, 2021[6]; OECD, 2023[7]).
SMEs lack awareness of the benefits of digital tools and the ways they can be used, as well as the difficulty they face in choosing the right support programme for their needs out of the variety of existing programmes, are central barriers to digital progress. This is complicated by SMEs’ needs varying depending on their individual levels of digital maturity, as different maturity levels require different forms of support. To help tackle this, governments can provide digital maturity self-assessment tools (OECD, 2021[6]). Such tools are used to map a company’s digital readiness and point towards areas for improvement. At the same time, they can facilitate the collection of data that can be form the basis of future, tailored recommendations (Ottsejö, Sandra Nyström and Berglund, 2020[8]). The private sector can also offer digital audits in this regard, assessing what is already available in a respective company.
Digital readiness can be defined through a scale of maturity levels, ranging from initial to digital-oriented (meaning that the business is “based on a solid technology infrastructure”) (De Carolis et al., 2017[9]). Digital maturity assessments should further not only account for the digital technologies in use, but also for the level of digitalisation of the businesses’ overall organisational structures ”) (De Carolis et al., 2017[9]). For instance, Politecnico di Milano’s Digital Readiness Questionnaire evaluates digital readiness through four analysis dimensions: process, monitoring and control, technology, and organisation. Importantly, digital maturity self-assessments should be only a first step on an SME’s digitalisation journey and need to be followed by practical, tailored advice on next steps to enhance digital maturity and, ideally, by financial support (OECD, 2021[6]; De Carolis et al., 2017[9]).
Digital maturity self-assessment tools are increasingly used across OECD and EU countries. Over half of OECD member countries have some form of digital self-assessment, and some common tools exist at the regional and international level (e.g., in the Baltics and the EU; a new Digital Maturity Assessment Tool was developed by the European Commission for EDIHs for instance. Box 3.1 provides an overview of best practices of digital maturity self-assessment tools.
Digital maturity self-assessment tools are widely used across OECD and EU countries to assess businesses’ levels of digital progress. Good practice examples include:
“Smart Latvia”/ “Diginno”: In 2019, the Latvian Information and Communication Technology Association (LIKTA) launched “Smart Latvia”/ “Diginno”, an online self-assessment tool that allows Latvian managers to test their company’s digital maturity and to compare it with competitors, with support of Ministry of Economic Affairs and Communications of Estonia. This is available in Latvian, English and the other national languages of the Baltic Sea region and measures digital maturity across 10 business dimensions and took place in three stages. During the first stage, 1,000 entrepreneurs took the test and received tailored recommendations for their companies. Managers received recommendations on which IT solutions are suitable to enhance the company’s efficiency as well as tips on how to initiate an internal discussion on digitalisation with their employees. During the second stage, LIKTA collected up-to-date data on the digital maturity of Latvian companies. In parallel, it organised webinars, mentoring sessions and podcasts covering pressing issues for individual entrepreneurs and the overall ICT industry. The third and last stage included discussion rounds and in-person events, such as educative workshops, to support to managers of Latvian SMEs on implementing the latest IT solutions.
Digital Maturity Assessment Tool of the European Commission
With the roll-out of the Digital Europe programme, a new generation of European Digital Innovation Hubs (EDIH) are implemented to speed-up the digital transformation of SMEs across the EU. To measure the current level of digitalisation within EDIH customers’ processes (an SME or a Public Sector organisation) and put forward recommendations for improvement, the European Commission provides a European Digital Maturity Assessment (DMA) tool.
The tool assesses the overall digital maturity of SMEs across six dimensions, including i) digital strategy and investments, ii) digital readiness, iii) human-centric digitalisation, iv) data management and security, v) interoperability, and vi) green digitalisation.
DREAMY (Digital Readiness Assessment Maturity model): The DREAMY model and related questionnaire were developed by Politecnico di Milano as a digital maturity assessment method to measure manufacturing companies’ digital preparedness. It primarily consists of a questionnaire building on the five strategic areas for enabling smart manufacturing systems. These include i) Design and Engineering, ii) Production Management, iii) Quality Management, iv) Maintenance Management, and v) Logistics Management. Based on these considerations, the four dimensions of analysis of digital maturity are Process, Monitoring and Control, Technology, and Organisation.
To date, Ukraine offers a self-assessment tool for digital skills through Diia.Digital Education’s so-called “Digigrams”. These national tests build on the EU competencies and DigComp UA frameworks and allow individuals to test their skills against 30 different digital competencies. As different occupations require different digital skillsets, different versions of Digigram exist, including variants for citizens, healthcare workers, public servants, and teachers (ITU, 2021[18]). Beyond this, the DigComp4Entrepreneurs framework provides a baseline against which to benchmark digital competence, in line with EU standards and practices (see Box 3.2). The EEPO has also launched a test of personal data protection that assesses how well a business is doing in terms of digital security and provides recommendations on how to enhance security via the Diia.Business portal (Cyber Diia, n.d.[19]; OECD, 2021[20]). Fostering privacy protection further helps Ukraine move closer to EU standards of personal data protection. While the government has expressed its determination to establish a self-assessment tool for entrepreneurs to assess their digital maturity and skills, such a tool has not yet materialised. Ukraine could build on its experience to launch such tool to help SMEs start or progress on their digitalisation journeys.
