SMEs take centerstage in digital economy

MANILA, Philippines - For the past three decades, the private sector has been the main driver of economic growth and poverty reduction around the world.

Across the globe, SMEs are playing an increasingly significant role in the socio-economic development strategies of many countries. Today, small and medium enterprises (SMEs) account for more than 97 percent of all enterprises, employing more than half of the workforce across Asia-Pacific Economic Corporation (APEC) countries.

By focussing on the creation and growth of SMEs, governments have been able to increase wealth generation, market access, job creation, and skills development.

In the Philippines, the Department of Trade and Industry (DTI) noted that of the over 900,000 businesses operating in the country, 99.5 percent are SMEs.

With digital technology creating new markets, disrupting existing markets and redefining the economy of tomorrow, barriers to entry have been reduced, increasing both competition and opportunity. This, coupled with the fact that 50 to 70 percent of businesses fail within the first 18 months, strengthening SME competitiveness is increasingly critical for the Philippines and other countries in Asia.

A new IDC study, commissioned by SAP, found that SMEs which embraced technology as an enabler to transformation, reaped benefits that helped them compete globally: 81 percent offered employees more flexibility, while 74 percent improved customer loyalty and 72 percent increased sales and revenue.

Can SME’s really outcompete the bigger companies?

Just look at companies like Grab, Airbnb and Spotify: Not only can SME’s outcompete, they can change the entire playing field.

SMEs are inherently more agile, more nimble and more willing to take risks. This, in today’s digital world, where reduced barriers to entry and costs of technology are making the world more interconnected than ever, gives SME’s an ideal opportunity.

However, despite the many gateways to success in today’s digital era, the reality is that digital technologies have also made the business landscape increasingly competitive, and many SMEs still struggle to innovate, disrupt and make it big.

The question is not whether SME’s can outcompete, but rather how, and what they need to do, to outcompete.

An increasing number of SMEs across Asia are recognizing that their active participation in the digital economy will be essential to their company’s survival. However, success doesn’t come easy.

A high failure rate among businesses, combined with increasing disruption and constantly changing and evolving customer needs, means SMEs need to leverage technology, through a defined digital strategy, to enable them to predict into the future, innovate and outpace. 

SMEs that foresee the openings and respond quickly are surging ahead. The challenge however is to remain agile and nimble, and not let complexity creep into the business as it grows.

This is where technology comes in. Technology can either be the great enabler to simplification, or one of the main causes of complexities. Having the right technology partner and platform to enable the digital strategy is paramount.

Scaling through technology

As many SMEs discover, to their detriment, ignoring technology to reduce complexity is not an option. However, even SME’s which recognize the importance of technology sometimes get caught in the trap of using one-off IT solutions to meet short term needs, instead of defining a long-term strategy with data as the currency and technology as the enabler.

While SMEs are prioritizing the acquisition of new customers (51.5 percent) and revenue growth (42.2 percent) as top business objectives for the next 12 months, according to the IDC study, they are taking a “practical and tactical” approach to digital transformation, with less than half seeing digital transformation as a long-term strategy.

The data points to one thing: there is a gap between what SMEs want and what they are actually doing to achieve it.

That approach quickly results in problems, as more disjointed solutions are added to the mix, with no common strategy or data platform on which to simplify and monetise. This disjointed approach, with disparate data and spaghetti-bowl of interfaces is why many SMEs often have the misperception that digital transformation is costly and difficult to manage, or that employees will get bogged down by inefficiency.

Whether you’re a logistic company, trying to fend off disruptors and outpace larger competition, or a food producer looking to reinvent thier distribution network to expand globally — there are enormous business opportunities and cost-savings to reap by using technology to modernise, simplify and scale.

SMEs have the advantage of being flexible, adaptable, scalable and responsive – but this only provides an opportunity.  Will they be bold enough to take this opportunity and stand out in the digital economy?

Innovating will give them the edge, and the right technology strategy will provide the platform. The imperative is to focus on simplifying their businesses for the long-term.

Ryan Poggi is the managing director for SAP in the Philippines.