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Digital Transformation: SMEs must go beyond just digital payments and e-commerce

Digital Transformation: SMEs must go beyond just digital payments and e-commerce

24 Jan 2022

By hopping on the digitalisation bandwagon, Malaysian small and medium enterprises (SMEs) are exposed to the global market. But this also means that they have to face more competition to stay relevant, observes Chan Kee Siak, CEO and founder of Exabytes.

Exabytes is a Malaysian web hosting company with a regional footprint. Chan founded the company in 2001 as a 19-year-old college student. Since then, he has also invested in and co-founded other tech start-ups in Malaysia.

Compared with other markets, most of the micro-SMEs in Malaysia are still at the early stage of their digital transformation journeys, he says.

“They are just accepting digital payments and selling via WhatsApp or some form of social media. SMEs in more developed markets are already starting to build their own brand and they have a more comprehensive system to take orders, checkout and arrange for deliveries.”

Countries such as China and the US have gone a step further and begun implementing new retail concepts that combine online and offline channels, he adds. For instance, Amazon has set up physical stores across the US, while Alibaba is doing the same in China. Alibaba’s former executive chairman Jack Ma refers to this as its “new retail” model.

This model involves the seamless integration of online and offline shopping experiences, according to a report by Bain & Co. Consumers shop online while enjoying content or social media. Sellers then analyse data about consumers to understand their needs and behaviours. They use this data to create products and services that are more relevant and personalised.

Meanwhile, Alibaba’s physical stores allow consumers to scan barcodes of products using an app and arrange for them to be delivered to their houses, according to reports. Amazon has physical stores without cashiers that use technology to detect what consumers put in their carts.

“I think there are tremendous opportunities for businesses out there through the new retail model. Those who are doing well online may want to go offline as well. This will be interesting to watch in the next few years,” says Chan. 

With these trends in play, it is essential that SMEs in Malaysia not rest on their laurels. They were forced to begin accepting digital payments and selling products via e-commerce because of the pandemic, but they should not stop there, he adds. 

“It’s a good start. But the next thing they should do is to start building their brand. In the online world, there are many sellers. The only way you can distinguish yourself from another seller is to have better branding.”

Additionally, since e-commerce has opened up the global market to SMEs, they should think out of the box to offer unique products. “I’m ordering my favourite hawker food from Penang in a vacuum pack now and I receive it fresh. If SMEs think out of the box, there are endless opportunities,” he says.

Rural SMEs should also make good use of e-commerce platforms, advertise and make themselves searchable online. This is a trend Chan has been observing in Malaysia.

“In the past, the younger generation [from the rural areas] who are more digitally savvy might be working in town. But because of the work-from-home policies due to the pandemic, some went back to their hometowns and used their skill sets to help their parents and community members transform digitally,” he says.

Chan gives an example of a pan mee seller in Kulim who used to operate physical stalls outside a college. Their business was badly affected when the college was closed due to the pandemic.

“They transformed and instead of selling hot noodles, they are selling instant pan mee online to people across Malaysia. Now, they are considering exporting as well,” he says.

Cost and lack of talent or manpower are often cited as challenges to digital transformation. But it should not be an excuse. “Today, the technology is no longer difficult. There are a variety of tools and solutions that are easy to use,” says Chan.

How to support SMEs in this journey?

Exabytes has been organising workshops to educate SMEs on these topics. It is also one of the Technology Solution Providers for the government’s SME Business Digitalisation Grant. The grant was introduced to assist SMEs in adopting digitalisation and comprises a 50% matching grant of up to RM5,000 per SME over a period of five years.

Chan says this was a good initiative by the government. “Even though there were logistical and operational issues, on the bright side, it’s [a] good [problem] because it’s due to many people applying.”

Chan hopes that the government can continue to assist SMEs in digital transformation through efforts such as double tax deductions. “I think it’s even better [to do that] procedure-wise,” he says.

The government has also announced plans to set up Keluarga Malaysia Digital Economy Centres (PEDi) in rural areas to empower small entrepreneurs. These centres will become one-stop centres to educate rural communities about entrepreneurship and digitalisation. Chan commends this effort. 

“That’s how China developed its e-commerce and digital economy, starting from tier 1 and 2 cities. As part of its approach to eliminate poverty in rural areas, it extended e-commerce and digital capabilities to villagers so they could sell products directly using the internet instead of going through middlemen. Their margins are squeezed if they do the latter,” Chan points out.

To ensure the PEDi initiative is successful, Chan believes there could be more collaboration across governmental agencies and ministries. “For instance, the agencies supporting farmers, local products or micro-entrepreneurs could collaborate,” he says.

How does Chan think Malaysia can support start-ups and nurture unicorns?

“There must be an ecosystem and the funding component has to be there. We need to have investors who are daring enough to fund start-ups at the seed stage all the way to the later stages. With just the A and B rounds of funding, you won’t be able to create unicorns, so you need to put together strategies and funds to help local start-ups go beyond the C round,” he says.

“Again, that is not the end of the journey. You need to have a platform so that these growing companies or potential unicorns can stay in Malaysia. This is where we need an exit platform for them. For instance, they could do an initial public offering in Malaysia or someone could be interested to acquire them with good valuations.”

Source: The Edge Markets

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