SMEs are the economic backbone of Southeast Asia.
In Singapore, they employ 72% of the workforce and contribute to 44% of the nominal value added1. In Thailand, they contribute to 44% of the GDP and 85% of the workforce2. Similarly, in Indonesia and Vietnam, they contribute to 56% and 40%3 of the GDP and 97% and 50%3 of the workforce respectively.
In addition to braving regular headwinds due to geopolitical uncertainties, SMEs are now grappling with the unprecedented economic, business and social impact of the COVID-19 pandemic. As a result, growth has contracted sharply. For example, Singapore’s GDP growth forecast for 2020 being -7.0 to -5.0 per cent4, with SMEs bearing the brunt of these challenging times.
Pre-COVID, Southeast Asia saw nearly 73% of SME being optimistic and revenues were set to increase or remain flat, whereas, during COVID-19, 84% expect their revenue to decrease.
SMEs surveyed in May 2020 reported that their biggest concerns were maintaining cash flow, decreased sales, potential closure of business and the increasing inability to engage customers.
To propel SMEs to calmer waters, governments and financial institutions in ASEAN are offering lifelines to SMEs in the form of grants, loans at reduced interest rates and wage support schemes. Other stakeholders in the business ecosystem, from industry associations, banks to technology firms, have also stepped up to help SMEs navigate these uncertain times.
Despite the near-term support extended to SMEs, challenges in the medium-term will still remain. Faced with such unprecedented challenges, ASEAN SMEs have had to re-evaluate their current and future investment strategies.
Over 60% of ASEAN SMEs had plans to invest in 2020 but these will be delayed due to COVID-19. When it comes to technology, pre-COVID, 77 per cent of ASEAN SMEs indicated that they would increase their technology-related spend as compared to the previous year. However, with COVID-19 impacting revenue expectations for the year, ASEAN SMEs are recalibrating their investments, with a 33% drop in those who still plan to increase their investment in technology.
To support their investments in technology, ASEAN SMEs recognise the need to upskill their workforce (51%). This is an area that has moved up significantly in priority after the impact of COVID-19 and is now the second most important investment for ASEAN SMEs after technology investment.
Indeed, we have seen many SMEs having to adapt and change their business model. For example, a lot of retail stores have had to start using digital marketing to drive volumes as well as leverage integration with online platforms more for delivery.
For instance, F&B outlets have had to develop menus to have dishes that were optimised for home delivery through online orders. For example, Din Tai Fung has started to offer their handmade dumplings frozen you customers can enjoy them in the comfort of their home. Star Michelin chefs have started to create cold-only meals that when delivered provide a better experience than traditional warm dishes that end up being reheated.
In order to gain competitive advantage, there has been a clear shift in strategies from SMEs from improving the business as usual customer experience and relationship to digitizing their business to tap into the digital economy is an indication of SMEs’ realisation of the potential for digitalisation to improve business sustainability.
To do that, SMEs are planning to invest mainly in software, IT services and in Digital Sales. Not surprisingly, during COVID-19, SMEs are more focused post on digital sales, via e-commerce platforms for example, than before COVID-19 when they were more focused on digital marketing. Indeed, in a COVID-19 world, SMEs cannot rely as much on physical outlets to close a lead that could have come from digital marketing.
ASEAN SMEs are also looking to their respective governments for assistance in strengthening their capabilities. They highlighted three government initiatives as their preferred options, namely:
- Funding support to help in the adoption of digital technologies
- Creation of digital infrastructure to facilitate innovation as such as include national business databases for electronic know-your-customer processes and regulatory sandboxes to test and to launch new solutions
- The creation of a regulatory environment that is conducive to innovation and risk- taking
While the ASEAN region continues to weather the impact of COVID-19 and with the potential of a second wave, the region’s strong fundamentals, as it relates to excellent youth demographics, rising consumption, booming trade relationship with China and increased infrastructure spending, ensure that its long-term growth potential remains intact.
Register to read all the insights and trends in the full report – Are you ready to turn today’s challenges into opportunities? ASEAN SME Transformation Study 2020
To view specific countries’ insights:
(1) Department of Statistics Singapore, Singapore Economy
(3) Vietnam Briefing, from Dezan Shira & Associate
(4) Department of Statistics Singapore, MTI Narrows 2020 GDP Growth Forecast to “-7.0 to -5.0 Per Cent”
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