“People need to take a step back and not expect SMEs to transform overnight. You need to give them time to understand and adapt.” Sudev Bangah THE conversation around digital transformation for small businesses couldn’t have been louder this year. Almost every webinar and literature for SMEs is centred around digitalisation and the push for data analytics and digital tools. Although SMEs have always been touted as the group that requires technology the most, they are also the most resistant towards technology, and perhaps for some good reasons. They are concerned about their cash flows, uncertain about which technology to invest in and most have been functioning fine without the need to go digital. Of course, the pandemic this year has changed many minds. Companies are turning to online platforms to maintain sales and studying alternatives to keep their operations going. But for all the awareness raising brought about by the Covid-19 crisis, many businesses are still grappling with a multitude of issues on going digital and this may delay adoption or implementation of new technology that will help them become more competitive in the future. Shifting the focus IDC Asean managing director Sudev Bangah notes that there has not been any dramatic changes to SMEs’ ICT spending this year despite the increased digital behaviour during the crisis. In fact, according to IDC, Malaysian ICT spending is expected to contract by 3.2% as enterprises halt their spending to reassess their business priorities and transition to targeted digital spending instead. Consequently, Malaysian SME ICT spending for 2020 is expected to contract by 4.4% as they examine the options in front of them. But mindsets have notably changed and more small businesses are aware of the need to get on digital platforms. Sudev expects a 2% uptick in ICT spending for SMEs next year. “The difference now, I guess, is for them to finally figure out what they want to spend their money on.” However, many of them are still mainly looking at investments in hardware – mobile devices and laptops – to help their employees work from home and stay connected. But aside from connectivity, they should also be looking into more emerging technologies that are going to help their cause such as customer relationship management, supply chain management, inventory management, order fulfillment, human resource systems and payment solutions. “These are areas where they have to shift their mindset to spend on. Do we see that at the moment? Not 100%, ” he says. While there is more thought around trying to increase productivity and moving the business towards virtual platforms, the main challenge for SMEs is balancing between keeping the business afloat and spending on technology given their limited resources. From IDC’s surveys, 71% of SMEs are driven towards digital transformation for customer-facing purposes to ensure that they can continue selling their products and engage consumers. For those without customer-facing functions like manufacturers, they are looking to invest in things like supply chain logistics, getting their employees back to work safely and figuring out how to utilise cloud platforms. “The tougher thing for these companies is that even though they are driven and pushed to digitalise, the two things which hinder them are the investment and figuring out the know-how. That part remains a gap because they’ve been functioning in a certain manner for the longest time. “So their complexity is in having to manage their small sum of cash, which hasn’t grown, into a technology investment and into a physical investment around their employees and keeping them at work, ” says Sudev. To add to that, a majority of these SMEs are only looking at a recovery from all their challenges over the next 24 months. And with a lot of traditional assets still under their belt, they will have to reconcile phasing them out for new digital technology with recovering their business. Wider ecosystem Retailers have generally jumped on the digital bandwagon faster to cater to the rapid change in consumer behaviour. “Take payments, for example. If you are selling on digital platforms, you need to adopt digital payments. And we are seeing consumer trends toward adopting more e-wallets because it is convenient, ” says IDC Financial Insight senior market analyst Darshiniy Selvaratnam. Additionally, retailers are able to leverage e-commerce platforms or other available tech platforms – most of them offering free services – to quickly digitise their front-end operations. For manufacturers, the task of digitising is not as simple as they will have to figure out their digital supply chain or digital ecosystem very quickly to make the right investments. “For manufacturers, their support ecosystem comes from larger organisations because these back-end SMEs usually work within a much larger ecosystem. They are the essential cogs within a big supply chain as opposed to a retailer or an F&B outlet that is more consumer-facing and is able to hop on a tech partner to digitise, ” Sudev explains. Traditionally, SMEs across Asean have grown because of foreign direct investments (FDI). When larger companies set up shop in a new country, they would engage local SMEs to form their supply chain. When the large companies push ahead with new technologies, it forces the rest of the players within the ecosystem to also up their game through knowledge transfers and support programmes. “We have seen instances of larger Japanese or Chinese manufacturers who assisted related SMEs through programmes. Some provide them with grants as well and partner with the government to provide training programmes and develop skill sets. “With the pandemic ongoing, the large foreign manufacturers are the ones that will push local SMEs to transform because they can’t be in the country. So that drive towards digital is even higher, ” he says. However, there needs to also be stronger enablement from the government to help small businesses with digitalisation. And across the region, governments are stepping in to help with that process. In Malaysia, the government has made sizable fund allocations to roll out grants and upskilling programmes to aid SMEs in this area. Whether these programmes are enough to support a strong shift to digital remains a question. But as a starting point, Darshiniy thinks things like the SME Digitalisation Grant does play a role in spurring that thought process. However, Sudev emphasises that government enablement has to go beyond just providing short-term aid. He opines that there needs to be more rollout of projects where SMEs can participate in to not only earn their income, but also up their capabilities and digital adoption to meet requirements. “So there are two manners that will help SMEs accelerate digital transformation. One is to work with larger enterprises that’s going to carry them forward, or the government coming in to help enable them. “The SMEs won’t be able to do it on their own without a nudge in the back. They are always going to be the followers and they are going to ride on something, ” he notes. Another sticking point to digital adoption is infrastructure adequacy. Globally, 5G is becoming the inflection point for a lot of industries to adopt digital technology. However, Malaysia has delayed the commercial roll-out of 5G service to 2023. “If we delay it, you know, by the time we come up with 5G, it’s going to be 7G. I don’t think the timeline is fast enough and I don’t think that is correct for an industry in which we are seeing a lot of 5G deployments and investment globally. “If we talk about SMEs starting to digitalise and running really quickly with digital, 5G is it. Adoption is going to rely on 5G and we need to accelerate that, ” he says. But all things said, Sudev is mindful about the pace of digital adoption among SMEs. Once the market starts to recover and businesses are able to find their footing amids the variety of digital tools out there, then there will be an uptick in adoption. And once that happens, Sudev believes, SMEs will be able to run further with digital. “I think people also need to take a step back and not expect SMEs to transform overnight. You need to give them time to understand and adapt. Fear mongering is not helping them. “Give the SMEs a bit of time. They are not going to change tomorrow. It’s going to be a bit of a journey for them, ” he says.
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