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.
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
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.
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.
The digitalisation challenges faced by SMEs can be summarised in the following diagram.
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.
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 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.
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.
SMEs are unfamiliar with regulatory specifically on compliance, process guidance and licensing and permit.
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.
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.
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.
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.