DigComp4Entrepreneurs
Ukraine’s Digital Competence Framework for Entrepreneurs (DigComp4Entrepreneurs) was developed in 2021. It builds on the Diia.Digital Education project and received support from the East Europe Foundation. The framework’s overall objectives include reducing barriers to business initiation, enhancing business agility, elevating competitiveness and digital security, incentivising entrepreneurial initiatives, and mitigating emerging challenges associated with digital technology advancement.
The programme particularly targets entrepreneurs (especially those lacking formal IT education) and allows them to assess their digital competencies. This is complemented by tests tailored to specific target groups, i.e., the Digigrams. Around 187.334 people have taken the assessment to date. Upon successful completion of the assessment, participants receive an electronic certificate. This confirms the individual’s overall level of digital literacy, the total score achieved, and the breakdown of points attained in each competence area, and thereby helps individuals position themselves competitively within the labour market.
EntreComp4Youth and EntreGram4Youth
The key goal of these frameworks is to develop digital, entrepreneurial, and green skills for young people; complementary to key institutions in education, training, practical training, continuing education, and internships.
The Entrepreneurial Competence Framework for Youth in Ukraine (EntreComp4Youth) is dedicated to fostering youth leadership and entrepreneurship, e.g., through capacity building, fellowships, support for policy dialogue, and grants. This includes a self-assessment tool to measure the entrepreneurial potential of young people (EntreGram4Youth) which can be accessed via the Diia.Digital Education platform. Upon completion, test-takers receive a certificate that can be used, e.g., for job applications.
EntreComp4Youth is structured around four pillars mirroring the lifecycle of a startup; providing a roadmap and recommendations for each stage of a startup’s life to promote entrepreneurship effectively. Building on the EU model, the Ukrainian government expanded the framework to include four pillars: (i) Pre-conditions (a new addition compared to the European framework), (ii) Start, (iii) Run, and (iv) Grow. Each pillar encompasses skills such as innovation, leadership, problem-solving readiness, adaptability, and financial management. It also includes competencies revolving around fostering public-private partnerships as well as support for young people with special needs.
While self-assessment tools for SMEs are a very useful first step, they should be complemented by tailored advisory services. Indeed, small firms or entrepreneurs who are not familiar with digital tools often struggle to understand the questions and interpret the results. Few have a strategy for the digital transformation (Figure 3.3) – even among large firms, only 20% of them do so, as against 39% of German companies, for instance (Knuth, Saha and Poluschkin, 2021[1]). Digital advisors/experts are therefore essential, to guide SMEs, help them develop digitalisation strategies based on the test results and point them towards relevant solutions. While SMEs can receive preliminary guidance on digitalisation through the aforementioned free online consultation opportunities, this form of support does not involve a comprehensive analysis of the company’s operations and is unlikely to provide a customised roadmap for their digital transformation.
Percentage of firms having already taken the given measure, 2021
Note: Data refer to a survey sample of 500 companies. This includes companies of all sizes – micro, small, medium, and large enterprises – from all sectors and regions of Ukraine. The German Economic Team interviewed either the owners or managing directors or, in the case of large companies, top managers or high-ranking executives in each of the 500 companies throughout May and June 2021.
Sector-specific digitalisation roadmaps can facilitate SMEs’ diverse digitalisation processes
As mentioned, digital maturity self-assessment tools should be followed with further support for SMEs. The complexity of the digitalisation process does not allow for a “one-size-fits-all” approach, especially considering that SMEs in different sectors have different needs (OECD, 2018[22]; OECD, 2021[23]).
In terms of key sectors, Horizon Capital expects Ukraine’s economy to be structured around advanced manufacturing, ICT, and agriculture (Savoy and Staguhn, 2023[24]). Wholesale and retail trade concentrate most SMEs, accounting for 39.8% (State Statistics Sevice of Ukraine, n.d.[25]). Ukraine’s manufacturing sector has been historically strong, accounting for 10% of GDP in 2021 and representing 10% of SMEs in 2022. Agriculture made up around 13% of SMEs in 2022 and is vital for the economy and population, particularly considering war-induced grain shortages. Table 3.1 illustrates the various ways these sectors can benefit from digitalisation.
