Finding digital solutions for European SMEs

Blockchain has long been predicted to radically reshape how we share information digitally as citizens, organisations and even governments. Using the distributed ledger model of blockchain technology, parties can record transactions reliably and efficiently. 

The practical implication of blockchain is that it is possible to create a secure, shared, identical network state in which all parties can see what is happening real-time in a truthful and accurate way. While individual SMEs can create a lot of value through Artificial Intelligence, Internet of Things, and additive manufacturing in isolation, the value of blockchain lies namely in reducing friction in executing transactions and data sharing between different companies in a secure and transparent manner.  It can help SMEs overcome the very challenges that were born out of digitalisation from incompatible information systems to cybersecurity threats.

The blockchain landscape

For all its promise, it’s rather remarkable how low the adoption rates of blockchain are outside of the financial industry (in 2017, 82% of the blockchain use cases were in financial services). But there are signs the technology is being picked up in the healthcare, agriculture and logistics sectors. For example, the global market value in the global agrifood sector is expected to rise from 32.2 million US dollars to 1.4 billion by 2028. 

Considering the growing interest and the great importance of SMEs in today’s global economy, it is worth considering what the choices are that SMEs can make in the face of the emergence of blockchain technology.

So what are the options?

 1.     Not adopting blockchain 

While it might certainly be appealing for SMEs to carry on as they have been, deciding not to participate in a blockchain consortium and to not integrate blockchain might harm their competitiveness.

As more and more organisations adopt blockchain, particularly those with the resources to invest in the technology, these SMEs are likely to face the issue of non-interoperable information systems more frequently. Consequently, the role of the SME in the value network shrinks over time, which harms the competitive position as well as collaborative relationships with other organisations in the value network.

2.     Joining a consortium

If an SME does decide to adopt blockchain, there are several challenges on an organisational level, from feasibility assessments to putting aside the resources and capacity needed to integrate the technology into their infrastructure.

Joining an existing consortium is a way for SMEs to share the costs but it presents its own challenges, especially as many of these groups are led by larger industry leaders. There are terms and conditions for joining such a platform, as dictated by the corporations in charge This top-down approach can sometimes mean that the consortium is centred around the solutions or particular technology developed by these companies, rather than using the existing challenges that SMEs face as a starting point.

There is an example in the shipping industry, where the developers of the blockchain-platform included in the terms and conditions that the ownership of the platform remains in the hands of the two leading organisations, thus granting them full access to and control over the intellectual property from competitors active on the platform. Such a governance model would foster inequality among participants in the platform in terms of control and influence on the platform design. But SMEs have relatively little bargaining power in relation to deciding whether or not to join such a platform when compared to industry-leading competitors.

3.     Building a consortium

In case SMEs consider the corporate-led blockchain platforms to be a non-viable option but do recognise the necessity of adopting blockchain technology, there is an alternative – starting a more SME-centric blockchain consortium. In this case, SMEs could start or join a collaborative effort, which includes the involvement of business networks, SMEs, industry experts, consultancies and ICT solution providers. 

Being challenge-driven, rather than passively implementing the solutions developed in the larger consortiums, will certainly require greater coordination between the actors. It is also crucial for SMEs to collaborate with the technical experts who can fill in their knowledge gaps. 

On the network level, the primary challenge for the consortium developing the SME-centric blockchain initiative is to gain traction in terms of network size. In order to have a valuable blockchain solution, it is of vital importance to have a sufficiently large network of participating organisations. In practice, this means that entry barriers have to be as low as possible. As a result, the SMEs actively involved in the creation of the blockchain initiative invest in the creation of blockchain solution that is highly accessible to a great number of organisations from the target industry, including competing SMEs.

A safe way to experiment

One of the main reasons for SMEs’ reluctance to get involved is the cost of testing blockchain technology, let alone implementing it. That’s where the EU-funded Blockstart project comes in with its SME support programme.

Working with SMEs from across North-West Europe using the support programme, Blockstart’s transnational team of experts, guided by Bax & Company, will target four of the most common challenges that SMEs currently face. Over the coming three years, solutions ranging from smart contracts to medical e-records will be developed and tested. The results will be made public to help as many organisations benefit from the knowledge. 

The Blockstart partners will assess blockchain technology’s potential for all interested SMEs to ensure that it is used only where it can prove itself a useful alternative to traditional processes.