News: SMEs still not using digitalisation enablers

This article first appeared in Enterprise, The Edge Malaysia Weekly, on January 14, 2019 - January 20, 2019.
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Although Malaysian small and medium enterprises (SMEs) are receptive to using digital technologies to enhance their businesses in general, they are still not availing themselves of digitalisation enablers such as cloud computing, the Internet of Things (IoT) and data analytics, according to a recently published white paper by SME Corp Malaysia and Huawei Technologies (M) Sdn Bhd.

According to the white paper, “Accelerating Malaysian Digital SMEs: Escaping the Computerisation Trap”, while 44% of SMEs are using cloud computing, most of them have not adopted cloud software-as-a-service to drive software process improvements. Instead, they are only using cloud storage services such as Dropbox to store personal documents, pictures and videos.

The white paper was based on a survey of 2,033 SMEs in the country. The study also found that while 35% of SMEs have deployed IoT solutions, these are primarily isolated building security and surveillance and fleet tracking solutions — not those that could be sold as a service to the market.

More than half of the SMEs surveyed (54%) said they were using some form of data analytics. However, this turned out to be just Microsoft Excel spreadsheets, and not analytical solutions. SMEs that are not using any type of data analytics either felt that it was not necessary or do not know that collecting and analysing data could benefit their businesses.

The SMEs were only using social media and e-commerce to reach out to customers, and not to enable an end-to-end digital transaction process. According to the white paper, only 71% of these enterprises use social media for communication and marketing, most of which takes place on Facebook (82%) and WhatsApp (78%).

The SMEs that did not feel the need to run social media campaigns mostly said they did not think it was an effective method and preferred traditional marketing approaches. The white paper notes that these are mainly mid-sized companies steeped in their old ways in sectors such as construction and real estate.

Some 44% of the SMEs surveyed used e-commerce tools. However, most of their transactions were not done via integrated payment gateways — about 90% of them still accept payments through separate online banking transactions and 70% in cash. This means the transactions are still manual, which impacts productivity.

The white paper says the SMEs that are not planning to use e-commerce may feel that it is not a necessity and would prefer traditional sales channels to grow their businesses.

 

Crossing the digitalisation chasm

According to the white paper, the top three barriers to SME digitalisation are lack of financing, lack of necessary employee skillset and low access to technology. About half of the SMEs surveyed mentioned that financing was their key hindrance, with 60% claiming not to be aware of the possible financing options.

Additionally, many SMEs think that information and communications technology is expensive. Therefore, the white paper suggests that there is a need to educate and inform SMEs about the funding options available for them to drive their digital transformation, as well as to make them aware of the fact that cloud computing has made business improvement applications, data storage and analytics more affordable.

About 48% of the SMEs surveyed cited not having the right employee skillset as a major challenge to digitalisation. According to these enterprises, the top three skillsets they needed help developing were sales and marketing (15%), IT technical skills (10%) and business management (7%).

Many of the SMEs surveyed were not familiar with how social media marketing, e-commerce and other digital tools could benefit their businesses. They added that they need proper guidance on how to use digital technologies to reach more customers, automate their business operations and secure their company information.

To spur more SMEs to embrace digitalisation, the report recommends a three-pronged approach — innovate (make SMEs aware of the computerisation trap and encourage them to adopt a digitalisation outlook), facilitate (help SMEs get over the initial financial barrier and change their mindsets towards digitalisation) and accelerate (providing SMEs with access to digital technology as well as the knowledge to use them).

The white paper’s suggestions for “innovate” include conducting regular workshops to increase SMEs’ awareness and understanding of digitalisation, providing advisory services on how to develop a long-term digital transformation strategy based on their industry sectors and helping them to hire chief information officers or digital transformation units to oversee their company-wide digital transformation efforts.

Meanwhile, for “facilitate”, its suggestions include providing tax relief or financial rebates that could help SMEs get started on their digitalisation journey, providing financial support to successful SMEs for their overseas market expansion and introducing policies that would reduce red tape for SMEs to introduce new services, such as simplifying licensing and permit requirements.

For “accelerate”, the white paper’s suggestions include leveraging on the 11th Malaysia Plan to prioritise SME connectivity and realising the goal of 100Mbps for all urban areas and 30Mbps for half the rural areas. While the national intent for this is present, there needs to be a push to make it happen, says the white paper.

SMEs cannot undertake digital transformation on their own, it adds. The ecosystem needs to be facilitated by the government, with a collaborative facility the SMEs can tap into for support in skills development, funding, regulation, technology and e-commerce.

Thus, the white paper recommends the creation of an Innovation Centre that will provide SMEs with an ecosystem that helps them to engage stakeholders and synergise the three-pronged approach. As a one-stop centre run by a dedicated cross-agency team, the innovation centre will play a central role in ensuring that the adoption of technology is available as a service to Malaysian SMEs.