The Digital Economy in CEE – market overview

Marta Zadravec

The development of the digital economy in CEE has shown a remarkable achievement and grew almost twice as fast as the previous two years, a new report from McKinsey has revealed. Even though in 2020 the Covid-19 outbreak has led to numerous uncertainties about the future, one thing is clear – the pandemic has accelerated the digital transformation of CEE countries as it has brought about the emergence of a “new normal” world that is more digital than ever.

The report Digital Challengers in the next normal in Central and Eastern Europe has revealed the ten CEE countries analyzed —Bulgaria, Croatia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia—increased per capita GDP by 115 per cent in the period 2004–2019. With the digital economy reaching €94 billion in 2019, it is clear that CEE exceeded the “business as usual” scenario from the year before.

The engines driving the digital economy in the CEE

The lockdown has drastically transformed the way people interact, travel, spend their leisure time, and use public services. As the McKinsey COVID-19 Digital Sentiment Insights survey shows, almost 12 million new users of online services appeared in CEE—more than the population of Slovakia, Croatia, and Slovenia put together.

Given the data from the McKinsey report, consumers are getting used to new digital channels and therefore drive digital economy change. Although consumers habits are changing now, they may stay changes for good as the COVID-19 safety measures will not disappear anytime soon.

The situation has changed for SMEs, and the pressure is becoming more severe as organizations lag behind digital adoption.

Many CEE startups tech companies achieved admirable results in tech space with a huge impact on a global scale. CEE’s unicorns are worth around €30 billion according to Dealroom. In recent years, CEE startups in tech-led to huge traction of the market to venture capitals. About 10,000 emerging Eastern European businesses raise their first rounds of funding in the last five years. In the same period, the CEE market has seen more than ten unicorns emerged, with a total valuation of €30 billion.

To move the engines for the digital economy in CEE, the action is required by all stakeholders in Digital Challenger countries. Restrictions imposed during the pandemic are an incentive for digital transformation. That said, the restrictions have made the solution all the more important. Now, businesses need an e-commerce website, online customer service and cloud and automation technologies in order to survive.

Lastly, CEE markets need to move with more dynamism. Today Big Tech must provide commanding benefits to consumers and other users while looking to other mechanisms, such as advertising, to support good margins. The digital economy usually reflects innovation and dynamic efficiency. In CEE markets, organizations will have to embrace the change and explore new business opportunities through digital transformation.