Accelerating Malaysian Digital SMEs

Escaping The Computerisation Trap

Introduction

Digital technologies enabled by ICT infrastructures continue to influence enterprises and individuals alike and their application among businesses is widespread. Digital transformation through these technologies improves the business landscape by creating unparalleled opportunities to boost growth, expand jobs and accelerate innovation. SMEs in Malaysia represent 98.5% of total business establishments, contributing to 37.1% of the Malaysia Gross Domestic Product (GDP) and 66.0% of total employment in 2017. The Malaysia Government’s goal to grow the economy, improve productivity, start up more entrepreneurial companies and increase employment opportunities cannot happen without the digital transformation of the SMEs.

In June 2018, SME Corp. Malaysia, together with Huawei Technologies, commissioned a study of 2,033 SMEs representing all sectors (services, manufacturing, construction and agriculture) and regions to explore the state of ICT adoption as well as to examine the drivers and barriers of digital transformation through the lens of SMEs in Malaysia. This Study reveals the computerisation trap that Malaysian SMEs have inadvertently fallen into and proposes several approaches to help SMEs to cross the digitalisation chasm and to uncover their full digital strength, with the help of public and private sectors.

Foreword

YB Datuk Seri Mohd Redzuan Md Yusof

Minister of Entrepreneur Development Malaysia

Representing 98.5% of total business establishments in Malaysia, SMEs are indeed an important growth driver for Malaysia as it aspires to become a developed and inclusive nation. ICT has a huge role to assume in advancing the growth of SMEs not only through an increase in efficiency and productivity, but also in expanding their market reach.

YBhg. Dato’ Dr. Mohd Gazali bin Abas

Secretary General of Ministry of Education Malaysia

The Fourth Industrial Revolution represents new ways in which the emerging technology breakthroughs will accelerate the digital economy phenomenon and fundamentally alter the way business is performed. This key Whitepaper on SMEs digitalisation is timely as it documents the current scenario in the SMEs with regards to digital technology adaptation.

Mr. Jeffrey Sachs

Eminent Economist
Professor of Columbia University

The SMEs are the cornerstone of the Malaysian economy, and their success is vital if Malaysia is to escape the “middle-income trap.” SMEs need to be ready to digitalise their operations holistically, and Governments need to provide a digital environment with clear standards, high-quality infrastructure, and supportive regulations to enable their SMEs to thrive as true digital enterprises.

Mr. Baker Zhou

CEO of Huawei Technologies (M) Sdn. Bhd.

Huawei, in its close to two decades of operations in Malaysia, has worked closely with Malaysian SME ecosystem to embrace the digital revolution. To better understand the Malaysian SME sector’s operational issues, perspective, plans and pain-points towards going-digital, and Malaysian Government’s strategy towards improving digital infrastructure and supporting SMEs in their goals.

Key Findings

In 2017, SMEs accounted for 66.0% of the total employment, yet it only contributed 37.1% to the overall GDP. This disproportionate contribution of SMEs to the employment and GDP suggests a challenge around productivity of the workforce being added. Analysing the geographical spread, based on the Economic Census 2016: Profile of SMEs by Department of Statistics Malaysia, it is very clear that area with access to robust and better broadband connectivity have yielded higher productivity, with Kuala Lumpur and Selangor employing 15.7% and 24.5% and contributing to 23.0% and 28.5% of the GDP, respectively.


SME Digitalisation Challenges

The digitalisation challenges faced by SMEs can be summarised in the following diagram.


  • Financing

    SMEs, especially the microenterprises, are unable to afford the transformation journey while the larger ones may be unsure of the return on their investment. Financing support is needed to help them to mitigate the risk as well as lower the barrier to transformation.

  • Employee Skill

    Lack of employee skill set and knowledge to drive transformation of their businesses into a digital SME versus just installing stand alone computers. SMEs lack the knowledge of what it means to drive digitalisation and the skill to make it happens.

  • Technology

    Technology is the second most frequently cited support need. As can be seen from the earlier chapters, a large percentage of SMEs are not aware of the digitalisation tools or how to leverage the tools to drive their business transformation. SMEs informed us that while the majority of them have an internet connection, the high price and low speed connection is a hurdle for their digitalisation. The lack of reliable broadband access causes SMEs to still stick with their manual processes.

  • Business Strategy

    Difficulty in developing a digital business strategy with technology and unable to get across to or afford digital technologies such as cloud, analytics or software to innovate and transform their business.

  • Regulatory

    SMEs are unfamiliar with regulatory specifically on compliance, process guidance and licensing and permit.

Recommendations

In order to spur more SMEs to embrace digitalisation, we will need to address the SME mindset and drive for change, help equip them with the skill set and resources including finance and provide them with affordable technology they can use. These are the challenges they mentioned above. We recommend the following three-pronged approach to help driving SME digitalisation.


  • INNOVATE Assist SMEs to think like an innovative digital SME

    This is to address the challenges faced by the SMEs in adopting an innovative mindset, creating a digital strategy, building a data culture and acquiring digital skills and capabilities to be an innovative digital SME.

  • FACILITATE Assist SMEs on their digitalisation journey

    This is to help SMEs overcome their financial and regulatory barriers to start their digitalisation programmes from getting on board, to sustaining the digitalisation efforts and commercialising their digital products and services.

  • ACCELERATE Assist SMEs to accelerate digital transformation of their businesses

    This is to provide the necessary IT tools and technology platform to help SMEs accelerate their digitalisation efforts and break into new levels of innovative products and services.

INNOVATE

Help SMEs build and innovative mindset, data culture, digital skills and business

  • Educate SMEs on the need for digitalisation and its benefits
  • Change SMEs’ mindset to think beyond computerisation to digitalisation
  • Help SMEs to get started on their digitalisation journey through developing a transformation strategy
  • Support their change management process from traditional to become a digital SME
  • Drive cultural change in their organisation to become a data-centric organisation

FACILITATE

Help SMEs run their digitalisation programme towards becoming a digital SME

  • Financial assistance to help SMEs embark on their transformation
  • Incentivise larger enterprises to partner with SMEs in technology sharing
  • Help SMEs to comply with security and regulatory requirements

ACCELERATE

Build the technology platform to accelerate SME transformation

  • Increase broadband speed coverage and affordability
  • Develop cloud-based innovation platform to provide affordable access to technology