The Complete Guide to Labor Shortages at Regional SMEs: 5 Options Beyond Hiring

Addressing labor shortages at regional small and medium-sized enterprises (SMEs) means going beyond hiring alone and rethinking how work gets done so the business can keep running with a limited workforce. 'We post job openings but nobody applies.' 'We hire young staff but they don't stay.' 'Too much depends on the owner or a handful of veteran employees.' For business owners and managers facing these challenges, this article offers a neutral overview of options beyond hiring.

In regional areas, a shrinking working-age population combined with continued migration of younger people toward major cities is a commonly cited trend. At the same time, gaps in hiring conditions between local SMEs and large or fast-growing urban companies tend to be more visible, making it harder for regional SMEs to attract applicants even when they post openings. Certain industries and roles — construction, transportation, caregiving, and manufacturing floor work, among others — are often said to face particularly acute shortages. Against this backdrop, there is a growing recognition that 'just hire harder' is not, by itself, a sufficient strategy.

Stepping up recruitment comes with costs — job board fees, recruiter commissions, staff time spent on hiring — yet regional SMEs often see limited application volume, making it hard for the investment to pay off. Even when hiring succeeds, without solid onboarding and retention practices new hires may leave early, creating a repeating cycle of hiring and turnover. There's also a structural issue: framing the problem as 'how many people do we need given our current workload and processes' leaves inefficiencies embedded in those very processes untouched. This is why it matters to look at the work itself, not just headcount.

Even when hiring is difficult, there are multiple ways to keep a business running and growing. Here are five common directions — often pursued in combination rather than in isolation.

- 1. Digitalizing operations: Move work that depends on paper, spreadsheets, or verbal confirmation into systems that reduce the burden of information sharing and administrative tasks
- 2. Outsourcing back-office work (BPO): Hand off routine accounting, general affairs, and HR tasks to external partners so internal staff can focus on core work
- 3. Standardizing and automating processes: Document work that currently depends on one person, and replace repetitive tasks with automation tools
- 4. Using remote talent from urban areas: Look beyond the local labor pool and delegate part of the work to remote-capable talent
- 5. Using AI to streamline work: Use generative AI and similar tools to reduce time spent on tasks like drafting documents or handling inquiries

When work relies on paper forms or individual spreadsheets, operations can grind to a halt the moment the responsible person is unavailable. Digitalization addresses this kind of dependency on individuals, creating a state where anyone can carry out the work to a consistent standard. For a broad overview of where to start, see What Is SME DX, and Where Do You Start?. If spreadsheet-based management is starting to show its limits, Signs Your Spreadsheet Management Has Hit Its Limit may also be useful.

Routine back-office tasks — bookkeeping, attendance management, invoicing — are often well suited to outsourcing to specialized external partners. Comparing the cost of hiring and training in-house against the cost of outsourcing can free up limited staff to focus on core operations. For the basics of BPO, see An Introduction to Back-Office BPO.

The more work that only one person can do, the greater the business risk if that person is out sick or leaves the company. Documenting procedures and turning repetitive tasks over to automation tools reduces this kind of dependency on individuals. Standardization tends to take time, so a common approach is to start with a small scope, confirm the effect, and then expand gradually.

For roles that are hard to fill locally — web design, software development, marketing, and other specialized work — one option is to look beyond the local area and engage remote-capable talent. Rather than insisting on full-time hires, some companies combine this with contract work or side-job talent. See A Guide to Using Remote Talent for Regional Companies for more detail.

Generative AI and related tools have the potential to streamline tasks that previously required significant manual effort — drafting documents, writing first drafts of text, or handling the first response to inquiries. That said, adopting these tools doesn't automatically produce results; you need to identify which tasks they're actually suited to. For a first step toward considering generative AI, see Generative AI for SMEs: The First Step.

Which of the five options to start with depends on each company's situation. A common approach is to first identify tasks that take a lot of time, depend on one person, or are error-prone, and then match those tasks to the option most likely to help. Rather than pursuing all five at once, it's generally considered more realistic to start small with the highest-priority option, verify the results, and expand from there.

- Step 1: Map out current operations and identify time-consuming or individual-dependent tasks
- Step 2: For each task identified, consider which option fits best — digitalization, outsourcing, standardization, remote talent, or AI
- Step 3: Try it on a small scale first and check the results and costs
- Step 4: Gradually expand initiatives that prove effective
- Step 5: Regularly review operations and respond to new challenges as they emerge

Beyond individual company efforts, support programs from local governments and chambers of commerce, as well as region-wide DX initiatives, can also help address labor shortages. For examples that combine regional revitalization with DX, see Case Studies in Regional Revitalization DX. For companies facing both succession and labor shortage challenges at once, timing DX efforts around business succession is another consideration — see The Relationship Between Business Succession and DX for more.

Labor shortages at regional SMEs are not a problem that a single measure can solve. By combining digitalization, back-office outsourcing, process standardization and automation, remote talent from urban areas, and AI-driven efficiency in ways that fit your company's situation, a path emerges for continuing and growing the business even with a limited workforce. Starting by mapping out your current operations, at whatever pace feels manageable, is a reasonable first step.