Help Southeast Asian SMEs Benefit from the Digital Economy

Disclaimer: Warwick ASEAN Conference would like to clarify that all opinions expressed in this article are the authors’ and editors’ own.

BY NICOLE CHEUNG

Digitalisation has been the new buzzword among ASEAN member countries, with Singapore, the chair of ASEAN in 2018, declaring that the digital economy will be a key priority for ASEAN at the ASEAN Conference 2017. This economic goal is of no surprise to those who are well aware of the technological developments in major economic blocs such as China and the United States. In order to remain relevant and economically competitive, Southeast Asia has to channel its resources and attention to create a viable environment for the digital economy to be realised.

The ASEAN Economic Community 2025 blueprint detailed the organisation’s vision to foster inclusive and equitable economic growth through innovation and technology development. For instance, regional trade rules governing e-commerce will be streamlined to promote greater digital connectivity and lower barriers to entry. The blueprint also reiterated the organisation’s belief that the best way for the region to prosper is through economic cooperation and integration, not protectionism. This is especially comforting in the light of more countries turning inwards.

While plans to strengthen the digital economy in Southeast Asia may reap long term productivity, they inevitably cause Small and Medium Enterprises (SMEs) to incur higher operating costs and lose their competitiveness. Given that SMEs generally contribute greatly to the economy in many ASEAN member countries, it is of policymakers and business corporations’ interest to help SMEs navigate and benefit from the digital economy.

 

Small In Size, High In Potential

According to the data collected from the ASEAN Policy Index (2014) study, SMEs contribute between 88.8% and 99.9% of all enterprises, and account for between 51.7% and 97.2% of total employment in ASEAN member countries.

Secondly, the SME sector has an important role to play in alleviating poverty and empowering disadvantaged groups. It is a useful vehicle for increasing empowerment and participation among socially disadvantaged groups such as the poor, minorities, youths and women. The social benefits derived from a strong SME sector can help to actualise the region’s aim to foster inclusive and sustainable growth – one of the primary goals of the ASEAN Socio-Cultural Community.

Thirdly, SMEs are drivers of sustainable economic and productivity growth. SMEs drive and develop tailored solutions from the ground. Confidence in SMEs can also create a virtuous cycle of encouraging innovation, technological progress and entrepreneurship.

However, SMEs in Southeast Asia face many constraints – both financially and infrastructurally. Financially, SMEs are regularly credit-constrained, as financial institutions often favour more reputable enterprises, such as those that are state-owned and owned by business tycoons. Infrastructurally, SMEs in Southeast Asia often specialise in low-technology and labour-intensive tasks, making it additionally arduous to integrate them into the digital economy. This is in contrast to the SMEs in many advanced economies in the West, where SMEs are typically breeding grounds for innovation and technological progress.

 

Strengthen the Macroeconomic Environment

In order to help SMEs navigate the digital economy and strengthen the sector’s potential to drive inclusive economic growth, improving the macroeconomic environment is key. While there are many aspects of the macroeconomic environment that could be targeted, I will focus on the two aspects I find the most important – education and a pro-business environment.

Education is key to training a media literate and technology savvy workforce. In less developed Southeast Asian societies, focusing on knowledge and skills acquisition in workers’ training can help SMEs move up the value chain. However, training workers is not enough. In order to create a sustainable culture of entrepreneurship and innovation, it is also important to help existing and aspiring SMEs recognise the benefits to be obtained from e-commerce. More often than not, the reluctance to adopt technology into operation processes stem from the lack of awareness of business opportunities that comes with digitalisation. As such, taking inspiration from the success of the EU Business Avenues in South East Asia programme, a similar programme could be initiated to help SMEs realise potential business opportunities and partners. Such a programme can help to strengthen the presence of Southeast Asian SMEs in key markets in and beyond the region by exploring business opportunities and identifying potential business partners. While SMEs struggle to compete with bigger businesses on price, there is potential for them to compete on value and service. Helping SMEs, which are businesses capable of being highly flexible and adaptable, could build and sustain a domestic culture of entrepreneurship, innovation and tech-savviness.

Explicit support from respective governments of ASEAN member countries to create a pro-business environment is also essential to increase confidence in the SME sector. While some countries in the West have turned inwards, it is pertinent for smaller, and less developed Southeast Asian countries to recognise the collective good of economic integration and remain open to trade. There is a need for current legal and regulatory frameworks to be simplified and made more transparent, and good corporate governance that addresses corruption. Admittedly, government intervention will be required to help new SMEs gain a foothold in the market. However, such measures should be carefully and stringently targeted to avoid over-reliance on the state.

 

Concluding Thoughts

ASEAN’s move towards prioritising a digital economy should not come as a surprise given that global economic blocs, such as China and the United States, have already deepened their ventures into digital technologies. However, such a move is less likely to benefit SMEs, making them prone to being left behind. With SMEs having the capacity to contribute greatly to individual member countries and the region’s economic growth, it makes economic sense to strengthen the macroeconomic environment to help SMEs prosper. More importantly, if we want the region’s economic development to be both sustainable and inclusive, providing more support to SMEs is the way to go.

 

Further Reading

General Overview of Small and Medium Enterprises (SMEs) in ASEAN – http://www.aseansme.org/home
Cyber Security and SMEs in Singapore – http://www.ipscommons.sg/cybersecurity-smes-in-singapore-immediate-actions-required/
Major Challenges Facing Small and Medium-sized Enterprises in Asia and Solutions for Mitigating Them – https://www.adb.org/sites/default/files/publication/182532/adbi-wp564.pdf

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