MSME digitalization can drive inclusive growth
Promoting the digitalization of micro, small and medium enterprises (MSMEs) is necessary to drive inclusive growth, according to a new study that found that more than half of MSMEs in the Association of Southeast Asian Nations (Asean) are at a minimal level of digitalization.
The paper, entitled “Study on MSMEs Participation in the Digital Economy in Asean: Nurturing Asean MSMEs to Embrace Digital Adoption,” interviewed 40 MSMEs across the 10 Asean-member states (AMS) on how far they have adopted digital technology in their business operations. It found that the enterprises’ digitalization remained low and unequally distributed, and categorized the MSMEs into three levels: basic, intermediate and advanced.
Digitalization is defined as “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities,” according to the study conducted by the Economic Research Institute for Asean and East Asia (ERIA).
Of the total MSMEs interviewed, 56 percent were grouped into the basic level. They had minimal digital adoption, using only basic digital tools like Microsoft Office, email, WhatsApp, personal computers and mobile phones, mostly to facilitate communication and operations.
Thirty-four percent were in the intermediate level and used digital tools such as a website, social media, e-commerce sites, tablets and printers more meaningfully to aid sales and marketing.
Only 10 percent were in the advanced category, with sophisticated digitalization applied to various aspects of their business. Digital tools and processes they used included ERP (enterprise resource planning), CRM (customer relationship management), analytics, big data, automation, pure online business, scanners, bank card readers, central servers and imaging devices.
But even among the minority of MSMEs that were digitalized, “most do not utilize digital tools to their fullest,” observed the publication.
“While a minimum level of use of digital technology was evident among 90 percent of MSMEs surveyed, very few can be considered truly digitalized. All MSMEs interviewed across the 10 AMS reported the use of personal computers and mobile phones for their business. However, the use of customized digital devices was rare or non- existent.”
Similarly, the use of appropriate software for business was at a nascent stage. While all MSMEs used basic tools such as Microsoft Office and email, advanced software for accounting or operations management was hardly used.
“MSMEs are still lagging behind in terms of digitalization as compared to other key economic players, such as large firms and companies based in urban areas. This suggests that there remain barriers to digitalisation for MSMEs,” the study said.
It added that if these barriers are not properly addressed, MSMEs would be left behind and may see their businesses negatively impacted. “This could in turn hinder the healthy growth of the Asean economy,” it said.
Supporting the digitalization of MSMEs, especially those unfamiliar with digital technologies, is important, stressed the report.
While MSMEs account for 95 percent to 99 percent of all business establishments, and more than half of the total employment in all Asean-member states, they only account for 30 percent to 53 percent of gross domestic product (GDP) and 10 percent to 30 percent of exports in the region.
The report said: “The gap is indicative of the huge potential and opportunities to be gained. This gap could be narrowed in a cost-effective manner through digitalization, given that the internet and advancements in technology are rapidly driving down adoption costs.”
“Enabling more MSMEs to jump on the bandwagon and helping them use digital tools more effectively could contribute significantly to the economic development of Asean,” concluded the study. /