Navigating the challenges, opportunities and pitfalls that line the path to digitalization for small- and medium-sized enterprises in the region.
According to a recent report from TDCX, the COVID-19 pandemic has expedited the speed of digitalization across SMEs in ASEAN.
Recognizing the importance and benefits of going digital, ASEAN SMEs plan to increase their investment by close to 70%, with an expected spend of USD 130 billion over the next three years.
DigiconAsia discussed the key findings from the report with Angie Tay, Group COO, TDCX:
What are the barriers and headwinds that stand in the way of ASEAN SMEs achieving their digitalization ambitions?
Angie Tay (AT): Small- and medium-sized enterprises (SMEs) in ASEAN are aware of the need to embrace digitalization in fear of losing competitiveness and not being able to meet fast-changing customer expectations. While the appetite to develop digital capabilities is strong, a recent TDCX study found that 76% of SMEs in the region are still in the early stages of their digitalization journey. There is an evident gap between action and ambition.
The primary challenges in this scenario are interlinked. Most ASEAN SMEs (67%) lack access to the knowledge and expertise necessary to utilize fully the potential of digital transformation. This hinders them from implementing new technologies and equipping their workforce with new skills. As these SMEs mature in their digitalization journey, they have come to realize the advantages of having a trusted partner to help determine priorities and roadmap their digitalization journey based on their needs. As a result, 65% of SMEs are in search of a consultation partner or technology provider.
On the other end of the spectrum, most of the SMEs that already work with external technology providers are only moderately satisfied with the outcomes. Speed of customer response, availability of human interaction as a part of customer experience (CX), and flexibility in solutions offered emerge as key concerns here. Hence, SMEs are on the lookout for providers who can provide them with more responsive customer care and better prices. Tech providers must therefore have such factors in mind when targeting this customer segment. One way to better bridge the gap between tech providers and SMEs is through the support of specialist CX service providers who can better empathize with SME needs and work with the tech provider to address the pain points.
Digital transformation is a significant undertaking for businesses of any size, but SMEs often require far more alignment between internal and external stakeholders to realize their digital ambitions. As the business landscape changes, SMEs’ demand for technology and resulting expectations can grow more pronounced, making it more challenging for tech providers as the providers grapple with their many competing priorities. Over time, this results in dissatisfaction among these SMEs. Case in point, more than eight in 10 SMEs are open to switching their tech provider.
According to one of your reports, SMEs in ASEAN are planning to spend US$130 billion on digital transformation over the next three years. Where and how are they intending to invest?
AT: As sustaining growth amid changing consumer preferences becomes critical, product transformation has emerged as a priority with 80% intending to innovate their product or service by leveraging digital tools such as data analytics.
The next two on the list revolve around SMEs’ desire to digitalize their business models by transitioning from traditional channels to an e-commerce platform and by digitalizing functions such as sales and marketing and customer relationship management, with both areas receiving a 69 percent endorsement.
Ultimately, SMEs plan to leverage digital transformation to make significant improvements across multiple functions and level up to become more mature businesses.
Which countries are leading the charge in that initiative? What are the industries at the highest and lowest ends of the digital transformation curve?
AT: SMEs in Singapore are ahead in their digitalization journey, having initiated digitalization across most departments, followed by Thailand, Vietnam, Malaysia, and Indonesia, in descending order of digital readiness. This is on the back of government support and funding for digital skilling schemes that promote digitization for both businesses and citizens in Singapore.
Perhaps not as unexpected, given the government’s array of funding support and schemes for SMEs, Indonesia leads the charge in the number of businesses (26%) that have just started their digital transformation journey, so in the coming years, they are likely to move up the ranks.
Narrowing down further to the digitalization efforts across industries, our report found that the ASEAN SMEs in the e-commerce sector are far ahead in reaching digital maturity than their peers in other industries with 92% having digitalized most of their operations. On the flip side, those in the Consumer Goods, Retail, and F&B sector are falling behind in their digitalization journey with only 16% of SMEs in this sector indicating that they have successfully digitalized multiple departments.
What factors can help accelerate digitalization for SMEs in ASEAN?
AT: While there is no one-size-fits all model, SMEs must first get a handle on on which areas of their business need digital technology assistance the most. For instance, our study showed that customer targeting, creating engaging content, and social media visibility, are key challenges for SMEs in ASEAN. Leveraging digital technologies for improvement here would certainly help.
Small and medium-sized enterprises (SMEs) often lack the necessary resources and appropriate technological tools to expand their activities and tackle more substantial economic and business obstacles. This presents an opportune moment for technology providers to support SMEs by offering adaptable tech solutions and affordable technology access. With 69% of SMEs expressing their intent to further digitalize functions like sales, marketing, and customer relationship management, tech providers have an opportunity to assist them in making well-informed decisions based on their existing capabilities and insights.
To unlock their full potential, SMEs need to harness the power of digital technologies and embrace data-driven approaches to improve operational efficiency and enhance customer engagement. However, achieving this transformation requires a reliable technology provider with deep industry knowledge and expertise, capable of guiding SMEs in identifying and capitalizing on early adoption opportunities.
Would new technologies (such as genAI) and the business metaverse help SMEs to level up? If so, in what ways?
AT: Emerging technologies such as genAI and metaverse are creating novel use cases for businesses of all sizes, so naturally, there is much to be gained for SMEs. Gen AI can go a long way in helping businesses streamline their content offerings across their entire digital presence, be it social media, customer relations, e-commerce platforms, or websites.
AI has been used in many applications to alleviate problems throughout different industries, helping people to perform their job more efficiently. For example, while still a prototype, TDCX has leveraged AI to perform pattern analysis for a prominent social platform to highlight factors that convert leads to businesses. The agent workload is reduced through leads being prioritized automatically and thus enhancing agent productivity by 22%.
Similarly, SMEs can boost their business performance and level the playing field with larger competitors by leveraging gen AI applications, particularly for tasks such as data analysis, which can enhance personalization.
While there is much to take advantage of with emerging technologies, SMEs must understand how the role that such initiatives play in their business and the outcomes that they are working towards. Tech partners who are specialists in their respective fields are a key link in helping SMEs better understand the potential of these technologies and the way in which it can be applied.