By Blake Larson
June 27 is World Micro-, Small- and Medium-sized Enterprises (MSMEs) Day. A few years ago, in recognition of the huge importance that these small companies play in local and national economies, an annual day was established to shine a spotlight on them. Besides expressing much needed recognition for MSMEs, the annual day also highlights the work that is still to be done to support the sustainable growth of MSMEs.
While less likely to feature in top-of-mind awareness among consumers than larger multinationals, MSMEs are nonetheless vital in our daily lives. According to a recent report by the International Council for Small Business (ICSB), MSMEs make up over 90% of all businesses, accounting for on average 60-70% of total employment and 50% of GDP. Simply put, they drive growth, provide employment opportunities and open up new markets.
But MSMEs, despite their importance to our economies, are still undervalued and underprepared when taking into account changes in consumer habits being seen during and after the Covid-19 pandemic. The need to digitize is more crucial than ever and MSMEs must be given support so they can be brought into the digital economy.
Digitization during the Covid-19 recovery phase
As some parts of Asia begin their pandemic recovery phase and attempt to restart their economies, small businesses will be rethinking their strategic plans and searching for new customers while trying hard to retain existing ones.
Many businesses attempted to change course during the height of the pandemic by offering e-commerce options. This may have consisted of retailers utilising their own channels like a website to sell more stock, boosting digital marketing efforts through paid advertisements and social media, and also using external digital platforms to facilitate e-commerce transactions, payments or even deliveries.
At Lalamove we witnessed an almost immediate effort by traditional restaurants and retailers to digitize their deliveries once it became apparent that lockdown measures could last for a prolonged period of time. This quick effort to reduce the impact of physical shop closures enabled businesses to continue serving existing customers and also reach new ones when demand for home delivery soared.
Digital platforms lower the barriers to digitalisation by providing easy-to-use platforms that require limited commitment on the part of the MSME. Not having to invest large sums of money to access new platforms is attractive for MSMEs due to limited financial resources. In practice this could be using a new digital platform that automates the processing of invoices or even partnering with cloud computing services to optimise operations and better connect the internal workings of the company.
Those MSMEs that fail to implement digital practices run the risk of losing out on customers, especially when taking into account many ‘new normal’ factors we expect to see in the wake of Covid-19. A recent study by Mastercard during the Covid-19 pandemic reported that 79% of people worldwide used tap-and-go payments, while that figure increased even further to 91% of people in Asia-Pacific. Furthermore, 75% of respondents in Asia-Pacific stated they will continue to use contactless payment methods after the pandemic is over, with hygiene and convenience noted as key reasons for this habit. This means that MSMEs which are still operating on a cash-only basis may struggle to retain customers in the future if they fail to cater to their needs or preferences.
Changes in consumer habits will also come in the form of where consumers shop. Less willing to shop in-store and preferring the safety of shopping from home, the expectation is now that these goods will be delivered directly to the home with options for next-day or even same-day delivery. This can place a huge burden on an MSME that has limited in-house delivery capability. Digital platforms once again propose a possible solution for businesses looking to scale up their deliveries by automating the scheduling of orders, saving on costs and optimising operations at the same time.
As digital connections become faster, cheaper and easier to access for greater populations of the community, the trend of digitization will only continue to grow stronger.
Why do MSMEs struggle with digitization?
One of the biggest hurdles for MSMEs implementing digitization is a lack of knowledge about how to begin. Most MSMEs operate in a highly concentrated fashion with often the business owner being the sole-decision maker. As a result, day-to-day business operations and immediate concerns could take priority over long term, time-consuming or financially risky matters.
MSMEs are also likely to face a shortage of skills to be able to implement digital changes. As capable digital and ICT-savvy human resources tend to gravitate towards larger companies in major cities, MSMEs with fewer financial incentives may struggle to attract the right talent that can help the company move towards greater digital sophistication.
Finally, a lack of access or knowledge about government schemes also hinders the uptake of digital processes. Many MSMEs lack awareness about local schemes to help them implement digital practices or partner with digital platforms. As financial constraints are probably a leading factor in MSMEs not implementing digitization sooner, entrepreneurs and business owners should try to keep updated with any new schemes or incentives.
While we take the time on this annual day of recognition to celebrate MSMEs and their hardworking staff and owners, we must also ensure that the right support, whether that’s from governments or digital platform partners, is readily available all year round.
MSMEs form the lifeblood of our economies and digitization can help them to reach new customers and optimise operations, which is a win for us all.
Blake Larson is Managing Director, International, Lalamove.