Only 16% of SMEs in Southeast Asia are truly digitised, according to a study by Bain & Company. This is a concern for a region in which these companies employ more than 80% of the region’s workforce and account for 99% of businesses in key sectors. In fact, the Economic Research Institute for ASEAN and East Asia found that 56% of Southeast Asia’s SMEs have just a basic level of digital adoption (i.e. email, personal computers, mobile phones) while only 10% are considered to be at an advanced level (i.e. analytics, automation, bank card readers).

A vast number of SMEs are missing out on the benefits of new digital tools, from gaining access to broader sets of information to make better informed decisions, to opportunities for innovation and digital access to finance. Looking towards a post-COVID world, where digital tools will have consolidated their importance following the world’s reliance on them through the pandemic, the picture looks even more stark.

Corporate schemes and pandemic impact increasing digital adoption 

One small business tapping into the potential that digital services can offer is Nashata, a modest activewear brand for women based in Malaysia. Nashata is fully internet based with an online store and a cloud system for accounting while payments are made digitally through a variety of global providers. This approach has allowed the company to build an international client base with more than 60% of its sales from overseas markets including Australia and the US. 

We explore why Malaysia is one of the leading markets for digital transformation in the region

There are several schemes in the region which can help other SMEs follow suit. For example, OCBC launched its Digital Business Dashboard last year which helps SMEs bring together all parts of their business into a single platform. With a holistic view of their organisation, these small businesses can make data-driven decisions, reduce costs and implement more efficient processes. This demonstrates how the opening up of information, driven by digital tools, can add value to all aspects of a small business. 

The COVID-19 pandemic has undoubtedly had devastating effects for many SMEs. On the technology front, Accenture recently reported that, pre-pandemic, 77% of Southeast Asia’s SMEs planned to increase technology-related spending compared to the previous year; however, with decreased revenue expectations in the current environment, this figure has dropped by 33%. That being said, one of the silver linings of the COVID-19 crisis is that it has forced many small businesses to innovate and increase the digitisation of their operations, setting them up for both short- and long-term benefits. For instance, between March and April 2020, small businesses registered on the regional super-app Grab saw a 21% spike in online revenue. Enabling smaller businesses to make a quicker digital transition could be key to Southeast Asia’s economic recovery, according to Grab’s co-founder Hooi Ling Tan.

To support this shift, and to tackle the risk of the widening digital divide amidst COVID-19, Grab launched its Small Business Booster programme, offering companies tools and advice for improved online visibility and simple digitalisation initiatives. 

Digital infrastructure, talent and cybersecurity challenges still to overcome 

Despite the digital acceleration brought about by COVID-19, there are still obstacles to overcome before Southeast Asia’s SMEs can digitise, truly thrive, and deliver long-term financial benefits to local communities. These barriers are often more numerous for the region’s high rural population, which can lack basic infrastructure such as internet and broadband connections. Firstly, in comparison to larger counterparts, small businesses have lower budgets and weaker bargaining power to negotiate contracts with digital solution providers. Secondly, Southeast Asia has a shortage of digital and technical skills and low awareness of the advantages of “going digital”. A recent EY study cited lack of access to digital talent as the top digital transformation challenge faced by the region’s SMEs. Finally, with cyberattacks on the rise, especially in an increasingly online world post-pandemic, there are legitimate concerns around the privacy and security of digital tools while lack of understanding can also lead to low levels of trust in such solutions.

However, SMEs in Southeast Asia have an advantage over more mature markets; they are not as encumbered by legacy technological solutions and have less entrenched consumer habits. This means small businesses can skip a generation of technology and go straight to using more modern, efficient digital tools, including cloud-based services. For instance, Mastercard and the Asian Development Bank, with partners Finastra, N-Frnds and SGeBIZ, have launched a project to help build a new digital pathway to credit for wholesalers. Through the application of technology, the program aims to help SMEs digitise trade, making it easier for them to participate in global supply chains. The program will start in Indonesia with 500 retailers and aims to build to 5,000 retailers by the end of Q1 2021.

Earlier this year, The Asia Foundation launched its “Go Digital ASEAN” initiative which is designed to equip up to 200,000 underserved people and rural micro-enterprises with digital skills and tools, helping to narrow the gap between digital demand and talent. Meanwhile, cybersecurity issues are also increasingly being addressed. For example, Online Pajak, a fast-growing start up in Indonesia, is using blockchain technology to digitalise the tax transaction process. The added security of blockchain, has allowed the company to address privacy challenges which had previously been very costly to overcome.  

A collaborative, open approach is key 

Everyone in the financial services ecosystem, from banks to fintechs to governments, have a key role to play in making digital tools accessible to SMEs. The digital revolution has paved the way for new, collaborative business models that help the financial services industry drive innovation and solutions which are key to the success of small businesses. Thanks to this open approach, SMEs have increasing access to both the digital infrastructure and financing that banks provide, as well as the innovative solutions, personalised services and agility enabled by fintech solutions. All stand to benefit from working together and embracing an open, collaborative mindset. 

With various schemes in place to encourage digitalisation and a burgeoning fintech landscape, Southeast Asia is well placed to help SMEs go digital. If small businesses can overcome the initial hurdles, they can set themselves up to benefit from an enhanced visibility of their operations, improved efficiency and increased revenues. This will help lead to a real impact on the livelihoods of small companies and the wider communities they serve in the region.

This article was contributed by Luc Hovhannessian, the Managing Director, Asia Pacific, Finastra

About Luc Hovhannessian

Luc Hovhannessian heads Finastra across the Asia Pacific region and is based in Singapore. He has 18 years’ experience managing, operating and selling complex software solutions in the fintech industry. Luc spent more than 14 years at software company Ullink, holding a variety of positions including Global Client Operations Director and ultimately Managing Director, ASEAN. Luc graduated with a Master’s degree in Mathematics, Software Engineering and Artificial Intelligence from Pierre and Marie Curie University in Paris.