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The Digitalisation Journey of SMEs

The Digitalisation Journey of SMEs

  • 25 March 2022
  • OCBC Business Banking
  • clock svg 10 mins read

The advent of the Fourth Industrial Revolution (IR4.0) asserts the role of modern technology as a catalyst for business growth and transformation in the digital era. Based on 2018 statistics, Malaysia’s 3G and 4G/LTE network have expanded to reach 94.7% and 79.7% population coverage respectively, signalling that Malaysia is ready to take digital growth to the next level. Representing 98.5% of total businesses in Malaysia, the digital transformation of SMEs is vital in order to grow our economy.

According to a study by SME Corp Malaysia and Huawei Technologies (M) Sdn Bhd in 2018, 50% of SMEs adopt Information and Communications Technologies (ICT) to develop competitive advantage, whereas 20% of SMEs tend to wait until a particular technology is tested and proven before adoption. Although Malaysian SMEs are receptive to enhancing their businesses with technologies, they are still not utilising digital enablers, such as the Internet of Things (IoT), data analytics and cloud computing. The study stated that 44% of SMEs use cloud computing, but only as storage service instead of software-as-a-service to drive software process improvements. While 35% of SMEs use IoT solutions, these are security, surveillance and tracking solutions rather than a service offering to the market. 71% of SMEs are using e-commerce and social media to reach out to their customers but not to enable an end-to-end digital process, with most of the marketing taking place on Facebook (82%) and WhatsApp (78%). 44% of SMEs use e-commerce tools but most of their transactions are not done via integrated payment gateways, which means they are still manual instead of a seamless e-commerce transaction.

SME Corp Malaysia listed out the top three digitalisation challenges faced by SMEs, which are financing (49%), employee skill set (48%) and technology knowledge (48%). Financing is the top challenge affecting their ability to digitalise, which is intensified by the lack of awareness of funding options and the SME mindset on ICT being expensive. SMEs will also need to develop business management and digital skills to integrate their online and offline sales, and these skill sets include the use of digital tools across their business activities such as sales, marketing, planning, IT, production, finance and operations. Lastly, SMEs will need guidance and knowledge on digitalisation to plan their business strategy based on what digital can enable. They also need support on how to leverage technologies in order to transform their business model, business processes and to innovate new products and services.

The digital surge fuelled by the unprecedented Covid-19 pandemic has proven how digitalisation is applicable to our everyday life. Starting from the online “pantry-loading” as anxious consumers bulk-ordered toilet rolls and rice, today the pandemic has validated the value of digital operating models, and sped up the digital transformation of companies. SMEs with traditional mindsets are now prioritising digital transformation with the realisation that failing to do so will lead to difficulties in staying competitive in the new normal. With the intensified efforts from agencies and the government in assisting digital adoption by SMEs, this acceleration presented by the pandemic is in line with SME Corp Malaysia’s mission to digitalise all SMEs by 2024. Businesses in all sectors are stepping up their digitalisation efforts with consumers going online to fulfil their everyday needs. Shopee Malaysia observed that consumers are now spending 20% more time on the platform a week, reflecting the increasing reliance on online shopping. In 2020, e-commerce has become not just convenient, but essential. After all, being greeted by a green-vested delivery worker when the doorbell rings has become the hallmark of the MCO lifestyle.

In the present time, it is evident that more efforts are required to make remote working more effective in facing the new normal. 46% of respondents said they were provided with necessary tools to work remotely and only 41% said that their company culture empowers them to work remotely. Malaysian CFOs have pointed out the lack of remote work capabilities as one of the main causes for declined productivity. Working remotely may not be a permanent option, but 90% of CFOs agree on the benefits of work flexibility in the long-run, and 81% have also cited the resilience and agility factors that come with it. On the side of job security, 34% of respondents fear that automation will put their jobs at risk. Apart from learning digital skills, a shift of job demands can be seen from the rise of e-commerce, with new warehouse and delivery jobs offsetting the declining brick-and-mortar store workers. The strong appetite for learning amongst Malaysians is a great strength in overcoming this uncertainty, with 85% of respondents willing to learn new skills or completely retrain themselves for improving future employability. SMEs too need to embark on this journey.

The advancement of technology boosts the potential of our economy, with artificial intelligence, robotics and other types of automation estimated to contribute up to 14% to global GDP by 2030. Digitalisation is a key driver for growth in IR4.0 and the 5G era, the transformation is imminent and no industry will be spared. SMEs will have to assess and build strategic plans to lay the cultural foundation and implement upskilling in order to prepare for the digital world. With the dark clouds of the Covid-19 pandemic now hovering over our heads, it is our view that embracing digitalisation is our silver lining.