Insight - Is digitalisation the only way out?


According to forecast on the GlobalData website, Malaysia’s e-commerce market will reach RM51.6bil by 2024, making it the fastest-growing country in South-East Asia.

THE government introduced the Malaysian Digital Economy Blueprint in February 2021 and set its sights on the Malaysian Digital Project (MyDigital) to create 500,000 jobs in the digital economy by 2025 and to contribute 22.6% to the country’s gross domestic product (GDP).

This is in line with its vision to become the leader in the regional digital economy.

However, Malaysian companies are rather slow in adopting digitalisation, including mastering high-tech research and development (R&D) capabilities and applications.

This is evident as the World Bank data in 2018 showed that Malaysian enterprises were lagging behind the global average in terms of their pace of digitalisation.

In a June 2021 report, the World Bank once again pointed out that only a third of Malaysian enterprises have gone digital, while less than a quarter of them have a dedicated digital team.

According to a joint survey by Huawei and the Malaysian government in 2018, only 46.1% of Malaysian small and medium enterprises (SMEs) adopted electronic finance and accounting systems.

SME ACCI Koong Lin LoongSME ACCI Koong Lin Loong

While the use of back-end electronic business processes is low, only 14% had electronic inventory management and 11% had order fulfilment software.

Besides, only a small number of SMEs adopted advanced digital technologies that can significantly improve their business performance. For example, only 44% and 54% of SMEs use cloud computing and data analysis respectively.

Whereas in Singapore, 85% of its SMEs already used cloud computing in 2014.

The survey stated that the biggest challenge facing our SMEs in going digital was the lack of financing and workers’ skills –with about 50% of them listed capital as their main setback, while 60% had no idea about any relevant financing methods.

Another major barrier was Malaysia’s Internet speed and price, where 44% of the SMEs said it deterred them from using cloud services. Also, 48% of the SMEs said their employees lacked the skills required to go digital. The survey noted that employers had little technical expertise, resulting in many SMEs simply being clueless on how and where to digitalise.

The Covid-19 pandemic and movement control order (MCO) have severely impacted many industries in Malaysia.

However, some benefited from the situation and leverage it to rise, while some industries also transformed or accelerated their digitalisation and automation.

Prior to this, we had always envied the prevalence of e-wallets in China, where electronic payments are accepted for almost anything from clothing, food, living to transportation – as long as one has a mobile phone.

Advance of e-wallets

Back home, e-wallets were so uncommon until the virus outbreak, which catapulted our e-wallets adoption that may not be achieved even in five normal years.

Today, from shopping malls to roadside traders and hawkers, almost all businesses accept e-wallets.

Before the pandemic, online shopping and delivery services were more common among hypermarkets and smaller grocers, targeting office workers in urban areas, and the number was not big. But following the MCO and people staying indoors, online shopping has become popular, as food and goods delivery vehicles are seen everywhere on the road.

They deliver a wide variety of online shopping products, ranging from fresh vegetables and fruits, food and beverage, clothing, electronic products to daily necessities and different groceries. This is something we could not have imagined would happen before the pandemic.

Recently, owing to the continued rise in daily positive cases and the raging variant of the Covid-19, even more people opt for online shopping to supplement the food and necessities at home.

According to a market research survey by Oppotus, up to 60% of Malaysian citizens used e-wallets by the third quarter of 2020, thanks to the government’s twice channelling of digital allowance to the people. This was an overwhelming increase from only 27% in 2019 for the same period. Also, it was reported that each user has an average of two to three e-wallets.

Another survey by Facebook and global consulting firm Bain showed that among South-East Asian countries, Malaysia has the highest proportion of consumers with online shopping experience, accounting for 83%, followed by Singapore (79%) and the Philippines (74%).

According to an eCommerceDB report, the Malaysian e-commerce market has grown by 37% in 2020, making it the 38th largest e-commerce market in the world.

This growth rate was notably higher than the 20% predicted by the Malaysia Digital Economy Corp (MDEC).

According to forecast on the GlobalData website, Malaysia’s e-commerce market will reach RM51.6bil by 2024, making it the fastest-growing country in South-East Asia.

