Propelling SMEs in the digital world
THE pace of digitization is picking up around the world and there is a need for SMEs to accelerate the adoption of digital technologies to boost growth.
Small businesses stand to gain from embracing the digital future, said SME Corp chairman Datuk Seri Syed Hussein Habshee. The digital transformation sweeping through industries will change business and delivery models, potentially creating new opportunities for them.
“A lot of studies recognize and establish the key role that digital technologies play in improving the business landscape by creating unparalleled opportunities to boost growth, expand jobs and accelerate innovation,” he said at the launch of the ‘Accelerating Malaysian Digital SMEs: Escaping the Computerization Trap’ whitepaper last week.
But while the digital talk is prevalent, not many SMEs are realizing the full potential of digitization.
On the one hand, the report noted that local SMEs are receptive to using digital technologies to enhance their business. Over half of the 2,033 companies surveyed invested in technology to expand into new areas, reach new customers and increase sales. It also noted that 50% of SMEs have the ICT leader mindset, which is to use ICT to grow their business or develop a competitive advantage. About 30% are ICT followers who invest in technology to be more efficient and the remaining 20% are ICT laggards who are cautious about investing in ICT. However, a closer look into SMEs’ usage of ICT reveals gaps in terms of business usage and untapped potential.
It is found that many Malaysian SMEs have merely added computers to their operations to modernize their business. They utilize computers and the Internet to digitalise the business and improve connectivity for their operations.
But many don’t move beyond basic computing. About 71% of SMEs engaged in social media for product communication and marketing and only 44% were involved in e-commerce activities. Even fewer companies have leveraged software solutions to improve their business processes.
In fact, what has happened is that they are trapped in the computerization phase in making their way to become fully digital, according to the report. While computerization enables them to benefit from administrative productivity, they are not able to fully extract the benefits of higher productivity gain from their operations.
Computerization is the use of computers and digital equipment without changing the business processes and harnessing the full potential of innovation, data, process and connectivity to new technology platforms. Digitization, on the other hand, is a transformation of business process in a complete digital environment.
“Malaysia’s economic future hinges on the growth of SMEs. Our target is for SMEs to reach 41% contribution to GDP by 2020, while for exports, we hope to achieve the target set under the SME Master plan (2012-2020) of 23%.
“This can be achieved particularly through increased adoption of digitization by SMEs,” said Deputy Entrepreneur Development Minister Datuk Wira Dr Mohd Hatta Md Ramli.
In 2017, SMEs accounted for 66% of employment and contributed 37.1% to GDP.
The sector needs to invest in more advanced digital technologies to enhance their productivity. Transitioning a traditional business to a digital business requires the conversion and automating of manufacturing processes with digital technologies.
Findings of the study revealed that there are significant increase in productivity when SMEs venture into digitization. For instance, SMEs using social media and e-commerce are seeing 26% to 27% higher productivity improvements respectively. Meanwhile, SMEs using data management solutions such as Enterprise Resource Planning (ERP), supply chain management and customer relationship management are reporting 60% gain in their productivity.
This shows that SMEs can attain higher productivity level with higher technology adoption.
But according to the Department of Statistics’ Economic Census 2016, a total of 73.1% of SMEs in Malaysia used the computer in 2015, 56.5% used the Internet and only 20.1% have web presence in their businesses. Additionally, only 4.8% of 907,065 SMEs were involved in e-commerce transactions.
The usage of digitization enablers such as cloud, Internet of Things (IoT) and data analytics are also not common among SMEs. Those that do make use of such tools use them at a very basic level. Small businesses have yet to capitalize on data analytics to transform their operations or improve their product and service offerings.
“To be truly digitalised, SMEs must re-engineer their businesses by ensuring that their business strategies, processes and infrastructure are aligned and fully integrated to support their digital transformation.