Figure 3.4 illustrates the use of digital technologies in Ukraine’s manufacturing and wholesale and retail trade sectors compared to all firms. The use of more advanced tools such as cloud computing or robotics is not very common amongst businesses in general, but the two selected sectors tend to use more digital technologies than the national average. Data reveal sectoral disparities in technology adoption, with manufacturing firms displaying higher uptake of robotics and 3-D printing, while businesses in the wholesale and retail trade make greater use of social media and chat services, as well as big data analytics. These differences partially reflect varying needs across sectors: robotics, for instance, can be especially useful for manufacturing, as they can facilitate production processes and can further alleviate the consequences of labour shortages (Povlsen, 2023[31]). However, the divergence in adoption rates between these sectors is minimal in most areas, in both Ukraine and the EU. What is striking, however, is that so few businesses in wholesale and retail trade use chat services for customers, considering that this is a very customer-oriented sector. Similarly, wholesale and retail trade companies could significantly benefit from creating more websites to facilitate interactions with customers. While businesses’ use of big data analytics reaches comparable levels between Ukraine and the EU, considerable gaps persist with regards to cloud computing for instance – 11% of Ukrainian firms in wholesale and retail use it and 9% in the manufacturing sector, vs. 34% and 32% in the EU, respectively (European Commission, 2022[32]).
Percentage of firms, 2022 or latest available
Note: Data refer to 2020 (3-D printing, Big data analysis, and E-invoice), 2021 (Robotics, Website, and Chat services for customers), and 2022 (Cloud computing and Social media).
Source: (Ukrstat, 2023[33]).
Given disparities in digital tools’ utility and uptake across sectors, tailored approaches and advice can better address firms’ needs. Sector-specific digitalisation roadmaps, for instance, can provide SMEs with step-by-step recommendations on available digital solutions, adapted to their individual needs. Ideally, these should be integrated into broader (offline) support networks (OECD, 2019[34]).
Such roadmaps are not yet provided in Ukraine. However, some regions have shown willingness to take on such approaches: the Operational Plan for the implementation of the Economic Development Strategy of Donetsk and Luhansk for the period to 2030, adopted in August 2021 (Cabinet of Ministers of Ukraine, 2021[35]), for instance, foresaw the creation of a business support system including regional competence centres and a regional division of the EEPO focusing particularly on the business sectors the regions specialised in (apart from the large metallurgy, grain growing and oil production industries). The aim was to ensure the support of regional value-added chains and export businesses.2 This experience can be leveraged when developing sector-specific digitalisation roadmaps.
To facilitate the development of sector-specific digitalisation roadmaps in Ukraine, data need to be collected on the digital maturity of different sectors to establish a baseline and identify sectoral priorities. The Ukrainian National Statistical Office, Ukrstat, is a regional leader in that regard – it already collects, size- and sector-disaggregated data on the number of enterprises that have access to the Internet; the digital tools used by enterprise size and economic activity; the number of industrial enterprises that implement innovation (product and/or technological processes); and in-house training provision on ICT-related skills (State Statistics Office for Ukraine, 2020[36]; State Statistics Office for Ukraine, 2021[37]). The results of the digital maturity self-assessment tool would offer insights into sectoral specificities per firm size, granted that respondents indicate their respective sector in the online questionnaire.
The government is committed to digital skills training for citizens and entrepreneurs
The lack of appropriate skills among SME managers and employees is one of the main barriers to digitalisation. In Ukraine, the lack of experienced employees and lack of expertise are, after lack of finance, the key obstacles to digital transformation cited by SMEs (see Figure 3.1). Basic digital skills are also essential for entrepreneurs and employees to benefit from the wide range of e-support services provided by the government (ITU, 2021[18]).
Several types of skills matter for the SMEs’ digital progress. To offer policymakers a clear definition and help build a common understanding, the OECD has developed a taxonomy of ICT skills. While foundational skills, such as literacy and numeracy, appear as a pre-requisite for any individual to develop digital skills, the latter can then be broken down into three main categories: “i) ICT generic skills, that can be useful for the entire working-age population by facilitating the use of digital technologies for both work and daily life, ii) ICT advanced skills, developed by IT specialists (e.g., programming or developing apps), and iii) ICT complementary skills, that are not hard skills per se but help reap the benefits of digital tools – e.g., information processing, problem-solving, and interpersonal skills as well as managerial and organisational skills” (Grundke et al., 2018[38]; OECD, 2016[39]). Specific digital skillsets allow firms to streamline working progresses and to simplify collaboration, thereby increasing efficiency and helping open avenues to new markets. Digitally skilled entrepreneurs and employees can also help SMEs tap into the potential of market solutions. Many SMEs cannot rely solely on the digital skills of their employees and are dependent on larger ecosystems and networks in this regard (OECD, 2021[23]). To compensate for weak internal capabilities, they tend to outsource solutions when digitalising– e.g., for managing digital security risks, SMEs tend to rely on external consultants or the “security-by-design” features of the products and services they use; they also often source AI solutions from knowledge markets (OECD, 2021[23]). Digital skills can help SMEs make informed decisions when outsourcing such tasks. Insufficient digital skillsets of employees can risk inducing a mismatch on the labour market as well as a digital divide – not only between firms of different sizes but also between digitally advanced and less skilled workers (Friedrich-Ebert-Foundation, 2022[40]; Betily et al., 2023[41]).
