Low-carbon and other regulatory mandates are also adding to the short-term burdens of business despite longer-term advantages.

Digital transformation is an imperative in today’s digital economy, and as SMEs in Southeast Asia (SEA) start their digital transformation journey to modernize their business, they are also expected to consider environmental impacts as a business goal.

To gauge the perspectives of SMEs across the region and study their progress and challenges, as well as gaps in awareness of the benefits of updated technologies or emerging tech solutions, office automation company Epson commissioned research firm Intuit to study the digital transformation journey of Singapore, Thailand, Philippines, Indonesia, Malaysia and Vietnam.

The survey captured the perspectives of 864 SMEs across the region and uncovered how much work is still required to help SMEs understand the value and overall benefit that investments in technology will have on their competitiveness and growth. This would establish how much work is still required to help SMEs understand the value and overall benefit that investments in technology will have on their competitiveness and growth.

More than 80% of the respondents were either business owners, key decision-makers, decision influencers or senior managers within their respective organizations, which spanned the manufacturing, corporate, retail, food and beverage (F&B) and hospitality, engineering, architecture and textile sectors. Companies surveyed were between 10 and 250 employees in size.

Slow progress in SEA

The biggest challenge across the markets was ‘Managing growth amidst competition’ (34% SMEs). The key business challenges are a function of the importance and contribution of various business activities (sectors) in each market and the impact of these challenges on these sectors.

Innovation is a bigger challenge in Indonesia (48% SMEs in Indonesia) while managing Customer Experience (51% SMEs in the Philippines) is a key challenge.

Also, the factor of ‘Rising cost of labour and raw material’ is a big challenge in Philippines (50% SMEs), Indonesia (36% SMEs), Malaysia (29% SMEs), and to a certain extent Singapore (23% SMEs).

A senior manager at an auto spare parts SME said, “Labour costs especially for the entry level employees working in our unit, have increased twice in almost two years”. The sentiments expressed by manufacturing units in Indonesia were similar, although this was driven by the lack of skill sets and the gap in supply vs. demand of this skill set that is shoring the cost.

SMEs in Indonesia (43% SMEs), Vietnam (35% SMEs) and Thailand (25% SMEs) believed managing the pace of technology is one of their key challenges especially with ageing staff that works on shop floor.

Flexibility in scaling up the operations or scaling them down was a key challenge cited by SMEs in Thailand and Singapore, and this is driven by the SMEs in Manufacturing, Restaurants and Hotels business.

A smaller proportion of SMEs in Malaysia and Thailand felt that ensuring ‘Regulation Compliance’ is a key challenge as new regulations, standards emerge faster than before. A manager from a manufacturing plant in Malaysia highlighted, “The amount of compliance procedures and documentation needed—be it ISO readiness, IT compliance, or regulated raw material and ingredients we import, is a task in itself”.

A promising number of Singapore SMEs (71%) believed that digital transformation will bring about significant improvements to their business performance and customer experience. However, the upfront costs of new tools and technology is a top obstacle to them beginning their digital transformation journey. As a result, most SMEs have barely kicked-off this process.

According to Epson’s Director of Sales, Marketing and Customer Service, Tan May Lin, “there is a large misconception among SMEs that adopting new tools and technology is expensive. While the upfront costs might seem daunting, SMEs will see huge savings in the long term due to lower running costs and improved productivity. At the same time, the environmental and operational benefits far outweigh the initial upfront costs.”

“It is very promising that we have a large number of SMEs (68%) agreeing that the only way to sustain growth is via digital transformation. It is clear that committing to the environment has to be more than just an altruistic gesture, and only those organizations that embark on this journey will emerge ahead of their competition,” concluded Tan.