- The innovation born from the pandemic has created a host of new digitally native businesses designed to meet evolving needs and new market opportunities.
- The fuel driving this exponential growth of new small business formations around the world is ease and accessibility of digital operations.
- The top countries with the largest new business formation growth in 2020 were the UK (+101%), US (+86%), Australia (+73%), Germany (+62%) and Canada (+58%).
The global health crisis has disrupted businesses around the world in vastly different ways, but particularly small and medium-sized businesses (SMB), which make up more than 90% of the total worldwide. Many businesses closed their doors temporarily and others for good, while some saw unprecedented growth.
Yet a lesser-known outcome from the past 18 months has been the innovation born from this worldwide disruption, as a host of new digitally native businesses were created to meet evolving needs, new market opportunities and a global shift to remote-work environments, which has enabled the entrepreneurial to thrive.
The latest insights from Mastercard’s Recovery Insights: Small Business Reset report corroborate this development, revealing a pandemic small-business boom. According to the report, 32% more SMBs were formed in 2020 globally, as pent-up savings, a disrupted job market and evolving consumer behaviours drove new entrepreneurship. From the UK and Canada to Japan and Brazil, countries around the world saw unprecedented new business formation growth, with the top 10 seeing a nearly 30% increase or more. The global economic marketplace rarely reacts in such unison, particularly as a result of crises, yet this growth demonstrates the beginning of a new global landscape for e-commerce business.
To develop a list of the top 10 countries that experienced the largest new business formation growth, Mastercard created a new methodology for accurate measurement. Drawing on proprietary analysis and aggregated and anonymized sales activity within the Mastercard network as well as third-party data sets, the findings focus specifically on businesses that accept card payments. For this report, SMBs were classified using a set of distinct indicators and comprehensive AI-driven algorithms. Metrics included their number of locations, sales volume, number of transactions and average transaction size.
The top 10 countries with the largest new business formation growth year-over-year in 2020 comprise:
1) United Kingdom (101%)
2) United States (86%)
3) Australia (73%)
4) Germany (62%)
5) Canada (58%)
6) Italy (44%)
7) France (40%)
8) Japan (38%)
9) Brazil (35%)
10) Thailand (29%)
Acceleration towards digital gains speed
The fuel driving this exponential growth of new small business formations around the world is the ease and accessibility of digital operations. Almost immediately, the COVID-19 pandemic sparked a dependence on digital operations, and spending was almost entirely transacted through e-commerce. Millions of citizens around the globe found themselves required or opting to work, eat, exercise and entertain themselves within the confines of home, narrowing the focus to life online. By the second half of 2020, many found opportunities to be entrepreneurial in this structure that didn’t exist or might not have been possible before.
Furthermore, the number of brick and mortar businesses that went digital for the first time during the pandemic tripled in 2020, a sure sign that the acceleration towards digital is only gaining speed. This increased shift to online acceptance was mirrored around the world, though to varying degrees. In Brazil, for instance, the number of existing businesses that made the shift online for the first time in 2020 vs. 2019 grew 208%, whereas the growth rate in Germany was 38%.
Small businesses have had to become resilient innovators in order to maintain operations during peak crisis, as the competition among online retailers has undoubtedly been intense given the rise in entrepreneurship. Given the low cost to entry compared to traditional channels, online platforms, drop shipping and other new direct-to-consumer channels have never been easier to set up. This led to not only increased competition among existing SMB retailers that went digital but also competition from a wave of new arrivals born out of the crisis.
The shift to digital paid off for businesses that were able to go digital. According to an analysis by Mastercard Test and Learn®, which used a test-and-control methodology to understand how accepting e-commerce payments impacted sales during the pandemic, SMBs attracted more customers and boosted revenue. Digitally enabled SMBs saw a 5.0% increase in customer spending and a 4.5% increase in transactions compared to their peers. They also attracted more revenue from new customers than their peers (6.4% increase in spending). The analysis also found that 34% of SMB e-commerce sales were purely incremental and would not have occurred with brick-and-mortar alone.
An online presence with staying power
The stresses and successes of businesses faced around the world due to the pandemic varied based on circumstances within and outside their control, including location, government restrictions and financial support, willingness to pivot, industry type and more. But for any small business, making the jump online meant investing dollars and resources in a viable online presence with staying power.
While this has been an existing option for decades, the COVID-19 pandemic fuelled more urgency and foresight for future-proofing operations. A natural result of having a viable presence online means the potential to attract consumers and expand globally, but also competition at scale. As we’ve seen in the past 18 months, SMBs aren’t just continuing to shift to digital – they’re racing towards it with urgency and choosing to be digitally native when forming to capitalize on minimal start-up costs and lower risks. It is these businesses that are heralding in a new global economic landscape that is here to stay.