Small businesses in Southeast Asia need a more supportive environment to help them bounce back from the pandemic and contribute to economic revival.
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2022 has seen an “unprecedented confluence” of challenges for businesses across the world, from the protracted Covid-19 pandemic, economic slowdown and heightened inflation to geopolitical uncertainties. Small and medium enterprises (SMEs) globally are among those hit hard by such an unfavourable environment.
For small businesses across Southeast Asia, a better business environment is critical as they seek to future-proof themselves in the new normal, experts say.
“Small firms are the foundation of local economies in Southeast Asia,” says Ramesh Subramaniam, director-general for Southeast Asia at the Asian Development Bank (B).
Micro, small and medium enterprises (MSMEs) account for more than 97% of all enterprises and 40% of gross domestic product (GDP) across the region. They contribute to two thirds of Southeast Asia’s employment and employ women in significant numbers.
According to studies, 80% of SMEs are in provincial towns or in rural, remote areas where they deliver a range of essential products and services to their local communities. But most have limited capital and resources for innovation. Many operate informally and are thus exposed to high levels of risk. Many also lack the knowledge to access government support.
MSMEs are facing higher business costs linked to the economic shock of the Covid crisis, rising debts and uncertainty about regulations. Women are still underrepresented in jobs regarded as critical for inclusiveness. Digitisation also remains challenging for businesses in informal settings.
“Understanding how local business environments affect the viability of firms during this challenging period is key to unlocking policy interventions that support post-pandemic recovery and can help make progress on the (United Nations) Sustainable Development Goals,” Mr Subramaniam told a recent webinar on the post-pandemic recovery, hosted by the Manila-based bank.
To help small businesses bounce back, governments can provide loan rescheduling, concessional finance, tax relief and subsidies to help them compete amid a rapidly changing global environment of digitisation, climate change, indebtedness and inflation, he added.
Cambodia’s SME Bank is supporting digitisation and e-commerce by helping businesses with data access and financial support, according to Penn Sovicheat, Undersecretary of State for Commerce. SUPPLIED
TECH A GAME CHANGER
Innovation can help MSMEs to grow, just as major companies have been using technology to reach out to their customers, said Ming Tan, founding executive director of the Tech for Good Institute, a think-tank established by the regional superapp Grab.
During the pandemic, she said, another 30% of consumers started using digital services for first time, and 90% of them said they intended to continue using them, according to a survey by the institute in 2021. Half of the respondents also adopted mobile internet and digital payment for the first time.
Such a scenario has enabled SMEs to grow more, but only one in five SMEs is currently serving customers on both online and offline platforms, Ms Tan noted. She cited access to finance, operational efficiencies and diversification as three key areas of innovation that can support their growth.
The majority of MSMEs surveyed were still unable to obtain loans through conventional sources; many are intimidated by the paperwork involved. But the rise of financial technology and new approaches to valuing collateral and assessing risk can help. Digital banks can reach out to these potential new customers.
She also shared case studies about other ways that even the smallest businesses can gain an edge. In Vietnam, Logivan was launched in March as an app-based service that allows businesses to book trucks. Over 40,000 vehicles are registered with the platform to serve customers who are mainly MSMEs, reducing their logistics costs by 30%.
In Indonesia, Ula helps small retailers deliver goods and household items at reasonable prices. Owners can order stock without having to shut their shops for a day to visit suppliers.
“Digital platforms can enable SMEs to diversify demand and streams of revenue across products, customers and regions, making them more resilient to economic shocks and downturns,” said Ms Tan.
Digital literacy also plays an important role in economic integration, she added. In Malaysia, for example, digital entrepreneur centres are available for small business owners to access information and training.
Responsible data sharing is also vital to build trust in the digital economy. In Singapore, a trusted data sharing framework has been initiated to foster trust by defining the value of data, outlining key trust principles, and establishing best practices and open data that businesses can access.
Fintech and digital solution companies should be aware of the Asean framework for personal data protection across border and try to ensure responsible data stewardship while encouraging innovation for MSMEs of all sizes, she said.
Her views align with those of companies looking to meet the challenges ahead. For example, the logistics company DHL Express Singapore accelerated its digitisation efforts during the pandemic — a period of disruption where everyone was “out of their comfort zones”, said managing director Christopher Ong.
This included getting more customers to pay the company digitally through contactless delivery, as well as using automated guided vehicles in its hubs in place of forklifts.
By the third quarter of 2020, DHL’s delivery volumes had already returned to pre-pandemic levels. It has also seen “peak” season volumes in the last 18 months, Mr Ong told the SME Future Trends webinar, jointly organised by the company and The Business Times of Singapore.
Speaking at the same event, Vick Aggarwala, CEO of Supreme Components International, a franchised distributor of electronic and LED components, said the trend of deglobalisation should push SMEs towards internationalisation.
“It’s an opportunity for SMEs to reach out to their customers using technology or the internet,” he said. “Everybody’s trying to protect their own markets, so you need to be physically or indirectly reach out to customers internationally.”