The government’s resolute commitment to nurturing digital skills among the population remains steadfast, even in the face of Russia’s invasion. Despite severe disruptions in internet connectivity and outages, as well as the strains caused by migration and military service on the availability of skilled IT specialists (OECD, 2022[42]), Ukraine’s dedication to fostering digital literacy has intensified. The war has prompted a further strategic re-evaluation of the focus of pre-existing digital skills training-initiatives, like Diia.Digital Education. The United Nations reports that approximately 60% of Ukraine’s internally displaced persons (IDPs) are of working age. Digital skills retraining is a potential solution to equip them with the competencies sought by employers in the job market. For instance, despite wartime conditions, the high number of entry-level positions in technology-related roles, such as data analysts and digital marketers, indicates a demand for appropriately skilled employees (Ionan, 2023[43]). Consequently, Diia.Digital Education has honed its efforts towards addressing these specialised vacancies and an upgraded version, backed by Google and the East Europe Foundation, was introduced in May 2023. 2 million active students use Diia.Digital Education and 3 million certificates have been issued (Diia.Business, EEPO, 2022[44]).
Table 3.2 exemplifies digital skills support provided by the government – ranging from digital skills self-assessments to training. To date, digital skills initiatives include the upgraded version of Diia.Digital Education (May 2023), its network of +5,000 hubs in public libraries, universities and schools and interactive portal containing over 320 lessons and 500 interactive tasks for IT teachers and children (including on big data and AI), the National Online School for Entrepreneurs, the International Computer Driver’s License, and the Digigram skills assessment tools mentioned above. 2 million active students use Diia.Digital Education and 3 million certificates have been issued (Diia.Business, EEPO, 2022[44]).
Source: (ICDL, 2023[45]; Ionan, 2023[43]; Diia.Business, 2024[46]; Tech Ukraine, n.d.[47]; ITU, 2021[18]), fact-finding exercises conducted in H1 2023.
Tailored digital skills training for SME managers and employees is also offered through public-private co-operation. Beyond services to enhance digital skills for the general population, the government recognises the importance of providing tailored training to SME managers, employees, and entrepreneurs. To do so, the National Online School for Entrepreneurs on the Diia.Business portal offers several educational online courses covering topics such as “e-document management for entrepreneurs”, “transfer of business process online”, “Promotion on social networks – Boost with Facebook Bootcamp” and others (Diia.Business, 2024[46]). SMEs and entrepreneurs also benefit from initiatives carried out by, or in co-operation with, different public and private stakeholders (such as large companies). The “Partnership Offers” section of the Diia.Business website provides entrepreneurs with an extensive overview of over 60 discounts, promotions, and free opportunities from private Diia.Business partners (a list of which can be found on the Diia.Business website) including online services, training programmes, and paid consultations (OECD, 2021[6]). Such programmes can often achieve goals that could not be accomplished by governments alone (OECD, 2021[2]; European Training Foundation, 2020[48]). A wide range of training opportunities for entrepreneurs, particularly in the fields of digital marketing, sector-specific training (tourism), and war-related digitalisation support for businesses, exist in Ukraine – Table 3.3 provides some examples.
Source: (OECD, 2021[6]; MenaFN, 2020[49]; IAMPM, 2023[50]), fact-finding exercises conducted in H1 2023.
Ukraine is often cited as a good practice example, especially by its peers from the EaP region, when it comes to offering digital skills trainings for both the general population, and entrepreneurs specifically. Indeed, the above-mentioned wide range of governmental and public-private support services is a considerable asset for Ukraine during wartime and beyond, helping Ukraine achieve its goal to engage 6 million citizens in digital literacy programmes (Siutkin, 2024[51]). However, despite this wide range of digital skills training, Ukraine still lags OECD and EU averages, as well as some EaP skills levels (Figure 3.5).
Percentage of individuals with skills, 2021 or latest available
Note: Data not available for Armenia and Moldova. Data on advanced skills for Georgia refer to 2020, as 2021 data are not available. Data on advanced skills for Azerbaijan not available. OECD and EU values refer to the median values of countries for which 2021 data is available. Basic skills correspond to copying or moving a file or folder, using copy and paste tools, sending e-mails with attached files, and transferring files between a computer and other devices; standard skills to using basic arithmetic formula in a spreadsheet; connecting and installing new devices; creating electronic presentations with presentation software; and finding, downloading, installing and configuring software; and advanced skills to writing a computer program using a specialised programming language.
Source: Based on (ITU, 2022[52]).
Digital skills training opportunities are periodically monitored by the MDTU, which conducts bi-annual studies (the last one in 2023) (Siutkin, 2024[51]). These offer very valuable insights into digital skills development among different target groups and across regions. However, the ITU suggested that the effectiveness of the monitoring could be increased by updating the measurements used to assess and evaluate the levels of digital competencies at the individual, organisational and systemic levels, as well as on different levels of government (ITU, 2021[18]).
