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SMB digitalization to boost APAC growth post pandemic
Innovation would allow small firms to add up to US$3.1 trillion to region's GDP by 2024, Cisco study says
28 Jul 2020 | The Asset

Hong Kong bears witness to the impact of the coronavirus pandemic on small and medium-scale businesses (SMBs) as the government, responding to the spike in Covid-19 cases in the city over the past few days, has not only revived but tightened social distancing rules. The tough restrictions, such as the suspension of dine-in services and a ban on public gathering of more than two people, are pushing many SMBs, especially those in the catering industry, closer to the brink.

The situation is not unique to Hong Kong, as SMBs across the world are suffering more than their peers with bigger resources from the fallout of the health crisis. According to a recent State of Small Business Report by Facebook, the OECD and the World Bank, 61% of SMBs in the Asia Pacific reported a fall in sales due to the pandemic. Yet SMBs remain the backbone of the economy, and has forged ahead with a fierce spirit of innovation and determination. While bearing the brunt of the pandemic, SMBs are expected to bounce back the fastest.

According to the “2020 Asia Pacific SMB Digital Maturity Study”, based on a survey conducted by International Data Corporation and commissioned by Cisco, 94% of SMBs in Asia Pacific say they have become more reliant on technology to ensure business continuity during the pandemic, while nearly 70% say they are accelerating the digitalization of their businesses to cope with the situation. 

This is the right approach, according to the study, which forecasts that SMB digitalization could add as much as US$3.1 trillion to the region’s GDP by 2024 and contribute to the region’s economic recovery post-COVID-19. "SMBs suffered the hardest impact in the current crisis but are expected to bounce back the fastest. This is not just because most of them have had to rely on technology to continue to deliver to their customers but also because of their agility and adaptability to innovate. As the region starts to emerge from the pandemic, this trend will play a pivotal role in the economic recovery,” says Bidhan Roy, managing director, small business, Asia Pacific, Japan and China, at Cisco.

The study finds that cloud, a foundation for digitalization, is the top technology investment priority (15%) for SMBs in the region, followed by security (12%) and purchase or upgrade of IT infrastructure software (12%).

However, SMBs are also facing challenges on this front. According to the survey, shortage of digital skills and access to talent are the top hurdles (17%) for SMBs in their digital transformation efforts. This is followed by the lack of necessary technologies for the transformation (14%).

“SMBs have an unprecedented opportunity. However, for them to derive the greatest long-term value, all stakeholders need to come together to address the key issues faced by the industry,” says Roy. “This includes government, educational institutions, large corporations, and industry bodies. No one entity can solve these alone.”

Digitalization journey

Despite the challenges, the region’s SMBs continue to make progress in their digitalization journeys. According to the study, there are four stages in a company’s digitalization process: stage 1 is when a company is “digitally indifferent”, reactive to market changes and has not taken digital efforts; stage 2 is when a company is a “digital observer” whose digital efforts have started but remain tactile and in bite-sized initiatives; stage 3 is when a company is a “digital challenger”, has a strategy for the use of digital technologies and is more proactive in market responsiveness; and stage 4 is when a company has an integrated digitalization strategy and is focussed on driving continuous innovation.

A shift of 50% of SMBs to the "digital challenger" stage could add between US$2.6 trillion and US$3.1 trillion to the region's GDP by 2024, according to the study. That's because SMBs will enjoy an average of 50% increase in revenue and productivity when they advance to stage 3. The survey finds that 16% of SMBs in the region are now in the advanced digital maturity stages (3 and 4), compared with 11% percent in 2019. Slightly more than half of SMBs have embraced digitalization to become “digital observers” (stage 2). Only 31% percent of SMBs are still reactive to market changes and have made hardly any efforts to transform digitally (stage 1).

Within the region, SMBs in Singapore, Japan, and New Zealand continue to lead the “digital observer” group, with no changes in their ranking compared to 2019. However, mainland China, Taiwan, and Thailand surpassed Korea, Hong Kong, and Malaysia, respectively. There has been notable progress made by SMBs in Indonesia and Vietnam, the study finds.

“Digitalization is no longer an option for SMBs – it's a matter of survival. Covid-19 has forced them to move to digital-first, becoming more dependent on technologies to ensure business continuity and resiliency,” says Daniel-Zoe Jimenez, assistant vice president, head of digital transformation & SMB research at IDC. “As SMBs rethink processes, operations, and customer engagements, they are looking at cloud services and cybersecurity first, but have also increased their focus on customer experience, video conferencing and AI/Analytics solutions. Given the rapidly changing market conditions and speed of technology evolution, SMBs should work with the right industry partners to ensure they can maximize their technology investments and thrive in their digitalization journeys.”

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