Mr Aggarwala said much of his company’s “extraordinary” growth in the last few years can be attributed to the early adoption of technology by his sales employees.
“IT tools, which were developed six to seven years ago, came in very handy during the lockdowns. … We were able to reach out to large customers all night through the power of the internet.”
“Small firms are the foundation of local economies in Southeast Asia,” says Ramesh Subramaniam, director-general for Southeast Asia, Asian Development Bank. SUPPLIED
Besides the above-mentioned factors, climate change will be a new megatrend influencing consumer markets and businesses after Covid-19, said Michael Schaper, senior visiting fellow at the ISEAS-Yusof Ishak Institute in Singapore.
The region’s 70 million SMEs, he pointed out, account for at least 29.7 million tonnes of carbon emissions each year — greater than the combined annual emissions of Brunei and Cambodia.
But analysts say such companies are often hampered by limited financial resources, as well as a lack of in-house knowledge, skills and capabilities — making it difficult for them to commit to meaningful climate action.
On a broader scale, governance is still a challenge in many parts of the region. MSMEs in smaller Southeast Asian economies with weaker governance systems face additional challenges related to transparency and certainty of laws and regulations, taxation and contracts.
“Despite their contribution to economic growth and livelihoods, MSME issues continue to remain hidden and largely invisible in publicly debated matters,” Mr Schaper said during the webinar.
As many MSMEs operate in the informal sector, official policies to transform business and the economy do not always do much for them. Mr Schaper said it is important to identify strategies to reduce risk and create alignment between public policy and MSMEs as a major stakeholder group in the national economy.
His comment was echoed by Oudet Souvannavong, president of the Lao National Chamber of Commerce and Industry. He said red tape, transparency and licensing issues in several countries in the region should be put on the table for discussion to find solutions and improvements.
“Digital platforms can enable SMEs to diversify demand and streams of revenue across products, customers and regions, making them more resilient,” says Ming Tan, executive director, Tech for Good Institute. SUPPLIED
Towards A GREEN ECONOMY
The supply chain disruption caused by the pandemic can be an opportunity at a time when the weight of the global economy has been shifting towards Asia, in particular Southeast Asia, said Low Yen Ling, Singapore’s Minister of State for Trade and Industry.
“In the last two and a half years, SMEs have shown great tenacity and resiliency in adapting, transforming and really rising to the occasion,” she told the Business Times-DHL event.
Companies are now looking for alternative sourcing locations to diversify their risk — and Singapore can be a strong base for supply chain capabilities, operations and innovations.
“At the height of Covid-19 in 2020, we saw countries instituting export bans, but we showed that we were committed to persevering and remaining open,” she noted.
SMEs should also understand that sustainability is not a cost; instead, it will help them in their long-term competitiveness, Ms Low added.
Singapore launched its Enterprise Sustainability Programme worth S$180 million in October 2021 to help MSMEs build capabilities and capture new opportunities.
It is also important to support companies on the ecosystem level — not just with “piecemeal” projects they are undertaking, but in certification and through green loans as well as training, she added.
In Cambodia, the SME Bank is supporting digitisation and e-commerce by providing data access, financial support and loan programmes. Thus entrepreneurs and startups will be equipped with skills and ability to grow both online and offline, while enhancing their competitiveness in the region, according to Penn Sovicheat, Undersecretary of State for Commerce.
In Vietnam, the Provincial Competi- tiveness Index (PCI) was introduced in 2005 to tackle bottlenecks in small business operations and improve public services. Supported by USAID, the PCI measures transparency, investment, trade and economic growth, and has become an important tool for encouraging reforms at both the national and provincial levels. Ratings are determined through private sector surveys.
Pham Ngoc Thach, deputy director-general of the Legal Department of the Vietnam Chamber of Commerce and Industry, said the PCI 2021 report highlighted three important trends: a decline in bribes following the government’s anti-corruption campaign, the impact of Covid on business and possible recovery strategies, and more attention to environmental compliance.
Loke Wai San, chairman of the electronic services provider AEM Holdings, said companies should think beyond competing in terms of cost, quality and availability, but instead compete through technology, innovation and sustainability.
The ability to do so will be key to differentiating the next generation of “supply chain champions” in their sectors, he added.
At the same time, businesses should consistently challenge assumptions about their environment and be open change. For instance, China’s “dual-circulation” strategy — which seeks to spur domestic demand and cater to export markets at the same time — is an opportunity for Singapore companies to rethink how they could pursue a similar model of their own.
“As leaders, we will make some side bets. (It’s) the willingness to take some risks and understand that not all bets will work out, but those that work out, will pay well,” he said. “Be informed, really understand your customers, and understand that this disruption in the supply chain is a great opportunity.”
DHL’s Mr Ong, meanwhile, noted the need for SMEs to change the perception that sustainability means higher costs. While the launch of electric vehicles was initially perceived by his finance team as a big investment, the company reaped gains when daily operating costs “plunged dramatically” amid rising fuel prices.
“Know your footprint,” he said. “Know what you spend on, your electricity — are there better ways of utilising your energy, or are you able to switch to different technologies that can actually save you (costs) in the long run?”