Blockchain for SMEs: Lessons from Italy

The diffusion of blockchain is intensifying globally. This was evident last week during the virtual launch of a report titled ‘Blockchain for Small and Medium Enterprises (SMEs) and Entrepreneurs in Italy’ by the Organisation for Economic Co-operation and Development (OECD).

Speakers at the launch acknowledged the growing need to enhance transparency, safety, traceability and efficiency as important to national competitiveness of the country’s large, diversified and export oriented industrial base. They emphasised that Italy is well positioned to leverage the potential of distributed ledger technologies (DLTs) for her competitiveness.

The potential of blockchain for SMEs lies in four areas: access to finance such as syndicated loans; financing through tokenisation and crypto assets; trade facilitation especially in trade financing; logistics and shipping as well as custom processes.

Other areas are global supply chain management focusing on the visibility of the supply chain and verification of authenticity; and innovation in business models as the adoption of industry 4.0 starts particularly of the technologies that will drive it such as Internet of Things (IoT) and artificial intelligence as well as advanced manufacturing.

With the technology, the country hopes to strengthen the competitiveness of Made in Italy. The country is among the top three economies impacted by counterfeiting and piracy activities after the US and France.

The report notes that industries, which are characterised by a large population of SMEs in Italy, are particularly affected most, with estimated losses of 3.75 billion euros. Overall losses to counterfeits amount to an estimated 24 billion euros, or 3.2 percent of the total sales in 2016. Blockchain is to play a key role in dealing with the menace.

Authors of the report noted that blockchain solutions demonstrate strong potential of serving sectors of the Italian economy that are dominated by SMEs. One of its potential is in value chains, where it can guarantee provenance, transportation, handling, storage and in general supply chain management, agri-food “from farm to fork” process as well as the advanced industries leveraging additive manufacturing/3D printing.

They, however, recognise that there are important policy challenges to be addressed in order to fully take advantage of this technological transition, specifically in relation to the uptake of digital technologies by SMEs.

It was noted that the evolution of the regulatory framework at Italian and European Union levels is fundamental to further development of the technologies. Some of the key regulatory areas include: the complex regulation pertaining the use of DLTs and the lack of a clear picture on the possible public financing opportunities, and the lack of the full legal recognition of smart contracts, which limit companies from unleashing their innovation potential.

The other regulatory concern was the difficult procedure for the management and storage of hash codes in distributed public and private ledgers in compliance with General Data Protection Regulation (GDPR), which hinders innovation. Practitioners participating at the launch called for the creation of legal sandboxes to deal with many of these regulatory challenges.

There are many lessons to learn from Italy’s bold move to embrace this emerging technology for national competitiveness and the development of their SMEs. Italians are not sitting and waiting that change and progress will come like magic. Like good entrepreneurs, they are leading the pack to create new solutions while dealing with some of their problems like counterfeits.

Italians are closely following the footsteps of Israel to become one of the leading economies in the Industry 4.0 technologies. It is not too difficult for a developing country like Kenya to join the league of nations leading the way for the adoption of emerging technologies. However, that will not happen if the regulatory environment is not supportive.