Building back better MSMEs: Digitalising MSMEs amid seismic disruption

Two years on since the COVID-19 pandemic, Malaysian Micro, Small and Medium Enterprises (MSMEs), which made up 97.2% of all business establishments in 2020, continue to bear the brunt of this catastrophic black-swan event.

The impact of the pandemic on MSMEs cannot be understated; persistent lockdowns amid heightened social distancing and public health measures have resulted in a 7.3% contraction in MSME GDP in 2020, falling at a faster rate against the national GDP contraction of 5.6% despite myriad government stimulus packages.

While such measures were timely in providing liquidity and short-term fiscal support to millions of Malaysian entrepreneurs and workers, a longer-term policy framework is needed. Policymakers must increasingly consider the key impacts from the technological, societal, and economic megatrends that have the potential to shape tomorrow’s world.

Looking into the future for MSMEs, through the lens of society, technology environment, economics and politics (STEEP), important global megatrends could emerge over the next decade that, if adequately addressed, will help Malaysian MSMEs become more resilient; and emerge stronger in comparison to pre-pandemic.

Over the next decade and beyond, we have assessed that there are ten key global megatrends that will constitute a core part of the global zeitgeist. These trends can profoundly influence how policymakers assess current MSME policy in its scope and objectives.

• Individual empowerment
• The erosion of governance
• Hyperconnectivity
• Disengagement
• Blurring boundaries
• Displacement
• Social polarisation
• Aging
• Scarcity
• Dematerialisation

Given the vulnerable nature of MSMEs amid adverse market fluctuations, a thorough assessment and policy effort on the impact from global megatrends is critical in building a more resilient and robust MSME landscape. Ignoring such megatrends risks sacrificing the potential future economic gains.

In this article, we would like to spotlight the dual megatrends of hyperconnectivity and disengagement, which reveal rapid advancements in the space of digital technology and online connectivity as the fallout of the pandemic supercharges the migration towards online modes of commercial transactions.

Many Malaysians have witnessed first-hand the breakneck speed at which e-commerce and online platforms giants have grown over the last two years, with online shopping platform, Lazada experiencing a 300% jump in active MSME users in 2020. The 12th Malaysia Plan also estimates the digital economy to grow to 25.5% of Malaysia’s GDP by 2025, with a robust industry Compound Annual Growth Rate (CAGR) of 6.42%.

The explosive growth in online commerce means that MSMEs will need to further leverage on data-driven market analysis and targeted digital marketing strategies to connect with a more empowered, globalised consumer market, as well as keep up with a dynamically evolving marketplace.

As economic value shifts from the physical to the intangible and experiential, consumers are more willing to pay for intangible values associated with a product or service, allowing MSMEs to shift from low-cost production strategies to the experience economy - prioritising customer satisfaction and product customisation, adding a greater emphasis and dimension to MSME consumer research.

According to a 2020 study by the SME Association of Malaysia, it is estimated that only 26% of MSMEs had chosen a clear digitalisation strategy, despite ongoing MSME digitalisation and automation subsidies sponsored by the government.

Encouragingly though, a more recent World Bank study in 2021 revealed that Malaysian MSMEs had shown greater interest in the adoption of digital solutions to increase sales, noting that over 60% of MSMEs surveyed indicated a higher usage of digital marketing and online platforming. However, in comparison to the region, Malaysia still underperforms.

Initiatives to solve this can include designing an MSME digital compass that considers robust digitalisation strategies tailored to the current scale, size and industry needs of enterprises, acknowledging that the journey towards digital transformation may differ from one company to another and avoid unintentional information overload among its entrepreneurial users.

The megatrends of hyperconnectivity and disengagement likewise strongly suggest that should public efforts succeed in digitalising and automating MSMEs, they can unlock vast new potential in enhancing overall productivity and competitiveness. Importantly, MSMEs will be free to dedicate more resources in product planning and development, creating dynamic new market offerings while automating their sales processes, becoming more efficient and adaptable to emerging consumer trends.

Critically, a digitally resilient business ecosystem is one that is continually sensing, testing, and adapting to navigate the way forward even amidst a turbulent business environment, requiring both robust technological tools and a capable workforce to do so. This digital transformation would require, unlearning and relearning processes and practices that were fundamental to the success of prior business models. Otto Von Bismark said, “Man cannot control the current of events, he can only float with them and steer.”

Ultimately, a fundamental shift is needed to better equip organisations to innovate and cooperate even in the most challenging of times. As such, a concerted and collaborative effort by both government agencies and MSMEs are vital in ushering in a technologically competent and future proof MSME landscape. Given the vulnerable nature of MSMEs amid adverse market fluctuations, a thorough assessment and policy effort on the impact from global megatrends is critical in building a more resilient and robust MSME landscape. Ignoring such megatrends risks sacrificing the potential future economic gains.

The views and opinions expressed in this article are those of Nik Anira, Financial Advisory Executive Director of Deloitte Malaysia.

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