Charting a course through the tumult of SME digitalisation

THE advent of digitalisation and the emergence of groundbreaking technologies such as artificial intelligence (AI), machine learning, big data, the Internet of Things and nanotechnology have been fundamentally reshaping the competitive dynamics in all industries, and small and medium-sized enterprises (SMEs) are no exception.

These transformative technologies have ushered in new entrants, like streaming services challenging conventional media providers, disrupting customer behaviour and expectations.

The process of digitalisation is currently revolutionising economies and societies worldwide, and South-East Asia is not exempted.

In addition, Malaysia and China, two prominent players in the Asian region, have been making significant strides in embracing digital technologies to boost economic growth and enhance their global competitiveness.

These advanced technologies and innovative initiatives have presented substantial challenges to businesses, not only in redefining their product offerings but also in reimagining how their employees function and adapt to a digitally-driven workplace.

Consequently, there has been a profound transition from traditional business models to those centred on technology over the recent decades.

The Asean Digital Integration Framework launched in 2020 accentuates the importance of fostering a digitally-connected grouping. Key initiatives within this framework include promoting digital infrastructure development, enhancing digital skills, and facilitating digital trade and cross-border ecommerce.

Meanwhile, Malaysia, with its Shared Prosperity Vision 2030 and MyDigital initiatives, is committed to becoming a regional digital powerhouse. Key elements of its digitalisation drive include digital infrastructure, digital talent, egovernment and smart cities.

Investments in 5G technology and expanding broadband access are critical components of Malaysia's digital infrastructure development.

China, being a global digital leader, has made remarkable progress in leveraging technology for economic growth and innovation. Key aspects of its digitalisation efforts include technological advancements, digital finance, AI and the Digital Silk Road.

Inherent opportunities and setbacks for SME digitalisation

In the context of Asean, China and Malaysia, digitalisation provides SMEs with the opportunity to reach a global audience.

Online marketplaces and ecommerce platforms enable them to expand beyond local markets, tapping into a vast customer base.

Cloud computing and software-as-a-service (SaaS) solutions allow SMEs to access sophisticated tools and services without the need for significant upfront investments.

This levels the playing field with larger competitors.

Digital tools and automation streamline processes and help to boost productivity. Tasks that once required significant manual labour can now be accomplished more efficiently, allowing SMEs to do more with less.

These tools and processes can also generate vast amounts of data. SMEs can harness this data to gain insights into customer behaviour, market trends, and operational efficiency, helping them make informed decisions.

Besides, embracing digital technologies fosters a culture of innovation, where SMEs can experiment with new business models and product offerings, helping them stay competitive in rapidly evolving markets.

However, many SMEs in Asean in general, and China and Asean in particular, lack the necessary digital skills to fully leverage these technologies.

Training employees or hiring individuals with digital expertise can be challenging and costly.

Furthermore, with increased digital presence comes the risk of cyberattacks. SMEs may not have the resources to invest in robust cybersecurity measures, making them vulnerable to data breaches and related threats.

While digitalisation can ultimately lead to cost savings, the initial investment in technology and infrastructure can strain their limited budgets.

Accordingly, the access to affordable financing for digitalisation is crucial.

Eliminating stumbling blocks

Entrepreneurs' strategic acumen, organisational management skills and innovative abilities can actively facilitate the digital transformation of SMEs.

Enhancing the digital technology training and the development of a digital mindset within SMEs can accelerate the progress of digitalisation efforts.

Additionally, it makes possible the alignment of an enterprise's overall strategic planning with the work of each employee and the effective execution of these plans.

Providing proactive policy direction and robust assistance to SMEs are vital catalysts for their digital evolution and enhancement.

It is crucial to tailor highly specific and finely-tuned guidance or policies based on the distinct characteristics of various types of businesses.

This approach aims to standardise the management of digital technology among these sectors and create a conducive environment that fosters SMEs' digital transformation.

SMEs in Asean, China and Malaysia are impacted by both internal and external factors.

Governments can respond by implementing targeted policies that address common challenges faced by these businesses, including financial and tax incentives.

This approach aims to encourage SMEs to take proactive steps, including:

> Educating SMEs: Raising awareness among SMEs about the necessity of digitalisation and its associated advantages.

> Shifting mindsets: Altering the mindset of SMEs so that they move beyond mere computerisation and fully embrace the concept of digitalisation.

> Facilitating the start: Assisting SMEs in commencing their digitalisation journey by crafting a comprehensive transformation strategy.

> Supporting change management: Providing support for the transition from traditional business practices to a digital SME model.

> Cultural transformation: Driving cultural changes within their organisations to foster a data-centric approach.

> Financial aid: Offering financial support to help SMEs initiate their transformation efforts.

> Promoting collaboration: Incentivising larger enterprises to engage in technology sharing partnerships with SMEs.

> Regulatory compliance: Assisting SMEs in meeting security and regulatory requirements.

> Improving broadband access: Enhancing the coverage and affordability of broadband services.

Digitalisation is reshaping the economic landscapes of Asean, Malaysia and China. While Malaysia is actively pursuing its digitalisation goals to boost economic competitiveness and improve its citizens' lives, China remains a global digital powerhouse with a robust digital ecosystem.

The digitalisation journey in these countries presents numerous opportunities for innovation, economic growth and regional collaboration, ultimately contributing to the global digital economy's evolution.

As the digital revolution continues, Asean, Malaysia and China will undoubtedly play crucial roles in shaping the future of the digital world.

Dr Amy Yeo Chu May is a Professor at Tunku Abdul Rahman University of Management and Technology. The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the South-East Asia Research Centre for Humanities (SEARCH) and Tunku Abdul Rahman University of Management and Technology (TAR UMT), in conjunction with the 10-year anniversary of the Belt and Road Initiative.