Collecting more extensive data on digital skills would also support these measures and enable a mapping of digital skills across regions and sectors (ITU, 2021[18]). This could help better adapt future support services to specific needs and can contribute to overcoming problems of skills mismatch in the labour market.
To this end, the government is planning to develop a systematic approach to regularly gather more SME skills intelligence data. It aims to adopt a new law on adult education, as well as to introduce a United State Electronic Database on Education (USEBE)3. As part of the planned work on updating the Diia.Business portal, the EEPO aims to expand the list of data about users during the registration and authorisation on the portal.
Moreover, while trainings are most often monitored, the actual impact of this impressive repertoire of digital skills training opportunities for entrepreneurs is not regularly evaluated. Doing so, i.e., by assessing the digital skills acquired by entrepreneurs using these services or the digital technologies adopted by SMEs, would allow Ukraine to better develop future services and adapt existing ones to real needs.
Overall, digital skills training should be integrated into a broader, nation-wide, step-by-step programme, including the digital maturity self-assessment, sectoral digitalisation roadmaps, in-depth advisory, and financial support – to incentivise SME managers and employees to develop their skills and make use of the training options available, pointing them towards the most relevant ones.
As seen above, access to finance and a scarcity of resources to invest in the digitalisation process is quoted as a central obstacle to SME digitalisation in Ukraine. The smaller the company, the more difficult it is to tap into both, external and internal funding opportunities (OECD, 2020[53]; OECD, 2023[54]). Generally, countries offer the following financing options to support SME digitalisation:
Enterprise support agencies can ensure that SMEs have access to grants to purchase digital products and services. A good practice is to design such subsidies as “matching grants”, requiring a co-payment by the SMEs to ensure a minimum level of private investment and risk-taking in the digitalisation process (OECD, 2022[55]).
Vouchers can incentivise SME managers to reach out for support in terms of mentoring, counselling, and training. When offering such incentives, it must be ensured that the quality of training is met by developing quality labels/certification of approved and efficient training schemes. Alternatively, only incentives of training and advice by previously accredited institutions should be provided (OECD, 2021[6]; OECD, 2013[56]; OECD, 2021[57]).
Governments can facilitate SMEs’ access to loans by offering guarantees and counter guarantees to finance investment in digital transformation processes to selected financial intermediaries to increase their incentives to lend to SMEs. One way to quickly achieve this is to make expenditures on digital technology eligible for the already existing programmes (EBRD, n.d.[58]; The World Bank, 2024[59]).
Indirect financial incentives can include accelerated depreciation schemes, allowing extra-amortisation on the purchase of certain eligible “digitally oriented” tangible assets and human resources. While these incentives operate through the tax systems, SME agencies could increase awareness of such options among their community of beneficiary SMEs (Godlovitch and Bodin, 2022[4]; OECD, 2021[6]).
In Ukraine, the Diia.Business portal provides an online marketplace with an overview of financial support programmes for SMEs, including grants financed by donors such as USAID or the EU. Ukraine has been implementing several initiatives to facilitate SMEs’ access to finance at large: the programme “5-7-9”, for instance, facilities their access to credit at discounted rates through credit guarantees and partial compensation of interest on the loan. In 2020, the programme granted UAH 16.5 billion (roughly EUR 403 million) in credit and loans to 6,957 SMEs. Furthermore, there used to be a government-programme allowing entrepreneurs to apply to grants of USD 5000 (approx. 4,600 EUR) to launch their businesses4. However, this was discontinued after the beginning of Russia’s full-scale invasion. Still, new forms of support have been launched, including the “eRobota” project, consisting of six grant programmes for opening or developing a business. It offers, inter alia, micro-grants to new entrepreneurs (UAH 150 000 to 250 000 – approx. EUR 3,672 to 6,120), as well as green- and IT-related support – e.g., to support startups in the IT sector, or to fund IT training. Moreover, the new defence tech initiative “Brave1” offers support to critical industries (including to 100+ SMEs). It only promotes collaboration between stakeholders in the defence tech industry, but also offers financial support for defence tech projects. With the financial support of international donors, Diia.Business Centres across Ukraine were further able to implement several grant projects in different sectors. Examples include the “SME Competitiveness and Internationalisation Programme” (Diia.Business Centre, Ternopil), which was implemented under the EU4Business initiative and was co-funded by the EU and GIZ, the “Grants for Business” educational and consulting programme for SMEs (Diia.Business Centre, Poltava), or the educational and grant programme “Strength” (supported by USAID) which aimed to help businesses from Kharkiv, Dnipro and Odesa that were forced to relocate to return and restore their businesses.
