Digital transformation of MSMEs set to accelerate economic recovery

The digitalization of small and medium businesses (SMBs) in the Philippines could add between US$26 to US$28 billion (PHP 1.17 to PHP 1.36 trillion) to the country’s GDP by 2024 and contribute to economic recovery post-COVID-19, according to the 2020 Asia Pacific SMB Digital Maturity Study.

The study, commissioned by Cisco and conducted by International Data Corporation (IDC) maps out the four (4) stages of digital maturity; Digital Indifferent, Digital Observer, Digital Challenger and Digital Native, experienced by SMBs across Asia Pacific. It also found that SMBs that are more digitally mature enjoy higher benefits in revenue and productivity compared to those that have an indifferent approach to digitalization

Now in its second year, the study shows that SMBs in the Philippines are moving closer to the Digital Observer stage, although 73% are still in the first stage of Digital Indifferent. According to the study, local SMBs are prioritizing improved customer experience and service delivery as the main drivers for digitalization. More specifically, 26% of SMBs are aiming to improve customer experience, 22% are aiming to improve service delivery, and 19% are focused on improving marketing and sales.

These are positive and significant developments, given that SMBs account for 99.6% of all businesses, 62% of the country’s total employment and contribute 36% to overall GDP, making them a critical component to the Philippines’ trade and commercial landscape. The resilience, agility, and digital transformation capabilities of SMBs will play a pivotal role in the country’s post-COVID-19 economic recovery.

“The SMB sector has been among the hardest hit by the COVID-19 pandemic. However, the country’s SMBs have shown great resilience, and have leveraged technology to continue to operate and serve their customers during the period. As the Philippines continues to overcome the current situation, and consumer and business activity starts to pick up, digital transformation of SMBs will play a pivotal role in their recovery and contribute to the country’s overall economic growth. At Cisco, we are committed to working with SMBs to help them emerge stronger with the right digital solutions and strategy,” said Karrie Ilagan, Managing Director for Cisco Philippines.

The results of the study show that AI or Analytics (18%) is the top technology investment priority for SMBs in the Philippines, followed by Cloud Technologies (15%) and purchasing or upgrade of IT infrastructure software (11%).

However, SMBs are also facing challenges in adopting digitalization strategies.

According to the respondents, lack of budget or commitment from management (15%) is the biggest hurdle they face, followed by a shortage of skills (14%). Many also experience cultural resistance to change (12%) as the digitization of products and services requires a substantial shift from long-standing practices.

“SMBs are the backbone of ASEAN economies, accounting for over 85% of total business establishments and making up the main contributions to private sector employment in the region. While they are currently facing the biggest challenges to their operations, they also have an unprecedented opportunity to accelerate their digital transformation. Technology can not only help solve some of their key challenges and revitalize their operations, but also help them sustain their growth in the long term,” said Raz Mohamad, Director Small Business and Commercial for ASEAN at Cisco.

“However, for SMBs to fully leverage technology, all stakeholders need to play a role. The government is already taking the lead and has introduced a range of measures to help Philippine SMBs on their digital journey. At Cisco, we are proud to be playing our part. On the technology front, we have launched a series of curated products and solutions specifically for the SMB sector under the Cisco Designed portfolio and introduced 0% financing for SMB customers in the country. From a talent perspective, the Cisco Networking Academy has trained over 428,000 students in the Philippines in various ICT skills for over two decades,” he added.

The study also highlights that nearly 70% of SMBs in Asia Pacific are accelerating the digitalisation of their businesses because of COVID-19. Among the respondents, 86% say they believe digitalisation will help in developing future resilience against crises like COVID-19.

Within the region, SMBs in Singapore, Japan, and New Zealand continue to lead the Digital Observer group, with no changes in their ranking compared to 2019. However, mainland China, Taiwan, and Thailand surpassed Korea, Hong Kong, and Malaysia, respectively. There has also been notable progress made by SMBs in Indonesia and Vietnam.

The 2020 study aims to further the understanding of how SMBs can progress in their digital transformation journey and the impact of digitalisation among SMBs to drive economic activity.