SMEs in Southeast Asia: redesigning for the digital economy

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The small and medium enterprise (SME) segment is a pillar of economic expansion for the Southeast Asian countries. These organizations create jobs, motivate the development of new products and services, spur consumption growth, and play a crucial role in promoting industry competition.

With weakening global economic conditions nudging some international competitors to exit Southeast Asia, homegrown SMEs now have an even more important role and opportunity to hold center stage. Enhancing their competitiveness and resilience is key to supporting a more dynamic, inclusive and sustainable growth.

To drive growth, improving customer service was cited a key business priority. Hence, Southeast Asia’s SMEs are looking to invest in digital technologies within the next three years as the key enabler to drive new business propositions and user experiences, and deliver on significantly enhanced offerings.

Drivers of transformation
There are four impetus for digital investments:

  • Raise the bar on customer service: Today’s customers have higher service expectations, including round-the-clock digital availability, personalized communications, and products and services delivery at hyper speed.
  • Build connectivity and leverage off ecosystem partners: Collaboration with ecosystem participants provides enhanced digital network connectivity, access to external expertise, collective innovation, and new product, markets and customer acquisition opportunities.
  • Manage operating cost: Meeting these high customer expectations call for SMEs to accelerate the digitalization of business processes, be it labor-intensive back-office processes to reduce paperwork, raise automation and quicken turnaround times or expense management to reduce the cost to serve for front-office processes.
  • Keep pace with competitors, some emerging from unexpected places: SMEs are facing competitive threats from nimbler entrants, such as micro enterprises or new entrants that are leveraging data instead of physical infrastructures.

Digital innovation maturity
The benefits from digitalizing are apparent. But how are SMEs’ digital ambitions syncing up with their level of (perceived) digital maturity?

From the digital continuum below, ranging from being digital novices (stage 1) to digital native enterprises with innovation embedded in their corporate DNA (stage 5), most (38.3%) fall within stage 2, having initiated multiple digital activities running parallel across different lines of businesses or functions.

While there is a desire for an agile digital strategy, this still eludes many. Most are currently rather tactical, placing ad-hoc smart bets and picking up the lower hanging fruits, before embarking on deliberate steps towards a more defined digital transformation strategy in stages 4 and 5.

EY - SMEs in Southeast Asia- redesigning for the digital economy

Navigating toward success
What are the high-level steps that SMEs must undertake to transform their digital vision into reality?

  • Lay a firm foundation for digital success: Transformation begins with having a strong and committed executive level sponsorship, with oversight of digital technologies and foresight to champion change.
  • Balance legacies with new technology: Almost 61% of respondents highlight that technical limitations from legacy architectures are hindering their digital strategies and business agility.
  • Focus on end-to-end, not discrete initiatives: Organizations should create and embed the digital strategy into their business operations before designing the right products, services or experiences to enhance performance.
  • Digitalization isn’t an IT-only initiative, so share responsibilities collectively: Adopting emerging technologies should be cross-organization and a shared responsibility with multiple users benefiting from the transformation.
  • Manage the people dimension: Transformation can create new roles while impacting existing positions. SMEs need to engage and reskill incumbent employees to minimize resistance and drive behavioral changes.
  • Mitigate new dimensions of digital risks: SMEs should develop an integrated risk management, compliance and security protocols as part of their initial design phase.
  • Don’t create digital islands; instead integrate into an ecosystem-based world: Transformation is a massive undertaking with limited success if undertaken in silos. Partnerships would be essential to raise competencies that support more holistic customer experiences.

For more, download a copy of the report.