In terms of funding from the government, corporate lending, in particular to SMEs, declined less than expected and the NBU is rapidly adjusting to wartime conditions. However, funding (in the form of vouchers or bank financing) from the government or international donors is not adjusted specifically to fostering digital transformation and non-bank financial instruments are underutilised. Neither is it possible to track the distribution of private investment (including business angels and venture capital) across the components of the digital transformation process (EU4Digital, 2020[60]). Overall, while general business funding can be mobilised, particularly through international aid, financial support for the digital transformation of SMEs is scarce.
For digitalisation support, businesses, organisations and public administration can apply for funding and support for projects in “key capacity areas such as supercomputing, AI, advanced digital skills, and ensuring a wide use of digital technologies across the economy and society” through the Digital Europe Programme, which has an overall budget of 7.5 billion EUR for 2021-2027 (CEPIS, 2022[61]). USAID is another important donor in this regard.
While current circumstances do not allow for extensive funding specifically dedicated to SMEs’ digital transformation, given budget constraints and war-related financing priorities, the current donor-funded approach might not be sustainable in the longer run. Moreover, co-ordination issues among the donor community can complicate the timely and effective allocation of resources. Donors further sometimes struggle to allocate funding to SMEs’ priorities. Similarly, SMEs face difficulties in understanding the value added of some donor-funded projects, as their working languages can differ significantly. Looking ahead towards Ukraine’s recovery and reconstruction process, improved co-ordination among donors and between donors and recipient businesses, as well as broader financial support for SME digitalisation will thus be essential to ensure the long-term sustainable transformation of SMEs.
To support SMEs of all levels of digital maturity in all sectors and overcome the challenges described above, Ukraine can consider developing a comprehensive digitalisation support programme for SMEs in non-IT sectors, encompassing several short-, medium-, and long-term measures. In doing so, it can especially leverage EEPO’s longstanding experience in offering business support services.
Account for SMEs’ diverse digitalisation needs in terms of digital maturity and sector
As mentioned, SMEs tend to lack awareness of their digital needs and have only limited access to support services tailored to their digital maturity levels and/or their sectoral needs. To overcome this, the government could consider the following measures:
In the short term,
Develop an online digital maturity self-assessment tool for SMEs: Usually, digital maturity self-assessment tools are divided into questions covering the following : i) general information about the company and its use of digital tools, ii) self-reflection on why the company has not yet digitalised further and assessment of obstacles the company might be facing on its digitalisation journey, iii) digital skills assessment, iv) use of digital technologies in human resources, resource management, in the production process, and in financial management, v) digital security measures, vi) use of digital tools in customer relations and for outward presentation of the company, and vii) digital plans for the future. In developing its own SME digital maturity self-assessment tool, Ukraine can draw on a range of good practice examples from OECD and EU countries illustrated in Box 3.1.
Expand sector-specific digitalisation support: Digital maturity self-assessment tools should guide SMEs towards relevant digitalisation support. To this end, the government can consider adopting a sector-specific approach to digitalisation support services. Ukraine’s DIHs are already applying a sector-specific approach (e.g., DIH I4MS focusing on manufacturing companies). However, in order to scale this up, an important step would be to perform studies on the digital maturity of different sectors to establish a baseline and identify overall sectoral priorities. Beyond this, sector-specific digitalisation roadmaps can provide step-by-step digital solutions that are sensitive to the respective sectors in which SMEs operate (OECD, 2021[6]; OECD, 2021[62]). Here, the first step usually includes solutions to get digital-ready and provides a list of basic recommendations to streamline operations and optimise resources. The second step includes solutions to connect businesses and to expand the market. The last stage offers solutions for intelligent and data-driven business. To maintain its relevance, the roadmap will have to be updated according to the respective industry’s digital progress (Spaltini et al., 2022[63]). Infographic 3.1 provides an exemplary digitalisation roadmap for manufacturing SMEs5. Lastly, to fully tap into the potential of the digitalisation support-network across Ukraine, synergies between DIHs and regional Diia.Business Centres can be fostered to expand sector-specific online and offline services, depending on the sectoral concentration of SMEs in the respective regions. Eventually, the government might consider moving these “sectoral hubs” online. For this, however, it should be ensured that all SMEs in the region are aware of the services and know how to access them online.
In the long term, connect SMEs with independent, private consulting service providers for in-depth consultations. SMEs currently benefit from some free-of-charge consultations. In the long run and as SMEs’ digital concerns become more multi-faceted, these might, however, not be able to provide the in-depth digitalisation support and guidance that SMEs need. At the same time, Ukraine has a booming IT sector and expertise that has little points of contact with the SME environment and is largely export-oriented. Looking ahead, independent consulting services from private providers (from the IT sector) might be able to complement Diia’s work. This can help SMEs access tailored, in-depth advice on how to go digital and should be integrated in Ukraine’s overall SME digitalisation programme. Being able to consult with consultants (e.g., from the IT sector) could also allow SMEs make more informed financial and investment decisions. EEPO could thereby outsource the advisory component, tapping into private sector opportunities and acting as a “bridge” in that regard, pointing SMEs to independent experts, and perhaps providing partial co-funding of service fees to support SMEs in accessing private consultations. The expertise and services from IT consultants can prove especially valuable for tailor-made digital audits, assessing the digital tools already available in the respective companies and providing guidance on which new digital tools to purchase. It is important, however, to highlight that Diia.Business is not intended to compete with independent consulting services in any form, neither should private consulting services be crowded out. Box 3.4 provides a good practice example from Austria, the KMU.Digital initiative.
