By Thomas Parks and Hannah Najar
As the Covid-19 Delta variant unleashes a storm over Southeast Asia, the region’s micro, small, and medium enterprises (MSMEs) are desperately trying to hold on. Just when we thought the first two waves were challenging, the third wave of Covid-19 has produced more economic disruption and dramatically higher cases and deaths.
With hundreds of millions of Southeast Asians under lockdown measures, and recovery of the tourism sector a distant prospect, many MSME owners are facing the ultimate decision – find new ways to conduct business or close down.
It is too early to tell how many MSMEs will not make it through the pandemic. However, recent data from Asia Foundation surveys of MSMEs in five countries illustrate the pressure that many are facing.
In Thailand, 54 percent of the MSMEs we surveyed in January (during the second
wave) indicated that they were at high risk of closing down. Across the region, more than half of all MSMEs surveyed were either completely closed or had closed their premises to customers during 2020. Given the third wave is a much longer and deeper crisis, this situation is likely to be much worse now.
Why does this all matter? MSMEs in ASEAN employ nearly 80 percent of the workforce, or roughly 280 million people. If MSMEs collapse under the strain of months-long demand contractions, we will see a generation of poverty reduction wiped out. And, it will take years to recover to 2019 levels of economic activity.
Adapting to Digital: An Essential but Arduous Move
Amidst these challenges, however, we’ve found evidence that MSMEs are increasingly trying to adapt.
In June 2020, the majority of Thai MSMEs that we interviewed had not changed their business at all. But by early 2021, roughly 60 percent were trying to adjust their business strategies in order to survive.
Surprisingly, there is huge variation across the region in the percentage of MSMEs who have adapted.
In Cambodia, only 12 percent of MSMEs have modified their operations, while in Malaysia it was nearly 60 percent.
Some adaptations have been more successful than others. In Thailand, we found strong evidence that MSMEs that shifted to online sales were much more confident that they would survive the pandemic. But, home delivery was only marginally effective at increasing sales.
MSMEs that offered new products or services tended to struggle, especially when they crowded into new Covid-related sectors like face masks and personal protective equipment (PPE).
The critical story of MSME resilience in Southeast Asia will be traditional MSMEs moving online for the first time in order to survive. This is not necessarily a story of path-breaking innovations.
It’s a story of tens of millions of techno-novices taking their business on to social media or simple web platforms, and how expanding digital literacy is helping Southeast Asia during a time of crisis.
Making Technology Accessible to MSMEs
Governments and multinational companies are looking for strategies to help small businesses get through these tough times.
Providing a pathway for MSMEs to go online is likely to have the greatest impact. The challenge is to reach them at scale and to deliver practical and localised advice that they can use right away.
There is no time for fancy new platforms or apps. But we can help them take advantage of what’s out there already to revive their businesses and survive this pandemic.
Making the leap is a huge challenge for most of ASEAN’s MSMEs. They need an introductory
walk-through of the options available to them, and coaching to put these into practice.
In partnership with ASEAN and with the support from Google.org, Google’s philanthropic arm, The Asia Foundation has been training MSME owners across ASEAN. Launched in 2020, the Go Digital ASEAN project aims to pull 200,000 of these vulnerable MSMEs and job seekers into the digital economy with training that is shaped around their realities.
Complementing Technology with Training
Many of our participants knew that these tools existed, but didn’t see how they could directly impact their business and/or didn’t trust online services.
Take the case of Naningsih in Indonesia who doubled her income during the pandemic by selling handmade popsicles and purchasing supplies online. Or Huong in Vietnam, who shifted overnight from traditional in-store sales to online customers, leading to an increase in sales.
As the pandemic swept through Vietnam, her frozen seafood business struggled, but the training on digital marketing helped her to promote her products through social media. She told us: “Who knew that a person like me, accessing social media for the first time, could do online sales!”
Technology is providing a lifeline to many MSMEs during the darkest days of the pandemic. In 2020, a huge chunk of Southeast’s economic activity shifted online. Now there is no going back to pre-Covid days.
The 2020 e-Conomy Southeast Asia report found that 40 million new users came online last year alone, including millions of low-income people and MSME owners like Naningsih and Huong.
So the critical challenge is not lack of internet access, but lack of confidence, digital skills, and awareness of how to mitigate online risks.
The pandemic is accelerating digital transformation of people and businesses on the edge of poverty in Southeast Asia, but they need a bit of help to open the door.
Thomas Parks, Country Representative, Thailand, The Asia Foundation
Hannah Najar, Regional Program Manager, Go Digital ASEAN, The Asia Foundation