Against a backdrop of rising costs and ongoing economic uncertainty, new research from Alibaba.com suggests that UK small and medium-sized enterprises (SMEs) are choosing to innovate their way through adversity rather than retreat from it. According to a survey of 1,000 SME decision-makers, nearly half (48%) of UK SMEs are planning to increase their spending on product innovation and R&D in the months ahead.

This appetite for innovation, despite challenging conditions, reflects a widespread belief among business leaders that developing new or improved products is essential for growth and long-term success. Indeed, 86% of respondents said they view product innovation as a key driver of business performance – a sentiment that underscores the resilience and ambition of the UK’s SME sector.

For many SMEs, investing in innovation is not just about staying afloat but staying ahead. Among those planning to increase spending, more than a third (35%) said their focus will be on improving the quality of existing products, while 33% plan to channel investment into responding more effectively to customer needs. Meanwhile, more than a quarter (27%) see innovation as a way to gain a competitive edge over rivals.

This commitment to creativity and improvement is all the more striking given the obstacles SMEs face. Half of those surveyed said that the cost of innovating or financing innovation remains a major hurdle, while almost two-thirds (58%) cited high costs as a key challenge when sourcing new products. Other barriers include keeping up with the fast pace of change (32%), a lack of in-house resources (26%), and a shortage of expertise or knowledge (20%).

Still, the picture isn’t all about constraints. UK SMEs are finding new ways to overcome these barriers, increasingly turning to digital tools and AI to drive efficiency and spark creativity. In fact, nearly two-thirds (59%) said they feel confident using AI tools to support product innovation. In addition, large language models (LLMs) can help buyers understand their procurement needs, build a comparison, perform the analysis, eliminate unsuitable options, and ultimately recommend the optimal solution. Broadly, AI is spelling a new era in the B2B e-commerce market where technology helps smaller businesses punch above their weight and trade on a global scale.

The findings come following the launch of Alibaba.com’s CoCreate Europe, its flagship B2B event. Following several successful editions in Las Vegas, the event made its European debut to great acclaim , drawing together thousands of SMEs, entrepreneurs, manufacturers and investors from across the continent.

The one-day programme was designed to inspire and empower businesses to innovate smarter, offering practical advice on cutting costs, building more resilient supply chains, and leveraging AI to accelerate growth. Through a series of sessions and workshops, attendees gained access to Alibaba.com’s powerful suite of digital sourcing tools, including AI Mode and Accio – intelligent systems that automate the sourcing process and connect buyers with over 200,000 verified suppliers across 76 industry categories and more than 200 million product listings.

AI Mode can automatically compare and filter results and find product listings for SME buyers, saving them time and money. It also goes deeper, extracting data from images, documents, certifications and transaction records to unlock previously ‘unseen’ products. In other words, AI Mode sees what others miss and finds the right match more precisely than others can.

At the event, participants also learned how to make use of Trade Assurance, Alibaba.com’s built-in protection service that helps businesses manage risks and build trust in their supply chains – a critical factor for SMEs looking to expand globally.Combined, these tools enable entrepreneurs to save time, reduce costs, and focus more energy on what really matters: growing their businesses.

One of the highlights of the event was CoCreate Pitch, the world’s largest product-based pitch competition. Some 30 aspiring product innovators from across Europe took to the stage to showcase their most innovative product ideas, spanning sectors from sustainable fashion and smart home tech to health and wellbeing.

Ten winners were selected by a panel of judges, each receiving $20,000 worth of prizes to help bring their ideas to life. The overall grand winner was awarded $200,000 in funding support – part of a global prize pool worth $400,000 – reflecting Alibaba.com’s commitment to fostering innovation and supporting the next generation of product pioneers.

The success of CoCreate Europe reinforces London’s status as a hub for entrepreneurship and innovation, and highlights Alibaba.com’s growing role in supporting SMEs to thrive in an increasingly competitive landscape. By combining global reach with local insight, Alibaba.com continues to act as a bridge between ambitious UK businesses and the suppliers, technologies, and tools they need to scale.

As the research makes clear, UK SMEs are not standing still. They are responding to economic headwinds with creativity, optimism, and a readiness to invest in the future. And with platforms like Alibaba.com providing the infrastructure and support to turn ideas into tangible products, the outlook for innovation across the UK’s SME landscape looks brighter than ever.