The “Mittelstand-Digital Initiative” was launched by the Federal Ministry for Economic Affairs and Climate Action of Germany. It supports the digitalisation of SMEs through i) its Centres of Excellence across Germany, and ii) its “IT Security” initiative.
The regional centres each specialise in a specific SME sector that is aligned with the overall sectoral focus of the region they are located in. These centres function as a single point of contact for entrepreneurs and provide opportunities for best-practice exchange, professional consultation on digital transformation (free of charge), and digital learning opportunities.
Through the digital security training, SMEs can utilise an online tool, “Sec-O-Mat” which offers individual action plans to enhance IT security for SMEs. This is part of the wider “IT-Sicherheit in der Wirtschaft”-project.
Funding is provided through the “Digital Jetzt”-initiative by the German Ministry for Economy and Climate Protection. Through a simple online application tool, SMEs can apply for funding that is specifically intended to implement digital technologies and support employees’ digital skills training.
Similar to the “Mittelstand-Digital”-Initiative, the Austrian KMU.Digital supports the digital development of SMEs in Austria. It was initiated by the Austrian Ministry for Labour and Economy in co-operation with the Austrian Economics Chamber and is co-funded by the European Union. Through KMU.Digital, Austrian SMEs receive tailored and individual consultations with certified experts. Topics include business model development, resource optimisation, e-commerce, online-marketing, IT and cybersecurity, as well as digital administration. KMU.Digital supported over 22,000 digitalisation initiatives, including through financial support of around EUR 22 million, since its launch in 2017 (as per August 2022).
SMEs can refer to three types of digitalisation consultations, covering i) analysis of their status quo and future digital potential, ii) strategy consulting, and iii) support with realising concrete digitalisation projects. The KMU.Digital Website offers a very comprehensive 11-step guideline on how to best make use of its services and how to receive relevant funding. It is reported that e-commerce is amongst the most requested topics for consultation, while not that many MSMEs are asking for support in the areas of digital administration or cybersecurity.
The costs for consultations are covered as follows: i) 80% (max. EUR 400) for initial consultations on the status quo and digitalisation potential, ii) 50% (max. EUR 1,000) for strategy-related advice, and iii) 30% (max 6,000) for concrete digitalisation projects. KMU.Digital realises that especially micro and small enterprises lack (financial) resources to digitalisation. This is why over 75% of financial support goes towards supporting their digitalisation projects.
Consider financial support services for SME digitalisation
The ongoing war complicates SMEs’ overall access to finance, not least because, naturally, a large share of the government’s budget goes towards defence6. While the funding of defence-tech (e.g., “Brave1”) offers a good practice example that the government can apply to other areas as well, no programme is dedicated to funding SMEs’ digitalisation or to incentivising SMEs to digitalise to date. Thus far, SME digitalisation is not considered in Ukraine’s annual state budget nor is this accounted for in the Ukraine Plan, despite SMEs noting access to finance as a major barrier to digitalisation (see above). For now, funding primarily comes from the donor community, where co-ordination is not always straightforward. Regular check-ins between donors and receiving businesses on the ground could be institutionalised, to ensure that funding is matched to SMEs’ priorities. This, however, does not take away from the value added of considering solutions for financial support coming from the government in the long run. Certain co-financing mechanisms might still be viable options even under current conditions and especially looking towards recovery and reconstruction. Overall, financial instruments, such as preferential or interest free loans, guarantees, mezzanine finance, or VC, for the digital transformation can be provided through one place, ideally a National Development Bank operating on a commercial market. Funding for digitalisation can then be allocated to that Bank and be reinvested in the future.
As regards this, funding in Ukraine is usually targeted towards a specific audience, and less so towards, in this case, digitalisation specifically. The government could consider, in the medium and longer terms, the following measures and could refer to good practice examples from EU and OECD countries outlined in Box 3.5 below:
Co-financing/co-investment approaches, bringing together private and public investors, to incentivise SMEs to go digital in the medium-term. This can alleviate budget burdens, while still fostering digital progress and can be particularly valuable in supporting SMEs to access support in the early stages of digitalisation (European Commission and EBRD, 2019[73]). Through co-financing, SMEs can access support and consulting services at lower-than-market prices (Kergroach, S., 2021[74]). The Spanish “Innocamaras Programme” is a good example, promoting the digitalisation of SMEs through a two-steps plan.
