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Digitalization of SMEs seen adding up to $28B to GDP

/ 05:08 AM October 16, 2020

The Philippines can increase its annual domestic output by at least $26 billion to as much as $28 billion by 2024 with the digitalization of small and medium enterprises (SMEs), many of which have started this journey to cope with the COVID-19 pandemic, a study commissioned by tech giant Cisco said.

The 2020 Asia Pacific Small and Medium Business Digital Maturity study conducted by International Data Corp. (IDC), now on its second year, maps out the four stages of digital maturity—from the digital indifferent, digital observer, digital challenger to digital native—experienced by SMEs across Asia-Pacific. SMEs that are more digitally mature are seen to enjoy higher benefits in revenue and productivity compared to those that are indifferent to digitalization.

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The study suggested that SMEs in the Philippines were moving closer to the “digital observer” stage, although 73 percent were still in the “digital indifferent” stage. This stage refers to a company that is “reactive to market changes and digital efforts do not exist.” On the other hand, a company whose digital efforts have started but remain tactile and in bite-sized initiatives is referred to as a digital observer.

A digital challenger is a company that has a strategy for the use of digital technologies and is more proactive in market responsiveness while the digital native, the most mature category, refers to a company that has an integrated digitalization strategy and is focused on driving continuous innovation.

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The study showed that in the Philippines, SMEs were prioritizing improved custo­mer experience and service delivery as the main drivers for digitalization. More specifically, 26 percent of them aimed to improve customer experience, while 22 percent sought to improve service delivery and 19 percent were focused on improving marketing and sales.

Given that SMEs account for 99.6 percent of all businesses, 62 percent of the country’s total employment and 36 percent of overall gross domestic product (GDP), their resilience, agility and digital transformation are seen to play a pivotal role in the country’s post-COVID-19 economic recovery.

While SMEs have been among the hardest hit by the COVID-19 pandemic, they have shown great resilience and have leveraged technology to continue to operate and serve their customers during the period, said Karrie Ilagan, managing director for Cisco Philippines.

“As the Philippines continues to overcome the current situation and consumer and business activity starts to pick up, digital transformation of [SMEs] will play a pivotal role in their recovery and contribute to the country’s overall economic growth.”

The study showed artificial intelligence or analytics was the top technology investment for Philippine SMEs, followed by cloud technologies and upgrade of IT infrastructure software.

On the challenges in adopting digitalization strategies, respondents cited lack of budget or commitment from management as the biggest hurdle, followed by shortage of skills. Many also experience cultural resistance to change as digitalization of products and services require a substantial shift from long-standing practices.

Across Asia-Pacific, nearly 70 percent of SMEs were accelerating the digitalization of their businesses because of social distancing measures required by the COVID-19 pandemic.

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TAGS: Cisco, digitalization, small and medium enterprises (SMEs)
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