The pandemic leaves Italy with a digital delay that is rushing to catch up

MILAN (Reuters) – The small Italian car filter supplier Ecofiltri contracted a state-backed loan last year, as did thousands of other companies struggling to stay afloat during the pandemic.

But instead of throwing away the money to pay the outstanding rent and bills, Ecofiltri is investing the money in a technological renovation of its business. Already facing a longer-term shift to electric transport, the company has been urged to act after the virus crisis reduced the number of drivers on the road.

“We have expanded our facilities, bought high-tech equipment and even set up a research and development department where we are working on three projects. We hope to be able to patent to provide smarter products and services,” Ecofiltri co-founder told Reuters. , Simone Scafetta. video call.

Italy ranked fourth in the EU in terms of digital competitiveness in 2019, according to the Digital Economy and Society Index (DESI). By forcing a huge technological acceleration on the country, the pandemic offers Italy a unique chance to increase its weak productivity and economic growth.

For a chart on the DESI 2020 index:

Faster economic expansion is essential for Rome to sustain the third largest public debt in the world, which the pandemic has inflated to 1.6 times gross domestic product (GDP).

Research conducted by the Politecnico University of Milan shows that Italy could add an average of 1.9 percentage points per year to GDP growth if its small and medium-sized enterprises (SMEs) reduce their gap by 40% compared to their peers. Spaniards measured by indicators ranging from e-commerce or e-invoicing capabilities to the use of big data.

“But the trick only works if companies move from a reactive (crisis-driven) approach to technology to a strategic one, and the environment in which they operate evolves with them,” said Giorgia Sali, head of Politecnico’s research center on SMEs and digital innovation.

For an image of DESI index connectivity:

Italy estimates that its business in recent years has fallen to the rest of Europe in terms of digital investment by about 2 percentage points of GDP.

The pandemic brought a welcome change, 86% of Italian respondents in a survey conducted by medium and large companies, commissioned by Dell Technologies, saying that they accelerated digital transformation plans in 2020, above the European average of 75%.

“The pandemic has forced Italian companies to face the country’s huge digital divide,” said Francesca Moriani, CEO of IT service provider VAR Group, adding that Europe as a whole lags behind the United States and China.

The digital economy of the euro area is only two-thirds higher than in the United States.

Encouragingly, 92% of SMEs surveyed by the VAR Group expect to invest in digital capacity over the next two years, despite the pandemic sales blow.

RECOVERY FUNDS

Italy’s digital deficit has a number of roots.

In a country where broadband access is below the EU average, large companies that can support technology investment programs are only a small part of businesses.

Many companies are family owned and managed, which means they tend to lack managers with the right skills to drive a digital transformation.

A European Central Bank study also highlighted funding constraints when businesses rely primarily on bank financing, as in Italy, saying traditional lenders often struggle to assess the risk involved in projects based on complex technologies.

Add to this an aging population and a very small share of ICT graduates – about 5,000 a year, compared to about 18,000 in lower Spain, according to Eurostat figures here – and Italy lagging behind in the digital race.

To support its companies’ adoption of cutting-edge technologies and ultra-fast connectivity, Rome has allocated € 46 billion in EU recovery funds to be paid for digital investments.

It also offers tax breaks to companies looking to increase digital spending and has appointed former Vodafone chief executive Vittorio Colao as the tsar of his technology to oversee efforts in the coming years.

As in Greece, the momentum of modernization also targets public services, which Scafetta Ecofiltri said is a bad example.

“We provided our employees with palms and screens to share information non-stop and interact with customers … people don’t add value by going alongside to transport paper documents, as you see state employees do,” he said.

Located in the central region of Abruzzo, Ecofiltri has found success by developing a process that gives a second life to diesel particulate filters.

To fund its projects, which include sensors to more easily detect problems with its filters and a digital repository management system to provide information to its website and to connect with e-sellers such as Amazon, Ecofiltri borrowed in September last year 100,000 euros from Credimi, a fintech loan company.

Credimi says that digital innovation is an important factor in the demand for loans faced by SMEs.

“With a few exceptions, the pandemic has caught Italian small and medium-sized businesses unprepared, sending them in a hurry to catch up with digital progress,” said Fabio Troiani, CEO of Italy and global digital services at BIP Consulting in Milan.

“For some it has become a matter of life and death.”

FALLING BACK

Many smaller Italian companies rise to the challenge.

The share of SMEs using e-commerce in 2020 has increased by 50%, to a third of the total, as the first online shoppers increased by 2 million during the national closure last spring, according to Politecnico and the lobby Netcomm e-commerce.

For a picture of SMEs selling online:

Politecnico data also indicates a 42% increase in cloud services for SMEs, as distance workers increased 11.5 times to 6.6 million.

To date, Italian government programs aimed at encouraging digital investment have been largely taken over by larger companies.

The challenge is to bring on board companies such as Ecofiltri, which is one of over 4 million Italian companies with less than 10 employees, or 95% of the total.

It is difficult for small firms to attract people with the necessary skills in a country where ICT graduates represent only 1% of the total, the lowest in the EU, thus helping Italy to get the latest score in the DESI human capital index.

“It wasn’t easy, but we brought in an engineer, and the next person we hire has to be an engineer or he wouldn’t fit in with our development plans,” Scafetta said.

Diego Ciulli, Google’s senior public policy manager, warned that failing to fill Italy’s digital divide when consumers around the world turned to online channels would be more than a missed opportunity.

“The real risk is behind us,” he said.

“If Italian wine producers wait for the resumption of trade shows to find new foreign customers, while the French are very good at selling their wine online, you don’t just lose the chance to grow, you lose market share.”