Digital leap or digital Divide? Xero urges digital tech uptake

New Zealand’s small and medium-sized enterprises (SMEs) must embrace digital transformation or risk falling behind in an increasingly competitive global economy, says accounting software giant Xero. 

The Going Digital in 2025 report delivers a comprehensive analysis of how digital tools, especially cloud computing and artificial intelligence (AI), can supercharge SME productivity, growth, and resilience, while also highlighting the urgent policy interventions needed to unlock this potential.

“New Zealand SMEs have made important progress in adopting basic digital tools,” writes report author Michael Bealing, from the New Zealand Institute of Economic Research. 

“However, uptake of advanced technologies remains uneven, constrained by financial barriers,

capability gaps, and the absence of structured advisory and sector-specific support. Without targeted intervention, the risk is that these gaps will widen, reducing SME competitiveness nationally and internationally,” he adds.

Digitalisation: The new lifeline for SMEs

The report underscores that digitalisation is no longer a luxury but a necessity for SME survival and success. As global markets and supply chains digitise, SMEs that adopt cloud-based tools, AI, and data analytics are better equipped to innovate, access new markets, and operate efficiently, according to Xero. These technologies enable businesses to automate routine tasks, enhance decision-making, and collaborate more effectively - key advantages in a world where agility is paramount.

Digitally mature SMEs are found to be more innovative, more likely to export, and to have stronger growth trajectories. The economic stakes are high: greater digital adoption could boost New Zealand’s GDP by up to NZ$8.6 billion in 2025, with SMEs reporting returns of NZ$2.40–NZ$3.10 for every dollar invested in digital tools.

Barriers holding back digital progress

Despite the clear benefits, New Zealand’s SMEs face significant hurdles to digital adoption. Many business owners perceive their current systems as sufficient, are wary of risks and costs, or feel overwhelmed by the sheer number of technology options. Financial constraints, a lack of digital skills, and limited access to tailored solutions further inhibit uptake-especially among smaller firms.

While most SMEs use basic digital tools like email and websites, uptake of advanced technologies such as cloud enterprise solutions, e-commerce platforms, or AI remains uneven. Without targeted intervention, these gaps threaten to widen, reducing SME competitiveness both nationally and internationally.

Global lessons: What works for SME digitalisation

The report draws on international best practice, analysing successful SME digitalisation policies in Finland, the Netherlands, Denmark, Canada, South Korea, and Singapore. The most effective strategies share several features:

Integrated support: Combining financial incentives with advisory and training services increases technology adoption and impact.

Sector targeting: Tailoring programmes to specific industries (like manufacturing or agritech) ensures relevance and accelerates uptake.

Skills and infrastructure: Investing in digital literacy, workforce development, and broadband infrastructure sustains long-term transformation.

Simplified processes: Streamlined grant applications and advisory services lower barriers for SMEs.

Countries like Canada and Singapore, which offer substantial co-funding (up to 80% of costs), advisory networks, and sector-specific support, have seen faster and deeper SME digital transformation. The report suggests New Zealand could significantly benefit from adopting similar integrated frameworks.

Policy roadmap: Accelerating New Zealand’s digital future

To close the digital gap and realise the economic potential of its SMEs, the report recommends a suite of policy actions:

Reform the Small Business Advisory Group (SBAG): Expand its membership to include industry, technology, and academic experts, and formalise its role in advising government on SME digital policy.

Financial incentives: Introduce scalable grants or matched funding, targeting high-growth SMEs and aligning with national priorities like sustainability and exports.

Advisory support: Establish a national network of accredited digital advisors to guide SMEs through their digital journey.

Sector-specific programmes: Develop tailored digitalisation initiatives for key industries such as agritech, tourism, and manufacturing.

Skills development: Embed digital capability-building into workforce training and education, including micro-credentials and apprenticeships.

Innovation ecosystem: Invest in digital innovation hubs and field labs to foster experimentation and collaboration.

Measurement and evaluation: Implement systematic tracking of SME digital maturity and outcomes to inform continuous policy improvement.

Conclusion: Seize the digital opportunity

Going Digital in 2025, like similar reports from Spark/NZIER, and ASB/NZIER, echo the same themes, which is no surprise given the same institution has done the research: digitalisation is a strategic imperative for New Zealand’s SMEs. With coordinated policy action, targeted support, and a focus on skills and innovation, New Zealand can support its SMEs to thrive in the digital age, unlocking billions in economic value and ensuring resilience in a rapidly changing world.