By Tham Lih Chung, CEO of Incite Innovations Group
In the dynamic landscape of Malaysia’s business environment, small and medium enterprises (SMEs) stand as the unsung heroes, constituting a staggering 98.5% of the 920,624 business establishments and forming the backbone of our nation’s economic resilience. However, a glaring disparity persists – the lag in digital adoption highlighted by the World Bank Malaysia, necessitating urgent attention and concerted efforts from all stakeholders.
The urgency for SMEs to embrace digital transformation cannot be overstated. As the business world increasingly ventures into the digital domain, those falling behind face not only the risk of survival but the challenge of thriving in a rapidly evolving economy. The Malaysia Economic Monitor February 2023: Expanding Malaysia’s Digital Frontier report emphasizes the performance gap among SMEs in Malaysia, highlighting their vital role in the economy while underscoring a disproportionate contribution to economic activity. The need for accelerated digital adoption within the SME sector is an undeniable call to action.
Incite’s database paints a concerning picture – only one in 20 SMEs in Malaysia has initiated digital transformation strategies, and shockingly, less than one in 15 businesses has a dedicated digital strategy team. These statistics go beyond mere numbers; they represent unexplored potential and missed opportunities. Malaysia finds itself trailing in the digital race, a stark contrast to its per capita income and economic potential.
On the global stage, SMEs play a pivotal role, contributing up to 40% of GDP in emerging economies and generating seven out of 10 jobs. The COVID-19 pandemic has posed unprecedented challenges, with SMEs grappling with rising costs and a consequent cash crunch. However, within this adversity lies an opportunity for SMEs to leverage emerging technologies and embark on a transformative journey towards recovery.
Navigating the path to digital transformation is riddled with challenges. Drawing from my experience spearheading the strategy for the first enterprise resource system in a large manufacturing company, the importance of streamlining strategies with a focus on core front-end departments becomes apparent. Sustainable digitization demands incremental value addition across the entire business, ensuring steadfast progress amid the deluge of advice and potential distractions.
Understanding the risk curve is paramount for SMEs, given their typically constrained research and development budgets. Aligning digitization decisions with key considerations becomes even more critical in the face of ongoing pandemic-related costs, necessitating a judicious allocation of resources.
The benefits of digitization are abundant, but so too are the associated risks. The primary goal should be to automate processes, enhancing efficiency and productivity. Cloud storage, for example, offers staff the flexibility to work from anywhere, a crucial component in adapting to the new normal.
SMEs must navigate the challenge of capital expenditure constraints. Opting for a pay-as-you-go model for digital services can significantly reduce costs compared to in-house development. Back-office digitization is equally vital, often overlooked in favour of customer-centric solutions, yet crucial for driving operational efficiencies.
Digital transformation should not merely boost revenue; it should also reduce the overall cost of doing business. An incremental approach is key, ensuring a sustained strategy that becomes ingrained in the company culture, avoiding the pitfall of succumbing to short-term fixes.
Resource allocation emerges as a critical challenge, demanding strategic decision-making tailored to the unique nature and goals of each business. Established SMEs have a pivotal role to play by guiding their counterparts, sharing insights, understanding the pain points, and fostering collective growth through digital adoption. Frequent monitoring and testing remain imperative, guiding teams to focus on digital investments that yield the most value and ensuring a dynamic and effective decision-making process.
Recognizing the challenges faced by SMEs, we have drawn upon experience and expert involvement to introduce various solutions. Among them is an integrated retail technology solution specifically designed to support SMEs on their digital journey step-by-step. Presently, over 500 SMEs are reaping the benefits of these solutions. We encourage more SMEs to step forward and contribute to assisting others on this transformative journey.
Malaysia’s SMEs stand at a crucial juncture – a digital crossroads where action is imperative. The call to bridge the gap, embrace transformation, and secure a future where our SMEs not only survive but thrive in the dynamic landscape of the digital economy is unequivocal. The time to act is now, with established SMEs leading the charge and supporting their counterparts in this collective journey of growth through digitalisation.