Introduce post-war incentives for SMEs to invest into their digital transformation in the long-term:
Offer vouchers for specific SME digitalisation projects. Vouchers can help SMEs (quickly) access concrete services, advice, or expertise. They can further incentivise SME managers to reach out for digitalisation support and are often used to promote innovation related activities, such as the adoption of digital technologies and the acquisition of new skills, e.g., through training. Providing funding for concrete projects also allows to trace it and to use it as efficiently as possible. Moreover, vouchers harbour great potential for complementing digital maturity self-assessment tools and sector-specific digitalisation roadmaps by offering tailored financial support for specific needs that might be identified through self-assessments and in roadmaps. They are widely used across OECD and EU countries, e.g., in Denmark and Portugal.
Loans and (co-financed) grants can help SMEs purchase digital products and services and can also be used to hire digitalisation experts (Knuth, Saha and Poluschkin, 2021[1]). This format of the “5-7-9” programme or of eRobota, for instance, could be tailored to incentivising SMEs to invest into their digital transformation. Moreover, with its “Vision 2030”, Ukraine plans to offer funding programmes for innovation projects involving businesses and academia (e.g., in the form of vouchers or grants) on the condition that 50% of the funding will be spent on R&D. Similar models could be developed for SMEs’ investment in digital progress.
Co-financing mechanisms for SME digitalisation in Spain
The Spanish “Innocamaras Programme” promotes SME digitalisation through in two steps (Cronuts.Digital, n.d.[75]). Overall, the programme aims at supporting SMEs in developing own plans of innovative solutions (Interreg Europe, 2021[76]). The first step, an initial diagnosis and consultation of the SME, is fully financed by the Multi-regional Operational Programme of Spain (ERDF) and the Murcia Chamber of Commerce, while co-financing takes place in a second step, the elaboration of an Individual Plan for the implementation of innovative solutions (Interreg Europe, 2021[76]).
Voucher schemes for SME digitalisation in Denmark and Portugal
The Danish government offered grant vouchers to promote digitalisation and e-commerce in Danish SMEs (2018-2023). Danish SMEs could apply for vouchers for competence development, investment in new technology and for advice on digital conversion and automation (Acubiz, 2022[77]). Portugal’s “Industry 4.0 Vouchers to promote SME digitalisation” enables SMEs to purchase consultancy services to identify strategies for adopting technologies and enabling digital processes. SMEs can apply for vouchers with a specific project (Interreg Europe, 2021[78]).
Loans for SME digitalisation in Germany
The KfW Bank’s “ERP Digitisation and Innovation Loan” provides a good practice example for Ukrainian banks. The funding (provided as a loan) can be used for investments and working capital in connection with digitalisation innovation projects, for consulting services, hardware, and software, as well as the qualification of employees (KFW, 2020[79]). As mentioned above, the German “Digital Jetzt” funding programme is included in the “Mittelstand-Digital”-ecosystem and makes grants available for investments in digital technologies for SMEs of all sectors, as well as investments for the qualification of employees on digital topics (BMWK, n.d.[67]).
Three projects supporting the funding of SME digitalisation in the Czechia
The Czechia offers three main projects to fund SME digital transformation: “Rise Up”, “Technologies and Applications for Competitiveness”, and the National Recovery Plan. “Rise Up” uses national and EU funding and promotes SME digitalisation through different calls, e.g., for businesses seeking consulting or expert advice. 85% of the associated costs are covered and, in total, EUR 20 million are allocated to the programme, with subsidy amounts of EUR 2,000 to 200,000. Specific areas for consultation and support include, but are not limited to, marketing and customer care, project management, and data integration. 70% of participating firms are small companies.
The “Technologies and Applications for Competitiveness” programme allocates another EUR 260 million to business digitalisation and includes “Virtual Enterprise I.”, “Digital Enterprise I.”, and “Technology 4.0”. The Czech Recovery Plan also includes pilot calls for the first two proposals and allocates EUR 116 million. Individual projects are funded through co-financing (with rates ranging from 20-40% and 30-60%). Thus far, both programmes have helped SMEs (and large firms) to acquire new technological equipment, to enhance connectivity within their company, to enhance cybersecurity, to offer one-off training (IT certification processes), and to implement digital models, e.g., in construction businesses.
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← 1. Information retrieved at the third public-private working group meeting on 21 November 2023.
← 2. Given the continued large-scale destruction and structural changes of Donetsk and Luhansk as a result of Russia’s war against Ukraine, the regional strategy is likely to be adjusted to reflect the evolving reality to ensure applicability.
← 3. Information retrieved from fact-finding exercises in H1 2023.
← 4. Information retrieved from fact-finding exercises conducted in H1 2023.
← 5. This roadmap is exemplary and was established building on the experience of primarily OECD-based manufacturing SMEs. This might look different in the Ukrainian context and it is important to keep in mind that digitalisation roadmaps overall should always be adapted to the specific situation and needs of the respective sector (and its SMEs).
← 6. Information retrieved through fact finding exercises conducted in Q2 2023.