“Moving forward, ICT has a huge role to assume in advancing the growth of SMEs not only through an increase in efficiency and productivity, but also in expanding their market reach,” said Mohd Hatta.
Notably, there are certain challenges faced by SMEs in adopting such technologies including lacks in infrastructure, regulatory and administrative burdens and insufficient access to finance and digital skills in the workforce.
Financing seems to be the biggest challenge for them as indicated by 49% of those surveyed for the white paper.
However, industry practitioners note that there is a misconception that ICT is expensive and many are not aware that there are alternative funding options that are available for them to tap into. Also, cloud computing has made many of these applications a lot more affordable and SMEs just need to be aware of such developments.
Small companies also need to develop their business and digital skill. According to a recent study by International Data Corp (IDC), employers and employees will not only need to master ICT skills alone, but also balance them with interpersonal, problem solving and critical thinking skills.
This could make talent acquisition and training more complicated to meet the broader needs of the company. They will need to be able to look at applications across sales, marketing, production, planning, finance, operations and IT.
As it is, SMEs are already facing a challenge in getting talent for their current operation. Talent is an essential component to enabling a digital revolution and SMEs could do with some assistance in capacity building.
In this respect, policymakers play a key role in setting the agenda and ensuring that the infrastructure and right programs are put in place to enable the sector to advance or leapfrog towards digitization. It is also crucial for policymakers to understand the technology trends and changes across the board in order to provide effective assistance to the industry.
“Key mega trends that are transforming businesses globally include Industrial Revolution 4.0 (IR4.0) which is fueled by digital technology. This technological revolution will lead to the growth of fin-tech, big data analytics and e-commerce, as well as regional integrations and opening up of markets.
“SMEs must proactively gear themselves so that they can leap forward into the international market by seizing various opportunities available.
“Our focus is to empower the critical mass of SMEs with efficient processes, robust business models, access to financial resources, smart partnerships, market-entry strategies and sustainable growth solutions, through various platforms and programs catered for SME development,” noted SME Corp chief executive officer Noor Azmi Mat Said.
The Entrepreneur Development Ministry is looking into building a database of digitization among SMEs to better assist the laggards. Mohd Hatta said this will be an effort that requires cooperation from various ministries.
“We have a target of having 50,000 new SMEs each year. Hopefully, the new SMEs will be able to start off on the digitization platform, even for the micro-enterprises. They’ll need help. But I think from the efforts that we’ll put in, it can be achieved,” Mohd Hatta said.
Noor Azmi noted that a recent survey by SME Corp found that only 32% out of 1,469 respondents were aware about IR4.0, and out of these, 69% indicated that they were ready for IR4.0 implementation, 62% cited that they lack knowledge and skills and 45% said that there is a lack of funding and support.
“We hope the budget announcement for 2019 which allocated RM7.12bil for various initiatives to support IR4.0 and digitization will provide the necessary support for SMEs to embark on this journey,” he added.
The main areas highlighted in the whitepaper which could be looked into to help SMEs are in innovation, facilitation and acceleration.
There is a need to help SMEs build an innovative mindset and a data-driven culture and management teams need to be groomed to lead digital transformation initiatives in their organisations.
While there are existing programs under various ministries and government agencies that can be tapped into to help educate SMEs, training providers can also utilize online channels in efforts to up-skill and re-skill talent.
One of the important thing which also can be done, noted the report, is to enable an ecosystem that will support the SMEs’ transformation efforts.
“SMEs cannot undertake digital transformation on their own, the ecosystem facilitated by the government needs to assist them with a collaborative facility where SMEs can tap-in for necessary support in areas including skill development, funding, regulation, technology and e-commerce. This environment can also bring SMEs together under an umbrella where SME-to-SME transactions can also lead to institutional-ism of best practices within Malaysia,” it said.
It is vital for SMEs to move beyond just computerizing their businesses. There needs to be a real transformation in their processes and operations in order for them to unlock the next level of productivity to spur economic growth.