Opting for new markets
Technology adoption can help SMES reach new customers
ONE of the things that have, perhaps, become clear to businesses during the movement control order (MCO) is that business is no longer “the usual”.
As consumer behaviours change and new practices take precedence, the business ecosystem will also have to adjust to ensure that the companies that are around today will remain here tomorrow.
For example, the past two months have seen many SMES taking to e-commerce and digital technology to widen their reach when they could no longer rely on their traditional market. Certainly, the current crisis has affirmed companies that they can no longer afford to wait out their plans to adopt new technology.
As the landscape continues to change, this is an opportune time for SMES to identify gaps in their business models, seek out new markets and grab new market share.
Over the past week, through different webinar sessions on the Malaysian Digital Economy Corporation’s (MDEC) e-dagang Expo (EDX) programme, industry leaders have urged SMES to look at opportunities in the export market as an option to help them tap new demand to rebuild their business.
“The Malaysian market is relatively small with a population of 33 million. If we want to increase our market to expand and diversify, we should consider the export market. SMES only contribute 17% of export, so there is plenty of room to grow. It is important for SMES to start planning to embark on an export marketing strategy,” says Small and Medium Enterprises Association national secretary Yeoh Seng Hooi.
Crossing borders
The export market offers SMES plenty of potential. Margins could be better due to the exchange rates and businesses could be more sustainable given the diversified market.
E-commerce marketplaces have made it easier for businesses to do cross-border trade.
However, many companies are still reluctant to step out due to a variety of reasons, including a lack in technology, market access, funding and relevant skillsets to bring their products and services abroad.
Although local manufacturers have been good at producing great products, they will need to consider things like distribution networks, cross-border logistics, payment, fulfillment, warehousing, customer service, compliance, taxation and digital marketing when exporting.
And some companies may not be ready to tackle these challenges.
“Some companies will only be ready for the domestic market because of their scale, size, financing capability and certifications. These are the companies that we want to help scale-up to export. These companies need to be profiled before they are ready because we don’t want them to export before they have the capacity to do so,” says Fusionex founder Datuk Sri Ivan Teh.
In this respect, there are various e-commerce and business-to-business (B2B) marketplaces and government agencies that SMES can turn to for help.
Companies can also partner cross-border logistics providers to manage some of these challenges.
The key is to take the first step towards exporting and to improvise along the way.
“The main challenge that SMES face is that they don’t know where to start. They feel that there are too
many things to learn. But you have to do your homework. Study your competitors, find out what’s the best pricing you can offer and figure out what’s your unique selling point. And you will need to list out your pricing on your web-store or marketplace.
“These are the preparations that SMES may find daunting and many find it too time consuming and not worth investing in. They also expect to get business immediately after going online.
“But e-commerce is a journey, not a destination. Products need time to climb up the SEO (search engine optimization) ranking. So you need to put in the effort. Successful sellers put in a lot of time and effort,” notes Averest Ecommerce business development manager Pamela Poh.
Another factor that hinders SMES from exporting is the cost of bringing their products overseas as most of them may not have sufficient volume. Logistics providers note that it is expensive to build an ecosystem around low-volume goods.
This is where business associations and industry chambers can play a role in enabling the industry to work together and share resources for things like logistics, marketing and fulfillment.
Another option is for a company to look at bulk shipping their products to the intended country and engaging a partner to help manage the order fulfillment locally.
The fact that it may be costly to export serves to emphasise the importance for a company to know their product and target customers well.
While there is a lot of export potential for local products such as food and beverage, automotive parts and agriculture goods, SMES need to be mindful of the value they are offering their customers.
Having a unique selling point is key in ensuring customers are willing to pay for their products.
The technology leverage
In order for SMES to advance in the export market, they need to first have the right systems in place.
“With the rise of e-commerce and the huge volumes that we see, it is impossible to do all these manually. So it is becoming increasingly crucial for companies to leverage the power of technology to increase sales and strengthen their competitiveness,” adds Teh.
Digitalisation will enable companies to carry out more functions that boost sales including having a smoother back-end process that supports e-commerce and employing data analytics for better decision-making.
Teh says that there are companies that have been able to grow their sales by 35%-50% even during the MCO thanks to steps they had taken to transform their business during that period.
“SMES are forced to adapt in this crisis for survival. If they don’t change and transform digitally, they will cease to exist. Manual ways will be made obsolete even faster than they had planned,” he says.
Existing marketplaces may help companies in this process of digitising their transactions, procurement, logistics and international trade as they already have the infrastructure in place.
SME Association of Malaysia president Datuk Michael Kang says policymakers also play a part in ensuring a conducive environment for small businesses to adopt technology.
“We need to look at how to rebuild and reform the business of the SME community. We need to help them survive and maintain jobs and then look at how to bring them into the digital economy. We hope the government can speed up infrastructure development in the next two years, not just for urban but also rural areas to ensure SMES in the rural areas do not miss out,” says Kang.
He hopes there will be an increase in budget allocation to help SMES with digitisation by providing them with more grants. The government will also need to look into policies that will speed up foreign as well as domestic investments to encourage SMES to invest in business growth.
“But the biggest barrier for tech adoption among SMES is mindset. Many of them feel that technology is something they don’t want to touch and that they don’t have the time for it since daily operations are still good. Their volume is small so they prefer manual manpower instead of automation. They think technology belongs to the younger generation.
“But this Covid-19 crisis has shown them that technology is inevitable to survive,” he says.
Direct to customers
Technology has allowed businesses to reach out directly to consumers without going through the levels of distributors, even in a new market. They can engage consumers with relevant digital content and build their brand presence online in the different markets while having full control of their brand messaging.
“Once you have identified and tested a market. You can expand into another market. It is easier to duplicate your market than to create a new SKU (stock-keeping unit) because you can just sell the same SKU in different markets and on different marketplaces.
“This is always our recommendation to manufacturers,” shares KK Ecommerce founder Koh Tak Song.
That said, B2B Commerce chief technology officer Chua Chin Hang advises SMES not to ignore the traditional brick and mortar segment when looking at new export markets.
“One of the most common models used to penetrate a new market is by going to popular consumer marketplaces. That is the B2C model.
“But the B2B model is still something that we support. It is where brands look for key distributors or partners or local OEM (original equipment manufacturer) to leverage the existing network to go down to normal retail channels in that market.
“If you look at the retail industry in South-east Asia, brick and mortar businesses are still very alive and kicking. It is not something that SMES should ignore when they go into a new market.
“Looking at data, even in China, no doubt, the B2C market or e-commerce is growing at double-digit rates every year. But if you look at 2018, that segment only makes up about 16.7% of the FMCG (fast-moving consumer goods) market in China. The bulk of the market is still controlled by brick and mortar.
“So I think it is a focus that SMES should not lose focus on. E-commerce might give you the speed to penetrate into a new market, but to grow, you can’t ignore the traditional market,” he says.
Going through a B2B marketplace, for example, would help connect SMES to local partners to penetrate the brick and mortar business. But through the platform, trade processes such as exchange of documents, invoicing and personalised business matching will be digitised, which will give SMES a strong back-end support in a new market.
“E-commerce is a journey, not a destination. Products need time to climb up the SEO (search engine optimization) ranking. Successful sellers put in a lot of time and effort.”