Funds to assist SMEs

The government, through its different agencies, has set up a number of funds to assist SMEs to adopt digitalisation and automation.

The more widely known ones are MDEC’s SME Business Digitalisation Grant and Smart Automation Grant (SAG) that were announced during Budget 2020 and the government’s Penjana assistance package last year. Apart from providing aid, MDEC has been consulting SMEs for many years, encouraging them to go digital and adopt automation.

Similarly, the Malaysian Investment Development Authority or Mida also introduced its SAG last December, with a higher amount of up to RM1mil was allowed for each company and open to the manufacturing industry. Following an overwhelming response, applications for these grants by these two agencies have been closed.

Considering there are still needs from SMEs in this area, the government allocated another RM100mil in the recently announced Pemulih aid package to help them with digitalisation and automation.

All SMEs are urged to apply from MDEC for the maximum of RM5,000 per company to help them digitalise their businesses and enhance efficiency.

Besides, SMEs can also apply from the Malaysian Industrial Development Finance Bhd for related and low-interest loans, such as the Soft Financing Scheme for Automation and Modernisation and the Soft Financing Scheme for Digital & Technology; the SME Automation & Digitalisation Facility by Bank Negara at various commercial banks and financial institutions; and the SME Technology Transformation Fund at the SME Bank, to name a few.

It is apparent that the trend of digitalisation, automation and the development of e-commerce is irreversible that the government, the private sector and various media are calling on everyone to go digital.

However, are our SMEs ready to take the step?

Can digitalisation really save the SMEs post-pandemic?

Ultimately, we must take a good look at the fundamentals of our business, which are the products and services.

Do the products or services we offer meet market demand?

Will they generate cash flow to the company after the sale? If the answers to these two key questions are negative, then we must re-examine and consider dropping the relevant products or services, or consider cooperating with other companies to survive.

We must not regard digitalisation as the sole objective, as it is just a supporting tool, one that helps us improve the quality of our products or services, increase efficiency, reduce manpower or help make the delivery process to customers more smoothly.

For example, let’s look at what was facing the vegetable farmers in Cameron Highlands.

When the MCO was first implemented, the suspension of the transport industry interrupted their supply chain and resulted in tonnes of vegetables ending up in the trash.

Later, with the help of various parties, the farmers began selling online through different social media and electronic sales platforms, thus enabled fresh vegetables to be delivered directly to consumers.

This set the record of 70 tonnes of vegetables were sold within three weeks.

Be they traders, fishermen or farmers who sell all kinds of items in the wet market, they were also selling their products directly online. Even when the pandemic eased for a while, many people who had been accustomed to the convenience continued to shop and order online, also to avoid crowded markets.

When we see these examples, we tend to focus on the e-commerce adoption that brought about new opportunities but ignored the fact that the products were necessities.

Digitalisation only provided the sellers with another sales platform and assistance in the planning of the required logistics.

Tremendous changes

The pandemic has brought about tremendous changes in how companies conduct business and manage supply chains.

As the Chinese saying goes, “When all means are exhausted, change is necessary for a solution that works and lasts.” Having experienced over a year of the pandemic, the impact from the MCO and the restrictions aimed at reducing infections, we have accepted and adapted to the new norms.

If the public, regardless of age, education level, gender or race can adapt to various changes, there is no reason for companies to resist changing their operating methods and make good use of digitalisation and automation to supplement their business.

I once mentioned in an interview that business is all about that undying and constant resolution. Managing uncertainty is the core leadership challenge of the present leaders. Those who have the will to manage would bridge their business with the circumstance, gain insight into changes and make the best decision.

Are our businesses ready to face these challenges? Companies that are well prepared and at the forefront will naturally follow the trend, while those that find it hard to adapt would, in time, be eliminated. I hope all of us make good use of the external resources and also strengthen our capabilities internally so that these elements complement each other to bring about more opportunities.

Koong Lin Loong is the managing partner of Reanda LLKG International. He is also the treasurer general cum chairman of SMEs Committee, the Associated Chinese Chambers of Commerce and Industry of Malaysia. The views expressed here are the writer’s own.

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